New Zealand Aluminium Smelters optimistic about power supply talks

Wednesday, Apr 03, 2013

New Zealand Aluminium Smelters, which curtailed aluminum production mid-March, is optimistic about reaching a feasible electricity supply agreement, a spokesman for Pacific Aluminium said Tuesday.

NZAS is 79.36% owned by Rio Tinto subsidiary Pacific Aluminium, and 20.64% by Japan's Sumitomo Chemical Company.

The optimistic assertion comes amid media reports in Australia and New Zealand on Tuesday that Rio Tinto has rejected the New Zealand government's offer of a short-term subsidy to keep the country's only aluminum smelter open. The assertion also comes a week after power utility Meridian Energy said in a statement that it thought a new agreement with PA may be unlikely, due to major differences on a number of issues.

Various media reported Tuesday that New Zealand prime minister John Key has said Rio Tinto rejected the short-term subsidy over the Easter weekend, saying it needed a long-term deal and was returning to talks with its supplier, Meridian.

The New Zealand Herald quoted Key as saying: "We have no interest in a long-term subsidy. If it can't stand on its own two feet, it shouldn't be there." The report also said the smelter's existing contract locks Rio Tinto into paying for power for the next three years, whether they use it or not, and that there is a two-and-a-half year wind-down period.

"They could do things faster, but it would cost (Rio) an awful lot of money," Key was quoted saying.

PA official Anthony Havers said Tuesday the electricity contract negotiations with Meridian have progressed more in the past two weeks than in the previous nine months.

"We believe a commercial agreement that is in the best interests of NZAS, Meridian, the New Zealand Government, and the people of Southland can be reached. We look forward to continuing productive negotiations with a view to achieving a positive outcome for all parties," Havers said.

NZAS can produce 360,000 mt/year of primary aluminum in the form of ingot, billet and rolling block. The company announced on March 13 that it was cutting output by 400 mt/week, or 5% of the plant's capacity, by reducing its electricity load from 572 MW to 540 MW.

Meridian said last week that its first contract with NZAS was inked in 2007 after three years of negotiations, and that the current contract with NZAS began on January 1, 2013, and remained unaltered and binding.

The Australian said Tuesday that the stakes are high for both NZAS and Meridian. The smelter uses about 14% of New Zealand's electricity, and closing the plant will risk creating a massive electricity oversupply just as the government is looking to sell partial stakes in three state-backed electricity firms, the report said.

The majority of the smelter's alumina is supplied from the Yarwun and Queensland Alumina refineries in Queensland, Australia, and around 90% of the aluminum output is exported.

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