Should Meridian call Rio’s bluff?

By: Hamesh Sharma

The big news in the New Zealand market recently involved the electricity gentailers. They were punished by investors ​after Rio Tinto, which controls the major stake in New Zealand Aluminium Smelters (NZAS), said it was reviewing the Tiwai Point smelter's future after rejecting Meridian's proposed pricing. This has impacted Meridian. The other gentailers such as Contact, Mercury, and Genesis have also seen their share price take a hit.

Tiwai​ ​Point accounts for about 13% of all New Zealand’s power usage. This makes it the single largest user of electricity in New Zealand. And so it is important in determining supply/demand in the sector. Tiwai purchases electricity, at a highly discounted rate, from Meridian's Manapouri Power Station.

Additionally, Tiwai is an important provider of jobs in the region, employing around 1,000 people. Given the political backlash from potential job losses and economic implications, the NZ Government made a $30 million payment to NZAS in 2013. This was during the last round of power supply negotiations in order to keep Tiwai open.

The Government has made its current stance clear. Energy and Resources Minister Megan Woods saying: "The New Zealand Government has had a clear position since 2013 under the Key/English Government. There will be no more financial assistance from taxpayers for Rio Tinto, which is already supported by Meridian for the power it uses. This hasn’t changed."