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Rio Tinto threats backfire

Written By: - Date published: 10:50 am, May 14th, 2008 - 72 comments
Categories: climate change, economy, Environment - Tags: ,

Rio Tinto’s threat of capital strike appears to have backfired on them, with a political consensus emerging that the multinational has overplayed its hand on this one and some even starting to question whether we might be better to just shut the smelter down and be done with it.

CAFCA were particularly blunt:

Campaign Against Foreign Control of Aotearoa calls Rio Tinto’s bluff. Stop crying wolf, stop holding Southland and the country to ransom. Go ahead and close the smelter and bugger off. See if we care, the country will be much better off without you…

The smelter is the textbook example of corporate welfare in New Zealand. It is the biggest bludger in the country. Those who extol the bracing discipline of market forces for everybody else are strangely coy when it comes to this corporate recidivist. When the Government renationalised the railways last week, one pejorative word which was heard a lot was ‘featherbedding’. If you want to see the most feathered of beds, look no further than the Bluff smelter.

Well, guess what? No Right Turn crunched some numbers and it turns out CAFCA’s right. According to Rio Tinto’s own figures, shutting the Tiwai smelter would actually benefit New Zealand to the tune of $26 million a year by allowing us to shut the inefficient coal-burning Huntly power station and reduce our carbon emission liabilities.

Seems Rio Tinto’s bargaining position isn’t nearly as strong as they thought, and the Government was right to call their bluff.

72 comments on “Rio Tinto threats backfire”

  1. I was going to do the whole ‘call their bluff’ pun on the post yesterday but couldn’t fit it in. Glad to see you taking full advantage of the comedic potential of geography, Tane.

    No Right Turn’s numbers are interesting but it has to be borne in mind that there isn’t currently the capacity to take all of Manapouri’s power out of the region. There would have to be new investment, not that that should necessarily be a block on the idea.

    In counter to that though, the South Island is now a net importer of power, thansk to the power dmemands of the growing dairy industry, especially in Southland… So, a lot of the power from Manapouri could be used relatively close to source; it wouldn’t need new cables all the way up to Auckland as some are suggesting.

  2. Tane 2

    Purely unintentional Steve, you know how I hate puns. But in any case, I can’t take credit. Looks like that old grump IrishBill beat me to the pun by a good 24 hours.

  3. James Kearney 3

    That CAFCA release – classic.

  4. rjs131 4

    Have you bothered to ask the people of Southland how they would feel if it “buggered off” . I expect Lesley Soper, as the local labor MP will be doing a lot behind the scenes to address the locals concerns

  5. Campaign Against Foreign Control of Aotearoa?

    Nrever heard of this group, but I bet their members are Tiki wearing pakeha school teachers who teach their kids that America and western countries are here to take away your money.

    I wonder if they would be against Foreign Control of New Zealand, if says a company from the Pacific Islands or maybe Cuba wanted a stake here.

  6. Tane 6

    Personally I’m not sure Rio Tinto should bugger off, but NRT makes a compelling argument. Obviously if Rio Tinto were to ship out you’d want to ensure there was alternative employment provided for the workers. NRT suggests using say $10 million for economic development in Southland. And hey, I’m the last person to suggest we leave workers on the scrapheap.

  7. Tane 7

    CAFCA’s been around for a while Brett. I don’t always agree with them but they do a lot of good work. Rather than continuing to parade your ignorance, why not go have a look for yourself?

    http://canterbury.cyberplace.co.nz/community/CAFCA/

    They also have a blog at http://www.watchblogaotearoa.blogspot.com/

  8. insider 8

    Steve

    Agree with your comments on restricted exit routes for Manapouri. Also I/S;s analysis is flawed in assuming you can do a straight swap for Huntly so he probably overstates the benefits.

    If we did not have Huntly we would be in deep energy and economic do do if current hydro conditions were replicated.
    The SI is NOT a net importer of energy overall but it is currently. Huntly and Whirinaki are keeping Chch’s lights on as well as Auckland’s with big southward flows over Cook Strait.

  9. mike 9

    Do the CAFCA have more members than letters in their Acronym?

  10. Santi 11

    [Tane: Santi you’re still banned.]

  11. Stephen 12

    I’d rather ask I/S this on his blog, but since he doesn’t allow comments…

    Where did the $10 million figure come from? Sounds quite arbitrary and not particularly deeply thought out.

  12. Draco TB 13

    Capitalists proving that’s they’re uneconomical to keep around – Love it 😀

  13. Phil 14

    … and they all vote NZF

  14. roger nome 15

    Tane – Rio Tinto shoul bugger off. An very reputable friend of mine who has done a lot of campaigning against questionable projects in the electricity sector got sliped some information about Meridian’s (government owned) secret deal with Rio Tinto. They get their electricity at below cost price, meaning that we’re subsidising their $400 million per year profits. It’s a national scandal. If you would like I could foward the guy’s email address to you, and you can ask him yourself.

    you can email me at [deleted]

    norightturn’s piece is just the icing on the cake.

  15. roger nome 16

    Oh and could you delete my email from the page when you get the chance please?

    [Done. Cheers.]

  16. Tane 17

    Nome, thanks for that. I’m flat out with work at the moment but I’ll flick you an email in due course. Cheers.

  17. insider 18

    nome

    what is the cost price?

  18. Hoolian 19

    Tane, I have just read your post and I want the last 5 minutes of my life back which I have wasted on your post. Just bloody awful.

    First of all, where is this alleged political consensus? Once again, the only links you provide are to other Standard posts which are a smokescreen (are you taking lessons from Pierson?). If you’ve got consensus show us. It would be the very least you could do. Heck, even your beloved Farrar could do that. But no, you won’t because you can’t largely due to the fact that you unreservedly believe that if you post it on this abhorrent blog then it must somehow become fact.

    In all honesty, only the Government has come out in response to Rio Tinto’s submission and despite what you may think, that in itself is hardly a consensus. It’s also highly predictable because Parker loves his pet-ETS project and will do as much as he can to push it through in order to seal his legacy as the most capable politician in the most useless portfolio.

    What I want to know is this a new trend for the Labour Party to put taxes before workers? I know the Greens love to talk smack about workers rights but then will gladly lay off workers left, right and centre. No doubt they are pleased with the recent closure of the Oringi plant – because meat is a moral evil. I’m equally sure that they will applaud the closure of Rio Tinto too.

    Also, CAFCA is not a worthwhile group to quote – they’re in the same league as the so-called evil dichotomy that is the Sensible Sentencing Trust. Besides, of course they’re going to be against Rio Tinto’s submission. It gives them something to do in the days between benefit checks arriving in their bank accounts.

    [that’s not what dichotomy means]

  19. Steve: No Right Turn’s numbers are interesting but it has to be borne in mind that there isn’t currently the capacity to take all of Manapouri’s power out of the region. There would have to be new investment, not that that should necessarily be a block on the idea.

    And the beauty of those numbers is that the cost of that new investment is already accounted for, Comalco (as they were then known) having included not having to pay it as a “benefit”.

    Insider: I’m suggesting we could relegate Huntly to dry year backup, so it will be there when we need it, but its emissions will be massively reduced. So, yes, the financial benefit is overstated – but given that the amount of electricity displaced is understated (Tiwai Point uses 15, Huntly generates 12.2%, so it will likely reduce gas usage too) and the scale of the difference, I think there’s sufficient fudge factor there to cover it.

    Stephen: $10 million a year for regional development is a number I pulled out of my arse (it is also, coincidentally, the number Comalco uses as the cost of deferred unemployment). But since the net benefit of closure is $26 million a year, feel free to increase it.

  20. Tane 21

    Hoolian, having read your comment I want the last five minutes of my life back too. Labour has rebuffed Rio Tinto’s posturing. John Key was quoted on Radio NZ saying the same. The Greens have slammed Rio Tinto. No one I can find outside David Farrar and the Herald is backing Rio Tinto on this one. Note also that I said the consensus was ’emerging’.

    I quoted CAFCA because I thought their release was worth mentioning. They don’t get mentioned often on this blog but I thought this one was worth it.

    I’m not sure how I’m supposed to respond to your delusional attacks on the Greens.

    Seriously though, there are more constructive ways to disagree than to come here and hurl abuse at us. You might want to consider that in future.

  21. insider 22

    I/S

    “Tiwai Point uses 15, Huntly generates 12.2%, so it will likely reduce gas usage too”

    I think you mean perecent. IF so your numbers don’t appear right. Huntly generates about 1400MW at capacity whereas Comalco’s demand is about 650MW and Manapouri can do about 850MW. But you may be talking about actual energy consumed/supplied, as opposed to capacity which could explain the difference, or just the coal burning part of Huntly.

    WIthout having read your documents, I note that Meridian claim that if they had to pay for the HVDC network, it would be an economic cost to them of $1 billion. Quite a different take on the cost of developing and maintaining the grid which shows that some of these numbers have to be taken with a pinch of salt.

  22. Hoolian 23

    I know what dichotomy means and its use is intentional. Read into that how you will.

    Labour has rebuffed Rio Tinto’s posturing. John Key was quoted on Radio NZ saying the same. The Greens have slammed Rio Tinto.

    Again, this isn’t a consensus. Believe me when I say that Parliament is not made up of just three parties. My point is that if you are to post scathing remarks on the smelter’s position and be a voice for ‘political consensus’ then best provide ample referencing. It’s the very least you can do. It’s a way for your readers to validate what you’re saying. What could you possibily be afraid of?

    And the Govt hasn’t ‘pulled their bluff’ – they’ve merely dug in their heels. We have yet to see what effects this will have on NZ and the ETS. But hey, the taxation of environmental pollutants is more importan than 3000+ workers and their families, right?

  23. insider 24

    nome

    Re Tiwai’s ‘super secret’ prices, if you look in the report at I/S’s site Comalco say they expect to pay about 5.7c/kwh over the next few years.

  24. Tane 25

    Hoolian, I’d say Labour, the Nats and the Greens count as an ’emerging consensus’. Of course you’re free to disagree, and even free to be a pedantic jerk in the process.

  25. Matthew Pilott 26

    Note to Cullen: Buy Tiwai Point. Before November.

    Tks,

    M Pilott

    Insider – Huntly has 1000Mw coal, and the new e3p gas turbine gives another 435Mw in gas generation, if that helps.

    Hoolian – last I heard, it wasn’t a policy of the Labour Party to have their policies held hostage by multinationals – that’s more National’s schtick…

  26. insider 27

    Matthew

    why would you want Cullen to buy Tiwai ?

  27. Insider: I’m referring solely to the old Huntly plant, without E3P, and this is on actual GWh produced over the course of the year.

    And yes, I’m aware that the numbers will depend on who you talk to. But one reason why I’m using Comalco’s numbers is that they can’t then argue that they’re bullshit. These are the benefits according to them, and on those own figures, those benefits are outweighed by the costs.

    (Oh, and while we’re at it: there’s another ~$13 million in direct emissions from Tiwai Point we can add to the “benefit” column as well (yes, they produce CO2 themselves as part of the process. Joys of using carbon anodes))

  28. Matthew: I’ll second that question. It’s not beneficial for the NZ public as it is, and it’s not vital infrastructure like a railway. Why buy it?

  29. Matthew Pilott 30

    Insider – why not? It’s a nice plant, runs well, properly maintained by the old owner, who only took it to the shops every other Sunday…

  30. Matthew Pilott 31

    Idiot/Savant – your figures are based upon the cost/benefits to NZ, if I understand correctly.

    I am being mighty simplistic, but if NZ owned it, they’d also get the profit from the production, which isn’t part of your calculations…

    Quite a few jobs, and a fair bit of dough to be kept/made(plus we might get a bargain on it if they do decide to ship off).

    Worth a thought, though I haven’t the time to do the sums here…

  31. higherstandard 32

    Why oh why would you want the government to be involved in another business that they have no experience in and takes them away from core responsibilities. (health, education, law and order, energy production, transport)

  32. insider 33

    Plus imagine how much more expensive to run it would be if you had to buy the smelting expertise RT has in-house.

  33. Billy 34

    Sheesh, Matthew. That’s terrifying. If, as seems to be the case, you are suggesting that the government should go around buying and running any business that it thinks it can make a buck out of, I think you have just put the cause of the “social democrat” back to about where it was in 1935.

  34. profit?

    profit that can pay for schools and hospitals, instead of taxes?

  35. higherstandard 36

    Yes Steve

    Quite right the same profit that will come out of the railways to pay for schools and hospitals ……… oh that’s right it’s not about making profit in the case of rail horses for courses eh.

  36. Ari 37

    Matthew, I doubt even the more leftist Greens would agree with buying the smelting plant. “Sieze the means of production” is soooo 1960s. 😉

    Besides, if the government is going to sink money into business development in the region, it ought to be in something sustainable. 🙂 (HS: The government is also responsible for employment levels and the economy, which both directly relate to this plant.)

    I’m waiting for Paul Henry to chime in now with some rot about cross-subsidisation. 😉

  37. Joker 38

    Why dont we deal with what is at the heart of this issue here.

    As I understand it Rio Tinto have behaved admirably in voluntarily reducing their carbon output in line with Kyoto oligations.

    Rather than jeering Rio Tinto from the sidelines perhaps you should be thanking them for providing such a stark example of why the ETS is such a dangerous piece of legislation which could turn NZ into an economic basket case.

    The seige mentality here is hilarious. “Screw them, why dont they just bugger off” or “maybe we could nationalise it”. Remember Rio Tinto are not a long voice in concerns about how the ETS will effect the international competitiveness of NZ business.

    The Wall Street Journal yesterday had an interesting piece which more or less calls NZ the international lab rats for anti carbon economics.

    The best analogy I can come up with is it is like there is a great anti carbon cult and NZ has sprinted to the front of the line to be the first to drink the cool aid. Those in line behind us are going to be less inclined to drink when they see us spluttering and dying.

  38. Joker 39

    It should be of course “Rio Tinto are not a lone voice”

  39. Ari. There is the argument that while the smelter is polluting it is the least polluting aluminium smelter in the world. The aluminium is going to be produced anyway – therefore, internationalists that we Greenies are, it’s best the production takes place at Tiwai. Your more deep green Greenie will argue that we should cut aluminium demand so we don’t need the smelter but that’s not going to happen soon and anyway it would still be better enivronmentally to have Tiwai and shut down other smelters.

  40. Billy 41

    Hey Matthew, do ya reckon Michael Cullen would like to buy my business, since we’re buying anything that makes a profit? Happy to let it go for $200m over book value.

  41. Matthew Pilott 42

    Billy – show me the books… I’m doubtful, to tell the truth, but if you acknowlege me as the Authority here, as you seem to be doing, I’ll condecend to grant you audience.

    I just thought if Rio Tinto were going to piss and moan, then sell someone in who’ll do the job. Since the market is a failure and has never managed to naturally internalise a single problem it has caused, we’d need some extra-market forces in action.

    Sheesh, Matthew. That’s terrifying. If, as seems to be the case, you are suggesting that the government should go around buying and running any business that it thinks it can make a buck out of, I think you have just put the cause of the “social democrat’ back to about where it was in 1935.

    Golly (we’re going with catchphrases from the 60’s today right?) – never knew a comment of humerous intent could so terrify! (P.S. in 1935 weren’t they setting up the welfare state and setting the foundations for this beautiful nation as we know it? It could be worse!)

    On a more serious note:
    Joker, without the rose-tinted glasses you’re vierwing Rio Tinto through, their determination to begin a race to the bottom should not be applauded. There’s always going to be a country with slave labour and no environmental controls.

    Talk such as this makes me think there’s nothing as strong as a moral that keeps them in NZ at present.

    Oh and the problem with your analogy is that if everyone drinks the cool-aid we don’t all get fcuked over thrice by our filthy rampant consumerism. Bit of a spanner, that.

    Sorry to say, but someone has to take a stand (and I think you’ll find the EU right in front of us, but let’s let that slide for brevity) even if it pains you to see a country putting something (anything!) before profits.

  42. Joker 43

    Matthew,

    If Rio Tinto were arguing over not having slave workers or not being able to mindlessly polute then I would agree with you but they aren’t.

    They are saying the ETS is flawed.

    As I said before they have voluntarily reduced their carbon emmisions to 1990 levels and instead of recognition for that they are going to be slapped in the face with carbon taxes that none of their international competitors are facing.

    In regards to Europe, climate change policy looks like it has crapped its pants judging by the way that that countries are politely stepping away.

    Credit crunches and housing slumps seem to have made this issue very 2007.

  43. Matthew Pilott 44

    Joker, what I heard them say on the news is that if the ETS comes in they’ll onsider moving to somewhere without it, and that they’d be free too pollute to their heart’s content (or words to that effect).

    Based upon what I’ve heard, I agree that they are to be applauded in some respects (i.e. being the most environmental aluminium producer – though I wonder if that is in part due to the hydro-power they use).

    As I said before they have voluntarily reduced their carbon emmisions to 1990 levels and instead of recognition for that they are going to be slapped in the face with carbon taxes that none of their international competitors are facing.

    That is not a flaw of the ETS, you (or Tinto) are mistaking the solution for the problem! It is a flaw of the market and capitalism (maybe materialism is a more accurate term).

    Credit crunches and housing slumps seem to have made this issue very 2007.

    Like Katrina made climate change the issue of 2006? I can’t see this being off the agenda for long, and Tinto’s head in the sand approach is not to be condoned.

  44. rex brown 45

    How about the sensible solution.

    Nuclear Power – way cleaner, cheaper… Rio wouldn’t need to make threats then.

  45. roger nome 46

    Insider:

    The publicly available information alone is worrying enough.

    The new contract – understood to be about 4.7c a unit, about a quarter of the cost to the average home – covers the price New Zealand Aluminium Smelters will pay Meridian from the start of 2013 to the end of 2030, and will involve about 15 per cent of New Zealand’s power.

    http://www.stuff.co.nz/stuff/4221985a13.html

    Now if you’re looking at generating electricity from gas or coal it costs anywhere between 5.2 cents to 7.7 cents per unit (kw/hour) in NZ. Hydro costs within the same range as gas (see the graph at page 13 at the following link).

    http://www.meridianannualreport.co.nz/content/view/64/74/

    No matter how you spin it Rio Tinto is getting their electricity at below-cost price in a sweet-heart deal with Meridian/the Government.

  46. rex brown 47

    So, do you guys have the same issue when movie companies get a special tax cut so they will film here?

  47. roger nome 48

    Also worth noting is that Rio Tinto in 2004 threatened to build a Southland coal fired station to cap a price at 7c per kw/h.

    So the government/Meridian looks to have given in, and guaranteed a below-cost 4.7c rate instead.

    This Rio Tinto outfit have bullied our government into subsidising there widely profitably aluminium smelter.

    Who needs the pricks?

  48. insider 49

    nome

    Depends on what you define as cost. Short run marginal cost for hydro is nearly zero because the fuel is zero and the cost of Manapouri is sunk. 4.7 is a good rate but not out of line with hedge prices in the last couple of years. If Meridian were willing to sell under 7c they obviously couldn;t find another buyer willing to pay.

  49. roger nome 50

    More interesting information:

    Thr most promising hydro scheme to not be developed yet is the Wairau. Now it’s estimated that its generation costs will be 9.9 cents per kWh.

    http://www.electricitycommission.govt.nz/pdfs/opdev/transmis/renewables/presentations/PB-Associates.pdf

    There’s just no way that this 4.7c rate is above cost price.

  50. vto 51

    ha ha I haven’t followed this thread but Rex Brown at 5.06pm asks a brilliant question.

    Such a darling of the left isn’t it???? hypocr… what do you call it now?

    (not that I have any sympathy for rio tinto whatsoever)

  51. roger nome 52

    Actually, the cheapest potential project is Tuapeka at 6.4 cents per kWh. I can’t find the exact figure for Manapouri -but would be very surprised if it’s below the 4.7c rate.

    http://www.electricitycommission.govt.nz/pdfs/publications/Annual0607.pdf

  52. rex brown 53

    Thanks VTO. made sense to me.

    Have I overstepped the mark though? my comments go to moderation?

    [lprent: Nope. Just at present it is a toss-up between movies and medicines for the spam topic of the month. So movie is in the auto-moderated list so we can dispose of the spam quietly (with long tongs)]

  53. Tane 54

    Rex, there’s a range of reasons your comments might have gone into moderation, but I assure you that in your case it’s not for content.

    There’s a better explanation here:

    Policy

    captcha: may idealists – yep, that’s us.

  54. Tane 55

    Having another look Rex, it’s probably your use of the word ‘movie’ – we’re getting a lot of DVD spam at the moment.

  55. roger nome 56

    Page 33 of the following reports also shows almost no hope of developing and new hydro schemes that can produce at below 6c kWh (there’s a low probability that one a tiny 5 megawatt’s may be produced at 4-6 kWh).

    http://www.eeca.govt.nz/eeca-library/renewable-energy/report/renewable-energy-industry-status-report-05.pdf

    But then we also have to factor in inflation. Meridian have signed a deal with Rio Tinto giving them 4.7c per kWh due to start in 2013 to the end of 2030. If in the very unlikely scenario Meridian is producing hydro electricity that cheap now, there’s no way it’s going to be that cheep from 2013 through to 2030.

  56. insider 57

    nome

    Firstly you are turning speculation re 4.7c into fact. RT say they are paying 5.7.

    If you look at prices in NZ there are extended periods where market prices are well below 4 cents, particularly in a wet year. For a large chunk of last year prices were at that or below. And that is the market clearing price which is the highest price offered not the lowest- hydro is usually low.

    You are looking at the LRMC. That is the long run marginal cost which is effectively the cost for building the next MW of power beyond what you already have, so not a reflection of the operating cost but for investment decisions so can be a good guide for the price needed to get a return to build that plant, but it is differnt from generating cost.

  57. burt 58

    Tane

    I must admit I chuckled when I heard the breaking news that Rio Tinto was threatening to give NZ 15% more power. Given the rate they pay for the power it would be an absolute windfall in retail power profits. It will push along that idea of a second cook straight cable though.

    It really looks like NZ is slowly, or perhaps not so slowly, loosing it’s manufacturing and heavy industry sectors to places with a more favourable mix of labour costs, resource costs (power, water etc), tax rates and simplicity of tax compliance. Additionally our distance to market is about to start having serious impacts on our viability as anything other than a highly wired society.

  58. insider 59

    Burt

    Having that much extra power on the market would crash prices not increase them and could make the Cook strait cable harder to justify economically.

  59. pete 60

    regardless of the truth of the stated 4.7 or 5.7 c per kWh. If Meridian isn’t making a profit from this arrangement then sell them off! Meridian have stated that Manapouri is good for 5100 GWh pa. This is roughly what the smelter consumes. This means the revenue is between $240M & $290M. whilst not having a full understanding of the debit level on this station, there is no way in hell that it can cost that much to operate a 30+ yr old hydro station (rain fall simply isn’t that expensive).

    People need to understand that the so called discount is a reality of every day life. It’s happening every day and its all around you. Petrol Station, Grocery Shop, even at the pub.

    Example . You consume 3 loaves of bread each week and each loaf costs you say $2. What would be a reasonable price if you purchased 1,000,000 loaves (& guaranteed to do this every week for 10-15 years)? Half, Quarter, less??? The numbers may seem ridiculous but they are relative. People who buy things in bulk ALWAYS get a better price.

    the so called “windfal in retail profits” from no smelter is also a nonsense. This requires an energy intensive industry (which the govt is now discouraging) or 350,000 new households; neither of these is going to appear overnight. I wonder how the govt will replace the revenue lost from taxes & Meridian’s reduced profits? income tax?

  60. milo 61

    There is transmission loss as power is sent further from it’s source. Bluff is near to Manapouri. Huntly is far. Getting rid of Rio Tinto will affect the price and availability of power in Invercargill, and maybe Dunedin, but probably not further. That’s why Wellington’s power is more expensive than Auckland’s.

    But if you want a capitalist solution – well, let them f*** off, then buy the assets up cheap, and start undercutting aluminium smelters elsewhere. If Rio Tino go, they’ll drop a bundle on their sunk construction costs, and enterprising Kiwi’s could benefit. Or alternatively, the government could buy the assets and operate the plant for $650 million. Er, I mean $850 million. Oh, hang on, how about $1 billion… 🙂

    (Just teasing – mostly)

  61. pete 62

    top of page 2 in this linked document is an indication of what happens to smelters shut down due to high costs. yes they can move them!

    alusaf.pdf

    will all kiwi’s stop drinking from aluminium cans because they are made from chinese aluminium which has 2 to 4 times the carbon footprint?

    [lprent: corrected link to make it clickable]

  62. roger nome 63

    Insider:

    “Firstly you are turning speculation re 4.7c into fact.”

    Well that’s what scoop has reported, and that’s what myfriend has said he has seen in a document leaked to him. Why would you beleive RT when they refuse to let anyone check if they’re telling the truth?

    That is the long run marginal cost which is effectively the cost for building the next MW of power beyond what you already have, so not a reflection of the operating cost but for investment decisions so can be a good guide for the price needed to get a return to build that plant, but it is differnt from generating cost

    .

    A bit of an academic point. If Rio Tinto are paying a unit price below what it costs for Meridian to turn a profit we’re still subsidising them. Which has been my point all along.

    “If you look at prices in NZ there are extended periods where market prices are well below 4 cents, ”

    Can you show me these magic numbers? I’ve never seen anything like what you’re talking about. Even if you can produce those number they would be irrelivant however. The contract is for 2013 through to 2030 and no one’s forcasting anything 4.7c kWh for that period.

    Indeed from present through to 2020:

    “Business As Usual’ scenarios see
    LRMC trending towards 6.7 7.0c/kWh,
    reflecting the likely upper cost of
    extensive new coal-fired capacity;
    • “Kyoto’ scenarios see LRMC trending
    towards 8.0c/kWh in the longer term,
    reflecting the likely effect of a $15 per
    tonne emissions tax, but still capped by
    coal-fired generation.

    http://www.coalnz.com/index.cfm/3,138,370/nzier51-60.pdf

  63. roger nome 64

    Pete:

    “If Meridian isn’t making a profit from this arrangement then sell them off!”

    You know, I actually think that all the electricty should be run on PPP basis with 60-40 government-private ownership ratio. In that instance, their books would have to be transparent, and there would be less scope for corporate welfare that the rest of us have to subsidise.

    Currently there’s a lot of ologopolistic behaiour in the NZ electricity market because of the virticle integration of he five main companies. I say that if we’re going to pay too much for power it should at least come back to us in taxes/government spending.

    “People who buy things in bulk ALWAYS get a better price.”

    Of course, but we’re talking about below cost-price. Doesn’t matter how much you buy. That’s never profitable.

  64. pete 65

    roger

    my point is that the “below cost-price” is a myth.

    Having been privvy to operating budgets of hydro stations my view is that there is no ‘below cost price’ at all. Whilst the SPOT market is currently high, a medium user could access $5 MWh electricity in the South Island only 12 months ago, this without long term commitments to take the electricity and underwrite investment in generating assets.

    There will be a bean counter some where that can crunch the numbers, but a 30 year power station should have been written off by now (especially when the design life of HV electrical equipment is 25yrs). MPR had a 200M tunnel added in 2001 & a similiar expense on a half life reburbishment in recent years. at worst case it has $0.5B on the books, an annual operating budget of <20M and a revenue of $240-290M+. In the old NZED days MPR was known internally as the ‘jewel in the crown’.

  65. roger nome 66

    Pete:

    “There will be a bean counter some where that can crunch the numbers”

    The problem is that contract is secret, and the government doesn’t have to make a profit. No one knows if the “bean counters” are even trying to turn a profit on this one.

    What we do know is that from 2013 onwards Meridian could be selling that power on the spot market for 6.7c kWh – 10c kWh instead of selling it to Rio Tinto for 4.7c kWh. We’re talking many millions of dollars that the government’s giving away in corporate welfare here.

  66. infused 67

    Corporate welfare. Ok, but they are also creating what was it, 3k jobs? At an average of 87k each, that’s quite a bit going into the economy down there.

    Having something like that go would hurt.

    Captcha: floor aluminum 😀

  67. insider 68

    nome

    RT’s prices are no more secret than Kinleith, NZ Steel, NZRC, Pan Pac, etc.

    I love the debating strategy “prove those numbers are true but even if you do they don’t count…”. You accept an unsourced number on Scoop but not the one in the same report quoted by I/S.

    Below are average annual prices at Benmore (a good proxy)for the last 10 years starting in 97 taken from http://www.electricityinfo.co.nz/media_releases/April_2008_Reference_Prices.xls.

    This year is going to be much higher but it is a dry year and that;s what happens occassionally.

    $42.02
    $29.88
    $31.50
    $29.58
    $80.14
    $35.78
    $78.72
    $29.91
    $71.78
    $78.86
    $50.75

  68. roger nome 69

    Insider:

    Even if you believe the unconfirmed number that the coup-backers supply it’s still far below spot-price projections, and is still corporate welfare.

    Infused:

    Yep I agree with the sentiment. But have you seen Idiot Savant’s Kyoto equation. With the possible savings under Kyoto, combined with the savings in corporate welfare taken into account, it sure seems like the negatives outweigh the positives – if you look at it on a nation-wide basis anyhow.

  69. insider 70

    nome

    If you were that concerned about corporate welfare you should support the privatisation of Meridian to ensure all teh risks fall on their shareholders and that a fully commercial as opposed to political negotiation is carried out.

    I note the Govt has just announced some corporate welfare for an electric motor company and you were happy with 700m of corporate welfare to NZ’s wealthy farmers

  70. roger nome 71

    insider – I already dealt with that above

    You know, I actually think that all the electricity should be run on PPP basis with 60-40 government-private ownership ratio. In that instance, their books would have to be transparent, and there would be less scope for corporate welfare that the rest of us have to subsidise.

    Currently there’s a lot of ologopolistic behaviour in the NZ electricity market because of the vertical integration of the five main companies. I say that if we’re going to pay too much for power it should at least come back to us in taxes/government spending.

    The problem with a small utilities market like NZ is that you get profit-gouging oligopolies or monopolies that need to be constrained by the government. But at the same time I want utilities run efficiently so their price is kept down. That’s why I support a PPP arrangement for all utilities companies in NZ.

  71. burt 72

    Shut down the smelter and convert the plant to extract Hydrogen and Oxygen from water. Use the Hydrogen to power as many cars are we can in Southland or the whole south island if there is enough gas.

    Of course as long as Shadbolt is Mayor down there he might want to set up a massive indoor hydroponics operations and grow a very big quantity of high quality weed.

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