By Tony Field
Another headache's emerged for the Government as it prepares for the partial sell-off of state-owned power companies.
The country's biggest single energy user, the Bluff aluminium smelter, wants to re-negotiate its supply contract with Meridian Energy and that could knock millions off the asking price for the state owned enterprise.
The Tiwai Point smelter uses around 15 percent of the country's electricity - the equivalent of Wellington and Hamilton combined.
But its owners want to renegotiate the supply contract because of the high dollar and falling aluminium prices.
Economist Rod Oram says majority owner Rio Tinto is looking to sell the smelter.
“Rio Tinto is only trying to renegotiate because it's got the smelter up for sale and it obviously wants to make the smelter as attractive as possible by reducing the cost of that electricity supply.”
Fund manager Phil Anderson believes Rio Tinto is playing hardball by asking to renegotiate the contract on the eve of the Government's asset sales program.
"I think Rio is in a really strong bargaining position here, just given the closeness of the sales for the Government and the importance to the Government of these asset sales.”
The Government says it's not unusual for Rio Tinto to ask to renegotiate the contract - it's doing the same with its operations in Australia.
Investors are nervous though. Shares in publicly listed Contact Energy fell 4 percent this morning amid concern that if the smelter buys less power from Meridian, the spare supply could drive down prices and profits for other generators.
“In my view it would be difficult to market these companies to the public while there is this much uncertainty on the fate of Tiwai,” Mr Anderson says.
Mr Oram says even if the contract's sorted out, investors don't have nearly enough information yet to decide whether to invest in Meridian.
“This is such a large chunk of its business and it's always been a complete black box. We have never really understood how it works or what impact it has on Meridian's bottom line.”
The Government doesn't need any more uncertainty hanging over its plans for asset sales - it will want to see this issue sorted as soon as possible.
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