Tiwai Point Smelter. Rio Tinto Buys Out Sumitomo
The Minister for Land Information and the Associate Minister of Finance approved Pacific Aluminium (New Zealand) Limited (Australia 39%, North America 17%, United Kingdom 8%, Europe 5%, Asia Pacific 5%, Various 26%) buying 20.64% of the issued capital in New Zealand Aluminium Smelters Limited which has an interest in approximately 2,074 hectares of land located at 1180 – 1530 Tiwai Road, Tiwai Point, Southland and the Vendor’s interest in assets relating to the aluminium smelter.
The vendor was Sumitomo Chemical Company Limited (Japan 81%, United States of America 6%, United Kingdom 5%, Luxembourg 5%, Various 3%). The price paid was withheld. The OIO explains: “The Applicant is a Rio Tinto Group entity. The Applicant currently owns 79.36% of the issued capital in New Zealand Aluminium Smelters Limited. It has been granted consent to acquire the remaining 20.64% of the issued capital along with some assets from the Vendor”.
“New Zealand Aluminium Smelters Limited owns and operates the aluminium smelter located on the Tiwai Peninsula near Bluff. The main benefit to New Zealand is the retention of significant economic benefits including export revenues, jobs and contribution to Southland and New Zealand economies. Consent was granted as the Applicant has met the investor test criterion and the investment is likely to benefit New Zealand”.
Thus ends one of the most long running and notorious transnational corporate partnerships in New Zealand history – that of Rio Tinto and Sumitomo and the Tiwai Point aluminium smelter. It will henceforth be a solely Rio Tinto operation. CAFCA, which is coming up to 50 years old, cut our teeth on the Tiwai Point smelter.
I refer you to our “The Amazing Adventures Of NZ’s No.1 Power Junky. The True Story Of Comalco In NZ” by Pete Lusk and Ron Currie, published by CAFCINZ (as we were then called) in 1977 and updated in 1982 https://www.scribd.com/doc/25367862/Comalco-Comic That comic listed the smelter’s ownership as 58.72% Comalco, 20.64% Sumitomo, and 20.64% Showa Denko of Japan. So, Sumitomo was in it from the start, alongside what was then called Comalco.
I’m not going to rehash the multitudinous crimes of Rio Tinto and its smelter. CAFCA has been campaigning against them, and writing about them, for 50 years. It is a company that has perfected the art of brinkmanship and which has played Governments – National and Labour – like a fiddle for the entirety of its existence in NZ. It had most recently said that it would close the smelter in 2024, because it couldn’t get a subsidised electricity price deal even more favourable than the one it already had.
New Deal
But, lo and behold, in 2024 it signed a new 20-year power price deal with Meridian which will see it through until 2044. “A decade-long ‘will-they-won’t-they’ game at the bottom of the South Island has come to an end, with the Tiwai Point aluminium smelter inking 20-year power deals with Meridian, Contact and Mercury”.
“That puts an end to the speculation as to whether Southland’s largest single employer and the consumer of one eighth of the country’s electricity supply will close up shop, at least for another generation. The most recent saga began in 2013, when the smelter owned by multinational mining company Rio Tinto threatened to pull out and earned a $30 million cash payout from the Government to stay until 2017. In 2019, Rio Tinto announced a ‘strategic review’ of the smelter’s future, before announcing the next year it would close in August 2021”.
“That closure was then kicked out to the end of this year (2024), when Tiwai secured a sweetheart power deal from Meridian to stay open. The price of electricity in that deal, while confidential, was so low it meant every household in the country paid an extra $200 a year to subsidise it, the Electricity Authority determined”.
“In 2022, the smelter began making noises about possibly extending its stay. As Newsroom reported in 2023, it wrote to ministers suggesting it saw a path to remaining open for another 15 years. That has now been extended to 2044, granting welcome certainty to Southlanders, the energy market and successive Governments sick of brinksmanship”.
“Tiwai’s massive electricity demand meant that, if it did close, it would free up more than one eighth of New Zealand’s power supply. The uncertainty around its fate led potential generators to delay investing in new renewables. While new generation has started to come online, that will likely surge now that the smelter will be here for at least another 20 years – a period over which New Zealand’s total power demand could increase by two thirds” (Newsroom, 4/6/24, Marc Daalder) https://www.rnz.co.nz/news/business/518629/tiwai-certainty-welcome-but-concerns-about-2-billion-subsidy
$2 Billion Carbon Credits Corporate Welfare
But, as always with the smelter, there will be a subsidy. “Like all large emitters which export products, the smelter receives a certain number of carbon credits for free, under a process known as industrial allocation. This helps ensure it can compete on international markets against competitors that don’t face a carbon price like the one imposed by New Zealand’s Emissions Trading Scheme”.
“Large polluters get this free allocation as a result of their greenhouse gas emissions – Tiwai got 605,000 credits in 2022, for example. That’s slightly more than it actually emitted, due to a phenomenon called over-allocation that has since been corrected. But large electricity consumers, which presumably face a carbon price via their power contracts, also get special allocation. In 2022, the Government determined Tiwai’s power contract was at such a steep discount it actually faced no carbon price, so this allocation was set to zero”.
“The new deals are considered by analysts to charge the smelter a higher, fairer price for power. The key question is whether this will see the smelter’s electricity allocation restored. In 2020, it earned nearly a million carbon credits – worth tens of millions of dollars – via this source. Campaigners at the Don’t Subsidise Pollution organisation, which opposes industrial allocation, estimate a restoration of the smelter’s 2020 electricity allocation would be worth $60 million in 2025. That would rise over time as the carbon price increases, totalling nearly $2 billion over the 20 years of the power deal”.
“‘The Minister for Climate Change and Associate Minister have both said they are not a fan of subsidising large multinationals to pollute – but without a plan to reform industrial allocation, that’s exactly what will happen’, campaign spokesperson Alex Johnston said. ‘There’s a place for low-carbon aluminium production in a clean energy future for Aotearoa, but there’s no place for subsidising of ongoing pollution’”.
“‘Putting resources into helping heavy industry further decarbonise, or simply just making them pay the full carbon price is what is needed both for a safe climate and a thriving economic future’. Climate Change Minister Simon Watts suggested no final decision had yet been made on the smelter’s allocation. ‘The industrial allocation (Tiwai) receives under the Emissions Trading Scheme will be confirmed after the Ministry for the Environment undertakes a formal review of the contracts’, he said (ibid.)”. The smelter remains the textbook example of corporate welfare and has been for decades.
The full September 2024 Decisions are at
https://www.linz.govt.nz/our-work/overseas-investment-regulation/decisions
Bunzl New Zealand Holdings (No. 2) Limited