Tiwai Point is Closing

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#2520104 9-Jul-2020 14:28

MikeB4:

Rio Tinto's result for fiscal 2019 ...

Revenue $US43.16 Billion

Net Income $US6.9 Billion

Assets $US78.8 Billion

Net Equity $US40.5 Billion

I do not see an urgent need for the NZ tax payer to subsidise these guys anymore. Call their annual poverty plead bluff.

In what way is the taxpayer subsidising them?

If you were to purchase 13% on NZ's renewable energy year upon year wouldnt you wish for a good price as well.

Losing at least 2600 jobs in this economy will cost the government quite a lot. In addition its a decent chunk of export earnings lost.

JaseNZ

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#2520109 9-Jul-2020 14:33

They are a multi national , they only care about the bottom line, They could care less about the workers.

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MikeB4

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#2520113 9-Jul-2020 14:43

Mahon:

In what way is the taxpayer subsidising them?

If you were to purchase 13% on NZ's renewable energy year upon year wouldnt you wish for a good price as well.

Losing at least 2600 jobs in this economy will cost the government quite a lot. In addition its a decent chunk of export earnings lost.

Meridian is the major supplier of energy to the smelter. Meridian is 51% owned by the NZ Government therefore by providing a greatly reduced price for the power the NZ taxpayer is in effect subsidising Rio Tinto a multi billion multinational corporation.

Here is a crazy notion, lets give peace a chance.

Scott3

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#2520114 9-Jul-2020 14:44

The continued operation of the smelter has been touch and go for the last two decades at least. While disappointing, it is hardly surprising that the decision to shutdown has finally been made.

Obviously mass lay off's of generally skilled staff in a concentrated location in a covid-19 environment is very undesirable.

Every company in the power industry will have done substantial analysis on this situation, and the outcome is well known.

Major issue is the need for a lot more transmission capacity out of southland, to get the power to the south end of the HDVC link. As somebody else has said, this project has been planned, and has been essentially sitting on hold waiting for this day.

Major concern was that the above project would take 2+ years to build, meaning there was no way to fully utilise the power from the far south of NZ in the event the smelter shut down quickly. Given the smelter will close in Aug 2021, there will be a period where this is an issue.

From an environmental point of view, this will substantially reduce NZ's emissions. Once the transmission upgrades are done, the extra capacity on the grid will likely depress wholesale prices such that coal & gas baseload plants are uneconomical to operate. It will also provide more and cheaper energy on the grid for the expected shift away from fossil fuels to electricity (transport & industrial process heat mainly)

Transpower recently released a report on its take of the emissions situation in NZ.

I am mindful that the ultimate outcome of the NZ smelter closing is that the product will instead be smelted in countries with cheap but dirtier power grids, and lax environmental regulations. So while this is a win by the numbers for NZ it is likely a loss for the planet as a whole.

Regarding local industry starting up the use the power, this doesn't seem likely on a large scale, and it is almost certain that transmission upgrades will allow the power to be moved around the country.

The Idea of nationalizing the plant it interesting. I don't pay attention to the profit/loss numbers of multinationals operating in NZ as there are often massive fees for IP or branding paid to the parent company ensuring profits are made in tax optimized locations. That said if Rio Tinto can't justify keeping the plant open, it is unlikely the government would be able to run it without incurring substantial losses.

Rio Tinto does play games with government's, but this does not appear to be the case. Once transpower hits the start button on hundreds of millions of dollars in transmission upgrades (something that it will do in a hurry), there will not be a political will to throw more subsities to the smelter.

duckDecoy:

Hydrogen can effectively be a 'battery' store for wholesale power supply. Its not cheap, but currently no batteries are. In one of the recent(ish) Transpower documents it was listed as a potential grid battery option. And the government is horny for batteries.

Technically possible, the round trip efficiency is around 40% Source p189. For compassion pumped hydro is 75-80% and a battery system is 90% (numbers for Tesla powerwall, may get a touch better at scale).

For ultimate efficiency (100%), one can avoid the round trip by, simply deferring usage of water in an exiting rain or snowmelt fed hydro scheme, would allow the water to be used at higher rate at peak time. (we have a lot with several hours or more of storage). I think adding more generation capacity to such system would be the most cost effective way to deal with any peaking issues.

tdgeek

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#2520116 9-Jul-2020 14:48

Mahon:

In what way is the taxpayer subsidising them?

If you were to purchase 13% on NZ's renewable energy year upon year wouldnt you wish for a good price as well.

Losing at least 2600 jobs in this economy will cost the government quite a lot. In addition its a decent chunk of export earnings lost.

They want a 33% reduction in energy costs reduced to what is rumoured to be 5c per kW/hr, so it must be about 7.5c now. I pay 27c. Many pay more Quite a subsidy, then drop another 33%

Even then they still lose money, so I dont feel its a bluff

Scott3

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#2520129 9-Jul-2020 14:56

Mahon:

In what way is the taxpayer subsidising them?

If you were to purchase 13% on NZ's renewable energy year upon year wouldnt you wish for a good price as well.

Losing at least 2600 jobs in this economy will cost the government quite a lot. In addition its a decent chunk of export earnings lost.

Last time the $30m "incentive payment" was refereed to as a "signing bonus" due to Rio's aversion to the term "subsidies"

https://www.nbr.co.nz/article/rio-tintos-last-roll-dice-nz-govt-give-us-60m-bd-145802

I think the taxpayer is also directly subsidizing the plant by covering significant ETS costs.

With regards to power, the 2007 estimate for the price of power paid by the smelter is 4.7c/kWh

I understand that some kind of bulk deal would be appropriate given the scale and stability of the demand, and lack of transmission needed due to close proximity to the power station would be cause for a discount. But the price does seem oddly cheap compared to domestic rates.

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1101

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#2520164 9-Jul-2020 15:45

The big question
Who will be doing the final cleanup

I bet its going to be the NZ govt (ie you & me)
Rio could say they are mothballing everything, and just leave as is , forever.

https://londonminingnetwork.org/2020/04/resisting-rio-tinto-clean-up-your-mess/
"Rio Tinto is gaining a reputation for not cleaning up its toxic mining mess "

https://www.stuff.co.nz/business/opinion-analysis/119699258/rio-tinto-clean-up-your-own-bluff-smelter-mess-and-go-away

".... the 2003 and 2004 indemnities signed by Michael Cullen, Labour's minister of finance at the time, accepting that the taxpayer, and not the smelter owners, would be liable for the cost of cleaning up toxic waste produced by the smelting process."
".... Rio Tinto got sick of storing it onsite at Bluff and decided to outsource its disposal to a third-party company, which took it off Rio Tinto's hands in 2014 and then promptly went bust in 2016."

Handle9

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#2520169 9-Jul-2020 15:56

Scott3:
Mahon:

In what way is the taxpayer subsidising them?

If you were to purchase 13% on NZ's renewable energy year upon year wouldnt you wish for a good price as well.

Losing at least 2600 jobs in this economy will cost the government quite a lot. In addition its a decent chunk of export earnings lost.

Last time the $30m "incentive payment" was refereed to as a "signing bonus" due to Rio's aversion to the term "subsidies"

https://www.nbr.co.nz/article/rio-tintos-last-roll-dice-nz-govt-give-us-60m-bd-145802

I think the taxpayer is also directly subsidizing the plant by covering significant ETS costs.

With regards to power, the 2007 estimate for the price of power paid by the smelter is 4.7c/kWh

I understand that some kind of bulk deal would be appropriate given the scale and stability of the demand, and lack of transmission needed due to close proximity to the power station would be cause for a discount. But the price does seem oddly cheap compared to domestic rates.

It's cheap power compared to New Zealand domestic rates but not internationally. Given Rio are the only consumers of power from Manapouri they have decent bargaining power.

This isn't just a huge problem for Meridian, it's a massive problem for Transpower. Even after a substantial discount Rio Tinto was subsidizing consumers via their transmission charges. This will likely result in price increases for all consumers.

This is a commodity product so if it's not possible to produce economically it closes. It's probably a pretty simple decision for Rio Tinto at this point. The Aluminium price isn't likely to recover any time soon and it's always been a smelter with marginal viability.

MikeB4

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#2520178 9-Jul-2020 16:05

Handle9:

It's cheap power compared to New Zealand domestic rates but not internationally. Given Rio are the only consumers of power from Manapouri they have decent bargaining power.

This isn't just a huge problem for Meridian, it's a massive problem for Transpower. Even after a substantial discount Rio Tinto was subsidizing consumers via their transmission charges. This will likely result in price increases for all consumers.

This is a commodity product so if it's not possible to produce economically it closes. It's probably a pretty simple decision for Rio Tinto at this point. The Aluminium price isn't likely to recover any time soon and it's always been a smelter with marginal viability.

Interestingly the price of aluminium has been rising steadily since early May. Has a way to go to reach 2019 average though.

Here is a crazy notion, lets give peace a chance.

frankv

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#2520179 9-Jul-2020 16:06

tdgeek:

They lost $46M. Power costs have increased 25M over the last 12 years, even if we went back to 2008 prices they are still making a loss. Alu prices wont rise that much. They want a 33% reduction in power prices so about $21M. Still making a loss, let alone more is needed to make a profit.

Maybe its time to stop flogging a dead horse

If it was making that much of loss, they would have closed it years ago. I take it with a large grain of salt.

Multinationals adjust price from one branch to another of the same company to minimize profits in high-tax countries (or maximise bargaining power). So Rio Tinto (Aus) might sell bauxite to Rio Tinto (NZ) which in turn sells aluminium ingots to Rio Tinto (Korea). By setting a high bauxite price and a low ingot price, Rio Tinto (NZ) makes a loss, but the whole charade doesn't change the profits that Rio Tinto overall makes.

This is essentially the same shell game that the oil companies are doing in NZ... the retail arms make very little money because they're in competition with each other and especially Waitomo and Gull, but the wholesale company (which is owned by the oil companies) makes a fortune, because it's practically a monopoly.

wellygary

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#2520184 9-Jul-2020 16:24

MikeB4:

Handle9:

It's cheap power compared to New Zealand domestic rates but not internationally. Given Rio are the only consumers of power from Manapouri they have decent bargaining power.

This isn't just a huge problem for Meridian, it's a massive problem for Transpower. Even after a substantial discount Rio Tinto was subsidizing consumers via their transmission charges. This will likely result in price increases for all consumers.

This is a commodity product so if it's not possible to produce economically it closes. It's probably a pretty simple decision for Rio Tinto at this point. The Aluminium price isn't likely to recover any time soon and it's always been a smelter with marginal viability.

Interestingly the price of aluminium has been rising steadily since early May. Has a way to go to reach 2019 average though.

Yeah, but even 2019 was a pretty rubbish year for Al prices.

It will be also very interesting to see what happens from the reviews in OZ. I'm guessing there will be at least one over there that gets the chop..

Rio have wanted out of Al smelting for years but couldn't find any buyers, If they are losing money on it, i'm pretty sure they will happily sell ore and ship it to larger cheaper subsidised smelters in China

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#2520187 9-Jul-2020 16:37

Scott3:

I think adding more generation capacity to such system would be the most cost effective way to deal with any peaking issues.

They tried to do that at Manapouri about 10-15 years ago but couldn't get it off the ground. Resource consent and minor interested players killed it. Crazy stuff.

frankv

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#2520190 9-Jul-2020 16:40

tdgeek:

They want a 33% reduction in energy costs reduced to what is rumoured to be 5c per kW/hr, so it must be about 7.5c now. I pay 27c. Many pay more Quite a subsidy, then drop another 33%

Well, no. It's only a subsidy if they pay less for the energy than it costs to generate and deliver to them. How much you pay for electricity is pretty much irrelevant.

As an example, Mercury spends about 31% of your money on getting the electricity to you. Only about half of your money is actually spent on energy. You and I pay for the National Grid, which cost money to build, to run and to maintain, and you'll be paying for future improvements too. It is utilised at full capacity for maybe a couple of hours a day.

Tiwai, by comparison, has short, dedicated lines that run at full capacity 24/7. So lines cost is much lower, and a much smaller percentage of the cost per kWh.

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#2520216 9-Jul-2020 17:46

Alternatives to use the power? Maybe titanium? There's ilmenite on the SI West Coast, energy use per Kg is about double that of smelting aluminium, but market price is triple. Upside would be that possibly existing staff skills could be utilised, downside - it's another commodity that has been on a long-term downward price trend, and I guess most users don't care if it's been produced "green".

Handle9

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#2520220 9-Jul-2020 18:03

Fred99:
Alternatives to use the power? Maybe titanium? There's ilmenite on the SI West Coast, energy use per Kg is about double that of smelting aluminium, but market price is triple. Upside would be that possibly existing staff skills could be utilised, downside - it's another commodity that has been on a long-term downward price trend, and I guess most users don't care if it's been produced "green".

It'd be far cheaper to do it off shore with cheap power.

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