Hard News by Russell Brown


Done like a dinner

Patrick Gower's excellent 3 News report on Thursday, confirming that the government will pay Rio Tinto for it to keep on using cheap power at Tiwai Point, includes a merciless moment about a minute in.

Successive pleadings from wide-eyed SOE minister Tony Ryall are run together in the editing suite: "Oh, well Rio Tinto are pretty tough negotiators ... this is a pretty tough negotiation ... Rio Tinto are very tough negotiators ... "

No shit, Sherlock. And by the way, you've handed them the national ass on a plate.

No one is in any doubt that the minerals multinational has the government -- and thus, us -- over a barrel. Having correctly calculated that the government cannot risk its asset sales programme, Rio Tinto is playing hardball over the price at which it is willing to strike a deal.

If Rio Tinto walks away from the Tiwai point smelter, it creates both a threat and an opportunity. The threat is obvious: 700 jobs and half a billion dollars worth of economic activity gone from Southland. The opportunity is equally obvious: it would free up 15% of the national generating capacity, allowing a big effective jump in renewable energy production without new infrastructure, and the decommissioning of dirty, ineffcient power stations in the North Island.

But ... that same oversupply would hit the earnings of the three state-owned power companies the government wants to part-privatise: Meridian, Mighty River Power and Genesis Energy. This would, inevitably, have an impact on the price of shares to be sold in those companies.

And that would, equally inevitably, be politically damaging. That's what this is really about.

So, rather than simply allow Meridian to act in a commercially prudent way, as it is required to under the State Owned Enterprises Act, the government will use taxpayers' money to directly subsidise Rio Tinto. It's a horrible precedent.

Although the full reality of the situation only became apparent when Meridian CEO Mark Binns appeared before a select committee on Thursday, Rio Tinto's intention to game the government has been apparent for a while.

In October, a Herald editorial intoned thus:

Meridian Energy is not a private enterprise but in this negotiation with Rio Tinto it must act like one. If it believes it can sell Manapouri's power for a better price than the smelter is offering, it should let the smelter go. If low-cost Manapouri power threatens the profitability of Contact, Genesis and Mighty River, that is not Meridian's concern. The Government should make this clear. Rio Tinto is in no position to dictate terms now.

In the same paper's business section, Brian Fallow was even stronger a couple of months later:

When the Prime Minister outlines the Government's plans for the year ahead he will no doubt be clear that it is not going to shrink from doing something foolish just because it is unpopular.

It is folly to press on, full steam ahead, with the partial privatisation of the state-owned power companies when the future of the Tiwai Pt aluminium smelter is unresolved.

And Fran O'Sullivan got all genital about it on Saturday:

John Key earned himself a fabulous reputation as one of the "big swinging dicks" of the international foreign exchange business.

But in going toe-to-toe with Rio Tinto over the Tiwai Point smelter electricity negotiations, all the signs are his Government is about to be screwed by a major player with plenty of form in the tough world of international brinkmanship.

Fran states as a fact that Meridian itself has been excluded from the government's "secret talks" with its own biggest customer, Rio Tinto. She says the Meridian board, having been "neutered" (there's rather a lot of this imagery in the column) should resign.

By contrast the Herald's editorial on the same day is an exercise in hand-wringing, declaring that "On no account should the Government throw in the towel," when it clearly already has. And David Farrar contents himself with politely venturing that some analysts' views that losing the smelter wouldn't hit the value of the companies too badly offers "even more reason for the Government to stay out of this, and leave the negotiations to Meridian."

Well, obviously, it's far too late for the government to "stay out of it".

And let's be clear about this: had the Clark government ever behaved in such a cynical, incompetent, nakedly political fashion on the scale that the Key government has here, the Kiwiblog right and the major editorials would have gone absolutely mental about it.

Unfortunately, this isn't isolated behaviour. Quite where the current government derives its public reputation for stewardship is more of a mystery than ever.

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