Meridian Energy to accept non-commercial electricity terms for Tiwai smelter

State-owned Meridian Energy won't "take one for the team" and accept non-commercial terms for electricity to keep the Rio Tinto-controlled Tiwai Point aluminium smelter open, says chief executive Mark Binns.

He described as "a concern" the London-listed multinational metals firm's desire to renegotiate electricity contracts representing about one-seventh of all the electricity consumed in the country.

But he dismissed "indications in the press that Meridian will 'take one for the team."

"I would reiterate that the board and management are very clear on what their obligations are" under the Companies Act to make decisions "in the best interests of the company."

The issue has the capacity to delay the planned partial privatisation of Meridian, expected next year, because the smelter contract is such a huge slab of Meridian's annual revenues.

Last year, electricity sales to New Zealand Aluminium Smelters totaled 5,073 Gigawatt hours, close to half Meridian's total output of 10,996GWh in the year to June 30.

The company today announced a 52 per cent drop in net profit to $106.1 million before fair value adjustments, owing mainly to the lowest inflows into Meridian's major catchments in 79 years.

Majority-owned by Rio, the Bluff smelter is currently for sale along with other older assets in Australasia, Europe and the Americas, and Rio's chief executive Tom Albanese has spoken of "difficult decisions" ahead if any of the plant marked for sale could not be made commercially sustainable.

Binns warned there would be no swift announcements. However, it would not take as long as the three years of negotiations that saw the current contract concluded in 2007 and running from next year until 2030, using a complex formula linking the electricity price to the global price of aluminium.

He refused to be drawn on the implications of the Rio approach on the government's partial privatisation plans. Meridian is widely presumed to be the most likely second sale, depending on the timing and outcome of the part-sale of competitor Mighty River Power.

If closed, the smelter would leave a huge "overhang" in the local electricity market, where demand growth has stalled now for five straight years.

It could see a plunge in the price of electricity and halt investment in new generation assets until national demand returned to levels equivalent to today's, with the smelter operating.