Rio's threat to close Tiwai Point could delay Mighty River sale

The Government will delay the partial sale of Mighty River Power until early next year while it deals with headaches including Rio Tinto's threat to close the Tiwai Point aluminium smelter and Maori claims over water, sharemarket sources say.

The timetable for the Government's partial asset sales or "mixed ownership model", originally scheduled to begin with the sale of Mighty River Power in the third quarter of this year, has been increasingly under pressure.

That has given the Opposition fresh fodder for its attacks on the programme.

A well-placed market source said the uncertainty caused by Rio Tinto and Maori water claims meant the Mighty River float would now likely take place in February or March.

"There are gloomy faces on all of those involved at the moment."

The source said the biggest problem was international mining giant Rio Tinto's implicit threat to close Bluff's Tiwai Point aluminium smelter if it can't negotiate cheaper power from Meridian Energy.

The smelter consumes about 15 per cent of the electricity produced in New Zealand and if it was to close, the wholesale market would be oversupplied and prices would likely crash.

The sharp reduction in power companies' revenues would have a significant effect on their market value just as the Government looks to raise billions of dollars by partially selling them.

The source said Rio Tinto was in a "a terribly strong bargaining position" with Meridian and the Government.

Apart from the effect on power prices, the closure of the smelter would see a thousand jobs lost directly and about a further 3000 lost indirectly.

Southland's economy would be severely affected and it would be a difficult situation for local MP Bill English, who is also Finance Minister and the driving force behind the asset sales programme.

"He's got a predicament," the source said.

A further threat to the electricity prices came this week as multi-national pulp and paper company Norske Skog said it would halve production at its Kawerau plant which consumes just under 3 per cent of New Zealand's electricity. Norske Skog buys its power from Mighty River.

In the House, Mr Key dismissed Opposition leader David Shearer's suggestion the mounting problems meant his Government should "bow to the overwhelming New Zealand public pressure to not sell our assets".