Share price the priority behind Govt's investment on Tiwai Point smelter

NZ Finance Minister Bill English was transparent about the reasons for injecting $30 million into the Tiwai Point aluminium smelter.

Not known as a champion of government intervention, especially when it involves injecting taxpayers' money into struggling businesses, English said the deal would give some certainty to smelter workers and it would support the float of Meridian shares and give potential investors more certainty about what they're buying into. That's the real reason for a subsidy that goes against every economic principle this Government holds dear.

Meridian supplies the power to the smelter and if Tiwai Point was to close, Meridian would lose its biggest customer. The numbers are huge. The plant gobbles up more electricity than Auckland city; it consumes one-seventh of all electricity generated in New Zealand; it takes 40 per cent of Meridian's energy output.

Losing Tiwai Point would undoubtedly affect the share price for the energy producer when the Government sells off 49 per cent of the SOE next month.

There has been much grumbling from people who live outside of Southland about the Government looking after wealthy multi-nationals and protecting at all costs a partial sell-off that many people don't want. But the effect of 3000 jobs suddenly disappearing in Southland would be devastating.

The smelter contributes 10 per cent of Southland's GDP and its closure would have an enormous impact on the region. Imagine the cost of financial support to so many people out of work?

Surely that would be far greater than the $30m the Government has paid out.

It wouldn't just be the economic impact, either. The social impact of so many people being without work would be huge and multigenerational. Remember what happened when the Labour government of 1984 transformed the country with Rogernomics? Subsidies ceased; government departments were required to turn a profit rather than exist as job creation schemes; greed became good.

Hopefully, there are plans already to establish new business opportunities for Tiwai workers because, despite English's assertion that the $30m gives workers security, the smelter looks set to close sooner rather than later.

Rio Tinto, the owners of the smelter, can walk away in 2017.

The region needs to plan for a future without the smelter and come up with the sort of innovative initiatives that have been introduced over the years - like making the Southland Institute of Technology fee-free, a move that, anecdotally at least, has been a good one for encouraging people to move to the area with their financial and intellectual capital.

But when you look at the options - Government gives taxpayers' money to prop up a multinational company, or, Government's refusal to negotiate costs 3000 jobs - the headlines would have been bad either way.