THE PRESS WEDNESDAY, DECEMBER 14, 1977 Comalco’s price for electricity

Press, 14 December 1977, Page 26

THE PRESS WEDNESDAY, DECEMBER 14, 1977 Comalco’s price for electricity

The Government has not won from Comalco the price it sought for electricity supplied to the aluminium smelter from the Lake Manapouri generators. To some critics of the industry’s place in New Zealand and of the use of Lake Manapouri no price would have been sufficient. Yet the Prime Minister, who has been in the forefront of the long negotiations, has said that he is satisfied. Mr Muldoon has allowed that the Government laid a heavy demand on Comalco, and on reaching a compromise yesterday, the company’s chairman, Sir Donald Hibberd, insisted that some of the Government’s assumptions about the aluminium industry were mistaken. Even when the price is known it will be impossible for anjone to say whether it is the right price. All that can be assumed is that the Government has agreed to charge what it has been persuaded the market will bear. Commercially, that is a fair conclusion for both sides. More important, perhaps, is the agreement that the terms for supplying electricity will be reviewed every five years. Ender the original agreement. New Zealand was never going to lose on the deal with Comalco in strict accounting terms. The price formula enabled more than the recovery of public investment in the Manapouri scheme. That is more than it has been possible to say of all the individual power schemes that supply the national grid, even if the Electricity Department could break even on the over-all investment and running costs, and allow some provision for new schemes. The fact that supplementary oilfired generation is now so expensive has a bearing on the Comalco price. The Government observed the world trend in energy prices and resolved that New Zealand should share in the trend. Given that energy prices everywhere have been increasing in a way that was not envisaged a decade ago, Comalco could hardly argue with any public appearance of fairness that a revision

was out of order. The result is that, although the old price was historically sound, the new price is related to the current value of electricity. New Zealand may, of course, lose some of what it will gain from the electricity price swing: the company’s tax payments on the sales roundabout will decline if the market for aluminium fails. Provided that the smelter continues at a reasonable level of production a greater benefit to New Zealand is probably assured. Since the price of Manapouri electricity has been multiplied “several times,” and since Comalco has agreed to the price after pressing upon the negotiators its own estimate of aluminium’s future, the deal appears to be a good one for New’ Zealand. The struggle to win an agreement has been characterised, by brinkmanship on both sides. The Government seemed more devoted to the stick than to the carrot and threatened to introduce legislation to raise the price of the electricity. For its part Comalco threatened to close its plant. Fortunately neither threat was put into effect. Both would have had some effect on investment, both foreign and local, in New Zealand: and even the revision of the contract on price will not pass unnoticed among substantial overseas investors. One likely effect of the dispute is that foreign companies will want to reach a clear understanding with the New Zealand Government before they invest large amounts in this country. They are also likely to drive hard bargains—just as Comalco drove a hard bargain in the first instance. All the skill that the New Zealand negotiators have acquired in the dispute with Comalco might be stretched to the full with other companies. The lesson that New Zealand can learn from the whole performance is that it should get its contracts right in the first place. Second and third thoughts at the very least are unseemly—and might be costly to a country’s reputation and business dealings.