Mining giant's negotiating tactics bring New Zealand asset sales plan into question

Questions are hanging over the New Zealand government's plans to partially privatize state-owned energy companies after its efforts to secure a deal with the country's biggest electricity user, Anglo-Australian mining giant Rio Rinto, were rebuffed Tuesday.

State Owned Enterprises Minister Tony Ryall said that Rio Tinto had declined the government's offer of a short-term subsidy for power to run the country's only aluminum smelter, which consumes almost 15 percent of New Zealand's electricity.

Rio Tinto, which operates the Tiwai Point smelter through subsidiary Pacific Aluminium, had been in talks with the government to help bridge a gap with state-owned Meridian Energy after nine months of negotiations.

"The positions of Meridian and Pacific Aluminium are reasonably close in terms of the short term electricity price, but they remain well apart in the longer term," Ryall said in a statement.

Pacific Aluminium and Meridian had both indicated they would continue discussions, but without government involvement.

Rio Tinto has threatened to close the smelter, which reportedly contributes 1 billion NZ dollars (838.71 million U.S. dollars) in exports and directly employs up to 1,000 people, if it failed to reach an electricity price agreement.

Ryall said the government was not interested in providing a long-term subsidy to Pacific Aluminum, which has a contract with Meridian until 2016.

Critics say the government is being "played" as it starts to sell up to 49 percent in each of its four energy firms, as the threatened closure of the smelter would flood the market with electricity and lower stock market values for the state-owned companies.

The first and biggest power company, Mighty River Power, is set to be floated next month. The main opposition Labour Party Government said the government had mismanaged negotiations and was risking "a fire sale" of state- owned assets.

"The government was warned months ago about the looming problems with Rio Tinto and Tiwai Point. They were told to sort the issue out before putting Mighty River Power on the market. They ignored those warnings and charged ahead to sell the assets," Labor leader David Shearer said in a statement.

"Rio Tinto simply waited and now holds all the cards in its negotiation." The opposition Green Party said the government should halt the asset sales in order to strengthen its negotiating hand.

Green co-leader Russel Norman said in a statement that the government had allowed Rio Tinto to "play brinkmanship" in which ordinary New Zealanders would pay, either through job losses, losing assets or paying a subsidy to the mining giant.