While New Zealanders are faced with escalating power prices, Comalco gets its power at less than a third of the price the rest of us have to pay. James Ayer takes a look at Comalco and the sweet power deal it enjoys. This article has been slightly edited.
For those of you who have had to pay any electricity bills over the past few years, the fact that the power has jumped by around 50 percent has been a bitter pill to swallow. And unfortunately for all of us we have had to swallow it, as electricity is one of life's necessities.
Despite the claims of the Government and their free market puppetmasters, there is no competition in the electricity sector, generators are essentially a cartel, offering very small price differentials between them. The fact that there is no surplus capacity means prices will never fall, and in fact the need to build extra power stations is just one of several spurious reasons given for continually rising prices to consumers. Prices go up, consumers have no choice, homes are disconnected, power company profits soar and in at least one instance, an oxygen machine stops working with tragic consequences.
However with no disrespect to the Muliaga family a greater electricity tragedy is being played out right now and the country has been suffering from it for the past 30 years. I am of course talking about the aluminium smelter at Tiwai Point, owned and operated by the multinational Comalco, and its cushy deal with the Government which has secured it super-cheap power - and its a deal that remains top secret.
Comalco's aluminum smelter has a constant demand for 600 megawatts of electricity or around 15 percent of the country's total electricity generation. New Zealand's largest energy generator, Meridian (ironically owned by the taxpayer) supplies this power from its Manopouri hydro station. Comalco is guaranteed supply, even if the rest of the country is acing power cuts. In other words, the profit requirements of a foreign owned company take precedence over whether you and I keep our lights on and our families warm.
You may well be a Meridian customer. What do you pay for power from them? Probably at least 16 cents per kilowatt-hour. While Comalco buys 10 percent of its power at wholesale spot market prices, an average around 8 cents per kilowatt hour, 90 percent of its power purchases are a secretly fixed price, reported to be less than five cents per kilowatt hour (Christchurch Press, 16 June, 2005).
So Comalco pays less than a third of the price the rest of us pay!
So in broad numbers, what is the effect of this massive price differential?
Comalco consumes the power requirements of approximately 600,000 homes. According to Meridian, the average home uses 12,000 kilowatts or spends $2000 a year on power. The total power bill for 600,000 homes is therefore around $1.2 billion. Comalco, in stark contrast, pays less than $400 million for the same amount of power. Therefore either or the taxpayer via Meridian is losing around $800 million annually by selling cheap power to Comalco, or alternatively all other New Zealand power users are subsidising Comalco annually by roughly the same amount. Whatever way you look at it, we are all being ripped off, and paying higher electricity prices thanks to this humungous corporate welfare swindle.
Comalco will say that it should get a cheaper power price than the rest of us because it's a very large user. If there was surplus capacity then perhaps they should, but how can a discount of over 666 percent be justifies? Electricity is a constrained resource in this country, therefore the price Comalco pays should be consistent with all other users. Indeed, some would argue Comalco should pay a higher price than the rest of us, given that they it is foreign-owned, and their operation places considerable strains and distortions on the electricity sector.
Comalco will also say that it generates over a billion dollars in exports - and deserves the power subsidy. However the main raw materials used in the production of aluminium, alumina or bauxite, coke and pitch are imported, costing around half of the export value of aluminium produced.
Comalco and public figures like Invercargill Mayor Tim Shadbolt will talk about 1000 or so jobs generated in Southland by the smelter. However given the massive power subsidy given to Comalco, these jobs cost far more than any income generated. You could say that each job is costing the country $800,000 annually - this is economic lunacy.
Comalco has also taken a liking to the name of where their smelter is based, Bluff, so much that they regularly use it when faced with power negotiations, carbon taxes or even criticism in the media.
A couple of years ago Comalco threatened to leave when the idea of a carbon tax was being floated. Some of us suggested they should of been encouraged to leave, highlighting the positive outcomes from freeing up 15 percent of the country's power to be used by other consumers - or, alternatively, seeing a big 15 percent decrease in power prices for all New Zealnders.
Last year Comalco threatened to build a coal-fired power station should their negotiations with Meridian on the price they pay for power post 2010, not be 'affordable' - in other words, cheap.
So while you and I are struggling to keep warm and pay our power bills this winter, just remember you are helping a transnational corporation drain our lakes so they can make big profits to send to their overseas shareholders, quicker than you can say 'aluminuim ingot'.
James Ayer presents a weekly expose of business corporations in New Zealand on Plains FM (96.5FM) in Christchurch. Corporate Nemesis can be heard each Tuesday at 11 am.