Meridian Agrees N.Z. Smelter Power Deal, Clearing Way for IPO

Meridian Energy Ltd., New Zealand’s largest power company, agreed a new electricity supply deal with the nation’s only aluminum smelter, removing a potential obstacle to its planned initial public offering.

The agreement with New Zealand Aluminium Smelters Ltd., which is owned by Rio Tinto Group and Sumitomo Corp. (8053), allows for a price reduction effective from July 1, 2013, and the owners’ commitment to the smelter until January 2017, state-owned Meridian said in a statement in Wellington today. The government contributed NZ$30 million ($24 million) to secure the medium-term future of the plant, it said.

The government is planning to sell as much as 49 percent of Meridian in an IPO later this year that Prime Minister John Key expects will raise about NZ$3 billion. The yearlong talks about the future electricity supply agreements with the smelter, and the risk that the plant may close, have made investors wary of the performance of the company.

“We have reached an agreement that is commercially acceptable to both parties and provides a greater level of certainty for Meridian,” Chief Executive Officer Mark Binns said in the statement. “Meridian trusts that the new pricing framework and associated arrangements assist NZAS in establishing a competitive cost position for the future.”

Price Increases

Meridian didn’t disclose the new electricity price it has negotiated with the smelter owners. The agreement is inflation indexed, and allows for price increases should the New Zealand dollar value of aluminum rise above agreed levels, it said.

The new contract extends to 2030, matching the one it replaced. The smelter company can terminate it after January 2017 provided it gives at least 15 months notice. The company can also reduce the volume of power it takes to 400 megawatts from 572 megawatts from 2015.

The government’s payment was a one-off incentive to help secure agreement on the revised contact “because of the importance of the smelter to the stability of the New Zealand electricity market,” Finance Minister Bill English said in an e-mailed statement. “It provides medium-term certainty for Southland and New Zealand.”

The smelter is near Invercargill at the sourthern tip of New Zealand’s South Island.

To contact the reporter on this story: Tracy Withers in Wellington at twithers@bloomberg.net

To contact the editor responsible for this story: Matthew Brockett at mbrockett1@bloomberg.net

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