The government is in an ideological tangle over the Tiwai Point smelter negotiations, but could there be a local saviour willing to buy the plant?
Smelting is the process of melting or fusing something to extract a desired end product – at Tiwai Point that's turning bauxite into aluminium. In the Beehive, National is smelting principles and political strategies in an attempt to keep its partial asset sales programme and target of a 2014/15 surplus on track.
The government's smelting operation is a reflection of its "pragmatism" and willingness to do deals.
Rio Tinto announced in 2001 that the smelter at Tiwai Point near Bluff was one of 13 "assets [that] will be divested at an appropriate point in the future". In the meantime, presumably to maximise any sale price, it's trying to negotiate a lower long-term power price with its supplier, Meridian.
As was entirely predictable, Rio Tinto is using the government's plan to partially privatise Meridian and other power companies to its advantage, trying to drive down its power contract by threatening to walk away from negotiations if the government didn't ride to its rescue.
Last week it looked as if the government was back in deal mode – as with Warner Bros and SkyCity before it, National was willing to talk turkey. In this case a short-term subsidy was on offer.
Opposition parties started to howl; this was another example of corporate welfare. Politically, this looked as if it was turning into a defining trend for the Key government, and a vote-losing one at that. National – a multi-national's best mate.
Perhaps it was the politics that has forced National's hand. Or maybe it's Key's dealer instincts. Or maybe Rio Tinto is confident it can get more. Because no agreement was reached and Rio Tinto walked away.
Yesterday the Prime Minister put clear boundaries round the deal on offer.
"We have put our best foot forward, put our only card on the table," Key told TV3's Firstline.
"We have no interest in a long term subsidy. If it can't stand on its own two feet, it shouldn't be there."
Of course the principle sounds good. Of course it makes a mockery of the Warner Bros deal and others. The principle is in fact that if a business can't stand on its own feet – and isn't a big budget movie or perhaps a casino – it shouldn't be there.
On one hand Key deserves kudos for not caving to corporate interests. On the other, he's showing a rare inflexibility. Other governments around the world are doing deals with Rio Tinto to keep the local companies alive. So why not here?
More pointedly, the political question for Key – sure to be asked around the pubs and living rooms of Southland – is why the big city businesses are bailed out and there's isn't.
Key was damned if he did and damned if he didn't in this case – either he did another sell-out deal with an overseas corporate or he sold out the Southland economy. His government's lack of consistent principle is plain for all to see.
The story, however, is not yet over. Negotiations continue, one or other party may yet cave, discussions will be had behind the scenes... But in the meantime the uncomfortable truth for National is that the proposed sale of Meridian is stalled for as long as Rio Tinto wants it to be. To sell when its biggest customer is threatening to walk away is, well, impossible.
The best outcome for New Zealand is that Rio Tinto finds a buyer – it's only then that any government may be more willing to deal. This morning Invercargill mayor Tim Shadbolt has been talking up the Chinese as investors who understand long-term strategies. For while there's much gloom talked about Tiwai Point, it's a victim of current markets and currencies and both of those are likely to change.
It's interesting to note that in the 2011 announcement, Rio Tinto chief executive Tom Albanese said:
"The assets identified for divestment are sound businesses that are well-managed with productive workforces. But they are no longer aligned with our strategy and we believe they have a bright future under new ownership. The strength of our balance sheet means that we can choose the most opportune method and timing to divest these assets, which may not occur until the economic climate improves. In the meantime, we will continue to run these operations safely and efficiently."
If indeed the smelter is a sound business with healthy long-term prospects then it would be a good time to buy, with Rio Tinto so eager to sell and prices so low. But why does it have to be a foreign buyer?
Two organisations in New Zealand leap to mind when I think of long-term investment; two organisations which are on the record saying they want to buy into big infrastructure businesses.
The first is the New Zealand Super Fund. It's oft complained there aren't enough local assets large enough for it to buy into without swamping the market. Well, here's one that fits the bill perfectly – if it is as sound as Rio Tinto says.
The second are iwi. Ngai Tahu in the form of Mark Solomon have also repeatedly spoken of a desire to buy into big, long-term assets, especially ones in their own rohe, as this is.
Is this a big change for either or both? National would surely crawl over hot aluminium, and come up with a decent deal, to get that sale over the line.