Tiwai Pt - just more expedience and poor dealing

The Tiwai Point subsidy buys time, but ultimately is just the latest in a series of deals by governments of different strips that sees the taxpayers stumping up for political reasons. Will it ever end?

Damned if they did, damned if they didn't. That was the political reaction National faced whatever they chose to do about Tiwai Point. But I'm not sure if that made the final decision harder – or let them off the hook.

National yesterday announced they'd pay New Zealand Aluminium Smelters (NZAS) – mostly owned by multi-national Rio Tinto – a $30m subsidy to keep the aluminium smelter open. At the same time Meridian Energy concluded its new contract meaning the smelter would pay less – "a meaningful reduction" – for its electricity.

As it happened, Rio Tinto announced yesterday that its earnings in the first half of this year were $4.2 billion. That's down 18 percent, but puts the $30 million in perspective.

It also announced that it had abandoned plans to sell Pacific Aluminium, which owns NZAS because it couldn't find a buyer at a reasonable price.

Bill English said this was a one-off piece of business and the company should now get on and make the smelter viable. That is a statement of optimism, as the new deal makes it even easier for NZAS to close the plant. That could happen as early as 2017. On the other hand, maybe the smelter will stumble on for another decade or two and this $30 million will look like a worthwhile investment.

Opposition parties slated the hand-out of taxpayer dollars, which would effectively go straight into the pockets of Rio Tinto shareholders. If the $30 million only keep the smelter open and protects its 800 workers another three years, that's a subsidy of over $12,000 per job per annum.

You might say that's woeful short-termism. But the deal achieves two things. First, it gives the market more confidence in Meridian (its biggest power contract is settled) and allows the government to go ahead with the partial sell-off. Second, it buys time for the company to find a way to make the business profitable again, for the aluminium price to go up or for the New Zealand dollar to go down, or – at the very least – for Southland and the workers to make the transition out of what may be an industry that's just no longer viable.

And that's something. Because if the government had held firm and refused a subsidy, the Opposition parties would have damned it for not caring about Kiwi jobs. Labour would likely have made the same calculation as National in handing over some subsidy, in an effort to save jobs rather than prepare the company for sale.

Further more, the Key administration has again showed it values pragmatism over ideology. Those on the right of National will be grinding their teeth at this subsidy. A Don Brash-led government could hardly have condoned it, preferring instead the laissez-faire ideology that says Southland and those 800 workers should take the hit, if that's what the market demands.

Still, National was damned either way. Say no to the subsidy and be whacked for not caring about the workers and the struggling regions. Say yes and, well, you've seen the complaints in the past 24 hours. The luxury in that for National was that it could go ahead and to the politically expedient thing because it was going to take the blows either way. Now it can push on with its much more politically volatile asset sales programme – which is, ironically, one of the least pragmatic and most ideological moves Key and his gang have made.

The smelter deal sends two political signals. One, that National are hypocrites. Think back to how scornful the party was about Labour's decision to buy the railways off Toll Holdings.

This press release from 2008 shows then-Opposition Finance Spokesman Bill English damning Michael Cullen for his "blank cheque approach" to rail. English said:

"The purchase of the rail assets was all about politics rather than disciplined, targeted spending of taxpayer funds."

And then he went on to say Cullen had "gifted the Australian owners of Toll" millions in taxpayer dollars. Well, touche Mr English. Now you've gifted Rio Tinto's owners millions for essentially political reasons. Thing is, this is what governments of all stripes do – the expedient thing.

The only way this deal is a necessity, rather than a "nice to have" is the political 'necessity' for National to not come unstuck on its asset sales. And really, what sort of signal does it send to the markets? What does this deal say to any other struggling company that could do with a bail-out? What about a New Zealand company thatcould do with a reduction in its power bill to avoid making lay-offs? Where does it stop?

The reality is that NZAS got a special deal because it suited National's political purposes, and because it's BIG.

What sticks in my mind, though, is that this is just the latest poor government-business deal; our politicians always seem to get the bung end of any deal. Cullen over-paid to get KiwiRail; the SkyCity convention centre deal essentially breaks the law and sets some ropey precedents; and the Warner Bros Hobbit deal shafted New Zealand workers and made us look like a banana republic.

At least with those deals something was being built for the future. Cullen won back key infrastructure and the convention centre and films will contribute to the economy for years to come. But this deal simply holds the line, perhaps for as little as three years.

I guess the fact is that in the 21st century a small country is not in a strong negotiation position when it walks into a room with multi-national companies as rich – or richer – than the country itself. My hope is simply that our leaders could find a way to be a bit cannier when it comes to these negotiations.

So in all, on many fronts it's not a good deal. But on other fronts it's not a bad deal either. It's too soon to tell. And when you can argue things both ways like that, it's always going to politics that tips the balance. And the companies know that.