The long-running saga of the negotiations between Rio Tinto Alcan (RTA) and the Northern Territory Government over the supply of gas to the Gove alumina refinery took another sideways step this week.
The newly appointed head of Gove, who is based in Canada, flew to Darwin Australia to meet the local government people, but had nothing to offer, except a request for more time.
According to an RTA press release, it’s a complex issue which needs time for careful study.
One could accept that argument if this was an early round in the negotiations. But the initial offer came in February. That offer was revised about 6 weeks ago, when the incoming Northern Territory government leader watered down the offer. The watering down entailed removing about 10% of the initial gas offered, and replacing it with diesel oil, which is what the refinery runs on now.
The NT government has further revised the offer, reducing the amount of gas offered a little more, but offering gas from third party suppliers instead of diesel.
The point is though, there are really only two levels that this decision can be based on for RTA. One is financial, and there is no doubt that the company has plenty of extensive modelling on what fuels and prices make Gove a viable proposition or not. The other dimension is the strategic question - impact on RT and RTA, the saleability of RTA as a going concern with or without Gove, sale of the bauxite, impact on the local community and costs associated with walking away or reducing the capacity. To a very large extent the answers to these questions have nothing to do with minor tweaks by the NT government. Surely RTA knows exactly what the strategic level outcome looks like. Just as they know where the fuel and fuel price equation starts making financial sense.
What worries me about this negotiation is that the NT government doesn’t seem to know how to proceed. Making a suggestion that included two fuel sources demonstrated that they had no idea of the value, or lack of, in their offer. Now that proposal is off the table, and a new offer replaces it, though it still subjects RTA to substantial costs via third party gas purchasing. I don’t know who is advising the NT government, but I hope the fee is commensurate with the quality of the advice.
Meantime, RTA needs more time. Psychologically, this is probably more about letting everyone get used to the idea, so that when the blow comes, it will be less painful. Give people time to get affairs in order, because let’s face it, real estate and other sales will be non-existent once the decision is public.