Tomago settles on 11-year contract with state-owned generator

The deal comes days before the close on Monday of bids to acquire NSW power industry assets.

The new contract runs for 11 years, from 2017 to 2028.

Tomago is one of the largest single electricity users in NSW, and the contract is one of Macquarie Generation's largest single sales contracts.

Hydro Aluminium, which owns the Kurri Kurri aluminium smelter that is near Tomago's smelter, is locked in a legal dispute with the state government over plans to publish details of its contracts to prospective bidders for government-owned power assets.

Its contract talks with Delta Electricity - which, like Macquarie Generation, is owned by the NSW government - have been suspended for a similar contract to the one finalised by Tomago.

While no pricing details have been disclosed of the Tomago contract, it is believed to again include elements of London Metals Exchange contract prices for aluminium. It is also believed to contain a bonus whereby a higher international price for aluminium may result in a higher price paid for the electricity.

Steep falls in aluminium prices in 2008 caused heavy losses for Macquarie Generation on its power supply contract with Tomago.

The new Tomago contract also includes interruptibility clauses, allowing the supply of up to 900 megawatts of electricity to be suspended for a time if Macquarie Generation is facing severe generation disruptions.

Finalisation of the contract now opens the door for Tomago to proceed with talks with Midal Cables International, of Bahrain, which is studying plans to source aluminium from Tomago for a $30 million aluminium conductor and rod factory on land next to the smelter. These talks were suspended this year as the Tomago contract talks stalled.

Midal's plans could lead to the creation of a further 290 jobs.

Both Tomago and Macquarie Generation have undertaken to work together on unspecified carbon emissions reduction projects.

Tomago produces 528,000 tonnes of aluminium a year, equal to a quarter of Australia's primary aluminium production. It is owned by a consortium of Rio Tinto, CSR, AMP and Hydro Aluminium of Norway, which owns the Kurri Kurri smelter.