Australia’s largest aluminium smelter to remain open after negotiations

ABC NEWS (Australia)

Well let's get more on that announcement that Australia’s largest aluminium smelter Tomago Aluminium will remain open after talks with the federal government.

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00:00Well, it is the largest. We've had a number of smelters around the country. This one's

00:06about 40 years old. It was built back then and in those days it would have been globally

00:11one of the biggest smelters and certainly on the basis of the cost of electricity it

00:14had then, one of the most efficient as well. So it was in the top quarter of the cost bracket

00:19of these sorts of plants. Aluminium is a huge use of electricity. That smelter is more than

00:2810 percent of New South Wales electricity goes into that one site. It's a big deal.

00:33So you can understand why the concerns arose when it looked like the commercial arrangements

00:38that the electricity market was offering Tomago to roll over their contracts, which are about

00:42to expire in 2028, were very important. And when those prices looked to be much higher

00:47than they'd seen before, the owners of Tomago, dominated by Rio Tinto, said, well, you know

00:51what? This is looking too tough. We don't think we're going to be able to survive with prices

00:54that high. And so as a consequence of that, we've seen the announcement today. We've not

01:00seen a lot of detail yet and there may still be some concerns about it, but I have to expect

01:04that since the Prime Minister was there and made the announcement that a deal has been

01:07done, it's a matter of how that will play out.

01:10Yeah. 10 percent of New South Wales electricity is quite a significant proportion. I hadn't heard

01:17that. The Prime Minister said today that the government is investing because if Australia

01:24doesn't produce aluminium, the knock on effect to other industries is significant. Can you

01:30take us through, I guess, in some more detail what some of those knock on effects would be?

01:35Look, there's two big issues here, I think, Mel. One is the immediate survival of the business

01:42and as the Prime Minister talked about, the jobs and the flow on economic impact on the

01:47region. Now, other businesses come and go and what used to be the BHP steel business is

01:52no longer there. So things can happen, right? So the really important question here is, and

01:55the Prime Minister enunciated this in some ways, and that is that you want to set this up for

02:00a sustainable, ongoing business. I mean, Tomogo already exports 90 percent of its aluminium,

02:06and given we have other aluminium smelters, it's not as though we'd be without aluminium

02:11if we didn't have that smelter. But it is an important part of that structure,

02:16and you can see why this made some sense. The important question into the future is going to be,

02:22if we do find a way of providing not just electricity at an affordable price, but renewable

02:27electricity, which is what we understand is being contemplated, then we're looking at a future

02:32maybe. Well, because we've got the bauxite and the illuminer in this country, because we've got

02:37the low cost renewable energy, which we should have, then we can provide an ongoing sustainable

02:42business for Tomogo in the Hunter Valley. Now, that's a big assumption. The decision today almost

02:49rests on that assumption, and it may not happen. But it seems like I think the government's probably

02:54wisely has taken a big decision, what is partly a political decision, but also there are other

03:00issues involved as well. Well, as you say, we don't have a whole lot of detail exactly just yet about

03:07what exactly it is the government will be doing. The CEO said in October that the price of both

03:14renewable and coal-fired power into the future would render the smelter unviable. But to what you were

03:20sort of saying there, what is the long-term outcome here? Is it feasible for governments to

03:26to bail out smelters like this into the future? Well, it makes no sense, really, if there's no

03:33future. Now, we don't know. That's the difficulty here. The future is unknown. And if you look at what

03:38happened in Wayala, for example, the steelworks, 600 million dollars of money was put into that

03:42steelworks to keep it going. But the Commonwealth Government has promised more than a billion dollars,

03:47provided there is a pathway to green steel into the future. So that's what we're talking about

03:52here, is that it may very well make sense to prop up a business for a while, but you've got to be

03:57convinced there's at least a high probability that when we get into a low-emission future, in a world in

04:03which the rest of the world values renewable-based green aluminium, that in that future this business

04:10will be sustainable. Now, we don't know. I can't tell you right now that's going to happen. And that's why

04:15this is important for the government to take that risk. However, what's important is that the

04:20government has a get out of jail card. So if, for example, it turned out that in 10 years time,

04:27despite what the government's done this year, that business is not able to survive in whatever

04:32that future brings, then we need to have an exit strategy so that the government is not on the hook

04:37for ongoing subsidies forever, because that makes, that doesn't make any sense. But right now,

04:43because of the uncertainty, because of the immediate pressure, a deal of something like this

04:48is important and makes sense. The detail yet to come, I understand that maybe, sorry, Hydro will be

04:54involved, which is a federal government owned energy business, but they're the details that haven't

04:58been released as yet.

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