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Will RIO's Bell Bay aluminium smelter survive? A 30% cut in...

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    Will RIO's Bell Bay aluminium smelter survive?  A 30% cut in power tariffs will still make it expensive compared with Asian power costs.

    Rio asks Tasmania to lop 30pc off smelter power bill
    Peter Ker
    and Angela Macdonald-Smith


    Rio Tinto and the Tasmanian government are getting closer to a deal on cheaper power for the struggling Bell Bay aluminium smelter, with the miner understood to be seeking a power price cut of more than 30 per cent to keep the smelter open.
    Bell Bay is Australia's oldest and smallest smelter making it particularly vulnerable at a time when weak aluminium prices and high energy costs have pushed Australian smelters into the red.
    But unlike the smelters in Victoria, NSW and Queensland, Bell Bay has a credible, short-term pathway toward being majority powered by carbon-free electricity at a time when the aluminium industry is mulling the creation of a discrete market for metal produced with zero or low greenhouse gas emissions.
    The Bell Bay smelter's existing power contract with state government owned-entity Hydro Tasmania expires at the end of 2025, and Rio wants the price cut to take effect for the remaining years of the contract.
    The Tasmanian government expects to have lower power prices than Australia's other eastern states by 2022 as new wind farm projects are completed and complement the state's existing hydro assets.

    The state also expects to be making more renewable power than it consumes by then.
    Asked whether the Tasmanian government would be willing to subsidise the smelter to the extent requested by Rio, a spokesman for Premier Will Hodgman said the government was "highly engaged" with Rio.
    Negotiations to save Bell Bay are made simpler by the fact that unlike Australia's other three smelters, Bell Bay has one owner.
    ''Bell Bay Aluminium has a commercially negotiated long-term contract with Hydro Tasmania. The government and Hydro Tasmania remain highly engaged with Bell Bay Aluminium,'' he said.
    ''The Hodgman majority Liberal government is committed to maintaining downward pressure on power prices for all Tasmanians. It is always appropriate for our energy businesses to work closely with our major industrials.''
    Rio has told investors its strategy for the Australian aluminium assets is to "protect and fix", suggesting the company's bias is toward keeping them open if losses can be reduced.
    No guarantee

    If the Bell Bay negotiation goes to plan, it will likely be accompanied by an extension of the power supply agreement beyond 2025, with the smelter's previous power deals struck about five years before expiry of the existing contracts.

    But sources stressed there was no guarantee a deal would be reached to keep the smelter open.
    Bell Bay's existing power contract contains floor and ceiling prices linked to both the Australian dollar and the price of aluminium set by the London Metals Exchange.
    Both the dollar and aluminium prices have fallen in 2019, suggesting the maximum prices Hydro Tasmania can charge the smelter for power have already dropped.
    Negotiations to save Bell Bay are made simpler by the fact that unlike Australia's other three smelters, Bell Bay has one owner.
    The smelter's energy needs are also made simpler by the fact the Tasmanian government is effectively the major power supplier as the ultimate owner of Hydro Tasmania, although the smelter also consumes gas that is piped to Tasmania from Victoria.
    Closely watched

    Bell Bay consumes about 73 gigajoules of energy for each tonne of aluminium produced, making it slightly less efficient than the much bigger Tomago smelter near Newcastle, in which Rio is also a shareholder.
    The Rio talks will be closely watched by South32, which is expected to clarify the future of its neighbouring TEMCO manganese smelter in the first half of 2020.

    The Bell Bay talks come as energy entrepreneur Trevor St Baker said he was trying to broker a multi-party electricity deal to save Victoria's Portland aluminium smelter, which is in danger of closure as owners Alcoa and Alumina Ltd begin a cull of loss-making and carbon-intensive assets.
    Alcoa and Alumina confirmed the permanent closure of the Point Comfort alumina refinery on Tuesday.
    Mr St Baker said his approaches to the Victorian government on his Portland proposal had been well received, and Alcoa was also keen to look at potential options for supply that might secure the future of the smelter.
    "I've got such support at senior levels," he said, contrasting the reception to his proposal for Portland with his earlier unsuccessful efforts to keep the Northern coal power generator running in South Australia.
    "I'm also getting huge support from the unions, not just to save smelter jobs, not just to save power station jobs but to save steelworker jobs and so many other jobs in Victoria."
    But major power generators in Victoria's Latrobe Valley, including Portland's existing supplier AGL Energy as well as EnergyAustralia and Alinta Energy, are understood not to have been contacted about Mr St Baker's proposal for a cut-price electricity supply deal for the smelter.
    Mr St Baker said one of the biggest challenges was to get the Australian Energy Market Operator to understand that all the system support services that the smelter already provides the National Electricity Market that possibly are not being recognised.

    The owner of the Whyalla steelworks, Sanjeev Gupta, was named in reports as a possible buyer of Portland if Mr St Baker is able to broker his multi-party deal for Portland.
    Mr Gupta declined to comment but Alcoa said its goal is to secure a long-term future for the Portland smelter.
    A spokesman for Victoria's transmission grid owner Ausnet said the company hadn't been involved in any talks about exempting the Portland smelter from the transmission easement tax, which was reported to be part of the proposal for saving the plant.
    AGL chief executive Brett Redman said in October that he was keen to hang on to the smelter supply contract.
    "We are intensely engaged in discussions with our customers, with our biggest customers at Portland and Tomago [smelter in NSW]: we deeply care and I deeply care about maintaining jobs and industry in Australia so all things being equal, whether we make a dime out of it or not, we will work as a good corporate citizen to do everything we can to keep those smelters going," he said.
 
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