Big polluter to plead for taxpayer cash
Date
December 15, 2015 - 4:51PM
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Royce Millar and Ben Schneiders
Hundreds of jobs may be at risk at Alcoa's Portland plant. Photo: Joe Armao
This is one dilemma state treasurer Tim Pallas thought he would never face.
Aluminium giant Alcoa, which has cost Victorian taxpayers billions of dollars over four decades, is expected to press in the new year for a new package of government support.
If Labor agrees, it could mean hundreds of millions more in taxpayer money going to a massive global company -- this despite Brumby government assurances five years ago that subsidies would end in 2016.
To refuse would likely kill off one of Victoria's major exports, deliver another blow to the state's punch-drunk manufacturing industry, throw 540 people out of work (plus 180 contractors) and threaten the local economy on the south-west coast.
But so too would it slash Victoria's greenhouse gas emissions by about 6 per cent, likely lead to the closure of one of the world's dirtiest brown coal fired generators, cut electricity prices and generate opportunities for other manufacturing and jobs.
It's a decision 40 years in the making and, on any measure a monumental one for the year-old government.
When the Hamer government chose Portland as the site for a smelter in the late 1970s, it made sense for a state crying out for investment and regional jobs. Victoria's primary competitive advantage, after all, was a surplus of cheap, accessible brown coal.
The Cain government then signed long-term contracts for cheap electricity pegged to the world aluminium price. Weaker-than-expected aluminium prices have left successive governments out of pocket on the deal.
In 2009 an analysis by The Age estimated the total subsidy at up to $4.5 billion at the end of the smelter power contracts in 2016.
Portland was a deal made in an era before competition policy, privatisation, micro-economic reform and, especially, concern about climate change. Viewed from a 2015 vantage point, government subsidy of a product so reliant on fossil-fuelled electricity, and located 500 kilometres from its power source, looks misguided; even unthinkable.
In 2010 Alcoa announced a surprise long-term power contract with Loy Yang Power to commence after the existing contracts expired in 2014 (Point Henry) and 2016 (Portland). (Point Henry closed altogether last year).
Understandably, senior Andrews government figures are less than delighted with the prospect of having to re-engage with the quandary of Portland.
In recent weeks, Alcoa, has met Pallas, Lisa Neville (environment) and Lily D'Ambrosio (energy). Government, industry and union sources say Alcoa is preparing the ground for a big "ask" in the new year.
As part of its lobbying it is likely to exploit anxiety about the decline of Victorian manufacturing and the loss of the state's car industry. As well as its direct employees, the company estimates that for every direct job, another three are created.
Alcoa's overall Australian business, which includes bauxite mines and aluminium refineries in Western Australia, made a profit of $215 million in 2014 on revenue of $3.8 billion. Union sources say the Portland smelter has been a "break-even" proposition in recent years.
Just how tough Alcoa sees the business environment is evident in its contentious decommissioning of its own ship, the MV Portland, which has hauled alumina from Western Australia to the Portland smelter for the past 27 years.
It is being replaced by the US-owned and Singapore-registered Strategic Alliance, and its crew of lowly paid Filipinos. Alcoa says the move will save it $6 million a year.
The transmission towers that bring electricity from the Latrobe Valley 500 kilometres to Portland. Photo: Joe Armao
The move has not endeared it to the Labor government in Spring Street. But the company has an historically strong relationship with unions and, in particular, Bill Shorten's Australian Workers Union.
It can expect strong support from the AWU when it ramps up its lobbying next year.
Electrical Trades Union state secretary Troy Gray backs government support for Alcoa and says Portland would likely close without it. "The government needs to support manufacturing and smelting or else we'll all be serving cups of coffee," he says.
But Environment Victoria chief executive Mark Wakeham says the Portland dilemma should not be seen as choice between jobs and the environment. "This is a question of whether Victoria is encouraging new economy jobs and investment or propping up ageing and polluting power stations in the Latrobe Valley at the expense of other industries."
The Alcoa push also comes on the back of the Paris agreement on global warming, and mounting pressure on Australia to rein in its carbon emissions. Portland, partly owned by CITIC and Marubeni, is a public policy predicament.
The smelter is the single largest consumer of the state's brown-coal fired electricity.
Operating at full tilt Alcoa's aluminium smelters - Point Henry near Geelong was the other but closed last year - have consumed as much as one fifth of the state's electricity. The figure is now closer to 10 per cent for Portland.
One senior government figure admitted to being "surprised" by the company's new lobbying campaign, given the the 2010 announcement that the subsidy would end in 2016.
But seasoned Alcoa watchers say there is no surprise. The company is a formidable lobbyist, political player, and a master of extracting money from governments. As one Victorian Labor elder is fond of pointing out, Alcoa is also one of the world's great exponents of bluff.
Still, it is not yet clear what exactly, or how much, Alcoa will ask for.
Labor and union sources say the package will be influenced by a regulator's review of the state's electricity distribution network, and an expected hike in gas prices.
Alcoa spokesman Brian Doy confirmed the company had met with ministers to provide "general business updates" and to outline the current pressures on its operations, including at Portland. "At the moment the metal price is at levels we haven't seen since the global financial crisis," said Doy.
"We have to do whatever we can to reduce costs, improve productivity and protect the 700 jobs associated with that smelter."
Treasurer Pallas declined to comment. His silence on on the return of a decades-old public policy headache, is not surprising.