Australia’s biggest aluminium smelter will receive a $2.5 billion government bailout package to stay open, ending months of crisis negotiations with federal and NSW officials over ways to keep the plant viable and safeguard more than 1000 jobs.
Tomago Aluminium, majority-owned by resources giant Rio Tinto, has been consulting the smelter’s workforce and their union officials since late last year about the risk of the site closing when its existing power contract expires in 2028, and electricity costs are set to double.
Under the agreement, expected to be announced at the site on Thursday, Tomago Aluminium will invest $1.1 billion into the future of the smelter, including $100 million in driving lower-carbon manufacturing processes and making the electricity-hungry plant more flexible so it can power down and reduce its consumption to support the grid at critical times.
Prime Minister Anthony Albanese, Energy Minister Chris Bowen, Industry Minister Tim Ayres and NSW Premier Chris Minns will travel to the smelter near Newcastle to announce the multi-year deal, according to sources briefed on the agreement but not yet authorised to discuss it publicly.
While many details remain unknown, the joint package would deliver a “long-term renewable energy solution” to Tomago Aluminium that would support the site’s commercially sustainable operations beyond 2028 and accelerate its decarbonisation, a joint statement from the federal and state governments said.
Albanese said Tomago was not only important for the Hunter region, but was a “critical asset for the country and our manufacturing future”.
“In December last year I stood in the rain at Tomago and told the workers ‘we have your back’,” Albanese said.
“Today, alongside the NSW government, we deliver on that promise.”
The Tomago deal is the latest in a series of taxpayer-funded rescue packages to prop up struggling metals processors over the past two years. The Albanese government has contributed to bailouts worth $2 billion for Rio Tinto’s Boyne smelter in Queensland, $2.4 billion for the collapsed Whyalla steelworks in South Australia, and $600 million for Glencore’s copper smelter and refinery in Mt Isa.
The support for Tomago comes despite Rio Tinto last month reporting a $US6.7 billion ($9.5 billion) half-year profit, up 47 per cent from the same time a year earlier.
Tomago Aluminium has indicated that electricity accounts for 40 per cent of the plant’s costs, but prices were set to double from 2028 once its contract with AGL expires. The cost of coal-fired generation had increased significantly, the company said, and it was uncertain when enough renewable projects, plus back-up firming capacity, would be available at the scale it required.
Government and industry sources have previously indicated that a deal for Tomago may include a power purchasing agreement with discounted energy supplied to the smelter via a Commonwealth-owned entity like Snowy Hydro.
Minns said the agreement secured more than 1000 jobs at Tomago and thousands more that rely on the smelter, giving the region “certainty about its future”.
“This is a good day for the Hunter,” he said.
“I want to thank the prime minister and the Commonwealth government – we’ve worked closely together to get to this point and deliver an agreement that to find a way through and secure the future of Tomago.”
Aluminium smelters, which need huge amounts of electricity, have been under mounting financial pressure across the nation as their owners face the dual challenges of intensifying competition from cheaper Chinese producers of the metal and the elevated cost of energy.
The Tomago smelter is the single largest user of electricity in NSW. It consumes more than 10 per cent of the state’s power supply.
Tomago Aluminium, Australia’s largest aluminium smelter, produces up to 590,000 tonnes of the metal a year, which is widely used to manufacture construction materials, cars, drink cans, foil packaging and electrical products. Aluminium is also increasingly in demand in the construction of solar panels and wind turbines.
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