GFG gambled on spot market to power steelworks

Sanjeev Gupta’s GFG Alliance purchased electricity and gas for the Whyalla steelworks on the volatile spot market, rather than opt for contracts, in order to eke out financial wins.

Sanjeev Gupta, executive chairman of the GFG Alliance. Picture: David Moir

Sanjeev Gupta’s GFG Alliance purchased electricity and gas for its Whyalla steelworks on the volatile spot market rather than opt for the safety net of contracts, underscoring the plant’s operational strains before collapsing into administration.

GFG’s energy procurement strategy meant it was subject to the sometimes wild swings of spot market pricing for both its electricity and gas needs, sources said, while also being forced to pre-pay for diesel supplies. Large commercial customers are usually required to provide a bank guarantee, cash or form of credit to qualify for contracts offered by brokers or utilities offering large loads of power or gas.

Instead, GFG opted to pay market rates over its almost eight-year ownership of Whyalla, meaning it could both benefit from at-times super cheap prices in renewables-dominated South Australia while also paying over the odds during outages or low green generation events.

GFG said the Whyalla Steelworks used spot pricing for its energy needs to effectively optimise costs.

“Flexibility allowed the electricity producing steelworks to load shed when necessary, natural gas spot prices were consistently lower than contracted prices in recent years due to market conditions and it reduced costs during recent operational disruptions,” a GFG spokeswoman said.

The Whyalla steelworks, which were earlier this year placed into administration. Picture: Dean Martin

Administrators KordaMentha declined to comment, although it’s understood the firm is negotiating electricity, gas and diesel contracts as part of the stabilisation of the Whyalla plant. The Whyalla facility could produce up to 40 megawatts of power from its own excess gas supplies, although more recently it was only producing at about half those levels.

That meant extra electricity and gas volumes had to be purchased to keep the steelworks going on a daily basis. If prices surged too high, load shedding or even a partial shutdown of the steelworks was considered as a means of limiting financial exposure for GFG, sources said.

Mr Gupta had originally pitched in 2018 an ambitious energy mix including large-scale solar power supplies at Whyalla, a 90MW pumped hydro power plant and the development of a 100MW battery.

Korea’s Posco, which failed in a bid to buy Whyalla in 2016, planned to increase production by more than 50 per cent at Whyalla and introduce up to 220MW of baseload power to the state’s grid.

The steelworks in January 2024 received $63.2m under the federal Powering the Regions Fund to help pay for its switch from coal-based steelmaking to using electricity, with an electric arc furnace to replace the coal-fired blast furnace.

GFG had an ambition to transition to carbon-neutral steelmaking globally by 2030, and in 2023 announced it would invest up to $500m in the furnace and eventually a hydrogen-fulled direct reduction plant at Whyalla.

The Australian revealed last week that administrators of Whyalla’s OneSteel will turn their investigation on the “lawfulness” of the complicated web of related transactions between Mr Gupta’s private companies and the collapsed steelmaker.

The move comes as KordaMentha accused Mr Gupta of stonewalling their probe, looking at the events surrounding Whyalla’s collapse, by preventing access to financial accounts held by his private empire.

In an explosive affidavit lodged with the Federal Court, KordaMentha has warned OneSteel has insufficient funds to meet its forecast operating expenses, meaning it could run out of cash by the middle of May.

Years of underinvestment in OneSteel has left the Whyalla mill “in a state of disrepair,” they warned.

OneSteel owes more than $1.3bn across 68 secured creditors and 648 unsecured creditors, according to the affidavit. Of this, employees are owed nearly $200m.

Originally published as GFG gambled on spot market to power steelworks