The State Government is seeking urgent advice on what to do should the Whyalla steelworks fail

The South Australian government is seeking urgent advice on its exposure and role should GFG Alliance’s embattled Whyalla steelworks be placed in voluntary administration.

The steelworks at Whyalla is currently offline.

The South Australian state government is seeking urgent advice on its exposure and role should GFG Alliance’s embattled Whyalla steelworks and iron ore operations be placed in voluntary administration, following the blast furnace going offline for the second time in a year last week.

The government’s Department of Energy and Mining on Tuesday published a procurement activity report which shows it is seeking “specialist financial and insolvency advisory services’’ relating to GFG’s South Australian operations.

GFG revealed last week that the Whyalla operations as a whole had fallen to a loss making position after two previous years of profit, and the company has been laying off staff both among its white collar ranks and at the mines in the Middleback Ranges.

The company’s financial woes were compounded after the blast furnace went offline again last week, following an extended outage earlier this year, when steelmaking was halted from March through to the end of June.

GFG Alliance executive chairman Sanjeev Gupta.

The description for the procurement, published on a State Government website on Tuesday, says the Department is seeking an assessment of the current financial position of GFG’s SA operations and an “estimation of VA’s (voluntary administration’s) immediate and ongoing funding need’’.

The Australian is not suggesting that Liberty Primary Metals Australia, the GFG subsidiary which operates the steelworks and iron ore operations, is about to go into voluntary administration, just that the government is preparing a contingency plan should this eventuate.

The procurement document further says the Department is seeking: “advice regarding security and structure of SA Government super-senior funding facility”; negotiation support for the Department of Treasury and Finance/Department of Energy and Mining on voluntary administration financing terms and conditions; advice/support for SA government representatives attending formal and informal meetings with VA (voluntary administrators) and the Committee of Creditors; and “evaluation of voluntary administration restructuring scenarios (post appointment)”.

The document, dated September 24, says a “direct approach’’ to procurement will be taken, indicating it will not go to tender, and the likelihood to proceed is “certain’’.

The Department said in a statement: “The Department for Energy and Mining is always seeking to be able to furnish the government with robust advice on any and all contingencies regarding significant stakeholder companies’’.

“The Department is ensuring that it is prepared to provide this advice for any scenario, however it should be emphasised that this procurement is in no way reflective of any anticipation or expectation regarding the operation of GFG.”

The revelation about the government’s contingency planning comes as Treasurer Stephen Mullighan told state parliament on Tuesday that GFG had been in arrears on royalty payments to the state government for “several weeks” and this was “a serious issue for the state”.

Mr Mullighan did not disclose the amount owed but said the government was not demanding payment because that “would exacerbate the difficult financial position that GFG finds itself in, particularly given that there are other creditors outside of government”.

“The government is at pains to ensure we maximise the chance of those South Australian suppliers being paid as and when GFG is able to make those payments,’’ he said.

“So we’re working through the issue we’re doing it constructively and collaboratively and with the best interests of the community of Whyalla, of the steelworks themselves and those other suppliers that are owed payments.’’

Premier Peter Malinauskas said there were a “number of people within the Whyalla community who are concerned about the events that are unfolding within GFG and at the Whyalla steelworks”.

Mr Gupta visiting the steelworks prior to taking them over in 2017.

“The government in turn is making active inquiries and conducting some thorough policy work to contemplate how government may play a role to combat the challenges that are currently being experienced at the steelworks,’’ Mr Malinauskas said.

“It’s important for people to remember that the steelworks is a critical piece of industrial infrastructure - not for South Australia but for the country,” he told parliament.

“We know that there is a range of products that only the Whyalla steelworks are capable of producing for the steel sector, that the rest of the nation requires upon - not just in a national defence context, but also in a civil construction context as well.

“...I think the whole state wants to see GFG succeed. But the state government, I can say, is planning for a whole range of different circumstances.

“We have contingencies in place to contemplate what government actions may or may not be necessary into the future, in a way that is diligent and responsible considering the importance of this enterprise.”

Mr Malinauskas emphasised the state’s plans for Whyalla and the region, particularly the $593m hydrogen power plant on the city’s outskirts and the Northern Water project - a $5bn water desalination plant and pipeline network creating more than 4200 jobs.

The Premier and Treasurer were responding to questions from Opposition Leader Vincent Tarzia, who said his primary concern was to ensure the future of Whyalla was safeguarded.

“This government revealed today it has known for several weeks that GFG Alliance has not been meeting its monthly royalty payments,” he said.

“The government must come clean on what it knows. Clearly, the people of South Australia deserve to know exactly how much is owed and what the government is doing to make sure it is repaid, while making certain the steelworks survives.”

Suppliers in Whyalla have complained, anonymously, of late payments, with those concerns made all the more poignant by the purchase by GFG executive chairman Sanjeev Gupta of a $12.5m harbourside apartment in Sydney, to add to his $34m harbourside mansion.

Mr Gupta is understood to have briefly jetted in to Whyalla on Friday, before leaving soon after.

The one-time white knight of the steel town, who promised billions of dollars worth of projects when he bought the steelworks out of administration in 2017, and which he has failed to deliver, last week in an editorial published by News Corp Australia said that Whyalla was his highest priority.

He said despite a “global crisis” in the steel sector which rivalled that endured during the Global Financial Crisis, he was committed to delivering on his “green steel” vision for the Whyalla steelworks which would ensure the future of the town for decades to come.

The Whyalla operations were previously placed in administration on April 7, 2016, when their former owned, ASX-listed company Arrium, itself collapsed into administration.

A GFG spokesperson said, “The blast furnace restart is progressing and we expect to be back to normal operations in the near future’’.

Originally published as The State Government is seeking urgent advice on what to do should the Whyalla steelworks fail