Albanese seizes ‘extraordinary opportunity’ in Whyalla steel $2.4b bailout

A $2.4 billion bailout has been promised for the Whyalla steel mill as governments seek a buyer to revive the failing South Australian plant as a green facility and the federal opposition launches an attack on the prime minister’s manufacturing vision before the upcoming federal election.

Taxpayers will fund a $500 million bailout of the imperilled Whyalla steel mill as the South Australian and federal governments pledge to fund ongoing production, pay out creditors and upgrade the plant.

Prime Minister Anthony Albanese has announced a $2.4 billion support package for the Whyalla steel mill. Credit: Ben Searcy, Nine News

A $1.9 billion investment by the Commonwealth has also been pledged, if a buyer can be found, to rejuvenate the ageing facility with an electric-powered furnace, which the government said would be vital to the mill’s future.

The conditions a buyer would have to accept have not yet been made public, but they would have to make green steel.

The mill was owned by British billionaire Sanjeev Gupta’s GFG Alliance. But the South Australian government lost faith in Gupta, who owed tens of millions of dollars to creditors and the state.

South Australia took the extraordinary step to rush laws through state parliament on Wednesday to force GFG Alliance’s Whyalla subsiduary OneSteel Manufacturing into administration over unpaid royalties.

The government has handed control of the plant to a restructuring firm that will assess the debts and run the mill in the short term.

Whyalla has been a political football before. In 2012, then-opposition leader Tony Abbott forecast the steelworks would fall victim to the Labor government’s carbon tax, prompting minister Craig Emerson to respond in song.

Prime Minister Anthony Albanese said on Thursday the Whyalla mill, which supplies 75 per cent of Australia’s structural steel, was critical to the nation’s long-term prosperity.

“It is very clear that this is an extraordinary opportunity. You have steelworks with such a history, you have the best quality magnetite or as good as anywhere in the world, you have an extraordinary port facility and a future that the world is looking at,” Albanese said.

South Australian Premier Peter Malinauskas said he never contemplated a bailout for Gupta, but now the government had seized control, it could make investments to secure the future of the mill’s 1100 workers, critical to the town of 22,000.

This is the second time that the mill has fallen into administration.

British billionaire Gupta’s GFG Alliance bought it from collapsed mining company Arrium in 2017. But the business has faltered again, the mill owing creditors including local businesses, the state government and other GFG entities about $300 million.

Green steel is not in wide-scale production anywhere in the world, but several projects are advancing in Scandinavia.

It is a low-emissions alternative to the traditional coal-based production method. It uses green hydrogen (made with renewable energy) to process iron ore, instead of coal. Green steel also employs an electric arc furnace instead of a coal-fired furnace. Mining ore and making steel generates nearly 10 per cent of the world’s carbon emissions.

In April 2023, Gupta announced the steelworks would switch to an electric arc furnace – a transition that experts estimated would cost $500 million to complete. The government pledged $63 million to the project, but it is understood only $10 million was spent.

Albanese pledged in the 2022 election to lead a “revival of manufacturing built off the back of the availability of clean, cheap energy”.

This vision hangs in the balance. Since 2022, Australia’s only electric car charging maker has collapsed, commercialisation of green hydrogen has not progressed and the Whyalla steelworks failed to deliver an electric furnace.

The South Australian government has scrapped its $600 million commitment to build a green hydrogen plant, and will instead direct the funds to the steel mill.

Meanwhile, power prices have soared since the Albanese government won office in 2022, driven up by a global energy crunch following Russia’s invasion of Ukraine, causing the price of gas and coal to spike.

The federal opposition has blamed the government’s ambitious renewable energy goals – to boost clean energy to 82 per cent of the grid by 2030 – for raising electricity prices and driving manufacturing out of business.

While the opposition has backed the move to force GFG Alliance into administration, it has not finalised its position on the Whyalla funding package, stating it is seeking a briefing from the government.

However, Opposition Leader Peter Dutton rejected the economic viability of green hydrogen and indicated the opposition would not back the funding package if it was predicated on the new owner adopting the technology.

“The prime minister can’t pretend that this green hydrogen dream is going to deliver any jobs. In fact, it’s going to undermine the viability of the site.”

Swinburne University of Technology engineering professor Geoffrey Brooks said the Whyalla mill was blessed with natural advantages of a nearby quality ore deposit and a good port, but it urgently needed to upgrade ageing facilities to double its production capacity.

He said the mill was unlikely to become a white elephant for taxpayers and said the government’s $2.4 billion offer for a new buyer was “the right sort of money” to make the plant profitable.

Independent economist Saul Eslake said he is typically opposed to government subsidies for industries that are not otherwise commercially viable, but conceded in this instance there may be merit in maintaining the mill’s steel-making capabilities for critical projects.

However, Eslake said he was a “profound sceptic” about the green hydrogen technology the government will rely on to make green steel.

“I haven’t read anything that convinces me that it’s viable,” Eslake said.

Grattan Institute energy program director Tony Wood said despite best efforts, the government cannot know how much investment is needed to update the ageing mill for future use or to establish a green hydrogen process.

“We shouldn’t have rose-coloured glasses about it. We’ve already seen how difficult this is proving to be with all the hydrogen projects that have slowed down.”

Cut through the noise of federal politics with news, views and expert analysis. Subscribers can sign up to our weekly Inside Politics newsletter.