Give me smelter: A town lifeline

It isn’t just the workers at Portland’s Alcoa aluminium plant who fear the loss of income if it halts operations.

‘It’s a good pay packet out there and within the local district, say 200km of this place, that money gets shared pretty well,’ says Carl Millard, a former smelter worker who moved to Portland to work at the plant for three times as much pay as in his old job as a park ranger. Picture: David Geraghty

Residents of Portland have grown ­accustomed to living under the dark cloud swirling over the southwestern Victorian town’s industrial heart, a goliath of an aluminium smelter sitting on rugged coastline.

But even they admit the cyclical threat that US-based Alcoa chiefs will shut the loss-making smelter is different this time. The cloud is darker, the threat more tangible.

“It’s a good pay packet out there and within the local district, say 200km of this place, that money gets shared pretty well,” says former smelter worker and Portland resident Carl Millibrand, who left the company a few years ago because of an unrelated medical condition.

Millibrand says if the smelter goes, so will the contractors connected to the plant and the local retailers that rely on the income of the smelter’s well-paid workers.

In Portland, the site of Victoria’s first permanent settlement and with a port that opens like a mouth into the ocean, the smelter represents an almost extinct era when manufacturing jobs allowed blue-collar workers to jump a few rungs up the class ladder.

Millibrand moved to Portland to work at the smelter when it ­enticed him away from his former life as a park ranger by offering three times as much pay.

“Most of the people working at the smelter don’t have a trade so they don’t have a profession,” he says.

“So this definitely gives them an opportunity to get a job that’s well and truly outside their pay grade, if you get what I mean … You can go in there without having to have a degree.”

Portland is one of only four ­remaining aluminium smelters in Australia and, like the rest, it will live or die on the cost of electricity.

The plant is capable of producing about 360,000 tonnes of aluminium a year — but to do so it uses almost 10 per cent of the total power generated in Victoria.

Alcoa began the latest ­review of Portland’s future in ­October last year, when chief executive Roy Harvey announced a plan to restructure its global aluminium assets and potentially cut high-cost and high-carbon emission plants from its portfolio — putting Portland firmly in the ­firing line.

The smelter employs 460 staff, and another 170 contractor jobs are directly tied to its ­future. Together they deliver about $60m in annual wages and another $100m in local supply contracts to the ­regional and Victorian economy, according to Alcoa.

In a town of 11,000 people, its closure would be a social and economic catastrophe.

Portland Bowling Club president Kevin Pye, 58, used to work as a supervisor for Veolia, which was contracted by the smelter.

He says up to half the town’s retail income came from the smelter’s pay packets. And the pay is good. Even a new starter working a 12-hour shift will pocket just over $100,000.

“With some of them, you’ve got the grandparents out there and their kids and grandkids all feeding down through the money,” Pye says. But he is undecided about the continued subsidisation of the smelter.

“Do you keep subsidising something just to keep it there or do you cut your ties and let them stand on their own two feet? I’m 50-50.”

When Portland was built in 1984, the Labor government of premier John Cain signed a joint venture with Alcoa to provide cheap power, linked to the global aluminium price, for the next 30 years.

Built, astonishingly, 500km from the Latrobe Valley power stations that provide its electricity, the Portland smelter has been under perennial threat of closure since those initial long-term ­contracts came under review in the lead-up to the 1998 privatisation of Victoria’s State Electricity Commission.

It was saved in 2017 by a new subsidy deal with the Daniel ­Andrews Labor government, worth $210m across four years, but that expires next year — and so may the plant and its jobs.

Billions in taxpayer dollars have been poured in to keep the smelter open. Analysts believe that since the 1980s, Victorian taxpayers may have pumped $2bn into the smelter.

Details of its electricity supply contracts, now with AGL Energy, are a tightly guarded secret.

But successive state government levies introduced to support the smelter — first a $2 a megawatt hour charge to the wholesale electricity price raised in 1997, then a land tax on power line easements from 2004 — have amounted to average collections of more than $100m for each of the past 23 years.

On the town’s main streets with its six pubs, shops and well-maintained bluestone buildings, Portland residents are hesitant to talk about the fate of the smelter lest they tempt fate.

The smelter’s workers themselves are barred by Alcoa from speaking to the media, ­according to the Australian Workers Union.

Port of Portland chief executive Greg Tremewen says grain, minerals, fertiliser, wood and wind farm components arrive and leave the town through the port but no industry has provided like the smelter.

“There’s no doubt the smelter is the backbone of the town of Portland,” he says.

Steve Garner, executive director of Portland wind turbine manufacturer Keppel Prince, says a future without the smelter is something the town’s residents don’t like to think about.

“Tragedy, it would be tragic if the smelter closed,” he says. “I don’t think we’d survive,”

Deb Edwards, 47, owns a lingerie store in Portland and says that when the smelter last went offline she noticed a dip in her earnings, but she believes the town would survive the closure.

“The town went quiet but we survived,” Edwards says.

“The smelter, maybe 20 years ago the smelter is what kept Portland alive, but I don’t think we rely on it as much any more.”

Edwards says the impact of the smelter’s closure would be felt mainly by younger workers.

“I feel for the young ones out there who are just starting out in life, and if it does turn pear-shaped it’s the younger ones who are going to struggle,” she says.

“The older ones are probably looking to retire. They might look forward to a closure.”

While the plant is guaranteed to stay open until at least the middle of next year, according to Alcoa, the threat to its continued existence is real, according to industry analysts.

Despite the annual power-cost subsidy to the plant, Bank of America Merrill Lynch analysts believe the plant is the most ­expensive to run in Australia, tipping costs at $US1835 ($2800) a tonne — with about a third of its costs coming from power.

The cheapest smelters in the world run at about $US600/t cheaper than Portland. With aluminium trading at about $US1700 a tonne, Portland is bleeding cash, and BAML estimates it has lost more than $US100m during the past five years.

Given 85 per cent of its power comes from brown coal in the ­Latrobe Valley, BAML analysts also estimate Portland is one of the most carbon-intensive smelters in the developed world, emitting 15-20 tonnes of carbon dioxide equivalent for each tonne of aluminium produced, two to three times the global average.

Portland’s carbon emissions will be a key consideration for Alcoa as it looks to clean up its global smelting portfolio, much of which gets its power from hydro-electricity.

And BAML analysts warn it could be cheaper to close Australia’s remaining aluminium smelters than keep them open.

In a research note this month, BAML analyst Jack Gabb says aluminium smelters are relatively cheap to close compared with other types of plants, with redundancy payments likely to be the largest single cost.

“Ground contamination is limited and there are no significant volumes of liquid waste,” he says.

“A look at other recent smelter closures along with existing provisions points to typical closure costs of $US200m to $US300m.”

And the state government — probably under intensifying pressure to keep it open after General Motors’ announcement it will close its remnant Holden operations by the end of the year — will also be considering the broader implications of closure, including the extra costs subsidies impose on households, already suffering under rising energy prices.

The operators of Australian aluminium smelters have long complained that energy costs make Australian aluminium ­uncompetitive in a global market.

But David Leitch, a partner at energy market consultancy ITK Services, says China’s energy generation costs are equivalent to those in Australia, putting the cost of power at its aluminium smelters — worth more than half of annual global production — on par with that of local operators.

“So long as China is importing thermal coal, then we can expect coal-fired electricity in China to cost about the same as in Australia for new generation,” Leitch says.

“For energy-intensive industries in Australia to survive, the way forward is to use the large loads as a revenue stream for new firmed renewable generation which can be delivered at lower cost to the consumer.

“Australia has a great tradition of supporting energy-intensive manufacturing and it is open to both state and federal governments to continue this by helping sites such as Portland to switch to renewable energy.”

But the ramifications of its closure would run far wider than its 500 workers at Portland, their families and the thousands of ­others that indirectly depend on the plant’s existence in the town.

Portland uses about 10 per cent of the power consumed in Victoria each year, and energy market analysts believe its closure would hasten the demise of the Yallourn power station.

The closure of another major baseload coal power station could, in turn, exacerbate the stability ­issues in Victoria’s power grid, which already struggles under peak power demands in summer.

In addition, Portland has occas­ionally played an important role in stabilising the grid in South Australia and Victoria by adjusting its power usage as demand spikes, helping avert blackouts across both states.

Alcoa has conceded that domestic power prices remain a significant challenge but the company says it is committed to finding a “sustainable” operating model.

Its Australian operations, including Portland, are part-owned by ASX-listed Alumina, which ­released its full-year results on Tuesday, confirming Portland booked a $US20m loss last year — an improvement on the previous year’s $US29.7m loss.

Alumina chief Mike Ferraro says talks are ongoing but no substantial progress has been made on landing a new power contract for the facility on terms that will ensure its long-term profitability.

“We’re still yet to identify a competitive power solution,” Ferraro says.

“That’s before us as we speak, so we would like to identify that and then we can move forward.”

A Victorian government spokesman says the arrangements between Alcoa and power companies are a matter for them.

“We’re continuing to talk with Alcoa about options for a more sustainable long-term footing for the smelter,” he says.