Malinauskas scrambling to save flagship $600m hydrogen project

Multiple hydrogen projects have now been shelved nationwide, with the newly elected Queensland government killing the Central Queensland Hydrogen Project.

South Australian Premier Peter Malinauskas. Picture: Ben Clark

Another major hydrogen project is on the brink of collapse with South Australian Premier Peter Malinauskas scrambling to save his flagship $593m green energy promise amid ongoing financial woes at steel giant GFG Alliance.

Mr Malinauskas has conceded the future of his hydrogen plan could be undone by the failure of the Whyalla steelworks, with the economic case for a hydrogen-fired power station hinging on its provision of power to the steelworks for the production of so-called “green steel”.

But the opposition has dismissed his argument, arguing the financial difficulties at debt-laden GFG are a “smokescreen” for the fact that Labor’s hydrogen plan – backed by federal Energy Minister Chris Bowen – made no economic sense in the first place.

Multiple hydrogen projects have been shelved nationwide, with the newly elected Queensland LNP government this week killing the Central Queensland Hydrogen Project by rejecting a $1bn funding request from state-owned generator Stanwell Corporation to continue the project.

The death of the Queensland project follows decisions by mining and energy giants Fortescue, Woodside and Origin to abandon hydrogen projects as experimental and financially risky.

The collapse of the Queensland project has left South Australia looking isolated on the hydrogen question, but Mr Malinauskas says he remains committed to the project, provided the Whyalla steelworks is operational and GFG makes the requisite investment to modernise the ­facility.

Despite his popularity with voters, the axing of the hydrogen plant would leave Mr Malinauskas seeking re-election next year with his two biggest election promises unfulfilled: to generate power from hydrogen and fix the ambulance ramping crisis.

The fate of GFG dominated the first sitting week of state parliament, with the Premier toughening his language against its owner Sanjeev Gupta and revealing the state is waiting for unpaid royalty payments as contractors in Whyalla also chase GFG over unpaid bills.

The deteriorating relationship between GFG and the state government comes amid a public outcry over Mr Gupta spending $10m renovating his $34m mansion in Sydney, including a whisky room and a yoga room.

Mr Malinauskas all but conceded this week that he would have to shelve the hydrogen plan if GFG collapsed or pulled out of Whyalla and no new operator could be found, saying it was “the one issue that keeps me awake at night”.

“There is no secret about the fact and we have been very candid about the fact that the steelworks represents a substantial policy challenge at the moment for the state and the country writ large,” he said.

“We know that GFG is enduring very challenging circumstances financially at the moment. This is of grave concern to the South Australian government. The best outcome for the future of Whyalla is, of course, for Mr Gupta to realise his ambitions in and around the steelworks, including its transformation to be able to produce green iron or green steel, and then the state government would be in a strong position to partner with that endeavour.

“But we remain increasingly concerned about the capability of GFG to be able to invest the capital that is required to realise that transformation.”

Opposition Leader Vincent Tarzia rubbished the Premier’s explanation and said Labor had campaigned on a promise of creating a hydrogen plant, and promised the use of hydrogen would lower energy prices.

The Australian understands that in the event of a Dutton victory at the looming federal poll – at which point nuclear energy will be on the agenda – the SA Liberals will announce they would formally axe the hydrogen plan on economic and efficacy grounds.

Mr Tarzia said the Liberals were “still in the mode of holding the government to account”.

“It is not looking good though after Queensland and Woodside and Fortescue and Origin,” Mr Tarzia said.

“It is starting to look like a vanity project for the Premier. What does he know about hydrogen that everyone else doesn’t?

“The truth is that Labor has changed its promise on this which was originally around a new energy source which would bring down power prices. Now it is stalling and apparently we are meant to believe it is all GFG’s fault. I think the South Australian people will see through that, in that the government is blaming GFG for its own woes.”

But senior Labor figures have told The Australian that Mr Malinauskas is more concerned about the fate of the Whyalla steelworks than the future of his hydrogen promise.

The Whyalla plant is the only one in Australia that produces high-grade steel for bridges, railways and heavy construction, and its failure would spur a national crisis, forcing Australia to rely on countries such as China for steel.

Speculation over the future of the steelworks is taking a terrible toll in the Upper Spencer Gulf town of Whyalla, where residents are now turning on Mr Gupta and accusing GFG of milking the town financially. The Whyalla plant has been plagued by problems with its blast furnace for the past six months, but GFG insists it is committed to the city and the steelworks long term.

A GFG spokesman said last week that the company had successfully worked through a temporary gas shutdown and was ramping back up to full production.

“The ramp-up to full production will take time and patience and we are working closely with our partners as we navigate the challenges the plant faces,” the spokesman said.

“GFG remains resolute in its commitment to Whyalla and the transition to green iron and steel.”