Taxpayers to be slugged for Alcoa power

VICTORIANS will be left with a yearly carbon tax bill of between $60 million and $70m for power used by Alcoa's aluminium operations.

Alcoa's Point Henry plant

VICTORIANS will be left with a yearly carbon tax bill of between $60 million and $70m for power used by Alcoa's aluminium operations, including the Point Henry smelter given a two-year stay of execution yesterday.

The company's decision to keep Point Henry until July 2014 off the back of a $40m federal government assistance package will bring into sharp focus negotiations between Alcoa and the Baillieu government over the looming tax bill, which has been identified as an expensive anomaly within the carbon pricing system.

The commonwealth grant, which Alcoa is contractually obliged to use on improving and maintaining the ageing plant, has all but guaranteed the smelter will continue to operate until 2014.

Alcoa management said the future of the plant beyond then would be heavily dependent on the strength of the Australian dollar and world aluminium prices, which have collapsed since the global financial crisis.

"Those two factors have to move in our favour if we are to be successful in the long term," Alcoa Australia managing director Alan Cransberg said.

Mr Cransberg said the company's focus over the next two years would be to reduce costs and minimise losses at Point Henry.

In addition to the federal money, the state government contributed a "modest", undisclosed amount to the company and $4m towards aiding regional industry. The total cost of the Alcoa bailout won't be calculated until the state and company agree on how to split the carbon impost on brown-coal-fired electricity used by the Point Henry smelter and rolling mill in Geelong, and the Portland smelter in western Victoria.

The carbon tax liability is an unforseen consequence of the design of the tax and a contractual hangover from Victoria's previous state-owned electricity assets. Nearly 30 years ago, Victoria, through the State Electricity Commission, entered long-term contracts to provide cheap power to Point Henry and Portland to make aluminium.

The shelf company that now holds those contracts, the SECV, is wholly owned by Victorian taxpayers. Under the carbon tax, it is not considered trade-exposed and receives no compensation. Denis Napthine, the Baillieu government minister who led the state's negotiations on the Point Henry bailout, said yesterday that the result was a "massive cost to Victorian taxpayers".

"The bottom line is Alcoa will lose through this carbon tax and Victorian taxpayers will lose enormously," Mr Napthine said.

Alcoa's decision to keep its Point Henry plant open brought relief to its workers and the town of Geelong. Lyle Larcombe, a 51-year-old Geelong father of two who has worked at Point Henry since he was a teenager, said the plant was in desperate need of upgrades and the government money was no more than a gesture, "but it is a good thing".

"This is a job where you come in at 7am and you finish at 5pm every day of the week," he said. "They pay well, they always have. They employ 600 people here in Point Henry but there are probably 2000 jobs with the contractors, and all those people spend their money in Geelong. I think the politicians know that."

Mr Cransberg said 60 to 65 jobs would be shed as a matter of urgency, as productivity gains were sought. Australian Workers Union shop steward Brett Noonan said most of those would come through voluntary redundancies.

Federal Minister for Climate Change Greg Combet said that under the terms of the government's contract with Alcoa, the bailout money could be spent on capital investments, maintenance and repairs, energy efficiency, environmental projects and workplace developments.