Yabulu bailout would simply let Clive Palmer off the hook

The Queensland and federal governments would be completely bonkers to bail out Clive Palmer’s Queensland Nickel. The refinery has no economic future and any cash injection by either government would simply let Palmer off the hook when it comes to paying for the outstanding liabilities.

When Palmer bought the refinery from BHP-Billiton in 2009, he probably thought it was a good deal. He paid nothing for it but had to assume the liabilities, including the potential environmental remediation in the event of closure.

The irony is that, from the point of view of BHP-Billiton, it was good deal. Looking through the commodity prices cycle — note that the price of nickel is particularly volatile — the company calculated that retaining and operating the refinery would create negative net present value for the shareholders. The company was also smarting from its disastrous investment in nickel mining at Ravensthorpe in Western Australia.

In fact, Palmer got lucky, with the price of nickel spiking after he took over the company.

With the high fixed costs covered, a tsunami of cash flowed to the bottom line. But rather than prepare for a time when the nickel price was much lower — it is around an all-time low in real terms at the moment — he splurged on Mercedes cars and trips for some workers and excess dividends for himself.

The refinery is old technology, inefficient and very energy-intensive. Similar refineries around the world have closed. New, state-of-the-art refineries now produce most of the nickel that is needed, mainly to manufacture stainless steel.

From a corporate perspective, the key is to prevent Palmer using changes of company titles and other manipulations to avoid paying for the liabilities that must be his responsibility. There is a danger the Queensland government has played into his hands by transferring the operating licence to another entity.

It would be a travesty if the federal government were to fund the workers’ unpaid entitlements, such as leave and redundancy pay, under the Fair Entitlements Guarantee program. Yet workers cannot be expected to wait until the end of July when Palmer decides whether the refinery will reopen.

It would actually be better for the workers if the refinery were put into liquidation now and the liquidators then sought another owner.

Sadly, there is virtually no prospect the consortium Sister City Partners will be in a position to take over the refinery and, again, governments should be very wary of stumping up any assistance to the group.

At the end of the day, some 800 direct jobs will be lost and there will a knock-on effect on the Townsville economy. Mind you, it is a pattern being repeated in other parts of the country as the mining boom winds down. The Pilbara, for instance, has been particularly badly hit.

It’s the involvement of a high-profile politician and businessman that makes this story so prominent.