What went wrong in Whyalla? And why is the government getting involved?

Taxpayers are on the hook for up to $2.4 billion in Prime Minister Anthony Albanese’s pledge to save a failed South Australian steelworks that has become a federal election battleground – a decade after the Whyalla mill was last a major campaign topic.

The pressing question now is: are desperate governments just throwing good money at a bad business? And how did the Whyalla mill get into such dire straits?

The Whyalla steelworks in South Australia is in adminstration for the second time in less than a decade.Credit: Ben Searcy

What happened at the Whyalla Steelworks?

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

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

GFG has also long promised major investments in the mill that have not materialised, and has been under financial strain around the world.

The South Australian government finally lost faith in Gupta, and on Wednesday took the extraordinary move of rushing laws through parliament that permit the state to force GFG Alliance’s Whyalla subsidiary, OneSteel Manufacturing, into administration over unpaid royalties.

The government has handed control of the plant to a restructuring firm called KordaMentha, which will assess the debts, run the mill in the short term, and try to find a buyer who will pay back creditors as much money as possible. State and federal governments are poised to offer more than $500 million to improve the mill to convince a buyer to purchase it.

Why has the government bailed it out?

A $2.4 billion bailout has been promised for the Whyalla steel mill as governments seek a buyer to run the failing South Australian plant.

An initial $500 million will be pumped into the business, with the South Australian and federal governments pledging to fund ongoing production, pay out creditors and upgrade the plant.

A further $1.9 billion investment has also been pledged, if a new buyer can be found, to rejuvenate the ageing facility which the government said in a statement would be “vital to ensuring the steelworks has a sustainable, long-term future”.

The Albanese government’s pledge to kick-start green manufacturing hangs in the balance and South Australia desperately needs a plan to keep more than 1000 workers, in a regional town of 22,000, employed.

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

Breaking down the $2.4 billion bail out

$100 million

• This will be broken down into: creditor assistance payments – $50 million; Infrastructure upgrades – $32.6 million; Jobs matching and skills hub – $6 million.

$384 million

• To fund the Whyalla Steelworks’ operations during administration. 

$1.9 billion

• After a new owner is found, to work with them to invest in upgrades and infrastructure to ensure the long-term future of the steelworks.

In April 2023, Gupta announced the steelworks would switch its coal-based steelmaking to a green system using an electric arc furnace – a transition that experts estimated would cost $500 million to complete, with the government pledging $63 million towards it.

Since then, Australia’s only electric car charging maker has collapsed, little progress has been made in commercialising green hydrogen and the Whyalla steelworks were “deteriorating” without the promised furnace upgrade.

Now the federal opposition is blaming the government’s ambitious renewable energy goals, to raise clean energy to 82 per cent of the grid by 2030, for raising electricity prices and driving manufacturing out of business.

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.

Who is Sanjeev Gupta and why does GFG Alliance have so much debt?

Gupta is a steel mogul born to a wealthy British-Indian family. He began his career as a commodities trader and built a steel-making empire, buying mills in the UK and Europe.

His Australian interests include the Tahmoor mine in NSW’s Illawarra region, steel distributor InfraBuild, and the Tasmanian Electro Metallurgical Company (TEMCO) smelter in Bell Bay in northern Tasmania.

Gupta splits his time between several residences, including a $12.5 million apartment in the Finger Wharf building near the Sydney Harbour Bridge, a home in London’s Belgrave Square, another in Sydney’s Potts Point and a villa in Dubai.

But his empire has been in trouble for some time.

Sanjeev Gupta during the early days of his tenure at Whyalla in 2018.Credit: AAP

Many of its assets struggled under previous owners. Its major financial partner Greensill Capital, collapsed in 2021. And the Whyalla mill hit the skids when the blast furnace malfunctioned in March last year, causing steel production to dip and debts to grow.

GFG Alliance reacted cautiously to the shock move by the South Australian parliament. A company spokesperson said it was assessing its options, following the government intervention.

Gupta sent a memo to his executives overnight, as reported by the Australian Financial Review, which said he believed the government had taken “the wrong course of action” and he was seeking legal advice, but suggested the company would save money without subsidising its Whyalla facilities.

“This news will be disappointing to us all, not least to me personally, given the huge efforts we have all put in to save Whyalla in 2017 when it was losing $1 million a day, return operations in 2024 after a near-death experience, and promote Whyalla’s magnetite potential to a global audience.”

What have governments said?

The prime minister, Industry Minister Ed Husic and South Australian Premier Peter Malinauskas are in Whyalla to announce their support package for the mill.

Malinauskas said on Wednesday that Whyalla’s location on the Spencer Gulf, where a high-quality magnetite mine that supplies raw materials for the mill sits alongside a deepwater port, was too strategically significant for the nation’s steel capability to let the business fail.

“We are not going to allow the owner of an economic asset of the significance [of Whyalla’s mill] compromise that for the future of the state,” Malinauskas said. “It is just too important. We could not have GFG holding back steelmaking in this country.”

Husic welcomed Malinauskas’ move on Wednesday. “What’s going on in and around Whyalla can’t continue – workers kept in the dark, creditors unpaid – a proud, industrial city left wondering about its future,” Husic said.

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