The federal government has finally stepped in to cauterise the haemorrhage of Sanjeev Gupta’s Whyalla steelworks in South Australia after months of speculation and years of erratic prospects. The result will leave creditors paid but delay the promised green hydrogen plant in SA.
Prime Minister Anthony Albanese said the government would pump 2 billion to ensure the survival of an “enormous” opportunity for green steel.
Gupta’s GFG Alliance steelworks and associated mines were placed in administration by KordaMentha, after a decision was rushed through both lower and upper houses of the SA’s parliament on Wednesday morning “in a matter of minutes,” the ABC reported.
Gupta owes hundreds of millions of dollars to creditors after Greensill Capital, an Australian and UK financier owned by Lex Greensill, collapsed in 2021 due to insurers failing to renew the coverage of the bonds he was using to fund the business.
Amongst its creditors, although not the largest, was the SA government – allowing it to act on the tens of millions of dollars of royalty owed by the steelwork owners, including $125 million to SA Water.
The state government said it had “lost confidence” in GFG’s ability to secure the funding needed after receiving “expert advice from its steel taskforce” that the business “lacked investments” and it was “impossible to turn the operation around”.
This was despite GFG’s moves last week to sell its Tahmoor Coking Coal mine in NSW for up to $800 million – to be re-invested into steel operations.
The state government said that the company was “critical to sovereign Australian steel”, being one of only two Australian steelworks that together produce 75 per cent of all Australian structural steel and the “only domestic producer of steel long product [rails].”
Steel from the plant is currently used in a number of big infrastructure projects, including Optus Stadium in Perth, the Western Sydney Airport and rail link, as well as the Cross River rail project in Brisbane.
“Without Whyalla steel, Australia would rely on steel from overseas amid a deteriorating strategic environment and a national housing crisis,” the SA government wrote in its statement.
SA Premier Peter Malinauskas said, “It is unacceptable for such an important critical piece of economic infrastructure for the nation to be in a situation where its ongoing operations are so severely compromised.”
The state government earlier committed to providing a “comprehensive support package” for the steelworks, initially quoting an equal investment of $500 million over six months to keep the plant running and staff employed. Long term plans would also include replacing ageing infrastructure and continuing plans to manufacture green steel.
The federal government pumps in money
On Thursday, the federal government flagged that will up its investment to 2.4 billion dollars, with Prime Minister Anthony Albanese reassuring workers that the government will ensure workers, creditors and small businesses in Whyalla are paid.
KordaMentha said it will appoint a special advisor to assist with the administration as well as engage with potential buyers for the steelworks, including the nation’s other major steel producer BlueScope Steel.
Albanese added in an interview with Adelaide’s 5AA radio before his national address, that while he preferred the steelwork stay privately owned, he “wouldn’t rule out” nationalising the mill if there are no suitable buyers.
Earlier plans announced last year involving a state government investment of $593 million to kickstart the steelworks to transition to green steel now hang in the balance Renew Economy reported that while the state government has so far refused to commit to those funds, this may change with new federal support.
Tim Buckley, director of Climate Energy Finance said on social media: “Whyalla is strategically important for Australia for its manufacturing capacity and highly skilled workforce, so we must protect and build upon our sovereign capabilities and massive investment, employment and export potential to lead the world in shifting to green steel supply chains.”
No bailout for Gupta
From the AFR: Premier Malinauskas said there would be no bailout for Sanjeev Gupta and GFG in the rescue package.
“They will have to deal with the process of administration,” the premier said in a press conference.
“I have been able to announce a comprehensive funding package that will see the state government pay all of the debts owed by GFG to creditors on the ground here in South Australia, up to $5 million, in exchange for them handing over their rights to the dividend through the administration process.
“What we’re going to do is support the businesses on the ground who have done nothing wrong and do not owe anything to anyone. The good thing about these creditors is, while they’ve not been getting paid, they have continued to pay their workers and that is what has kept this town running, but their sacrifice deserves to be recognised and that is.
“If they are owed money by GFG, the state government is going to step in, and the creditors will hand over to the state the dividend that they will receive for the administration process.
“What we’re doing is relieving them of all the struggle associated with administration, so they get on doing what they do best and that is keeping this place running and making steel in this country.”
Edited transcript from the latest media conference on Thursday morning with the prime minister and SA premier
Prime Minister Anthony Albanese said:
We are a government that backs a future made in Australia. It was the centrepiece of our last budget. We need to learn the lessons of COVID, which is that we can’t just be at the end of supply chains. We can’t just dig things up, export them, wait for value to be added, wait for jobs to be created, and then import the manufactured goods here
And there’s no industry that is more important for our nation than steel making. And here is where 75 per cent of Australia’s structural steel is made
And today we met people, including someone who’s worked here for 56 years. That says something about how important this is to the lifeline. Whyalla [is the heart of this] but the arteries spread out right around the country.
Jobs in construction, jobs in railways, jobs in the new airport in Sydney, jobs in major infrastructure projects, in construction, in new buildings, in the defence industry, that is also a very important part of South Australia’s present and, more importantly, South Australia’s tremendous future.
Now, this package that we put together [is one we’ve been] working very hard on between the South Australian government and the Australian government – two Labor governments working together to support jobs, good quality, good paying jobs that are so vital for our nation. This $2.4 billion plan consisting of $500 million to deal with administration, to keep the steelworks going, keeping people being paid, but importantly, as well, investment in the future.
On top of this we will be allocating funds from our $1 billion green iron investment fund that we have created. This is important, not just for South Australia, but there’ll be other opportunities… But in excess of $500 million will be available for other projects as well, because we know that there’s a great deal of interest in the transition that will occur that will set us up for the very long term future.
Malinauskas was asked: do you think South Australians would be disappointed that they’re bailing out Sanjeev Gupta?
There is no bailout here of Gupta; his debts aren’t going anywhere. He will have to deal with that process through administration. What we’re going to do is support the businesses on the ground who have done nothing wrong and don’t owe anything to anyone.
[While creditors haven’t been getting paid for by Mr Gupta, they have continued to pay their workers, they have continued to pay their vendors, and that’s what’s kept this town running. But their sacrifice deserves to be recognised, and that’s what government is supporting. We’re not supporting Mr Gupta, not bailing him out. His debts are his debts to be accounted for.
What we’re doing is investing in the operations here in the future, and the creditors are small businesses here in Whyalla and around the state are critical to that.
Malinauskas was asked: what will happen with your hydrogen plant now? Will taxpayers still be forking out $600,000 a year for the CEO to run that department?
The office of hydrogen power [is one we will] maintain because we know and the science tells you that in order to decarbonise iron and steel making, you need hydrogen, and there is a future for that.
But the large functions of that office will be curtailed and wound back now that we defer that plan in order to get the basics right here, in terms of the steel mill and the mine, because there’s no point in producing hydrogen if you don’t have a customer for it.
And the first step is to actually realise what was supposed to happen from GFG, and that is getting the magnetite out of the ground, investing in the steelworks, transitioning to electric arc furnace, DRI, and that needs to happen concurrently with a potential new owner of the steelworks, and that’s what this package seeks to provide.
The northern water plan, which is all about getting more copper out of the ground, which we are working so closely as a state government with BHP on, that is unaffected by this. In fact, to be honest we are looking very closely at two potential sites for the desal plant, at Cape Hardy and Mullaquana.
The reason why we’re building the hydrogen facility in Whyalla was because there’s a steelwork in my that was set to be an off taker of it. That was what Mr Gupta said he wanted. And you know, we were willing to do what we can to make sure that vision comes to fruition. But the future of hydrogen is there.
Was the Prime Minister ruling out nationalisation?
The Premier, you gave an answer. It’s very clear that this is an extraordinary opportunity.
Now there’s not a solar panel in the world that doesn’t have IP intellectual property that was not developed at the Australian National University or at UNSW, but we make bugger all here.
We’ve missed out on that opportunity. What governments need to do is to look not a year ahead, five years ahead, but look at where the opportunities are for Australia, how we have a future made here in Australia, and it’s not doing nothing on energy.
And then sometime down, finding $600 billion of taxpayer’s funds to have seven nuclear power plants that no one, including the LNP government in in Queensland wants
What happens to this money and to Whyalla if Labor doesn’t win the next election?
Well, we’re going to win next election, and we’re determined to do that. And my government actually has policies that supports blue collar workers, that supports jobs, that supports Australia’s national interests.
Our opponents have three policies. They want you to pay for people’s lunch of bosses of $20,000 a year. They want you, through your taxes, to pay $600 billion for some nuclear power plants, including one here in South Australia, where something else is being used for the land. And they want you to put up with the cuts that’ll come for health and education and everything else. They won’t tell you what they are, but they’ll tell you that there are cuts there, and they call all of the $350 billion they speak about as being wasteful spending.