Behind a Kurri Kurri smokescreen

The closure of the Kurri Kurri smelter uncovers the government's very low estimates for future power demand. But worse still is the media's compliance in allowing politicians to sell their own subjective truths as fact.

Three issues stand out in the Kurri Kurri smelter saga, all of them getting very little attention in the welter of punditry and point-scoring of the past week.

The first, and in the long run perhaps the most important, is that the decline of manufacturing in Australia and its implications are now on the table for all to see after several years of "big polluter” balderdash from the federal government, green commentators and a large part of the media.

Go back to the Whitlam era and manufacturing’s share of electricity consumption was 35 per cent. Today it is 28 per cent. What will it be in 2020, not least if the impending closure of Kurri Kurri is followed by smelter shutdowns at Bell Bay and Point Henry?

Kurri Kurri smelter accounts for about 3 per cent of New South Wales electricity consumption, which in turn is roughly a third of the national total.

This is a pointer to an issue that Wayne Swan and the federal Treasury have appeared to be desperate to keep concealed: the basis for their very low estimates of power demand by 2030.

The Bureau of Resources & Energy Economics, for example, sees the need for electricity generation in 2030 being about 337,000 gigawatt hours annually – while the Treasury, in its "strong growth, low pollution” propaganda, has the requirement at under 295,000 GWh.

This gets close to pulling Victoria out of the mix (in terms of the state’s present power requirements).

Broaden consideration to the other large manufacturing users of electricity – other metals processing, fertilisers, plastics and chemicals and the automotive industry, all under similar market and policy pressures – and it is not hard to see what Swan and Treasury don’t want to acknowledge publicly, although they are factoring it in to their claims about future carbon abatement.

The four main drivers of electricity demand are, in order, manufacturing, households, commerce and public services (eg hospitals) and, much further back, mining. With population increasing and mining booming, the power demand of commerce and public services can be expected to rise as well.

So what will be going down in order to deliver this cut in foreshadowed consumption growth?

Which brings us to the worst news about Kurri Kurri – the fact that, on the back of shutting the present smelter, it is a given that the owners, aluminium giant Norsk Hydro, have also abandoned a major development project.

Only two years ago Norsk Hydro were evaluating a $4 billion new smelter for Kurri Kurri in addition to spending $500 million upgrading the existing one.

These developments would have expanded production in the Hunter Valley operation from 175,000 tonnes a year at present, rather small by world standards, to about 600,000 tonnes annually, creating 3,000 long-term jobs and about 15,000 construction positions as well as substantial value-adding and extra income from overseas trade.

Compare and contrast this with the renewable energy sector’s claim that building wind farms could create 15,000 jobs (mostly in construction) by 2030 (while adding to the price of electricity, a major input cost for manufacturers).

The Kurri Kurri developments, to quote Norsk Hydro in submissions to government and federal parliament, would have created substantial and ongoing economic stimulus for the Hunter Valley, NSW and the aluminium value chain throughout Australia.

As the Newcastle Herald pointed out, it isn’t only direct employees – there are 344 at the present Kurri Kurri site – who suffer from the closure. There is a whole chain of people earning a living in whole or part because it exists, including 160 contractors.

The converse, applies, too. Failure to build the new developments doesn’t only affect the people who would have found a job on the site but many thousands more around the state and the country.

The media are full of whinging about the two-speed economy and how Western Australia and Queensland are outrunning the southern states – well, there goes an opportunity for NSW to do a little catching up.

The third issue for me is the way in which the media are compliant in allowing politicians and trade union mouthpieces to sell wrong or half-right messages.

Tony Abbott was indeed drawing a long bow when he blamed the Kurri Kurri decision on the impending carbon price, but why let Greg Combet get away with claiming that the closure is "driven by current financial losses unrelated to the carbon price?” Or by claiming that the key uncertainty facing Norsk Hydro has been its inability to reach an agreement with the NSW government over a long-term electricity contract?

For the record, Norsk Hydro says that: "The profitability of the plant has suffered as a result of weak macro-economic conditions, with low metal prices and an uncertain market outlook, as well as the strong Australian dollar. It is clear that the plant will not be profitable in the short term with current market prices, while long-term viability will be negatively affected by a number of factors, including increasing energy costs and the carbon tax.”

As for the ever-vocal leader of the Australian Workers’ Union, who denounced the O’Farrell government for "running the smelter out of business by charging sky-high power prices,” why would reporters and the commentariat, not least the ABC, which ran his views on multiple TV and radio broadcasts, not take time to point out that (a) it was the previous Labor state government that presided over the network bids for capex that has triggered the price rises and (b) the independent Australian Energy regulator that imposed them?

So, too, with reported federal government 'anger' at the Coalition’s failure in NSW to resolve the power contract issue, conveniently overlooking it was the Keneally government that turned back generator negotiators from their car ride to sign a deal with Norsk Hydro as she struggled to pursue her 'gen-trader' sales.

It is true, on the one hand, that better conditions are now available to aluminium companies for new developments in Africa, the Middle East and Iceland (hydro power) than here – just as 30 years ago we offered them better deals than Japan, where soaring oil prices had undermined their operations.

The other side of the coin, again quoting Norsk Hydro, is that Australia offers some natural competitive advantages to the aluminium industry, including a strong resource base, fairly good transport and energy infrastructure and proximity to the Asia Pacific market, enabling the full value chain to be established here.

The real news of the past week is that governments, federal and state, have dropped the ball on an opportunity to add a substantial new resource project in a region that could badly do with it.

How strange that no one wants to dwell on this or why it has happened.

Keith Orchison, director of consultancy Coolibah Pty Ltd and editor of Powering Australia yearbook, was chief executive of two national energy associations from 1980 to 2003. He was made a Member of the Order of Australia for services to the energy industry in 2004.


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