Thank goodness a solution to eastern Australia’s emerging energy supply problems is at hand. Courtesy of the Australian Financial Review today, we got the perspective of BlueScope Steel on matters electrical, and the need for “a steady and affordable supply of power for big industrial users”. Presumably speaking ex cathedra, BlueScope CEO Paul O’Malley handed down a “three-step plan” which, reduced to basics, involves keeping coal-fired power and getting rid of state renewable energy targets. Power costs in the US, O’Malley lamented, were five to 10 times lower than here and businesses were set to flee in droves.
Which is a bit odd given that less than a year ago the Australian Energy Council found that power prices for industrial users were, um, lower in Australia than in the US. Must’ve been a big drop in the US in recent months, eh?
More to the point, we evidently missed the memo about BlueScope being a credible outfit to be talking about business costs, because BlueScope is the source of a serious cost impost on Australian businesses. It’s because of anti-dumping measures designed to prop up the otherwise globally uncompetitive BlueScope that the Australian construction sector faces nearly $2 billion a year in additional costs — derived from punitive tariffs aimed at keeping out cheaper, allegedly “dumped” foreign steel.
Construction companies, property owners and the businesses and consumers that rent and buy properties all face higher costs because of BlueScope and our perverse national obsession with the idea that only manufacturing jobs are real jobs. But O’Malley has the front to complain about costs being too high.
It gets better. In late 2015, BlueScope threatened to close the Port Kembla steel works (that’s in NSW, which relies heavily on coal-fired power, not renewables, but yeah whatever, Paul) and won a wage freeze and the loss of 500 jobs (all up around $180 million in concessions from unions over three years) and wrung a $60 million payroll tax cut over three years from the NSW government. BlueScope promised to repay the handout from 2020 to 2029 — a trifling $6 million a year.
Well, yesterday BlueScope announced a nice gift for shareholders: a $150 million share buyback, and a lift in its interim dividend from 3 to 4 cents a share. Shares rose 4% to $12.68 in yesterday’s weak market, more than three times the level (just over $4) in October 2015 when the concessions were negotiated. In the same month, the company took the risky move to buy its partner out of a steel making joint venture in the US. Within months the upturn in global steel demand and prices emerged and the company’s fortunes improved dramatically.
Yesterday indicated it is on track for an underlying pretax profit to top $1.1 billion for the year to June. That was after directors said the second half yearly underlying pre-tax profit would be about 50% higher than the $340 million earned in the second half a year ago. In the December half, the underlying pre-tax profit was $603.6 million. December half yearly net profit jumped 79.5% to $359.1 million.
Now, admittedly, in October of last year the company did the right thing and paid a bonus to workers at the Port Kembla steelworks to reward them for their sacrifice. But NSW taxpayers? Rather than stringing out repayments to 2029, the company should hop to it and repay the NSW government — the money could even be reinvested in the Port Kembla area if the government wants to address the high level of unemployment in the region.
And one more thing. Every time a business leader like O’Malley complains that energy supply problems are the result of both sides playing politics on energy for a decade and refusing to make tough decisions and they just need to “fix it”, remember this. We had a highly effective energy policy from the Gillard government, a low-cost carbon pricing scheme that succeeded in reducing Australia’s carbon emissions with little impact on households or businesses — and a pro-business market mechanism endorsed by economists. Julia Gillard — partly because she needed Greens support — took a huge risk to implement such a scheme, and was smashed by a cynical opposition for it, under the banner of lower power prices. And it even included a massive handout for BlueScope as part of a $300 million “Steel Transformation Plan”.
Well, Energy Minister (and, hilariously, alleged Environment Minister) Josh Frydenberg has admitted that the entire rationale for the Abbott government’s carbon price repeal — cutting power prices for households — lasted five minutes before prices resumed their upward march under the Coalition. That comes on top of Peta Credlin’s admission that the Gillard government had never introduced a carbon tax, despite that claim being central to Tony Abbott’s campaign against it.
And where were all these business leaders when Abbott was campaigning against a fictional “carbon tax”? Did they speak up in defence of a market mechanism and investor certainty? Did they welcome some political bravery on energy policy? Did they condemn the Coalition for a cynical campaign against good policy? Nope, not a word — although BlueScope was happy to take the government’s money. And many businesses backed Abbott with big donations. If they now want to complain about poor energy policy, they don’t have a skerrick of credibility.
Unfortunately this article leaves out the fact that, because of our obsession with ‘small government’, we now run the risk of the foreign steel not being up to Aus standards. We NEED better control of imports, then we can gain the benefits of overseas (o/s) competition.
It is not possible for Professional Engineers to design structures using o/s steel if its qualities are not know. Testing, once it arrives, is not cost-effective.
” . . . . . they don’t have a skerries of credibility.” To bloody right! One day (when both LNP and ALP have been discarded by both an utterly disillusioned electorate/business fraternity around the time when coastal cities relocate inland) Gillard’s endeavours in Government might just be acknowledged as first real attempts to prevent the now inevitable train wreck we bequeath to children/grandchildren.
Your comment doesn’t make any sense…first you want both the LNP AND ALP “discarded”, then you acknowledge the first rate policies of the Gillard government.
Just in case it has escaped your notice…Gillard was a LABOR (ALP) prime minister!
Labor has far superior policies on climate change/global warming etc…which wouldn’t be hard because the LNP don’t do policies on ANYTHING!!
What to say CML . . . Neither LNP/ALP has an unchallenged future guarantee on the right to govern. The electorate is pretty much split 50/50 and; deep disillusionment extends across political allegiances. We both know that Gillard was undermined from ‘within’ as well as by conservatives. Yes ALP in general, seeks emphasis upon principle to guide policy . . . and yes, LNP absolutely minimises exposure to risk. They are reinsurance specialists. But our world is changing, has changed. Neither Party in recent decades (aside from Gillard) has evidenced a commitment to the people that may require political skin in favour of our nation’s children/grandchildren. Politicians of both right and left circumscribe essential actions to combat climate change; protect long established social values (fair go); and use Parliament to further personal and ideological advantage et al. And frankly mate, because we are already deep into an undeclared global climate war against all comers; our political leader-ship(s) need urgent culling.
Of course heavy industry needs to have heavy duty power. Renewables cannot possibly supply it. Why on earth should industry suffer from our religious belief that non-renewables are running out?
Yes, we should be supplying non-carbon energy to heavy industry, or allowing them to find it for themselves as much as the law allows. To that end, we should be removing the ideological blockage against nuclear in Federal Environmental law. Rescinding that obsolete regulation is a job for Federal Environmental Minister Frydenberg.
The ‘whole -of-life cost’ of Nuclear puts it out of contention.
“The ‘whole -of-life cost’ of Nuclear puts it out of contention”
The first of Australia’s nukes’ contracts will probably include a clause requiring the supplier to take used fuel out of the country. Yes, nuclear would require a hefty carbon tax to be considered cheaper than coal or gas (UMPNER report). But then, global warming requires hefty expenditure.
Roger Clifton,
By the time a nuclear power station was even half-built this type of technology (& others) will be storing renewable-generated & with no side effects. The money has now been raised for this major development:
reneweconomy.com.au/sa-made-silicon-energy-storage-system-ready-close-grid-gap-23607/
Funny, industry in Tasmania has been running mostly on renewables the last 100 years.
Well done Wayne for pointing this out. We still have an aluminium smelter too, which requires ‘heavy duty power’. Doesn’t really matter what creates it, just needs to be a lot of it. Isn’t that right Mr. Turnbull?
Roger…I admire your persistent advocacy for nuclear energy, but it is never going to happen in this country. Why? Because the economics don’t stack up…it is prohibitively expensive. It’s a bit like that oxymoron ‘clean coal’…by the time you allow for all the before, during and after costs, it is not worth the effort.
I am no expert on types of energy, but why are we not hearing about things like molten salt storage for renewable energy? It is said to store solar energy and provide baseload power in a non-polluting form. I’m sure there must be other systems out there, or in development, which will do the same thing in the near future.
We do NOT need nuclear or ‘clean coal’ IMHO!
Let’s hear it for the oxymoronic Minister for Clean(ish) Coal.
Roger – a strange contention! Aluminium smelting is about as heavy an industry as you can get, and both Canada and Norway (and even little Tasmania) have been successfully and economically doing it with almost total reliance on renewables for decades. Their water power is now economically supplemented by wind – all clean and sustainable, no coal mine explosions, no gas leaks into aquifers or the atmosphere, no oil spills into oceans, no unmanageable radioactive waste or unresolved decommissioning costs.
Onya Dodger for pointing out that renewables don’t produce real lekricity which only your beloved nukes can do.
Bugger the next half dozen millennia trying to deal with the by products.
Just another big business looking for someone else to pay for the reliability they need, but that we don’t!
Thank you Bernard for a another insightful article, the likes of which I doubt we would read elsewhere, its just just one the reasons, I subscribe to Crikey. Lets hope some of our highly paid politicians and business leaders take some notice
Chris Gulland
Thank you, Chris. Well said
What Chris said.
Thanks Crikey for calling out this leaner, Bluescope, on its advocacy that we subsidise it more.