Friday, October 16, 2009

Smelters costing us $4.5 billion

The Age, October 17, 2009
A LIBERAL Party elder and senior member of the state cabinet that decided to build a huge aluminium smelter in south-western Victoria has declared the decision ''absolute madness'', saying it had been a costly ''disaster'' for the state.
Former Hamer and Kennett government minister Rob Maclellan called on his own party and Labor to end taxpayer-funded electricity subsidies for smelters at Portland and Point Henry near Geelong, which an Age investigation shows are likely to cost Victorians more than $4.5 billion by the time the contracts expire in 2014 and 2016. Coupled with special levies and taxes on electricity consumers, imposed by the Kennett and Bracks governments to cover the subsidies, the public bill for the contracts by 2016 would be closer to $6 billion.
Mr Maclellan told The Age it was time the parties worked together to end the subsidies to US giant Alcoa as soon as possible.
''I don't know why we don't just say 'These are sins of government past, of various political persuasions','' he said. ''Let's have it all out in the open and not repeat the mistake and not lengthen the mistake.''
Mr Maclellan said the choice of Portland at a 1979 cabinet meeting was ''typical of a cabinet decision one lives to regret''. ''We were having a collective moment of insanity, because if you are going to have a major electrical consumer, you place it near the electrical generators.''
Portland is 500 kilometres from the major power generators in the Latrobe Valley, and the State Government paid for a transmission line to power the smelter.
Mr Maclellan said Victoria was never an appropriate location for a smelter because of its reliance on electricity generated by burning brown coal. ''If you waved a magic wand you'd put it in Tasmania and power it with hydro-electric, as it now turns out makes sense in every other part of the world.''
After the Hamer government chose Portland, the Cain government signed long-term contracts for cheap electricity, pegged to the world price of aluminium. Weaker-than-expected aluminium prices have left successive governments out of pocket on the deal. The Age analysis indicates the losses to date have been much worse for government than earlier thought.
Portland has been a political football since 1979, particularly in recent years because of concerns about carbon emissions from burning coal.
In the 1990s, the Kennett government sought to renegotiate the contracts, describing them as grossly unfair to wider Victoria, but Alcoa refused.
When the State Electricity Commission was privatised in 1998, the Government signed a long-term agreement with the Loy Yang power station to supply the smelters at the subsidised price up to the end of 2014 and 2016.
In return, the Government sold its 49 per cent share of Loy Yang to Edison Mission at a heavily discounted price and transferred its liability for the smelter subsidy to the SECV, which since privatisation been reduced to a small shell body that exists primarily to administer the smelter contracts.
Since the late 1990s, details of the taxpayer-funded subsidies have been hard to track.
With the help of Melbourne accountant Graeme McMillan, The Age has unravelled the ongoing subsidy mystery, primarily through analysing the obscure financial reports of the SECV, as well as reports by the Auditor-General. Mr McMillan, a public finance specialist, said the most glaring problem with the Alcoa deal was lack of public transparency. ''The little detail that is published is hidden away in the SECV shell where it's been almost impossible to dig it out.''
He called on the Government to publish a detailed, plain-English explanation of the status of subsidies, especially if it is considering further negotiations over electricity contracts with Alcoa.
The original smelter contracts remain strictly confidential, with the SECV refusing The Age access under freedom of information.
Alcoa has long denied that its contracts amount to a subsidy, insisting that it has a ''commercial contract'' with the Government. It also refused to discuss recent meetings with the Government about the future of Portland and Point Henry.
State Treasurer John Lenders has refused repeated requests over many weeks for an interview about the smelters. In a short statement a spokesman said the Government and Alcoa were in ''commercially sensitive'' negotiations.

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