Rowan Ramsey (Grey, Liberal Party) Share this | Hansard source

I rise to speak on the Appropriation Bill (No. 1) 2016-2017 and the related bills. Mr Deputy Speaker, the Grey electorate is a place I know you hold fondly in your heart, having grown up in the great small city of Port Augusta. To speak of that area, the whole of Australia knows that the South Australian economy is under siege—with the highest unemployment rate in the nation, the highest electricity prices, and business investment dragging along the bottom.

In Grey, one of our biggest employers, Arrium's Whyalla operation, is fighting for its survival. I am very pleased with the government's work in this area thus far: I would particularly like to thank the Prime Minister, and the Minister for Industry and Innovation, Greg Hunt, for their personal interest and involvement in providing support which on the one hand enhances Arrium's saleability yet on the other does not set up an endless stream of government subsidies—which almost always prove counterproductive in the end.

Australia is aware that steelmaking in Whyalla is facing an existential challenge. For those not familiar with the steel industry in Whyalla, it was originally developed on the back of Australia's first iron ore mine at nearby Iron Knob by BHP. In 1998, BHP spun off its steelmaking enterprises in Australia and the company Arrium was formed. Along with some east coast assets, including steelmaking and electric arc furnaces, rolling facilities, distribution and sales networks, the portfolio included the iron ore mines and tenements near Whyalla which, with the traditional coke-powered blast furnace, formed the integrated iron-steel production platform in Whyalla. Since that time, the fortunes of the integrated operation have waxed and waned. The highlight was the investment in Project Magnet in the early 2000s, when after the refurbishment of the blast furnace it was supplied with magnetite instead of hematite, thus freeing up the significant hematite supplies for direct export. The Whyalla port was redeveloped to facilitate barging of iron ore for loading onto Cape class vessels. This just preceded the peaking of the iron ore market, and its subsequent retreat. Arrium had borrowed hundreds of millions of dollars on developing the new Southern Iron operations some 400 kilometres away, and when iron ore fell below $50 a tonne they were forced to close that particular operation, costing the company in excess of $100 million for the shutdown procedure. The seeds of ruin were well and truly sown. These decisions coincided with longer-term underinvestment in the steel plant. Arrium reported in early April that the company was going into administration, and it was soon revealed that the company had accumulated debts in excess of $4 billion. Certainly, some parts of Arrium have more value than others; unfortunately, their assets based around Whyalla are at the wrong end of that spectrum. However, it is in Whyalla that any possible closure of capacity would have a disproportionate impact.

Whyalla was simply a supplier of iron ore to Newcastle until the 1940s, when a blast furnace was commissioned and the shipyard established in 1941. The Morgan-Whyalla pipeline was opened in 1943 and the town grew quickly through the fifties and sixties. Whyalla's population peaked in the 1970s at about 33,000 people. The shipyards were closed in 1978. The result was catastrophic for the city, and over the next 20 years the population shrank to 19,000. They were tough times indeed. During the early 2000s, the population recovered somewhat to about 23,000, on the back of the relining of the blast furnace, with Project Magnet, which I spoke about earlier, and the goods times in the resources sector resulting in a direct iron ore export port being developed in Whyalla and the development of the northern mines, which I mentioned earlier.

However, the tough times of the eighties and nineties pale into insignificance compared to the possible impact of the withdrawal of steelmaking and possibly the current mining operations today. The steelworks employs about 1,600 people directly, and the mining venture, which supplies about two million tonnes a year to the blast furnace and eight million tonnes a year for direct export, employs around 700. Given even a modest multiplier effect, it is not difficult to extrapolate that well in excess of 50 per cent of the Whyalla workforce depends on the survival of the integrated operation.

Consideration to Whyalla's isolation must also be given. Whyalla is not based in a thriving agricultural region. It is surrounded by good-quality outback grazing country, the type of country where a family might need a couple of station workers to operate a property bigger than the whole of the Adelaide metropolitan area. In most of the world, this land would be described as desert. Consequently, Whyalla is a custom-designed city built to service one industry. If there is no iron and steel industry in Whyalla, there is little reason for Whyalla to be there. The sad reality is that, should the iron-steel industry close, many of those who live there would lose their jobs, whether or not they be directly employed by the industry, supply industries or industries as diverse as education or retail. If they were at the stage of their lives where their biggest investment is their house, then as prices crash—and they have already fallen significantly—they are likely to feel as though they are marooned in the city.

However, federal government action on this very important issue is strong. In April, the Prime Minister came to Whyalla and announced the bringing forward of the re-railing of the Adelaide to Tarcoola line, operated by the government owned Australian Rail Track Corporation—1,200km of single rail and over 70,000 tonne. The order has been won by Arrium. As a sign that the government is focused on moving quickly, three weeks ago—in fact, it is probably five weeks ago—I witnessed the signing of an agreement and watched as the first of the rail moved out of the OneSteel-Arrium railway terminus in Whyalla. One of the chief drivers of profitability in the plant is achieved by maximising the throughput. Essentially, much of it has a high fixed cost and so throughput reduces costs.

The Turnbull government has also made significant moves in the area of antidumping, with more than 70 per cent of Arrium output now covered by some form of action. Last year, in the 44th Parliament, I led an inquiry into circumvention of antidumping rulings, and it is good to see the government's action since the delivery of that report. It is worth remembering that, like many other areas of government legislation, almost as soon as alterations are made, some of the smartest lawyers in the business are working out ways to avoid the intent of the legislation. However, this government is up to the task in this area and will continue to make reforms. The government has also announced a huge investment in South Australian naval shipbuilding, and the $80 billion investment over the next 40 years will require huge amounts of steel. Initially, the first steps, which will be the huge expansion of the facilities at Osborne, will require thousands of tonnes of structural steel—just the kind that Whyalla makes. For those of you familiar with Adelaide Oval, the planned shed for submarine construction will be bigger and taller than that whole area.

The next step came in the commitment by the Turnbull government during the election period to provide a low-interest loan of $49.2 million to Arrium for the construction of a new beneficiation plant in the mines of the Middleback Ranges, close to Whyalla. This will lift profitability of the OneSteel Whyalla operation by $50 million per annum by allowing for stockpiles of lower grade ore to be brought up to export standard—a huge shot in the arm for the business. And it has not stopped there: during the election period we also committed to a $20 million innovation and investment package for the Upper Spencer Gulf, and I look forward to this fund coming on line, hopefully, around the end of the year. Additionally, Minister Hunt has provided a letter of comfort to possible purchasers of the Arrium business indicating the government is open to further support, particularly in helping establish cheaper clean energy options and ensuring that a foreign investment would receive support from the government. For its part, the state government has said it will provide a grant of up to $50 million for specific projects when the new buyer is identified. This, of course, cannot progress until we have reached the point where a buyer is identified, whereas the Commonwealth contributions are already having a very positive effect on the operations.

In another piece of excellent news, upon reconsideration, the workforce at the steelworks have agreed to a new EBA which includes a reduction of wages of 10 per cent. I commend the workers for this action. In effect, they have made a commitment—a contribution, if you like—not just for and from themselves but on behalf of the whole community, doing what they can to ensure that everyone in Whyalla keeps their jobs. It is not an easy thing to put your hand up for a wage decrease, and I know this has been a difficult time and I compliment them all for going back and reconsidering this issue. When the penny dropped that so many people around them—so many of their friends and families—relied on them to keep their jobs and keep this business open, that was probably the turning point in this decision. Now, in itself it is not enough to turn a plant that had been bleeding red ink into a highly profitable exercise, but, given the other savings that have already been made in Arrium's time and now by the administrator, KordaMentha, it is a significant contribution. In effect, everything that can be sensibly done to ensure Arrium's Whyalla operations find a new owner, one that can identify the opportunity this presents on many levels, is being done.

Unfortunately, in recent times it has not been all plain sailing, and the calamitous loss of power to the South Australian electricity grid on 28 September has caused tens of millions of dollars of losses to Arrium over the last two weeks. Power was restored fully yesterday, I think, and production is back in full swing. It is hard to see a silver lining in an event like this because this has caused significant damage to the company. In fact, those kinds of losses, for a company that is already struggling, are astronomical. As I said, it is difficult to see the silver lining in that event, but perhaps if there is one it is that it has focused the attention on the electricity grid in South Australia. This is an issue that I have been raising for some time. What happens if you lose your baseload capacity? Over a long period of time, the South Australian government have pursued with some vigour the Commonwealth legislated subsidies that flow through from the renewable energy target. One could say that this is a very smart move by the South Australian government, and good on them, because they have got investment in South Australia on that basis, but during that time I have been warning that, if you are overly reliant on an intermittent source of electricity, you are likely to be setting yourself up for a nasty fall—and that, unfortunately, is exactly what has happened.

We have reached a point in South Australia where 41 per cent of our electricity is now delivered by the wind network. In fact, 50 per cent of Australia's wind generation is situated in South Australia and, of that 50 per cent, around 60 per cent, or 30 per cent of the Australian total, is within the electorate of Grey. That in itself is a good thing because we are all in favour of renewable energy, but unfortunately the channelling of the subsidies into the wind farm operations came to a point where it made the Alinta northern power station at Port Augusta unviable. They closed down in late April this year—it may have been early May. Since that time, the wholesale price of electricity in South Australia has more than doubled. This is a rolled-gold disaster, let me tell you. We could talk about the damage from the storms and the outage in South Australia, which, as I have said, has cost tens if not hundreds of millions of dollars. But the fact that we are now selling electricity that is twice as expensive as the rest of the Eastern States is a long-term issue for South Australia that will cost us very dearly.

To put this into context, if the price of wholesale power prior to April was, say, 5c a kilowatt hour and it is now 10c or 11c a kilowatt hour, it has effectively doubled and gone up by around 5c to 6c cents a kilowatt hour. For a household consumer that is on 30c a kilowatt hour already, it is not going to go up by a hundred per cent; it is going to rise by that 5c or 6c cents per kilowatt hour, which is around 15 to 20 per cent. But for the big businesses—the big users that employ people in our economy—the rise is around 80 per cent. And if you are paying $10 million, $20 million or $30 million a year for electricity, this is a serious down issue. As far as the security of the grid is concerned, it has been tested. I am very concerned about what is to come for us this summer when people turn on their air conditioners and the wind stops on certain days.

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