In the middle of last year, as attempts to revive the broken blast furnace at the heart of Whyalla’s steel operations faltered, government officials started working on a contingency plan to find a new operator.
Those talks required a degree of discretion because the state government had lost faith in the owner of the plant, the British industrialist Sanjeev Gupta, and they knew he wouldn’t like the options being discussed.
“There was a feeling that this was getting very serious,” says Eddie Hughes, the South Australian Labor MP whose seat covers the Whyalla region.
“The ultimate set of circumstances weren’t necessarily clear, but it became very apparent that the trend was going in a direction that was just not sustainable – we needed a circuit breaker.”
After years of broken promises and underinvestment, that circuit breaker was tripped.
On Wednesday the SA government rushed legislation through parliament that allowed it to place the steelworks owner into administration, stripping Gupta’s GFG Alliance of control.
The state and federal governments then unveiled a support package worth $2.4bn to keep the plant running, pay employees and creditors, upgrade infrastructure – and entice a new buyer.
The prime minister, Anthony Albanese, said Whyalla was “critical to sovereign Australian steel”, given it is one of only two major integrated steel projects in the country and the only local manufacturer of rail.
Gupta’s brash new plan
In 2017 a consortium that included the giant South Korean steel manufacturer Posco was the frontrunner to bring Whyalla out of administration, after the collapse of its indebted owner, Arrium.
But the South Korean bid relied on the federal government tipping in hundreds of millions of dollars on top of state government contributions.
At the time, Gupta’s GFG was developing a reputation as a powerhouse that was striking deals around the world to take over ailing steelworks.
He could seemingly revive and expand Whyalla’s operations with far less government support, and went from outsider to Australia’s “saviour of steel” in quick succession.
Those who have met Gupta say he has styled his business on the Mittal Steel Company, which built a huge empire through aggressive and savvy acquisitions. Mittal was a forerunner to ArcelorMittal, which went on to become one of the largest steel producers in the world.
Gupta’s plans for Whyalla were brash and bold. The local population was going to surge from 22,000 to 80,000 by 2040 on the back of the ambitious expansion he planned.
His personal purchases matched the entrepreneur’s business image. In late 2019 he paid about $34m for a mansion in Sydney’s Potts Point.
Gupta went on to lay out a vision for a decarbonised plant, with renewable energy-produced hydrogen ultimately required for the manufacturing process to make sought-after green steel.
But the promised investment never arrived.
“The problem can be summed up pretty easily,” says Geoffrey Brooks, the joint Swinburne/CSIRO chair in sustainable mineral processing.
“There hasn’t been enough investment in the plant; they’ve got older equipment at the wrong scale and they need to develop new products.”
Many of the financial problems facing Gupta’s global steel empire are linked to the 2021 collapse of its primary financier Greensill Capital, an event that rattled his global steel-making businesses, which include operations in the UK, continental Europe and the US.
As the company’s debt position worsened, restructuring manoeuvres became more severe.
GFG’s Ostrava steel plant in the Czech Republic is now insolvent, while its Polish factory was declared bankrupt. Its wire mill in the US state of Illinois has been shuttered and the Hungarian government has accused GFG’s Liberty of not paying wages at its Dunaújváros steel plant, according to local media reports.
Gupta and Whyalla’s future
The problems with Whyalla’s blast furnace last year was a public sign to the SA government that something was seriously wrong.
Brooks says you don’t need to know much about steel-making to know that it requires a functioning blast furnace.
“It is at the heart of the plant,” he says.
“What happened last year does raise questions. There may have been an element of bad luck but it’s fair to say there’s been a combination of poor technical decisions and a lack of investment.”
GFG had floated the idea of bringing in a joint venture partner but there was an emerging opinion in the state government that this was an unrealistic hope.
“The view was that they would really struggle to get a joint venture off the ground, especially if Sanjeev Gupta was reluctant to relinquish control,” says Hughes.
“Given the reputational damage, what were the chances of getting a credible joint venture partner that’s willing to take a minority stake?”
On 9 February the SA premier, Peter Malinauskas, recorded a video for Whyalla residents, assuring them the government was “all in” on helping them.
“We have been working for months now preparing and planning for any number of scenarios with GFG and Mr Gupta,” Malinauskas said.
He put Gupta on notice, telling him to “front up”, pay creditors and show the capacity to invest in the steelworks.
Ten days later, the SA government, which is itself a creditor, made its move.
While the appointment of an administrator is usually a day of despair for workers, Hughes says it has been well received by the community.
The state and federal funding package includes money set aside to keep the steelworks operating during administration, ensuring workers and contractors can work and get paid.
This will “preserve around 4,000 direct and indirect jobs”, according to the administrators, KordaMentha.
A spokesperson for GFG said that “our concern is first and foremost the wellbeing and safety of our employees”.
“GFG is assessing what this means and is seeking advice on its options.”
The company says its InfraBuild business, which processes and distributes steel products, is not affected by the appointment.
Gupta could contest the state government’s actions but there’s a feeling among officials he may walk away from the steelworks, seven years after he was celebrated as its saviour, given that he has other parts of the global business to worry about.
“Whether he challenges or not, I don’t know,” Hughes says.
“But I think there’s a real prospect that he won’t.”
