Whyalla, a town about four hours north of Adelaide that is known for its steel industry and giant cuttlefish, became the centre of Australia’s political universe this week.
A surprise move by the South Australian government revealed a plan hatched behind the scenes with the federal government to save the beleaguered Whyalla steelworks.
What just happened?
After years of turmoil, Whyalla steelworks was placed into administration on Wednesday.
The SA parliament whisked legislation through in just 15 minutes to take the operation out of the hands of GFG Alliance, the owner of the steelworks, headed by UK billionaire Sanjeev Gupta. Administrators KordaMentha will now seek a new owner.
GFG owes a reported $300m to suppliers.
The SA premier, Peter Malinauskas, described events on Wednesday as “dramatic”. But he also said that forcing the steelworks into administration couldn’t have happened if he didn’t know what was coming next: a joint announcement on Thursday morning from him and the prime minister, Anthony Albanese, of a $2.4bn support package to keep the steelworks running.
Issues between GFG and the state government have grumbled along for years, with Malinauskas sounding increasingly disgruntled in recent weeks. The government had given GFG “every opportunity to make good on its promises and to bring creditors back into terms”, he said, but “it has failed to do so”.
Show me the money?
The $2.4bn includes $100m for infrastructure upgrades, a jobs matching and skills hub, and help for those owed money – the government will pay 50% of debts from $5,000 to $1m.
GFG will still have to deal with the administrator on the debts, Malinauskas said, but the government is relieving small businesses of the burden. It would be “patently false” to describe the $2.4bn as a bailout, he said.
A sum of $384m will keep the plant operational while under administration, including paying employees.
The biggest chunk of the funding – $1.9bn – will help the new owner (when found) to invest in upgrades and infrastructure.
Separately, the federal government announced a green iron investment fund, with up to $500m for the longer term transformation of the steelworks.
How did we get here?
The steelworks officially opened in 1965. BHP, which developed the plant and the nearby iron ore mines, split it off from the main company in 2000, and renamed it OneSteel. OneSteel was absorbed into Arrium in 2015. In 2016, Arrium went into voluntary administration owing billions.
In 2017, GFG bought the steelworks and promised great things.
Gupta announced a plan to turn the steelworks into a world-leading green steel facility. It would be environmentally friendly and globally competitive, the biggest steel plant in the developed world, he said. Gupta was seen as the saviour of Whyalla, an Eyre Peninsula town dependent on the industry.
But at the start of 2024 the blast furnace, which does the smelting, shut down. There were repair issues, workers were put on reduced shifts, upgrade timelines blew out and creditors started complaining they weren’t getting paid.
Things were looking dire by the end of last year, with jobs evaporating and promises unfulfilled. GFG’s global operations were struggling to get finance, and the company was facing legal issues in the UK.
On Wednesday, Malinauskas said the government had “received advice that the steelworks is being run into the ground to the extent that it may become irredeemable”. That was the final straw.
Is it really a big deal?
More than 1,000 employees depend on the steelworks, and it supports 2,000 more people indirectly. It has a deep-water port, and rail links to both east and west coasts.
It produces 75% of Australian structural steel and is the only Australian producer of long steel products, such as rods and wires.
It’s also part of the government’s plans for green, decarbonised steel.
GFG describes itself as the economic backbone of the region.
What Albanese and Malinauskas spoke about, though, was sovereignty and the need for Australia to produce its own steel. This is all happening against a backdrop of US president Donald Trump threatening to slap tariffs on steel, which has in turn sparked warnings about China dumping metal in Australia.
Saving the steelworks was “in the national interest”, Albanese said, pointing to the pandemic, international conflicts and trade issues.
What next?
Administrators KordaMentha – who oversaw the process last time the steelworks were placed into administration in 2016 – will start talking to companies.
The main name at the moment is the steel manufacturer and supplier Bluescope, which is listed on the ASX. Malinauskas said he hopes Bluescope is interested.
Malinauskas said the steelworks are a good asset. Asked whether he would rule out nationalising the operation, he said he’s confident a buyer will step forward.
Meanwhile, the community is celebrating. Malinauskas described a “genuine sense of relief” in the town.
Is Gupta down with that?
Gupta has indicated potential legal action.
According to a memo obtained by The Australian Financial Review, Gupta is seeking legal advice and said the state was on the “wrong course”.
“This news will be disappointing to us all, not least to me personally, given the huge efforts we have all put in to save Whyalla in 2017 when it was losing $1m a day, return operations in 2024 after a near-death experience, and promote Whyalla’s magnetite potential to a global audience,” Gupta reportedly said.
Malinauskas told the ABC has was “acting in accordance with the best legal advice we can buy as a government”. “And we can buy some pretty good advice,” he said.
Is this an election announcement?
Malinauskas and Albanese flew to Whyalla to announce the funding. The press conference ended with Albanese having a dig at opposition leader Peter Dutton’s nuclear energy proposal.
But asked about election timing, Albanese said it was “so boring”. “I’ve been asked these questions for a year about the election.”
