TOMAGO Aluminium has backed claims by leading shareholder Rio Tinto that the smelter was "on thin ice" unless Australia could permanently reduce electricity prices.
Tomago's chief executive, Matt Howell, yesterday agreed with Rio head Jean-Sebastien Jacques, who used Rio's half-yearly results to warn that high power prices were threatening its three Australian smelters and the "thousands of jobs" that went with them.
Mr Howell said Tomago employed 1100 people directly and electricity costs were "pivotal to its future".
Alcoa, which runs Australia's only other aluminium smelter, at Portland in Victoria, has also expressed concerns about power prices and energy reliability and was forced to cut electricity use during a heatwave in January.
Despite posting its biggest half-year profit since 2014, Rio's world-wide aluminium revenues fell by almost 20 per cent and its after-tax earnings by almost 65 per cent.
Importantly, its Pacific Aluminium subsidiary, housing Rio's Australian and NZ smelters, lost $US96 ($135 million) after tax in the six months to June 30, compared with a profit of $55 million ($77 million) over the same period last year.
Mr Jacques said Australia should have "a cheap, reliable, globally competitive source of energy" but did not.
"Are we on very thin ice? Yes we are," he said in relation to the smelters. He said Rio was talking with governments and energy companies about "ways to ensure the long-term viability" of the smelters.
Rio acknowledged that global aluminium prices were down, but that this made it all the more important for Australia to have "globally competitive" power prices.
Mr Howell said his concerns extended beyond aluminium smelting to their impact across the manufacturing sector.
"We need internationally affordable energy prices to compete in a global market, and that's our greatest challenge if we are going to continue to be a country that makes things," Mr Howell said.
"At Tomago, electricity is our largest input and we have the largest power bill in the country. The cost of power is pivotal to our future here long-term. That question has to be resolved and we've been very clear about that with the state and federal governments, our communities and our employees.
"I take my hat off to the efforts of our employees and our suppliers, who've helped reduce costs and drive amazing improvements in productivity, but all of that pales into insignificance compared with the hundreds of millions of dollars a year we pay in power costs."
Tomago's power comes from AGL, which has the Liddell and Bayswater coal-fired stations as baseload providers. The long-term power contract is confidential but has "escalation clauses" that are lifting Tomago's electricity bill at the same time as average monthly wholesale prices in NSW have gone from $35 a megawatt hour (MWh) to $89/MWh in under five years.
The increased penetration of wind and solar power has helped reduce spot wholesale prices to $0/MWh or less for short mid-day periods this month, which renewables pundits have celebrated as a win for the industry.
But Mr Howell said this was of little use without the 24/7 reliability that aluminium and other industries needed.
The Minister for Energy and Emissions Reduction, Angus Taylor, said Rio's smelters at Tomago, Boyne Island (Qld) and Bell Bay (Tas) were "crucial businesses and employers".
"This situation highlights the importance of maintaining baseload coal and gas generators, and attracting new low-cost baseload generation over time," Mr Taylor said.
The Australian Workers Union, the biggest union at Tomago, says gas from Narrabri would ease the situation if the NSW government lifted its moratorium on fracking.
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