Alcoa Australian aluminum plant rescued with government aid

An Alcoa aluminum plant in Alcoa, Tennessee, U.S. is seen in this April 8, 2014 file photo. REUTERS/Wade Payne/File Photo

SYDNEY (Reuters) - An Australian smelter run by Alcoa Corp will resume production after a major blackout, under a government-sponsored rescue package securing its future for at least four years, with electricity supplied by AGL Energy Ltd.

The Portland aluminum smelter in Victoria state was crippled in December 2016 after a blackout caused molten aluminum to solidify, meaning the smelter could run at only a third of its 300,000-tonnes-per-year capacity.

Alcoa said on Friday it will immediately begin work to restart production of the lost capacity, a process that would take around six months, with A$30 million ($23 million) provided by the federal government. Once work is completed, the smelter will be restored to the 85 percent capacity it was operating at prior to December 2016, Alcoa said. The government’s financial aid is dependent on the smelter remaining an operational until at least until 2021 and output remaining at least 90 percent of pre-blackout levels.

“This is our commitment to ensure that you can get back on your feet and get going again, creating great export dollars and defending 700 jobs here, and over 2,000 in the region,” Australian Prime Minister Malcolm Turnbull told the smelter’s workers on Friday.

The capacity is due to be restored just weeks ahead of Alcoa’s new electricity supply agreement beginning.

The four-year AGL supply agreement, which will begin in August 2017 when the smelter’s existing contract ends, is for 510 megawatts, or around 10 percent of Victoria’s total electricity load. A recent rise in electricity prices had added to pressure on the smelter, which has also been battling a years-long glut in the global aluminum market.

Pricing on the new power contract was not disclosed, however AGL said under the deal Alcoa will have flexibility including “rights in relation to the curtailment of the smelter at times of high electricity spot price.”

The Portland area has become vulnerable to power supply problems and price spikes as neighboring South Australia state has grown heavily dependent on wind and solar power, relying on back-up from a power link to Victoria and gas-fired plants.

The Portland smelter is co-owned by Alcoa, Australian firm Alumina Ltd, CITIC Resources and an arm of Japan’s Marubeni Corp.

Reporting by Colin Packham; Editing by Matthew Lewis and Sonali Paul