Alcoa Australian smelter wins lifeline bringing relief to embattled city

MELBOURNE (Reuters) - U.S. aluminium giant Alcoa Corp snared government aid and a power deal to keep its Australian smelter open for another five years, bringing relief to an embattled manufacturing and port city with more than 500 jobs saved.

The Portland aluminium smelter’s future had been in doubt after Alcoa flagged in October 2019 it was looking to improve, sell or shut 1.5 million tonnes of smelter capacity worldwide to cut costs and carbon emissions.

Alcoa said on Friday it had reached new, five-year electricity supply agreements with AGL Energy, Origin Energy and Alinta Energy for the smelter, which is the biggest single power user in the state of Victoria.

It also lined up about A$160 million ($124 million) in aid from the Australian and Victorian state governments.

“The government’s support for Portland recognises its important position, not just as a large employer and key manufacturer, but also for its vital role in keeping the lights on in Victoria,” Prime Minister Scott Morrison said.

Alcoa President Roy Harvey said the power agreements would “help to improve the smelter’s competitiveness” of the plant.

Financial terms of the deals were not disclosed.

Australia’s rapidly evolving power grid, increasingly reliant on wind and solar power, has made the plant vulnerable to outages over the past several years as it consumes about 10% of Victoria state’s electricity. The worst instance was in December 2016, when the plant lost two-thirds of its capacity.

The plant has since become crucial to balancing electricity supply and demand, being paid by the market operator to lower its power use at peak demand times.

Located on Australia’s southern coast, Portland, population 10,000, has suffered a horrid 12 months that includes the suspension of its timber trade with China amid a diplomatic rift between Canberra and Beijing.

China typically takes more than 90% of Australian log exports, with Portland the export hub for the country’s south-east.

“You better believe we’ve had a rough time, but this is good news today,” resident and business-owner Steve Garner told Reuters on Friday.

“If Alcoa wasn’t here we would lose around 50% of our supermarkets in town and two or three schools.”

The federal government’s aid will ensure the smelter earns at least A$76.8 million ($59 million) through June 2025 in grid security payments. Alcoa said Victoria has agreed in principle to match the federal support.

“It’s been tough, it’s been challenging and at times it’s been overwhelming,” plant manager Ron Jorgensen said at the announcement of the deal in Portland, apologising as his voice cracked.

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

($1 = 1.2918 Australian dollars)

Reporting by Sonali Paul in Melbourne; Additional reporting by Jonathan Barrett in Sydney and Shashwat Awasthi in Bengaluru; Editing by Stephen Coates