Point Henry looking for cheaper power - Age

The Melbourne Age newspaper has today reported that Alcoa is meeting with the State Government, seeking to secure lower electricity prices.

Alcoa announced in early February that the future of the Point Henry smelter was under review. The high Australian dollar, rising input costs and the age of the plant all conspired to make the smelter unprofitable. Australia’s carbon tax- set to be introduced mid-year is a contributing factor, though local Alcoa officials refused to blame the tax directly. See here for the original announcement.

But the article stops short of confirming the headline. The body of the article mentions that Alcoa would not comment on its discussions with suppliers, but that “well-placed sources” confirmed that the company was negotiating with the Government.

You have to worry when a newspaper quotes well placed sources in a matter that the typical journo knows little about. The risk of being fed mis-information, and swallowing that information, rises exponentially.

The Government faces a difficult economic and political challenge, if indeed they are considering reducing the electricity price. The Government must weigh the cost of loss of revenue from sales of electricity with the cost of unemployment (actually a federal cost), but also the implications from the political angle. Cutting the price of electricity to a big multi-national when that electricity is generated from brown coal, and when that multi-national is threatening the loss of significant export revenue - Alcoa is Victoria’s largest exporter - all makes for a messy dilemma. And it comes as Australia prepares for the introduction of a carbon tax.

The further complication for the Victorian Government is whether they will be throwing good money after bad. What sort of guarantee can they extract that Alcoa won’t close the plant in any case, even with cheaper electricity, if the world price of aluminium doesn’t recover sufficiently? With a strong Australian dollar, and rising alumina prices and carbon costs, it could all be for nothing.

That may well be the worst possible outcome for the Victorian Government - to suffer the wave of criticism if they reduce electricity tariffs, only to find it was to no avail. That would cost a lot of votes.

Refusing to help is no better, but at least they would be able to argue that they were wise not to throw money at a departing multi-national.

All this however, is no help to the people faced with impending closure and loss of their jobs.