{"id":853500,"date":"2026-08-13T07:18:27","date_gmt":"2026-08-13T07:18:27","guid":{"rendered":"https:\/\/www.newsbeep.com\/au\/853500\/"},"modified":"2026-08-13T07:18:27","modified_gmt":"2026-08-13T07:18:27","slug":"why-the-2-5-billion-tomago-aluminium-deal-is-no-ordinary-bailout","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/au\/853500\/","title":{"rendered":"Why the $2.5 billion Tomago aluminium deal is no ordinary bailout"},"content":{"rendered":"

On Thursday, the federal and New South Wales governments jointly announced<\/a> a deal to bail out the Tomago aluminium smelter, at a cost of A$2.5 billion over ten years.<\/p>\n

The smelter is Australia\u2019s largest single user of electricity. Its majority owner, mining giant Rio Tinto, had been warning higher electricity costs may force it to close.<\/p>\n

Since coming to power, the federal Labor government has stepped in to save<\/a> a number of struggling industrial facilities around the country \u2013 to the collective tune of billions of dollars<\/a>. <\/p>\n

However, this new deal to future-proof the Tomago smelter is different to those previous bailouts. It\u2019s the result of more than a year of negotiations, with a return to the taxpayer, the workforce, the shareholders and the planet.<\/p>\n

Avoiding leaving a \u2018smelter-sized hole\u2019<\/p>\n

Tomago is Australia\u2019s largest aluminium smelter<\/a>. It contributes $2.2 billion to the Australian economy each year, with exports of around $3 billion. The facility employs more than 1,000 full-time workers directly, and supports many more<\/a> in local supply chains. <\/p>\n

Tomago is not only crucial to the Hunter region\u2019s manufacturing base. It is also an important part of the national energy transition. Aluminium is vital to the jobs and industries of the future. <\/p>\n

As Industry and Innovation Minister Tim Ayres said<\/a> in May: <\/p>\n

The full benefits of new industrial firms and technologies are less likely to materialise if there are smelter-sized holes in regional industry. <\/p>\n

Australia\u2019s biggest power bill<\/p>\n

However, the fundamental challenge for Tomago is its power price, which is around 40% of its total costs. This is the largest electricity load in Australia, representing 12% of NSW\u2019s total electricity demand. <\/p>\n

\"Stacked<\/a><\/p>\n

Australia\u2019s largest aluminium smelter, the facility at Tomago produces up to 590,000 tonnes of aluminium per year.
\n Michael Gorton\/AAP<\/a><\/p>\n

Tomago has announced<\/a> it wants to shift to 50% renewable energy by 2030 and 100% by 2035. This makes good sense. Solar and wind are now recognised to be the cheapest form of new power generation<\/a>. <\/p>\n

However, with its electricity supply contract expiring in 2028, Tomago needs to secure power, either coal-fired or renewable, at a commercially viable cost. The prospect of closure<\/a> loomed with a massive loss of jobs and industrial capacity. <\/p>\n

After bailouts of smaller facilities around the country, the federal government was reluctant to directly subsidise a global company of the scale and profitability of Rio Tinto. But nor could it allow Tomago to close.<\/p>\n

A different kind of bailout<\/p>\n

The government was in a bind, until an ingenious solution<\/a> emerged.<\/p>\n

This solution is based on the government\u2019s ability to create so-called \u201cspecialist investment vehicles<\/a>\u201d (SIVs). These provide equity or loans across a range of co-investment opportunities \u2013 including clean energy \u2013 and are governed by independent boards. <\/p>\n

What if the government were to use one of these specialist investment vehicles<\/a> to provide electricity to Tomago at a price that enabled it to remain competitive in global markets? <\/p>\n

This is the approach the government has chosen, and it offers a further benefit. <\/p>\n

The investment vehicle can also provide concessional loans to investors prepared to build the renewable energy capacity that would supply the electricity. Government-backed finance lowers the cost of capital for new projects, guaranteeing Tomago a stable, long-term power price. <\/p>\n

Snowy Hydro is the entity selected to perform this role. Its business model is already geared up to provide renewable energy and to optimise its use through pumped hydro. And it is well positioned to bring more renewables into the grid by de-risking investment.<\/p>\n

Crucially, for every 1% reduction in the cost of capital<\/a>, end-user energy costs are reduced by around 10%.<\/p>\n

Reviving a 1980s solution<\/p>\n

This is not a new idea. It\u2019s a proven financial structure, used by Neville Wran\u2019s NSW government in the 1980s to secure coal-fired power for industry. And it can be applied just as effectively today for the new era of clean energy transition. <\/p>\n

However, there will inevitably be a gap at the initial stages between the market price for electricity and the price negotiated as part of a \u201cpower purchase agreement\u201d with the company. And this is where the federal and NSW state governments have committed to underwrite the difference. <\/p>\n

They will provide $250 million a year<\/a> from 2028 over the following ten years in a time-limited arrangement, with the prospect of the governments recouping their investment through a combination of aluminium revenues and the contribution of Tomago to stabilising the grid. <\/p>\n

In other words, there is every chance this arrangement will be cost-neutral over the decade, while at the same time turbocharging the energy transition and economic diversification of Australia\u2019s most prominent industrial region.<\/p>\n

\"New<\/a><\/p>\n

Prime Minister Anthony Albanese and NSW Premier Chris Minns fronted media while visiting the smelter on Thursday.
\n Darren Pateman\/AAP<\/a><\/p>\n

A blueprint for other interventions<\/p>\n

Too often in the past, governments have leaned on economic orthodoxy to justify inaction, or at most to confine themselves to addressing market failure. The consequence<\/a> has been a hollowing out of Australia\u2019s manufacturing capability, declining business research and development, and stalled productivity growth.<\/p>\n

The approach taken to save Tomago aluminium smelter is an example of how governments can also shape markets. Once underway, it\u2019s an approach that can be replicated and built upon in other places, such as Whyalla. <\/p>\n

Importantly, it provides confidence that Australia can address the task of diversifying its narrow, resources-heavy trade and industrial structure and lay the foundations for a high-productivity, high-wage economy.<\/p>\n","protected":false},"excerpt":{"rendered":"On Thursday, the federal and New South Wales governments jointly announced a deal to bail out the Tomago…\n","protected":false},"author":2,"featured_media":853501,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[64,63,99,164],"class_list":["post-853500","post","type-post","status-publish","format-standard","has-post-thumbnail","category-economy","tag-au","tag-australia","tag-business","tag-economy"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts\/853500","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/comments?post=853500"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts\/853500\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/media\/853501"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/media?parent=853500"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/categories?post=853500"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/tags?post=853500"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}