Interview with Melissa Clarke, ABC Radio National

HOST: Good morning. Welcome to AM. I'm Melissa Clarke in Canberra coming to you from Ngunnawal country and acknowledging other custodians. After months of protracted negotiations, the Federal and NSW Governments have settled on a multibillion-dollar subsidy to keep the Tomago Aluminium smelter going.

Rio Tinto had threatened to shut down the Hunter Valley smelter at the end of 2028 if it couldn't get an affordable electricity deal. The smelter employs about 1,000 people and is the nation's biggest electricity user. The Federal Industry Minister Tim Ayres joins me. Minister, good morning. Thanks for speaking to us on AM this morning.

SENATOR TIM AYRES, MINISTER FOR INDUSTRY AND INNOVATION AND MINISTER FOR SCIENCE: G' day Mel. Really good to be on the show.

HOST: Now tell me, how much is it costing the State and Federal Governments to keep Tomago going?

AYRES: Well, this is a $2.5 billion package that secures not just the 5,000 [indirect jobs] in the Hunter Valley that rely upon this facility but brings forward around 3 GW of investment in new electricity generation and secures this vital aluminium asset for Australia for our end-to-end aluminium manufacturing capability all the way from bauxite through to advanced manufacturing and defence products. This is a good deal for the Hunter Valley and for Australian manufacturing, but it's really important for Australia's national interest too.

HOST: How will this funding work? Is the Government subsidising the gap between what Tomago can afford to pay for electricity and the cost of generating it?

AYRES: Yeah, well look, the big challenge for Tomago Aluminium has been that coal fired power is too expensive. The owners of the facility have made that clear not just privately to us, but publicly to the workforce here and to the Australian people. The under investment and disinvestment in the electricity system over the period of the Abbott and Turnbull and Morrison Governments made electricity too expensive. This is an investment in new capability wind and solar backed by storage and gas that will deliver competitive electricity. And we're supporting that transition with this package all the way through to 2039.

HOST: Will this involve Snowy Hydro?

AYRES: It certainly will. Making sure that we can deliver a power purchasing agreement here supported by the two Governments that will mean more investment. Now that's good for Tomago Aluminium because it delivers them a competitive electricity price. But it's also good for households and other businesses because it drives in new investment into the electricity system that will make that will deliver lower costs over time, will make the economy more productive and more competitive.

That's what a Future Made in Australia is about. It's lifting our industrial competitiveness in our capability, making the economy stronger and more robust. Delivering for those businesses and those workers, blue collar workers who work hard every day but making the whole economy stronger too.

HOST: Rio Tinto couldn't make this work on their own. Being backed by new renewable energy. Is it not possible for a heavy industry of its scale to figure out how to work in a net zero economy without support from taxpayers?

AYRES: Well, Future Made in Australia is all about making sure that we're delivering low-cost competitive electricity and gas through our gas reservation strategy that we announced late last year to make sure that Australia's energy competitiveness advantage in the future is the source of our future competitive advantage. Driving investment in new industry, reindustrialising our regions to make Australia stronger, deliver good jobs and make our economy more productive too.

HOST: I just want to look at the impact on the taxpayer here. So, the NSW Government contributions capped at $1.225 billion. The Commonwealth's contribution doesn't seem to be. So, could this end up costing more than $2.5 billion.

AYRES: Well, this is a complex and large arrangement. It engages initiatives like increased demand flexibility to strengthen the electricity system that delivers a benefit for everybody. It has profit sharing arrangements that accrue to the Commonwealth here that mean that in the event that aluminium prices are at a sustained high level, that there will be a return to the taxpayer from this arrangement.

As I say, it's a large and complex undertaking, not a straightforward one, a tough thing for the Governments to work through and to deliver together, but it's manifestly in the national interest, it's in the interest of taxpayers, it'll be accounted for properly and carefully. But today is all about the impact that it's going to have on this region's economy.

HOST: Indeed. But it could cost more than $2.5 billion.

AYRES: Well, it's a $2.5 billion commitment. We are backing that in a full-throated way. This is a government with the largest pro manufacturing policy platform in Australian history. A Prime Minister who's the most pro manufacturing Prime Minister in Australian history. Anthony Albanese has led this effort.

HOST: Can I ask a bit more about Australia?

AYRES: It delivers for the region.

HOST: Can I ask a bit more? This revenue sharing agreement, you said it would kick in if the aluminium price hits a sustained high level, does that mean you would expect regular revenue because of this? Or is this something that you would only envisage would happen once in a while when profits are at a super level?

AYRES: Well, I don't want to make predictions about the future. You'd have to have some confidence. I think with global demand for aluminium so high, this is a crucial product.

HOST: So, you are factoring in getting a revenue return on a regular basis from this?

AYRES: Well, time will tell what the return to the taxpayer is.

HOST: You must have some idea though, because you've just told me it's a very complex financial deal that has been arranged. So, you must have factored in some level of return. I'm asking how frequent. If you can give us a characterisation of how frequent you anticipate that will be.

AYRES: It's a potential return to the taxpayer. That means that we've got a shared interest in the success of this facility. It's not a simple bailout package. This is a complex undertaking. That means we've got shared interests in delivering for the electricity, the power purchasing agreement, the investment in new generation and transmission between the governments. There's a shared interest in that. There's a shared interest in the success of the facility more broadly. That's why I'm convinced that not only will this deal be in the interests of Australia and NSW, but it will work in the interests of the local economy.

HOST: Have you signalled to the heavy industrial sector that if they threaten to walk, you'll pay?

AYRES: Well, I have got very high expectations for the heavy industry sector about what they will deliver in terms of new investment and new jobs and new capability in Australia. Heavy industry is vital for making Australia stronger for delivering our national interests like this is. This is industry that matters for Australia's future. We're determined to secure our current capability and our Future Made in Australia agenda in critical. Minerals and metals and steel and iron is unrolling out before Australians now because it's vital for Australia's national interest that we deliver it.

HOST: So, if this sector, particularly aluminium production, is vital, that raises questions about the future and level of intervention into the aluminium smelter at Bell Bay in Tasmania. The Tasmanian Government is saying there is a $60 million gap between the cost of powering it and what Rio Tinto is willing to pay for Bell Bay. The Tasmanian Government wants you to cover that gap. Will you do that?

AYRES: Well, in Tasmania there is a publicly owned green powered electricity generation, distribution and retail operation, TAS Hydro. It is owned by the Tasmanian Government. It was established in the 1950s to deliver low cost electricity for households and for heavy industry like Bell Bay Aluminium. They are engaged in a negotiation now about future power contracts. I don't want to say anything publicly that undermines that very important discussion about the future of Bell Bay Aluminium. We'll keep engaged in that.

HOST: Can you clarify one point though? Because it's been one thing that's been causing quite some level of confusion and that's whether or not Bell Bay Aluminium smelter would be eligible for green aluminium production credits. You've previously said they would be, but your colleague down there, the local member, says it's not. Can you clarify, would it be eligible for it?

AYRES: The focus here should not distract from this. The focus here is on a discussion between Hydro Tas and Rio Tinto, the owner of the Bell Bay Aluminium facility.

HOST: You can't be clear with a yes or no as to whether or not it would be eligible?

AYRES: It's in the interests of Tasmanians and in the Australian interest for that. For the focus of those discussions to be about a competitive electricity price. It's quite a distinct situation from Tomago Aluminium here which is undergoing a massive transition to deliver low cost electricity through wind and solar, backed by storage and gas in the national electricity market. This is that has a publicly owned generator delivering hydropower, green power. It has since the 1950s. And that negotiation should be brought to a conclusion in the interests of the Bell Bay community, but also Tasmania.

HOST: Federal Industry Minister Tim Ayres, thank you very much for speaking to me this morning.

AYRES: Thanks, Mel.