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The South Australia Labor government has joined with its federal counterpart to mount a $2.4 billion rescue scheme for the steel-making plant in Whyalla.

After poor management and inadequate investment by private corporations brought the plant close to dissolution, the move is designed to preserve steel production at the site, settle outstanding debts and prepare the complex for sale to a new set of private owners.

But even if new private investors can be found, there is little cause to think the crisis will not simply repeat itself.

Meanwhile, there is a crucial environmental question at play.

The steel plant has been at the centre of calls to shift Australia’s iron and steel industry to “green” production — needed on a world scale if climate disaster is to be mitigated.

The only solution is to take the plant into public ownership and, on the basis of adequate financing and integrated planning, to create a world-leading industrial complex that commands premium prices for its environmentally clean product.

Vital to manufacturing

Though small by world standards, the Whyalla plant is vital to Australia’s steel manufacturing.

It is the country’s only producer of long girders and rails and has one of only two operating blast furnaces, able to turn iron ore into new metal rather than simply recycling scrap.

Starved of investment by a series of corporate owners, the Whyalla plant was badly run down by 2016. In April of that year, it went into administration, .

Finding a new owner then proved difficult. It was only after 10 months, and with the deal sweetened when workers agreed to a 10% pay cut, that billionaire British steel magnate Sanjeev Gupta picked up the complex for a bargain price reportedly in the region of .

As Whyalla’s “investor angel”, Gupta promised a major expansion of the plant and, eventually, a transformation of its basic steel-making process. In place of its coal-fuelled blast furnace, the complex would shift to new “green steel” technology.

Oxygen would be stripped from the iron ore through a high-temperature reaction using hydrogen, obtained by electrolysis of water using the region’s abundant, ultra-cheap renewable energy.

The iron from the smelting process would then be turned into steel in a new electric arc furnace, powered by the same renewable energy. Carbon dioxide emissions would be cut to near zero.

Both the federal and SA governments met Gupta’s pledges with relief and enthusiasm.

The Whyalla steelworks became the centrepiece of a “Hydrogen Jobs Plan”, under which SA Labor Premier Peter Malinauskas promised $600 million to build a 250-megawatt hydrogen electrolyser, among the largest in the world, along with a $200 million hydrogen-fired peaking power plant.

Gupta no angel

Gupta, however, was not the angel he seemed.

From modest beginnings, he had built his European steel empire with astonishing speed. University of Sydney corporate law and insolvency professor recently assessed the magnate’s approach to business involved considerable risks.

“It seemed to be a business strategy that depended on continually raising more debt, and having access to cheap debt.”

Gupta’s luck began running out in March 2021 with the collapse of his main funder, Greensill Capital. By October 2021, it was apparent that Gupta’s family company GFG Alliance was using the Whyalla plant as a “cash cow” to sustain other operations.

, proceeds from Whyalla were being used by the company to “repay its creditors and secure a funding agreement to restructure the debt of Mr Gupta’s international empire”.

Meanwhile, the entrepreneur’s more ambitious plans for the Whyalla steelworks were being quietly shelved.

Amid a general drive for cost-cutting, maintenance appears to have been scanted. A planned two-day shut down for repairs to the blast furnace in March of last year ended disastrously when molten steel hardened inside it. The furnace was offline for four months.

Later, the furnace was shut down again, after the plant ran out of coking coal. The Guardian reported in October that British authorities were prosecuting Gupta for failing to file accounts for .

When operations at Whyalla resumed last month, the furnace was functioning at only half capacity. While Gupta and his executives scoured the finance markets for fresh loans, wages reportedly went unpaid and debts to suppliers and contractors mounted. The SA government-owned utility $15 million.

In all, had by this time run up unpaid debts of more than $300 million.

Meanwhile, by reports that the steel boss planned to spend $10 million on lavish renovations to his $34 million Sydney mansion.

By February 19, Malinauskas’ patience had run out. Laws were rushed through parliament and the steelworks was forced into administration.

: “State energy minister Tom Koutsantonis said steel sales from Whyalla had totalled $4.8 billion since 2019/20, but large amounts of money had been sent offshore to settle claims from the collapse of financier Greensill, for intra-company loans and for the purchase of a South Korean business.”

Prime Minister Anthony Albanese announced on February 20 federal funding of $1.9 billion to revive the steelworks, in the first instance by paying creditors and maintaining jobs.

Other sums will come from the SA government, as it reassigns funds meant for its now-deferred hydrogen electrolyser and power plant.

The steelworks will thus be saved and, to a degree, upgraded, although the plans for hydrogen-based green steel will not be realised soon.

None of this is surprising since, politically, no government could allow the plant to be shut down. Apart from the sensitive question of Australia being able to make its own iron and steel, Whyalla, with its 22,000 people, would not survive the closure.

Labor plans troubling

But do Labor’s further plans really make sense?

Albanese and Malinauskas have made clear that after being refurbished, the steel plant will again be sold off to private interests.

Speaking to radio 5AAA, : “We want [the plant] run by the private sector.” : “We’re not in the ‘rule out’ position but I don’t think that [nationalisation] would be a desirable outcome.”

The implications are troubling. Though the Whyalla plant has large reserves of high-quality ores close at hand, it remains a relatively small operation in a global steel industry bedevilled by oversupply.

Profit margins for steel firms are mostly wafer thin, and a buyer for the plant will not be easily found. The chances seem high that the complex, after being modernised at taxpayer expense, will again be sold off for a derisory sum.

Worse, there is the real prospect that the only credible-seeming bidder will be another “adventure capitalist” such as Gupta.

Re-establishing a viable steel industry in SA requires the kind of financial resources that the private sector is unlikely to want to risk. The only realistic source of this money is the public purse. But if taxpayers are to bear the cost, they are entitled to demand that the assets stay in public ownership.

Further, the public are entitled to demand that the steel plant be saved as part of a rational plan that takes in the whole of the Northern Spencer Gulf industrial region, and that stresses new processes and highly productive, clean technologies.

[Renfrey Clarke is a member of the .]