OPINION: The taxpayer bailout of Whyalla’s steel mill shows governments should stay out of business.
Trying to pick winners in business is a rotten habit of bad government and invariably ends in disaster.
Back in 1988 it was an attempt by the Western Australian government to salvage a (failed) plan to build a petrochemical plant at Kwinana. This effort played a key role in exposing the relationship between government and business, which became known as WA Inc.
Last month, in South Australia, the government in Adelaide stepped in to bail out a failed steel mill in Whyalla in a $2 billion deal partly funded by the federal government.
The repercussions of what’s happening in Whyalla will inevitably be felt in WA and other states, because every taxpayer in the country is about to become a part-owner of a loss-making steel mill that should be allowed to fail because it is grossly uncompetitive.
But there’s more to the Whyalla fiasco than a politically expedient decision to save jobs in regional SA. That’s because original plans for revitalising the 84-year-old steel mill formed a key platform in Australia’s broader attempt to foster sources of green energy.
Rescuing Whyalla called for the construction of an electric arc furnace to supersede a coal-fired blast furnace, with the added attraction of electricity for the new furnace coming from renewable energy. This would include hydrogen made from electricity produced by wind turbines and from solar farms.
Said quickly, and without anyone seeming to understand the enormity of the challenge, the Whyalla plan was packaged and marketed as a way of Australia becoming a source of green steel.
What defies belief is that no-one was able at any stage of the plan to accurately say what a tonne of green steel would cost to make. And, if it was more expensive than a conventional tonne of steel, who would pay for the privilege of buying high-cost steel while a competitor was using low-cost steel?
Another feature of the 2025 Whyalla rescue is the federal government’s view that a local steel mill is a nationally important asset.
This might be true, but it could well be a mill that passes on its high costs to every local customer, thereby damaging their competitiveness.
Politics and the imminent national election are swamping common sense at Whyalla, with Prime Minister Anthony Albanese defending the green steel plan even as the SA government abandons its proposal to spend $593 million on a hydrogen plant.
Rather than waste money on a hopeless attempt to try and produce financially competitive green hydrogen, the SA government will now spend the money keeping the old, loss-making Whyalla mill working as a way of saving jobs.
A search will also start to try and find a new owner of Whyalla, which is almost certain to prove fruitless, unless the government is prepared to offer a guarantee to continue supporting the mill in perpetuity.
The whole process is a farce driven by environmental activists embedded in Australian governments who haven’t got a clue about how business works and how high costs kill the smartest ideas.
If there is any good out of what’s happening in Whyalla it’s the implied recognition by the SA government that it can’t make financially viable green hydrogen, something WA’s green hydrogen champion, Andrew Forrest, has also discovered.
Even with the dawning of business reality in Whyalla, it is likely that the green energy extremists in Canberra will persist with their vision for the rest of the country, whatever it costs.
Slippery slope
Australia is not alone in having governments prepared to use taxpayer funds to prop-up failed businesses in the name of saving jobs (but also saving politicians’ careers by handing out other people’s money).
In Scotland, the regional government is planning to spend $50 million in an attempt to keep the big Grangemouth oil refinery operating to save jobs, despite oil exploration and production being restricted at a national level.
In future, Grangemouth will likely be required to import oil from Norway, Russia or the Middle East to continue operating, despite there being plenty waiting to be extracted from under the North Sea.
Solar panel manufacturing – another of the Australian government’s selections as a business winner – faces a torrid time due to a global surplus of solar panels.
The size of the surplus was the subject last month of a report by the international management consultancy McKinsey & Company, which looked at the problems caused by gross overproduction in China and a slowdown in demand in Europe and the US.
“Companies that planned for thirty per cent growth instead saw twenty per cent declines [and] essentially face having sixty per cent more of everything they need, equipment, labour and supplies,” McKinsey wrote.
It’s into that solar panel hothouse that Australia is preparing to enter, with the predictable outcome of failure, much like Whyalla.
And then there’s the government plan to spend $1 billion on a supercomputer in Queensland, just as Apple reveals it has discovered a new particle that should enable the construction of large-scale quantum computers more powerful than the one planned for Queensland.
Wrong call
Waves from the free-wheeling revolution unleashed by US President Donald Trump have barely reached Australia, and those that have are connected to his ludicrous belief that tariffs fix everything wrong in America.
Once Mr Trump realises that his tariffs have done little more than force up the costs of US manufacturers, he might reach deeper into his bag of tricks and pull out a bazooka called currency devaluation.
The aim here would be to make America more competitive by using the US dollar to lower the cost of American goods in foreign markets. (Although this strategy disregards the point that much of the country’s manufactured exports have been priced out or fail on quality grounds.)
Cars are the perfect example of the US misreading the market, producing vehicles that are light years behind German cars at the top end and even further behind Chinese cars at the bottom end.
But there is some good news, because a depreciated US dollar will boost those Australian commodity exports priced in the US currency, which is just about everything.
