Thank goodness a solution to eastern Australia’s emerging energy supply problems is at hand. Courtesy of the Australian Financial Review today, we got the perspective of BlueScope Steel on matters electrical, and the need for “a steady and affordable supply of power for big industrial users”. Presumably speaking ex cathedra, BlueScope CEO Paul O’Malley handed down a “three-step plan” which, reduced to basics, involves keeping coal-fired power and getting rid of state renewable energy targets. Power costs in the US, O’Malley lamented, were five to 10 times lower than here and businesses were set to flee in droves.
Which is a bit odd given that less than a year ago the Australian Energy Council found that power prices for industrial users were, um, lower in Australia than in the US. Must’ve been a big drop in the US in recent months, eh?
More to the point, we evidently missed the memo about BlueScope being a credible outfit to be talking about business costs, because BlueScope is the source of a serious cost impost on Australian businesses. It’s because of anti-dumping measures designed to prop up the otherwise globally uncompetitive BlueScope that the Australian construction sector faces nearly $2 billion a year in additional costs — derived from punitive tariffs aimed at keeping out cheaper, allegedly “dumped” foreign steel.
Construction companies, property owners and the businesses and consumers that rent and buy properties all face higher costs because of BlueScope and our perverse national obsession with the idea that only manufacturing jobs are real jobs. But O’Malley has the front to complain about costs being too high.
It gets better. In late 2015, BlueScope threatened to close the Port Kembla steel works (that’s in NSW, which relies heavily on coal-fired power, not renewables, but yeah whatever, Paul) and won a wage freeze and the loss of 500 jobs (all up around $180 million in concessions from unions over three years) and wrung a $60 million payroll tax cut over three years from the NSW government. BlueScope promised to repay the handout from 2020 to 2029 — a trifling $6 million a year.
Well, yesterday BlueScope announced a nice gift for shareholders: a $150 million share buyback, and a lift in its interim dividend from 3 to 4 cents a share. Shares rose 4% to $12.68 in yesterday’s weak market, more than three times the level (just over $4) in October 2015 when the concessions were negotiated. In the same month, the company took the risky move to buy its partner out of a steel making joint venture in the US. Within months the upturn in global steel demand and prices emerged and the company’s fortunes improved dramatically.
Yesterday indicated it is on track for an underlying pretax profit to top $1.1 billion for the year to June. That was after directors said the second half yearly underlying pre-tax profit would be about 50% higher than the $340 million earned in the second half a year ago. In the December half, the underlying pre-tax profit was $603.6 million. December half yearly net profit jumped 79.5% to $359.1 million.
Now, admittedly, in October of last year the company did the right thing and paid a bonus to workers at the Port Kembla steelworks to reward them for their sacrifice. But NSW taxpayers? Rather than stringing out repayments to 2029, the company should hop to it and repay the NSW government — the money could even be reinvested in the Port Kembla area if the government wants to address the high level of unemployment in the region.
And one more thing. Every time a business leader like O’Malley complains that energy supply problems are the result of both sides playing politics on energy for a decade and refusing to make tough decisions and they just need to “fix it”, remember this. We had a highly effective energy policy from the Gillard government, a low-cost carbon pricing scheme that succeeded in reducing Australia’s carbon emissions with little impact on households or businesses — and a pro-business market mechanism endorsed by economists. Julia Gillard — partly because she needed Greens support — took a huge risk to implement such a scheme, and was smashed by a cynical opposition for it, under the banner of lower power prices. And it even included a massive handout for BlueScope as part of a $300 million “Steel Transformation Plan”.
Well, Energy Minister (and, hilariously, alleged Environment Minister) Josh Frydenberg has admitted that the entire rationale for the Abbott government’s carbon price repeal — cutting power prices for households — lasted five minutes before prices resumed their upward march under the Coalition. That comes on top of Peta Credlin’s admission that the Gillard government had never introduced a carbon tax, despite that claim being central to Tony Abbott’s campaign against it.
And where were all these business leaders when Abbott was campaigning against a fictional “carbon tax”? Did they speak up in defence of a market mechanism and investor certainty? Did they welcome some political bravery on energy policy? Did they condemn the Coalition for a cynical campaign against good policy? Nope, not a word — although BlueScope was happy to take the government’s money. And many businesses backed Abbott with big donations. If they now want to complain about poor energy policy, they don’t have a skerrick of credibility.