The owners of Australia’s biggest aluminum smelter, including Rio Tinto Group, have secured a government bailout of A$2.5 billion ($1.8 billion) to keep the plant operating as it grapples with high energy costs.

Majority owner Rio and its partners at the Tomago smelter in New South Wales secured financial support from both the federal and state governments, which will see the venture invest A$1.1 billion in the smelter, according to reports in the Sydney Morning Herald and Australian Financial Review. It will also make the plant more flexible, so that it can reduce power consumption at times of high demand on the grid. 

The bailout was first reported on Wednesday, without financial details. 

Electricity costs have strained aluminum smelters around the world, forcing some operators to shut facilities or reduce output, as competition intensified from lower-cost, subsidized plants in China. Rio has previously said electricity accounts for more than 40% of Tomago’s operating costs, and Prime Minister Anthony Albanese pledged financial support in December, after Rio warned that soaring costs could force the smelter to close when its existing power-supply contract expires later this decade.

Tomago is Australia’s biggest single electricity user, consuming more than 10% of the electricity in New South Wales, the country’s most populous state. The investment will underpin almost 3 gigawatts of new renewable generation, according to the government statement. 

“This announcement today secures the future of this facility,” Albanese told workers at the plant on Thursday. The government support was aimed at “making sure that there is a future made right here in Australia and a future made right here in the Hunter,” he said, referring to the region where the smelter is located.

Under the bailout, Tomago Aluminium will enter into a 10-year power-purchase agreement for electricity when its current contract expires at end-2028, all of which will come from renewable sources by 2033, Rio said in a statement. The shift to 100% green energy will cut the facility’s Scope 1 and 2 carbon emissions by 7.1 million tons a year, the miner said.

Rio owns slightly more than half of the smelter, which has produced aluminum for more than 40 years. Gove Aluminium Finance Ltd. and Norsk Hydro ASA also hold stakes. As part of the arrangement, the owners also committed to spending A$100 million to reduce emissions.

The bailout follows government support secured by Rio in March for its Boyne smelter in Queensland, where the company received A$2 billion in combined federal and state funding.

Rio is not alone in receiving Australian government support for energy-intensive industrial assets. Last year, the federal and respective state governments provided support packages to Glencore Plc for its Mount Isa copper smelter and associated refinery, while Trafigura Group subsidiary Nyrstar Australia received funding for its Port Pirie lead smelter and Hobart zinc works.

(By Paul-Alain Hunt)