Alcoa has announced it has suspended work on the proposed expansion of the Wagerup Refinery, until market conditions improve. Here, Alan Cransberg explains more.
Is the expansion permanently off the table or only temporarily?
We are still very much committed to the expansion of the Wagerup Refinery but in the current economic climate now is not the right time to move forward with the project. When market conditions improve we will revisit the expansion.
We have to act responsibly and proactively in challenging times like these to ensure a continued bright future for Alcoa in Australia. This decision is primarily due to the global financial crisis resulting in changing demands for our product in the marketplace. The other factors, which contributed to this decision, were energy availability issues for the expansion and the need to understand the detail in the impending emissions trading scheme.
This year in Western Australia the energy security situation has really come to a head – particularly with the Varanus Island incident. Alcoa has shown its commitment to securing a strong energy supply for WA with our announcement to partner with Latent Petroleum to explore for tight gas in the Perth basin. We have a long history of underpinning energy infrastructure in WA - but energy security and availability remain challenges.
Of course the emissions trading scheme is a consideration because it will have significant impacts for our industry. However, we continue to work with the government to ensure the challenges we face are well understood.
When are you going to revisit the expansion? Are we talking a few months, or a few years?
I cannot predict how the global financial crisis will play out. I wish I had a crystal ball, but these are unprecedented times. What I can say is that we [Alcoa of Australia] are in a strong position to weather this storm. We have excellent businesses here in Australia with great people and when market conditions improve we will revisit the Wagerup expansion.
How do you respond to claims that this decision is a win for your opponents around Wagerup?
This decision is solely about the economic turmoil, reduced demand in the marketplace, energy availability for the expansion and the need to understand the detail in the emissions trading scheme.
Wagerup 3 continues to represent one of Alcoa’s best brown field opportunities, globally, to deliver value through an expansion. We are committed to the project and we will revisit it when conditions improve.
Will this decision result in any job losses?
No Alcoa jobs have been lost due to the suspension of work on the expansion. The Alcoans working on the Wagerup 3 project are being moved to different parts of the business and they are still very much part of the Alcoa team.
The fantastic work that has already been done on Wagerup 3 is not wasted. That work is the foundation of this wonderful project and it will be resurrected when we revisit the expansion. When that time comes, the hard work of the Wagerup 3 project team will be a springboard to take the expansion forward.
Alcoa launched the Wagerup Sustainability Fund which was an initiative linked to the expansion. Given this decision, where does this leave the Fund?
The Wagerup Sustainability Fund was an idea generated by the community during community consultation about the Wagerup expansion back in 2004. Alcoa listened to the feedback from community and acted on it. We subsequently set up the Wagerup Sustainability Fund under the Western Australian Community Foundation (WACF). While Alcoa established the Fund, it is now independent of us. The WACF is the Fund trustee and oversees the Fund, and it’s the local community who decide the Fund’s spend.
The Fund is already up and running and will continue. Alcoa is committed to the Fund and we will make annual donations for the next 20 years. Our annual donations are linked to production at the Wagerup Refinery. On current production that equates to around $430,000 each year, but of course that figure will increase when the expansion goes ahead.
It is actually in challenging economic times that community funds, like the Wagerup Sustainability Fund, work best because it’s a guaranteed revenue stream for the community.
Some have described this decision as a blow to economy given it would have created new jobs for the South-West region and provided extra revenue for the government.
Our decision to suspend work on Wagerup 3 was not taken lightly, but it was necessary given the challenging economic climate. In times like these, hard decisions need to be made to ensure we continue to have a strong future in Australia.
We are absolutely committed to the expansion and when market conditions improve this expansion will be revisited. It is not off the table by any means.
Alcoa is an enormous contributor to the West Australian, and indeed Australian, economy and that won’t change. We account for around 5 per cent of WA’s exports and nationally contributed almost $5 billion in exports last year. Alcoa will continue to make a significant contribution to the economy and in fact 80 cents in every export dollar earned stays in Australia.
Lastly, how bad is the financial crisis for Alcoa?
What the financial crisis has shown is the importance of running strong businesses. This is true not just for Alcoa but businesses in general. Alcoa has been in good shape for many years now, so when crises such as these hit, we are in a strong position to weather the storm.
We have fantastic operations here in Australia and while there are always challenges in business, it is how we manage them that matters - and here in Australia we are managing these challenges well.
