The WA government has extended a taxpayer-funded lifeline, to the tune of more than $200 million, to a failed foreign-owned coal mine that is critical to the state's biggest electricity system.
Key points:
- The WA government is tipping in more money to ensure Griffin's coal supplies
- It is believed the premier will extend support for the mine until 2026
- WA has already had to shell out almost $40 million keeping Griffin afloat
With WA power supplies coming under increasing pressure, WA Premier Roger Cook on Friday visited the coal-mining town of Collie, about 180 kilometres south of Perth, where much of the state's electricity is generated.
While there, the premier announced an extension of the WA government's financial support for the stricken Griffin Coal mine until 2026.
Under a standstill agreement with Griffin's receiver and manager, big four consultancy Deloitte, the government is tipping in money to prop up operations and ensure coal supplies continue.
The commitment comes despite the fact the state has already had to shell out almost $40 million keeping Griffin afloat since standing behind the miner late last year.
At the time, then-premier Mark McGowan admitted the government had agreed to underwrite Griffin because they were "payments that we just need to make".
Mr Cook said without the $220 million, the mine could close suddenly, and hundreds of workers would lose their jobs, putting the Perth and South West electricity system at risk of blackouts.
"Put simply – I won't let that happen," Mr Cook said.
"It will provide certainty to the workforce and for the other industries that rely on the coal mine and ensure the electricity grid remains reliable and affordable."
The premier added there was no commercial solution to the foreign-owned mine's woes.
"So it's incumbent on the government to now intervene, to take control and to ensure we find a way to keep the lights on by keeping this coal mine working.
Why is this happening?
Griffin's long descent into financial woe has proved a headache for the government, which has had to contend with the ripple effects of the miner's troubles in the rest of the energy system.
Although the share of electricity generated by coal in WA is falling, it still accounts for about 30 per cent of annual demand.
What's more, Griffin is one of only two coal mines in the state, where it supplies the privately owned Bluewaters power station.
Bluewaters provides about 15 per cent of the power in the system each year.
The problem for Griffin Coal, and as a consequence the electricity grid and West Australian residents as a whole, is that the miner simply cannot get a high enough price for its coal.
It supplies coal to the privately-owned Bluewaters power station and to industry more broadly, but went into receivership in September last year owning debts of about $1.5 billion.
As Mr Cook said today in Collie, Griffin Coal has "a contract from Bluewaters, that the current owners inherited which means that they cannot provide coal at an affordable price".
"They are bound by that contract."
The government has been unable to see that contract "renegotiated on more sustainable commercial terms".
On top of that, Griffin Coal is dealing with dropping demand for coal and higher costs for producing the resource.
For the government, it means the possibility Griffin Coal would collapse without more bailouts, which it said would then put the electricity system at serious risk without another energy source ready to fill the gap.
A complex web of problems
Problems at Griffin and neighbouring outfit Premier Coal, which is owned by the Chinese, forced the government to import coal from the eastern states last year as it scrambled to shore up supplies in time for summer.
That decision, the cost of which has never been disclosed, helped contribute to a major deterioration in state-owned power provider Synergy's finances in the 12 months to June 30.
Griffin collapsed into receivership in September last year, owing its lenders and suppliers about $1.5 billion.
By far the biggest debt was owed to giant private Indian bank ICICI, which had helped fund the ill-fated original purchase of the miner by Indian conglomerate Lanco Infratech in 2010.
Any extension of the Griffin lifeline is likely to anger unions, who have been pushing for the state to consolidate WA's two troubled coal mines to provide certainty for workers and the power industry.
'A disaster': Opposition
The opposition's energy spokesman Steve Thomas dubbed the government's commitment of $220 million to Griffin Coal as a "declaration of utter failure".
"This provides no certainty; it simply kicks the can down the road a bit further," he said.
"They are going to spend a quarter of a billion dollars propping up a foreign-owned insolvent company and in three years' time we will be in exactly the same position that we are today."
But Mr Cook said the government was limited by Griffin Coal's commercial contract with Bluewaters Power Station.
"This is the only way that we can actually resolve it for now, a brutal solution, a time-limited solution, and one which will see us get through this particular problem until June 2026," he said.
The two key unions representing workers at the Griffin Coal mine have described the government's funding announcement as a very disappointing short-term measure that created great uncertainty for workers.
The Mining and Energy Union (MEU) and Australian Manufacturing Workers Union (AMWU) accused the state government of doing the minimum possible to keep Griffin Coal afloat until 2026.
"If it does finish in 2026 when they withdraw the funding, then our concern is what happens to those workers because there are no replacement jobs yet for those workers to pick up," MEU state secretary Greg Busson said.
The unions had proposed a transition trust to secure and manage the mine and its assets until they were no longer needed, and ensure workers kept their entitlements.
"The government, I think they've missed an opportunity to be trendsetters in transition, instead of just taking the easy option and continuing more of the same," Mr Busson said.
Addressing concerns workers at the mine could be left in limbo after 2026, Mr Cook said there was a "huge range of opportunities on the horizon" in Collie.
He said a proposed magnesium refinery and a green steel project could deliver 500 ongoing jobs.
"And that means when this support package for Griffin ends in June 2026, we'll have the jobs in place to support a managed transition for Griffin workers as we continue our major investment in Collie to 2030," the premier said.
However, those projects have yet to be given all necessary approvals to begin construction.