BlueScope scraps plans for cleaner, greener power plant

Sydney Morning Herald
Wednesday 6/5/2009 Page: 21

BlueScope Steel's plan to build a $1 billion-plus cogeneration plant to lower greenhouse gas emissions from its blast furnaces at Port Kembla has emerged as the first major casualty of the Federal Government's decision to delay the start of the proposed emissions trading scheme by at least a year.

The steelmaker, which in November had hoped to start construction within a few months pending the finalisation of the Government's carbon pollution reduction scheme,yesterday revealed plans to place the project on indefinite hold. A 150-page prospectus for a $1 billion-plus equity raising also revealed a $463 million gap in funding of defined-benefit pension schemes for its employees in Australia, New Zealand and the US.

BlueScope's chief executive, Paul O'Malley, said the cogeneration project had been delayed due to the uncertainty of the costs associated with the emissions reduction scheme and the impacts of the financial crisis. "We will continue to invest in the steelworks to make sure that we reduce CO2, emissions and undertake key maintenance," he said yesterday.

BlueScope, one of the biggest greenhouse emitters in Australia, had planned to use the cogeneration plant to replace ageing steam-producing assets. It had announced the project in November 2006 but over time the cost had risen substantially from its initial estimate of $500 to $700 million.

The plant would have used surplus gas from iron and steel making operations to produce electricity and steam, which would reduce the need for coal-fired electricity from the national grid and save 800,000 tonnes of emissions a year, out of its annual emissions of 12.6 million tonnes.

BlueScope said its decision to delay the $1 billion project for now meant it would implement a lower-cost, short-term solution that would defer the need to replace the steam assets for several pears. It will spend $50 million next year and the following year to install a new steam main and boiler to replace older equipment but that will have little effect on its emissions.

The steelmaker, which has taken a financial hit from a collapse in steel prices in recent months, said it was likely to take a second writedown on the value of its inventory - estimated at $100 to $140 million after tax - after already impairing its stock in February.

BlueScope also disclosed it had contributed $31 million to a shortfall in its defined-benefit pension scheme in the half-year to December 31 and more contributions were likely due to a $463 million deficit in the scheme, which has projected obligations of $1.2 billion. Other big companies, such as Rio Tinto and Qantas, have also announced large shortfalls due to the rapid sharemarket decline.