Future of Gove smelter uncertain still

Canberra has countered calls for a drastic intervention in the domestic gas market to guarantee energy supplies to a Rio Tinto aluminium refinery amid estimates it could cost $2 billion to rescue the Northern Territory facility.

Resources Minister Martin Ferguson moved against the proposals by signalling it would be up to Rio and the Northern Territory government to strike a commercial deal to power the refinery.

While the federal government is willing to help build a pipeline to the facility, the minister said the assistance would not extend to underwriting the gas supply.

Rio announced last October it was reviewing the Gove smelter and reiterated yesterday that it would decide by the end of this month on whether to suspend the operation, which employs 1400 workers and adds about $400m a year to the Territory economy.

NT Chief Minister Terry Mills is to receive a report within days on how to ensure energy supplies to the smelter, which uses heavy fuel oil but would be more efficient if it could tap into the Territory's rapidly growing gas fields. The NT cannot meet all Rio's requirement because the territory's contract with ENI provides only 700 petajoules of gas over 25 years. The smelter needs 300 petajoules over the next 10 years and the same in the subsequent decade.

Making up the shortfall would cost the NT about $1bn and could be done only with federal assistance. Building a 500km pipeline to get the gas to the refinery would cost another $1bn in construction and facility upgrades, the subject of an Export Finance and Insurance Corp analysis to consider federal assistance.

Mr Ferguson's office said the federal government was working with the NT government and the Rio subsidiary, Pacific Aluminium, to explore options for the Nhulunbuy indigenous community, which is heavily dependent on the smelter.

Once NT negotiations with the gas suppliers reached a conclusion, the federal government would give "careful consideration" to options that might help the infrastructure construction, she said.

The NT government is appealing to Canberra to underwrite the risk associated with giving up some of its contracted gas supply to help save the smelter.

NT Acting Chief Minister Robyn Lambley said it would be "unthinkable" for the Territory not to examine every avenue to keep the Gove refinery going.

Federal sources confirmed there was no willingness to intervene on the gas supply issue.

The refinery and bauxite mine at Gove is believed to be losing about $240 million a year, in large part because of the high cost of heavy diesel power generation.