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Brock deal's $150 million price tag

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The State Government’s deal with Port Pirie-based independent Geoff Brock has added at least $150 million to State Budget liabilities.

The liabilities relate to the cost of a transformation project at the Nyrstar-owned lead smelter in Port Pirie.

Brock and Premier Jay Weatherill told ABC Radio this morning that the deal for the independent to support a minority Labor Government included a commitment to further indemnify the Nyrstar project, should other proposed arrangements fall over.

“I thought the deal was signed sealed and delivered,” Brock said, referring to the Federal Government’s expected $150 million commitment to partly underwite the $385 million transformation project.

“Jay Weatherill has given me an undertaking that if that’s not successful it’ll be funded through the State Government.”

InDaily understands Nyrstar had approached the State Government during the caretaker period prior to the election, asking for an extension of the State Government’s underwriting of financial risks associated with the transformation project.

In the 2013-14 State Budget papers of last June, State Government exposure in the complex deal to transform Port Pirie’s ageing smelter into an “advanced poly-metallic processing and recovery facility” had been estimated at $115 million.

If South Australia is required to take on the Federal Government commitment, that figure rises to $265 million; it could rise further if Nyrstar asked the state to take part of the company’s own exposure.

Smelter owner Nyrstar’s transformation project – a last ditch bid to keep the business profitable and environmentally acceptable – had attracted joint federal and state government support.

The Federal Government commitment is yet to be confirmed, however, as acknowledged by Brock and Weatherill.

The capital investment required for the transformation – estimated in December 2012 at $350 million – included $100 million from Nyrstar, another $100 million from the forward sale of silver produced at Port Pirie and $150 million from third party investors.

The $150 million was to be being underwritten by a guarantee from a Federal Government agency, the Australian Export Finance and Insurance Corporation (EFIC).

The $100 million forward sale of silver is also subject to a guarantee – and that’s where the taxpayers of South Australia came in.

If Nyrstar pockets the $100 million, but is prevented from making and supplying the silver because of environmental problems, then the buyer will get their money back from the SA Government.

Just what those circumstances might be is unclear.

A spokesman for the State Government told InDaily last June: “The State Government has agreed to provide the counterparty to the silver forward sale an indemnity/guarantee of up to $115 million with respect to their investment that would apply in the limited circumstances where the redeveloped Port Pirie is unable to meet its obligations under that forward sale as a result of the crystallisation of any historic and contingent environmental liabilities.

“This indemnity/guarantee is an important part of the funding package and will provide greater security to external financiers to invest in, or fund, the redevelopment against the potential adverse financial effects of these historical and contingent environmental liabilities.”

Today’s commitment to cover for the Federal Government adds another $150 million to the state’s potential liabilities.

Weatherill said today he would soon release a “public document” that costs the commitments made to Brock to secure his support on the floor of the parliament.

“I’m not going to go into the details of this commercial arrangement publicly now except to say this: that both the state and federal government have made important commitments in terms of minimising regulatory risk and also financial risk so that this company can invest $385 million to secure the future of Port  Pirie.”

The Premier’s office later told InDaily; “The details  of this commercial arrangement are a confidential matter but both the State and Federal Governments have made important commitments in terms of minimising regulatory and financial risk to allow Nyrstar ‘s board to be in a position to approve its multi-million dollar investment in the Port Pirie Transformation.”

 

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