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Penrice leaves a pile of problems for SA

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Penrice – the all-but defunct chemical manufacturer – has left a stinking mountain of waste and financial liability in the lap of South Australia’s taxpayers.

A decision back in 2011 to allow the company to dump the chemical waste product, calsilt, on land at Gillman has only added to the problem the State Government now faces following Penrice’s closure of its 84-year-old Osborne manufacturing plant.

The demise of Penrice has been widely expected by those who have followed its corporate misfortunes in recent years.

Stock market investors saw it coming: shares that traded above $2 in 2005 and held above $1 in 2009 were belted to below 10 cents in 2012.

They’ve languished below five cents for some time.

Observers who claimed yesterday that the closure of the Osborne plant “came as a shock” clearly haven’t been paying attention.

Nor has the State Government, it seems.

Key Ministers Ian Hunter (Environment) and Susan Close (Manufacturing) appeared today to not have grasped the fact that the contaminated Osborne site could soon be their responsibility.

Government agency Renewal SA owns the Gillman calsilt dump site; it will soon be the proud owner of some white mounds.

The corporate shell that owns Penrice’s Osborne site was Penrice Soda Products Pty Ltd, one of seven companies that went into administration on April 11 this year.

Administrators McGrath Nicol told InDaily today that Penrice Soda Products Pty Ltd would be liquidated immediately.

“That company and site goes into liquidation,” a spokesman said.

“We’ll sell assets such as production lines and equipment and then decommission the plant.”

That leaves the site likely to head back to government hands as no-ne is likely to buy a contaminated site that has no use, although the Minister,  Susan Close appeared unsure of who owns what.

“The Government owns the land,” the minister said on ABC Radio today.

“There is a legacy of a lot of calsilt in the Port River and on another site.

“We hope to be able to use that as landfill.”

Perhaps she should read InDaily’s report from March 2011 on why that prospect is very unlikely.

Penrice’s liquidated company still owns it – the government will have to resume it.

Ian Hunter was also optimistic.

“We’ll pursue the inheritors of the business to take up that responsibility,” he told the ABC.

With the site’s corporate owner in liquidation, the inheritor will most likely be Renewal SA.

Hunter will be pursuing himself.

Port Adelaide Mayor Gary Johanson is under no illusions about the seriousness of the situation, estimating the clean up cost for Penrice’s manufacturing site as “hundreds of millions.”

The Penrice collapse has been coming for some time.

Rising debt, attempted restructures of the business and a rocky couple of years after the global financial crisis pushed it to the edge.

The only surprise has been that it managed to hold on for so long.

The company’s last three bids to borrow more money and refinance its mounting debt failed.

Penrice’s debt has increased markedly in the last few financial years.

In 2012 the company negotiated a $97 million senior debt facility which included an extension of a previous $67.8 million facility to August 2017, with interest on that facility to be capitalised and not paid.

In August 2013 it’s full year financial results showed an underlying net loss after tax of $21.4 million (FY2012: $6.7 million) and statutory net loss after tax $50.1 million (FY2012: $63.6 million).

It also showed net debt had increased to $112.1 million.

An auditor’s report released in February stated that the company’s liabilities exceeded its assets by $58.7 million.

The company has been making soda ash at Osborne since the late 1930s, when it was better known as international chemical giant ICI.

The salt came from Dry Creek – those mountains of white that you see on your left when driving north out of Adelaide on Port Wakefield Road.

The lime came from a mine at Angaston and was shipped to Osborne by rail.

In 1993 the soda ash business was carved off from ICI and bought out by a private consortium of former executives at the plant.

At the time, Penrice was the fifth largest producer in the world.

The business model, however, relied heavily on the value of the Australian dollar.

In 1993, the Aussie was valued at 66 US cents.

It slumped to 50 cents by mid-2000 and touched 48 cents in 2001.

When it bounced back in the mid-2000s, it was still in the healthy range of 75 cents.

Penrice decided to float on the stock exchange and confident investors were happy to buy in at around $2.

The world, however, was about to change.

In the initial reaction to the global financial crisis in early 2009, our dollar went back to 61 cents, but as Australia’s resource strength kept it ticking over, so did the dollar rise.

It was 80 cents again by June 2009, 90 cents by early 2010 and hit parity in November 2010 – double what it had been a decade before.

In the two years since it has dipped back below 90 cents, but never for long. Today it still sits above 93US cents.

Penrice couldn’t compete.

Energy costs were also rising in Australia adding a double hammer blow to the Penrice equation.

There was a third factor – the world’s biggest supplier of soda ash is the USA company Ansac.

Ansac is a cartel of the three producers – FMC Wyoming, Inc., Tata Chemicals North America Inc. and OCI Chemicals Corporation.

Twenty years ago, when the US/Australian dollar fluctuations were hurting the US producers’ ability to sell cheaply in Australia, the cartel was able to negotiate preferential transport rates from Wyoming to the West Coast, and from there to Australia.

Today, the equation is the opposite and Ansac has a major advantage over Penrice.

In early 2013 Penrice flew the white flag and decided to end its 87-year run as a producer of soda ash.

It entered into a deal with Ansac to but soda ash produced in the US rather than make it locally.

At least 60 jobs at the Osborne plant were gone.

Penrice blamed taxes and government policies for their decision, but the truth was that by 2014 Penrice was a mere shadow of the chemicals manufacturer that dominated the landscape at Osborne.

Its infrastructure was ageing, debt was rising and there were few opportunities to diversify (other than the speculative notion that calsilt could be a commercial land fill).

It’s the calsilt deal that will now come back to haunt the State Government.

In 2011 InDaily revealed how the by-product would now be allowed to be dumped on land across the river.

Under a confidential 10-year lease signed in late 2010 year with landholder Defence SA, Penrice trucks started shifting tens of thousands of tonnes of calsilt from its plant at Osborne to the new site on Moorhouse Rd, Gillman.

Each day, semi-trailers rumbled down the road to the rising white mountains of calsilt, a byproduct, which Penrice said was being trialled for use as commercial landfill.

The site is adjacent to the proposed Port Adelaide Industrial Precinct – a project that Defence SA claimed would bring in land sales revenue of $22 million, until it was scrapped in the Mid-Year Budget Review of December 2010.

Defence SA’s spokeswoman Kelly McGloin told Indaily in 2011 that a lease was negotiated after an approach by Penrice to use the riverside site.

Defence SA refused to release details of the lease, including how much rent Penrice paid; the quantity of material allowed to be stockpiled on the site; and who would be responsible for the material once the lease expired. Or, as it now turns out, when they go bust.

The lease deal had provided a timely solution to Penrice’s ongoing search for a calsilt storage site.

The company had stopped dumping solid waste into the Port River in 2002 and promised to start cleaning that up by dredge.

A proposed pipeline under the river to land north of Grand Trunkway never eventuated.

Another plan to truck it to recycler ResourceCo’s premises, at Wingfield, was stopped after a Supreme Court case involving the Environment Planning Authority and ResourceCo.

Penrice said in a company report in 2011 that it hoped to find a use for the now stockpiled calsilt as a form of commercial landfill.

It never did.

And now its no longer Penrice’s problem, it’s the taxpayer’s: a problem that InDaily has flagged for more than four years.

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