Bleak outlook for refinery restart, creditors’ cash

Posted April 13, 2016


As headlines continue to fly about politician and business heavyweight Clive Palmer’s role in the downfall of Queensland Nickel, a local economist says the Yabulu refinery operation has reached the end of its natural life.

Empower Economics principal economist David Lynch was commenting after administrators FTI Consulting this week released their report – noting that that the business could have survived the drop in nickel prices if millions of dollars had not been shifted to interests including Mr Palmer’s political party.

FTI Consulting has recommended that the refinery operation be wound up, with the matter due to go to a creditors’ meeting on April 22. (Click here to view full report - Queensland Nickel - Section 439A Report to Creditors)

Mr Lynch said that while the hundreds of workers directly impacted by the operation’s decline were justifiably angry, there also a general sense of frustration in the local community about how events had unfolded.

“No one wants to see Townsville in the news for this purpose. Townsville for so long has been a good news story, but what is occurring now is not encouraging investment or furthering the city’s reputation as being a balanced, diverse city,” he said.

Mr Lynch said the involvement of the Palmer United Party founder added a political element that made the situation more complex and put the city in difficult position compared to a place like Whyalla, where parties were rallying to offer assistance after steelmaker Arrium went into administration.

Slim chance for restart

Mr Lynch (pictured below) believed there was little chance of the Yabulu refinery resuming operations.

The halt in operations in March would have meant lost supply contracts and staff accounts indicated that the plant had been poorly maintained in recent years, he said.

David Lynch Oct 11“In addition to that, anyone who was to take over the operation would be liable for the clean-up costs,” Mr Lynch said.

“I believe clean-up costs could be north of $200 million and you would be getting a plant that is 50 years old and has some major issues with being viable and its competitive position on the cost curve.

“It has reached its natural life to be perfectly honest and has been in administration a couple of times before.

“From that perspective, I don’t know that it would be a great buy. I also don’t know that it’s a good thing to be keeping people hanging on in hope of a public buy back.”

He said the plant had long ago lost the location advantage of being close to nickel mining (at Greenvale).

Call for loan guarantee

KAP leader and Federal Member for Kennedy Bob Katter has called for the political representatives of the Townsville region to push for a loan guarantee proposal to secure the refinery jobs.

“The much maligned Bjelke-Petersen Government could provide over $170 million in loan guarantees to Queensland Nickel in 1985 on a budget of around $5000 million,” he said.

“There should be no question that today’s government with a $500,000 million budget should be able to guarantee a $100 million loan. Bjelke-Petersen’s government didn’t even hesitate.”

Mr Katter said nickel prices were sure to go back up and the plant would be profitable again.

Mr Lynch said nickel was notorious for frequent pricing periods that left operations marginal or running at a loss and that Clive Palmer would have known that the prices he was enjoying while times were good were abnormally good.

“He should have known that the operation would have to sustain long periods of marginal or loss-making prices,” he said.

But the diversion of QN cash to purposes not related to refinery operations had meant the Yabulu operation had no reserves to tap into, he said.

Mr Lynch said the company operating the refinery had been a shell company, with the business structured in a way that other entities held the major assets and it appeared there would be little cash to divvy up between the creditors – including former workers.

“If ASIC believes there has been a deliberate process put in place to avoid responsibilities it will lift those veils of incorporation, see who has been standing behind those veils and go after them,” he said.

“That’s why there is so much focus on where the money flowed and whether Clive Palmer has been acting as a shadow director.”

Clive bites back

Mr Palmer (pictured below) said the report released by the administrators of Queensland Nickel contained a number of derogatory and untrue statements in relation to himself, QN and others.

In a statement on his Facebook page, Mr Palmer said he wanted to be clear that at no time had he acted as a shadow director.

ScreenshotMr Palmer said also he had obtained a $23 million line of credit which when added to the joint venture bank account would have kept the refinery open avoiding further redundancies.

“Instead the administrator decided to sack all 550 employees, not pay their entitlements and to close the refinery,” he said.

Queensland Nickel employees who were first made redundant were paid two weeks wages in advance while their redundancy and entitlements were being determined. he said.

“It was FTI who made the decision not to pay entitlements, not any person working for Queensland Nickel,” he said.

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Outlook bleak for creditors

Mr Lynch said the consensus was that there is not going to be much money at all for creditors and the process would take a long time.

However, the operation going into liquidation meant redundant workers would be able to access federal funding under the Fair Entitlement Guarantee to cover statutory and other accrued entitlements.

“I suspect, given the political climate the Federal Government will want to expedite this,” Mr Lynch said.

“I would be surprised if it is still hanging around in a month’s time given the political and economic climate and the will and desire here to alleviate the impact it’s having on employees, the city and the region.”

But Mr Katter feared workers may not see government payouts for a long time.

“People be cautioned and keep their powder dry here because I’ve been informed that many of the hundreds of employees from the Kagara closure still have not gotten their Fair Entitlements Guarantee (FEG) payments, years down the track, and that has been in spite of indirect pressures from Treasurer Swan and Treasurer Hockey and, of course, continuous pressure and public attacks by myself,” he said.



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