Aluminium smelter bailout to cost taxpayers $2.5b over 10 years

A bailout of the country’s largest aluminium smelter will cost taxpayers $2.5 billion dollars, with the New South Wales and federal governments expected to split the bill down the middle. 

Late last year mining giant Rio Tinto warned the Tomago Aluminium plant could be forced to close when its energy supply contract ran out in 2028, due to the rising cost of renewable and coal-fired power.

Tomago is currently Australia’s largest electricity user, using about 10 per cent of the state’s total electricity supply annually.

A joint statement from the NSW and federal governments said the funding package would “secure the future of aluminium smelting in the region.”

“The joint investment will deliver a long-term renewable energy solution for the Tomago Aluminium smelter that supports commercially sustainable operations beyond 2028 and accelerates decarbonisation of more than 10 per cent of NSW’s electricity grid,” a spokesperson said in a statement.

The spokesperson noted the contribution from the NSW government “is capped at $1.225 billion over 10 years from 2029”.

The smelter’s owner, Rio Tinto, will invest a minimum of $1.1 billion on top of the taxpayer funding, to reduce its energy usage and gear it toward renewables.

“This includes $100 million to drive further decarbonisation activities at the smelter and undertake an innovative demand-response program to support the NSW grid,” the spokesperson said.

“This demand-response program aims to position the Tomago smelter as the international leader in electricity demand response and flexibility services.”

Prime Minister Anthony Albanese and NSW Premier Chris Minns will visit the smelter on Thursday to tout the deal.

During a previous visit to the Hunter site, the prime minister told Tomago workers he suspected a deal could be reached quickly.

However, plans stalled when a clear-cut funding agreement could not be reached with NSW. 

It is understood the federal government wanted an even 50:50 funding split, similar to a deal inked with the Queensland government for the Boyne Aluminium Smelter near Gladstone.

At the time, Mr Minns pushed back on the even-funding proposal, saying the deal was being led by the federal government and any contribution from the state must work in the interests of NSW taxpayers.

Flow-on effects

The smelter employs about 1,000 workers and has been operational 24 hours a day since 1983.

The long operating hours and heavy production processes make the smelter the largest single electricity user in NSW.

The rescue package follows a string of similar bailouts offered by the Albanese government to struggling heavy industries, including Glencore’s Mount Isa Copper smelter and the struggling Nyrstar smelters in Tasmania and South Australia.

The Electrical Trades Union said workers had been on edge for months as they eagerly waited for an announcement about their future.

Union organiser Brad McDougall said a deal could not come fast enough.

“It’s been very difficult for all employees on the site,” he said.

“We get comments made like, ‘I wake up every day not knowing if today is going to be the day’, positive or negative … so this news will be fantastic.”

Rio Tinto’s latest annual report showed it had recorded a $10 billion profit after tax across 2025, attributable to its owners.

Its total aluminium and lithium projects were valued at $4.6 billion, up from $3.6 billion in 2024.