By Renfrey Clarke
WHYALLA — Company towns mostly have one thing in common: take away the company and what remains is little more than a couple of roadhouses on the way to somewhere else.
Typically, the places that suffer this fate are small mining towns. But in South Australia today, the towns on the road to oblivion include the state's second-largest urban centre, Whyalla. The company in this case is BHP, whose steelworks is by far the largest local employer. BHP recently announced that it will quit Whyalla as soon as it can find a buyer for its assets in the region.
However, the chance of finding a private buyer for the increasingly worn-out steel plant is essentially nil, and although BHP has promised to stay on if no buyer is found, shareholders' demand for maximum profits will see to it that the steel giant progressively dumps Whyalla over the coming decade.
Without an agricultural hinterland, and in the absence of a coordinated, government-led program to develop new industries, Whyalla will shrink to not much more than a retirement village. The cost of abandoning the city's social infrastructure, built up over many years, will be enormous. For people who own houses or small businesses here, the cost will be personal and drastic, effectively putting a bulldozer through their life's savings.
Alice to Darwin rail link
These prospects make a bad joke of Prime Minister John Howard's assurance in late October that the building of the Alice Springs to Darwin rail link would help restore Whyalla to prosperity. The rail project is "a shot in the arm for the South Australian economy", the November 2 Whyalla News reported Howard as saying. "It will provide in particular an enormous economic boost to the city of Whyalla", the PM promised.
The truth is that the benefits from the rail link will be modest and short-term. Whyalla Mayor John Smith puts the likely number of new jobs in the city resulting from the project at about 200, or 250 if steel sleepers are used. This is decidedly less than predictions of the number of jobs BHP cost-cutting will do away with up to 2003, when the rail link is to be completed. At present, BHP employs about 1800 people in Whyalla, with several hundred more employed indirectly via contractors.
The new rail line will need about 200,000 tonnes of steel, most of it for the rails. These orders will be lucrative for BHP, but will create few extra jobs in Whyalla.
Output of raw steel at the Whyalla plant is already close to capacity. If all the rails are ordered from Whyalla, an extra shift of around 30 people is expected to be put on for about three months in the rail-rolling mill. The other new jobs Whyalla is likely to receive will not be with BHP, but will result from work such as the construction of bridge trusses by Whyalla-based steel fabricating firms.
Meanwhile, there is a real danger that production of raw steel in the city will cease altogether long before the requirements of the rail project have been met.
The single blast furnace at the steel plant has reputedly set a world record for continuous operation, and is now four years overdue for relining with firebricks. The cost of this relining is in the range of $70-90 million. Having already declared Whyalla surplus to requirements, will BHP pay big money to put the blast furnace back in working order?
If it continues to be put off, the burning out of the present lining will in any case put the blast furnace out of action at some point in the next few years. With the blast furnace shut down, the basic oxygen steel furnace, which depends on a continuous supply of molten pig iron, would also stop, followed by the continuous caster and the billet caster — a massive slice of BHP's operations in Whyalla.
The rolling mill and the rail mill could continue using stockpiled steel, but once the stockpile is exhausted and it becomes necessary to ship steel to Whyalla, the economics seem very unpromising.
BHP, it seems, is running its Whyalla assets into the ground, which suggests that the firm's directors do not see much chance of a buyer appearing. As well as the cost of relining the blast furnace, whoever took on the Whyalla steelworks would face major work on the coke ovens and in the ore pelletting plant.
To critics of its search for a way out of Whyalla, BHP is able to point to more than 700 million tonnes a year of excess capacity in the world steel market, with many competitors enjoying substantially lower operating costs. This does not mean that making a profit from steel in Whyalla is impossible — BHP's directors clearly have some motive for continuing to run the plant at near capacity. But it does mean that any profits are unlikely to be as high as BHP's major shareholders think they are entitled to, and this is further cause to be sure that any hopes of selling the plant are moonshine.
Social costs
If taking the steel out of SA's "steel city" makes economic sense for BHP, it is of course an absurdity when the costs of largely shutting down a major population centre are taken into account. These latter costs, however, will not be borne by BHP, but by local citizens and, less directly, by Australian taxpayers as a whole.
This would not be the first time BHP has liquidated big investments in Whyalla and left the city to fend for itself. For 35 years until 1977, Whyalla was the centre of Australia's now non-existent shipbuilding industry. When the BHP shipyard closed, Whyalla began a long slide which has caused its population to fall from a peak of 33,500 to 23,000.
Public housing — for which applicants are forced to wait years in other parts of SA — is being demolished in Whyalla for lack of tenants. Three large high schools are half empty. A large proportion of the people who have left Whyalla have moved to the suburbs of Adelaide, where the state government has had to provide them with roads, water supplies, schools and other amenities.
Massive further losses could be avoided if government authorities took over BHP's Whyalla assets and renew the complex, while developing industries that would use the steel produced. Reserves of high-grade iron ore in the nearby Middleback Ranges are sufficient for another 15 years, and if a benefication plant were built, lower-grade reserves would last for many decades beyond that.
Australian governments, however, have a deep prejudice against economic rationalism of this type. This has left Whyalla residents to research other ways of keeping their city intact.
Initial studies suggest that a proposal to develop a ship-breaking industry would be viable, and would provide hundreds of jobs. The only practicable site, however, is the steelworks harbour. This is owned by BHP, and BHP may or may not consider the project to be to its advantage.
To be assured of success, a ship-breaking industry would need to be integrated with a functioning steelworks and, in particular, a reliable source of electricity. This raises further questions about the state government's recent decision to locate a new power station away from the northern Spencer Gulf region, in an environmentally risk-laden site at Pelican Point, near Adelaide.
The Pelican Point decision is doubly questionable because the northern Spencer Gulf region, which together with Roxby Downs consumes about 20% of SA's electricity, has considerable potential for the development of renewable energy.
Several years ago, Whyalla councillor Clinton Garrett headed a municipal committee that studied these issues. According to Garrett, the region's characteristically strong sea breezes, funnelled between mountain ranges on each side of the gulf, make wind generation a real possibility. And what better place than Whyalla, with its engineering tradition, to build the necessary power units?
Other proposals for new industries at Whyalla include petrochemicals, using local salt and feedstock from the Moomba natural gas pipeline, which terminates at nearby Point Lowly. But here again, a degree of world oversupply means that the operator of such an industry would have to accept lower than average profit rates.
There are no essential reasons why a viable productive base cannot be rebuilt in Whyalla, and the city's social capital saved from destruction. However, this productive base will not be restored if the task is left to individual investors, pursuing their narrowly conceived private interests. The principle that governs investment will have to be the whole economic picture, including the exorbitant cost of letting Whyalla die.
In practice, this means that an integrated development plan, backed by legislative authority, will have to be drawn up for the northern Spencer Gulf region. Governments at the state and federal level will have to make key investments, if necessary accepting inferior rates of return on the basis that the net costs to them would otherwise be much higher.
As far as Australia's dominant political forces are concerned, such proposals are, of course, the spawn of the devil. All the major parties are committed to the view that economic development proceeds best when governments stay uninvolved and big business is allowed to pursue profits as it chooses. For the big parties' stand of principle, the people of Whyalla seem destined to pay with their life's savings.