TM reporter Tom Moore speaks to John McCabe, media relations officer at Lynemouth, Rio Tinto, to find out why the plant is being closed.
Shock followed the announcement that Rio Tinto will close its smelting plant and sell-off its power station at Lynemouth: a minimum of 515 jobs will be lost, from within the aluminium smelting side of the business, with a further 111 jobs lost if the company can’t find a suitable buyer for the power station.
Tom Moore: Jacynthe Côté, chief executive, Rio Tinto, pointed to legislation that punished high energy users as a reason for the closure in Lynemouth. Can you pin down the specific legislation behind her quotes?
John McCabe: It’s not just about legislation; this is a high cost plant. It is of course a 40 year-old plant, and it a relatively small one in global terms. The plant was already under pressure before we saw the full impact of the legislation. However, costs are rising – and one of the drivers behind that comes from legislation.
There are three pieces of legislation. One is the Large Combustion Plant Directive that is an expense of £7m to £11m over the course of 2011 and 2012. From 2013, it goes up to about £17m, rising to about £31m in 2015.
There is also the EU Emissions Trading Scheme, which the Lynemouth smelter is not currently covered by, but will be in 2013. Full exposure to the worst case scenario in when Lynemouth is affected by this legislation is about £48 million per annum.
On top of that we have something called Carbon Price Support. This begins in 2013 also and we are probably talking about £10 million worth of costs resulting from the legislation, rising year on year.
Legislation is a big threat long-term, but we have been brought to this stage for reasons over and above legislation. This is about the economics of a 40-year old small plant.
TM: You mention that the smelt plant is 40 years old and inefficient; were there not any upgrades or improvements you could have made instead of closing the plant?
JM: We have invested very heavily in the plant. Over the past 15 years we have spent well over £240m on reducing its environmental impact and improving energy efficiency, but there comes a point in a plant’s life when it is no longer economically viable. Unfortunately, that is where we are with Lynemouth today.
TM: Speaking about life-spans; can you tell us how long the closure has been planned for?
JM: We have gone through a strategic review of the business, looking at all options for how Lynemouth could be retained and operated in the future. I’m afraid there was no interest in the smelting plant with the economic situation that it faces. The announcement is a consequence of a thorough review of all options. It’s not that this has been planned for some time; we’ve been reviewing the options for some time.
TM: How long is “some time”?
JM: We’ve been reviewing throughout this year and for most of last year.
TM: Talking time, how long will it be until the smelter is closed down? What will the process be?
JM: The answer to this will be determined during the 90 day consultation, which will involve employees and trade union representatives. We will have to consider the aluminium and power prices before deciding on dates.
TM: What are the chances of Rio Tinto selling the power station, potentially saving the jobs of 111 people?
JM: We are talking to a third party now about that. We have announced talks, negotiations are not concluded but I hope they will be in due course. Hopefully the power station will have a long term future, developing low carbon technology, under alternative ownership.
TM: Where will smelt operations be moved to? The legislation you mention as a cause of the pressure leading to the closure of Lynemouth is UK and European, will manufacturing at Rio Tinto be moved out of Europe?
JM: No, there is no move out of Europe. We will meet our existing customer obligations from elsewhere within the organisation. Plants elsewhere are being invested in and are expanding.