Article by Phillip Coorey, courtesy of Financial Review
12.12.2025
Rio Tinto has agreed to keep open its troubled Tomago aluminium smelter in return for a Commonwealth-led deal that will provide it with billions of dollars in subsidised power from the Snowy Hydro project and other renewables sources, all firmed by gas.
But in a sign of unrest over the undisclosed full cost of the arrangement, the NSW government was conspicuously absent from Friday’s announcement, while the opposition decried the bailout as an admission the government had lost control of the energy system.
Following months of negotiation to avoid the smelter closing down at a cost of at least 1000 jobs, Prime Minister Anthony Albanese and Industry Minister Tim Ayres made the announcement at the smelter outside Newcastle, NSW.
“I have a simple message for the workers here in Tomago today. That is, we have got your back. We are working with the company, we are working with the NSW government to make sure that there is a long-term energy solution to go forward beyond 2028,” Albanese told assembled workers.
“Have a great Christmas in the knowledge that over coming months, as a result of the decision that we have taken, we will be working on finalising these details to make sure that your future is as secure as it should be.”
Tomago produces more than one-third of Australia’s aluminium and accounts for 12 per cent of NSW’s energy consumption.
Rio, the majority owner, was threatening to close the smelter in 2028 because it could not secure a long-term, affordable energy contract, in part due to the ailing reliability and increasing cost of coal-fired power in NSW.
“The deal…is exactly the kind of government intervention that is necessary to revitalise and decarbonise our manufacturing base.”
— Annika Reynolds, Australian Conservation Foundation national climate policy adviser
Under the new deal, the details of which are yet to be finalised, the federal government, and possibly the NSW government, will underwrite the energy from the Commonwealth-owned Snowy Hydro to guarantee Tomago a cheaper and reliable supply with back-up from the Snowy-owned gas peaking plant at Kurri Kurri, west of Newcastle.
It is unclear how keen the NSW government is to contribute. It played no role in Friday’s announcement and a spokesman said it was still negotiating with Canberra.
Ayres argued the deal, while coming at significant cost to taxpayers, will have the added consequence of accelerating the rollout of renewable energy in NSW and increasing the overall supply of power in the grid, thus putting downward pressure on prices.
‘Underwriting lower cost electricity’
“This agreement will underwrite the development of new generation wind, solar storage projects and transmission, accelerate that in NSW and mean that we are underwriting lower cost electricity, not just for here but building the electricity grid and lowering costs for households and business at the same time.”
The Australian Financial Review has previously reported the government was working on a two-step plan with Rio after it initially rejected a $1 billion bailout offer.
The first is for Snowy Hydro to provide Tomago with electricity under contract from 2028 to help bridge the gap until renewable energy projects come online. The price would be below what Tomago would otherwise have to pay, which means taxpayers would cover the gap.
The second step is for Snowy Hydro to directly invest in renewable energy projects that would supply Tomago in the longer term. That would be attractive to Rio because it would remove a broader issue about electricity supply, as well as to the NSW government, which would have access to renewable projects backed by Snowy Hydro if Tomago were to close.
The political implications of Tomago closing would have been potentially serious for the Albanese government, which holds the seats that would have been affected by large-scale job losses.
Albanese paid particular tribute to Tomago chair Kellie Parker for her “constructive” engagement on saving the smelter.
‘Important day for Australian manufacturing’
Rio Tinto chief Simon Trott said Parker had been “instrumental” in the deal.
“Today’s announcement at Tomago is an important day for Australian manufacturing,” said Trott.
“This progress reflects years of collaborative work between Tomago and its joint venture partners, including Rio Tinto, in addressing one of the most complex energy challenges facing Australian industry.”
The Australian Conservation Foundation welcomed the development, saying it would underpin the future of green aluminium export growth.
“The deal prioritises access to low-cost renewables over high-cost, high-pollution fossil gas and is exactly the kind of government intervention that is necessary to revitalise and decarbonise our manufacturing base,” said the ACF’s national climate policy adviser, Annika Reynolds.
AWU national secretary Paul Farrow called it a pivotal moment for manufacturing.
“For months we’ve been saying that Tomago isn’t just another industrial site. It’s the test case for whether Australia is serious about having a manufacturing future,” he said.
“You can’t have the largest aluminium smelter in the country closing while talking up the future of local manufacturing.”
The government has already committed taxpayer funding to prop up other unprofitable manufacturing operations, including smelters in Queensland and Tasmania, which have struggled with affordable and reliable power supply as the grid transitions away from coal generation.