Taxpayer exposure in the complex deal to transform Port Pirie’s ageing lead smelter into an “advanced poly-metallic processing and recovery facility” has been estimated at $115 million, State Budget papers show.

The circumstances in which the money would be payable will be the subject of Opposition probing in the parliament’s Estimates Committee examination of the Budget and in debate of proposed laws that restrict the Environment Protection Authority’s power over the smelter’s operations.

Smelter owner Nyrstar is in the first stage of its transformation – a last ditch bid to keep the business profitable and environmentally acceptable.

It has attracted Federal and State government backing because of the local economic impacts of the company’s operations in Port Pirie and Hobart.

Its Hobart smelter produces waste products that are re-processed at Port Pirie.

Last December the company announced it was starting the process of change, including an in-principle agreement with the Australian Federal Government and the South Australian Government.

The capital investment required for the transformation is estimated at $350 million, with Nyrstar tipping in $100 million, another $100 million coming from the forward sale of silver produced at Port Pirie and $150 million from third party investors.

The $150 million is being underwritten by a guarantee from Australian Export Finance and Insurance Corporation (EFIC).

The $100 million forward sale of silver is also subject to a guarantee – and that’s where the taxpayers of South Australia come in.

If Nyrstar pockets the $100 million, but is prevented from making and supplying the silver because of environmental problems, then the buyer will get their money back from the SA Government.

Just what those circumstances might be is unclear.

A spokesman for the State Government told InDaily last week: “The State Government has agreed to provide the counterparty to the silver forward sale an indemnity/guarantee of up to $115 million with respect to their investment that would apply in the limited circumstances where the redeveloped Port Pirie is unable to meet its obligations under that forward sale as a result of the crystallisation of any historic and contingent environmental liabilities.”

“This indemnity/guarantee is an important part of the funding package and will provide greater security to external financiers to invest in, or fund, the redevelopment against the potential adverse financial effects of these historical and contingent environmental liabilities.”

It’s the meaning of “crystallisation of any historic and contingent environmental liabilities” that Opposition regional development spokesman Martin Hamilton-Smith wants explained.

“We support the principle of the transformation of the smelter,” Hamilton-Smith said.

“But the terms of this underwriting are unclear; perhaps that’s why it was quietly stated in Budget papers and not in a separate announcement.

“The Opposition is on the record in its support to secure the transformation and modernisation of the smelter to secure jobs and the economic future of Port Pirie.

“The project, however, needs to be an open and accountable process.”

Three months after last December’s announcement of the transformation proposal the State Government announced it had been awarded major development status.

Then, on 10 April this year, Nyrstar told its shareholders it had sold forward to February 2014 (the expected date by which the transformation funding package would be effected) “five million troy ounces of silver at a price of approximately USD 28/toz”.

“The current intention is that this position would be rolled into $100 million forward sale component of the transformation funding package in February 2014.”

On 24 April, the SA Government confirmed it would pay $5 million towards the funding of Nyrstar’s final investment case, expected to be completed by the end of 2013.

It extended its helping hand further last month when legislation governing smelting operations in Port Pirie was introduced into parliament.

The Bill restricts the Environment Protection Authority’s power over the company, giving ministerial veto powers relating to licence conditions for the next decade.

At first blush, this appears to prevent the prospect of smelting and processing operations being stopped due to environmental concerns.

Those concerns relate to a raft of reports in recent years that show one in four Port Pirie children under the age of five have blood lead levels above 10 micrograms per decilitre – the level recommended by the National Health and Medical Research Council.

The State Government told InDaily there were moves to address the contamination levels.

“Separately, a new Targeted Lead Abatement Program is being developed with the aim of significantly reducing lead contamination levels in Port Pirie by re-scoping the existing community lead reduction scheme,” its spokesman said.

Balancing the issues of environmental damage, children’s futures and taxpayer-supported incentives to investors in the smelter has a way to go yet.

In the Budget paper three, page 118, contingent liabilities, the statement that taxpayers will fund “a guarantee/indemnity of up to $115 million in respect of certain potential environmental, health and property liabilities” requires further explanation.