Aussie Rerefiner Warns Against Subsidy Cut

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Right after finishing construction of its second rerefinery, Australias Southern Oil Refining says it may have to close its first if the country enacts proposed cuts in consumer-funded subsidies for waste oil recycling.

Last month, Southern Oil completed construction of its AUD $55 million (U.S. $51 million) plant in Gladstone, Queensland, named the Northern Oil Refinery. The project is jointly owned by J.J. Richards & Sons, an Australian waste management company.

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With capacity to process and rerefine up to 100 million liters (approximately 26 million gallons) of waste lubricating oil per year, Southern Oil claims the plant will be the largest rerefinery on the continent. The company currently processes around 35 million liters of waste oil per year, or 8 percent of the nations waste oil, at its flagship rerefinery in Wagga Wagga, New South Wales, where the company is headquartered.

Southern Oil relies heavily on Australias consumer-funded waste oil recycling incentives program, which provides the company around $11 million per year, Managing Director Tim Rose told Lube Report.

The Product Stewardship for Oil Program, introduced in 2001, encourages increased collection and recycling of used oil in Australia by paying companies that process the material. Currently, the incentive is 50 cents per liter of Category 1 fluids produced by rerefineries. Category 1 fluids are base stocks of high enough quality for use in automotive lubes, hydraulic fluids or transformer oils. To fund this, the government imposes a levy of approximately 5.5 cents per liter on sales of all finished lubricants.

However, this benefit may eventually be cut in half, according to the Department of Environments third review of the program, completed last fall. A major structural imbalance in the levy-benefit arrangement…is resulting in current annual deficits, which will be compounded by known increases in rerefining capacity, the department noted in its September 2013 report, in which it deemed the program financially unsustainable in the long term.

To keep the levy-benefit scheme and bring it into financial balance, the agency has proposed a possible solution: decrease the benefit for Category 1 oils by 5 cents per liter every two years, beginning in 2014-15, until the amount sinks to 25 cents per liter. Another proposed change would increase the levy to 7 cents per liter.

If the drop in benefits is passed, Southern Oil would have to close its original rerefinery, Rose said, noting that the Wagga Wagga plant is older and uses more dated technology. The Wagga Wagga rerefinery will be closed if the proposed changes are implemented, he asserted.