Fri | Sep 21, 2018

Jamaica Noranda reach interim deal on bauxite levy

Published:Friday | June 12, 2015 | 12:00 AM

St Ann-based Noranda Bauxite Limited has agreed to pay the Jamaican Government US$5 - seventy-five per cent in cash - for each tonne of ore it exports from the island over the next six months, as part of an interim agreement until their tax dispute is resolved by arbitrators, who are expected to report by yearend.

In the meantime, the Government will withdraw its application to Jamaica's commercial court for an injunction to prohibit Noranda from exporting the commodity - an action it said it took out of fear of the company's inability to pay if it was allowed to run up arrears.

The arbitration panel, chaired by British lawyer Michael Reynolds, is expected to begin its hearing in Bermuda shortly. Its other two members are Donald McRae, a Canadian attorney who was nominated by Jamaica, and Noranda's nominee, Jonathan Hirst.

Noranda Bauxite is a subsidiary of NYSE-listed Noranda Aluminum Holdings Corporation. Its quarrel with Jamaica is over what rate of levy - a production tax it charges bauxite miners and alumina refiners - should apply to it.

Jamaica says it should be US$7.56 for every dry metric tonne of bauxite Noranda ships, which would be in line with the regime and the prevailing price of aluminium, against which the tax is benchmarked. However, Noranda had insisted that the applicable rate was US$2.50 a tonne, a concession which the Government implemented in 2010 to keep the bauxite/alumina afloat in the face of a global recession, but which, it argued, has since expired.

In the face of the dispute, and pending a determination by the arbitrators, Noranda had halted payments altogether.

Under the interim agreement, the US$5 rate will apply until December 31, with Noranda paying US$3.75 per tonne in cash and the other US$1.25 "in irrevocable letters of credit issued to the GOJ and payable on the termination of this agreement".

Jamaican officials explained that the US$5 would be the "base rate", or the normally minimum applicable levy, calculated at a price of 60 US cents per pound for aluminium.

"At the current price for aluminium the levy would be over US$7 a tonne," a government industry official told the Financial Gleaner.

However, Jamaica and Noranda agree that the interim arrangement would be "without prejudice to any and all rights of either party to contend that no levy is payable, or that another levy rate applies or will apply to all such exports".

In other words, this agreement will not impact their arguments before the arbitrators, a point expressly made in the document.

It says: "Neither this agreement, nor the fact that parties entered into it, shall have any precedential effect beyond its express terms and shall not be offered as evidence in any legal proceeding, including, but not limited to

any injunction proceedings or arbitration."

In Franklin, Tennessee, where Noranda Aluminum is headquartered, its CEO Lyle 'Kip' Smith welcomed the agreement, saying it provided 'necessary certainty' for both sides "without prejudicing either party's position in our arbitration.

"Therefore, we do not anticipate that the interim agreement will have a negative long-term impact on the cost structure of our bauxite mining operations," Smith said. "Noranda believes in the arbitration process and expects a positive outcome."

For the Jamaican Government, which faces stern quarterly fiscal targets under its economic support pact with the International Monetary Fund, the agreement represents a secure flow towards the ultimate goal of a primary surplus of 7.5 per cent of GDP.

If, for instance, Noranda main-tains its early trajectory and exports five million tonnes of bauxite this year, it will, at the interim rate, earn approximately J$3 billion from the levy, as opposed to zero if Noranda paid nothing.

"If the arbitrators agree with us and say that Noranda should pay more, then they will have to pay the difference," said the Jamaican government official. "If it is the other way around, Jamaica would, I presume, have to, in some fashion, reimburse them."