Gov’t takes Noranda to court over levy ... Wants company to pay or halt exports
Saying that it is wary of the company's ability to pay if allowed to rack up arrears on production taxes on bauxite it ships from the island, the Government of Jamaica has sought a court injunction to stop Noranda from exporting the ore. Or it should pay at the rate the Government says it is contractually obligated to, until their dispute is resolved by arbitration to be held in Bermuda.
No date has yet been set for the arbitration hearings, but a judge in the Supreme Court's commercial division is expected to hear arguments on the injunction on June 11.
Noranda yesterday accused the Government of disrupting the arbitration process by seeking a court order to halt its bauxite shipments from Jamaica until the arbitration is concluded.
"This action could be damaging to Noranda's business and the livelihood of over 700 direct and indirect employees," Noranda's VP of communication, John A. Parker, said.
In an affidavit last week, supporting Jamaica's request for the injunction by the Supreme Court's commercial division, the financial secretary, Devon Rowe, argued that Jamaica could be "severely prejudiced" in the recovery of the debt if it succeeded at the arbitration and Noranda had been allowed to export bauxite during the process and not pay the bauxite production levy at the disputed rate.
Said Rowe: "The GOJ has reason to be concerned that Noranda's financial position places the GOJ at risk of not recovering the levy that arbitrators may order Noranda to pay to the GOJ. The GOJ has brought this to Noranda's attention, but it has denied it."
Conversely, the Government has pledged to pay any damages that Noranda might suffer if the injunction was granted and it eventually prevails in the dispute.
Noranda Bauxite Ltd is a subsidiary of the US listed company, Noranda Aluminum Holdings, which has operational control of the entity.
The dispute is over what tax rate should apply, since January of this year, for each tonne of bauxite Noranda exports from Jamaica. The Government insists that it is the full rate of US$7.56 per tonne, but Noranda apparently argues that the US$2.52 that it paid under a concessionary regime signed in 2010 is still in force. That downward adjustment in the levy was at the time of the global economic collapse, and the Jamaican Government was in a scramble to keep its bauxite-alumina sector afloat.
Significantly, Noranda has suspended payments altogether, apparently on their interpretation of the arbitration agreement that they are entitled to do so until the issue is resolved. But one government official described the company as "acting like a bunch of cowboys".
At the Government's levy rate, assuming Noranda exports four million tonnes of bauxite, at average output in recent years, its tax obligation to the Government would be around US$30.2 million, or approximately J$3.5 billion.
If Noranda prevails, its bill would be around $1.2 billion, which would leave a significant hole in the Government's revenue that would potentially unsettle its requirement to return the primary surplus of 7.5 per cent of gross domestic product (GDP) under its economic support agreement with the International Monetary Fund (IMF).
Yesterday, Noranda told The Gleaner that it "has and continued to comply fully with the law and its agreements with GOJ".
"Noranda has chosen to exercise its rights under the Bauxite and Alumina (Special Provisions) Act to set off income taxes against levy payments. The claims set forth in the GOJ's May 28, 2015 application for an interim injunction are completely without merit," Parker said.
Financial analysts say that part of the Government's aim would be to ensure an even flow of taxes it believes it is owed, so as to give it a better chance to meet the IMF's quarterly performance targets.