This week's announcement by the mining minister, Phillip Paulwell, of UC Rusal's deal with the Government to keep its Ewarton alumina refinery open and install a coal-fired power plant at the facility to enhance its competitiveness is good news for Jamaica in these bad economic times.
In the short term, 600 jobs are assured. By the time the power plant is completed in 2015, Ewarton will go back to full production - of 600,000 tonnes - employing nearly 1,000 people.
But potentially more significant than the Ewarton plan, if it materialises, is the promise by Rusal, which controls more than 70 per cent of the island's alumina capacity, to reopen sometime in the not-too-far future, its Kirkvine and Alpart refineries and make Jamaica a base producer of alumina for its aluminium smelters.
In other words, Jamaica, for Rusal, would no longer be a swing location - one that stays in production only when the price of aluminium is high and capable of cushioning Jamaica's production inefficiencies. In bad times, production, jobs and income migrate to other jurisdictions, as has been the case since the onset of the global recession in 2009 when Rusal closed Kirkvine and Alpart.
This may be an opportunity for Jamaica to rectify a major mistake in how it has managed its returns from the industry.
Jamaica first felt the burden of this emerging production strategy in the 1970s when companies then operating in the island retaliated against the Manley Government's introduction of a levy on production by moving capacity to Guinea, Australia and other jurisdictions. In the global recession of the mid-1980s, Alcoa decided to close its Jamalco refinery before it was taken over by the Seaga administration.
The problem for Jamaica is that it falls in the second tier of productivity for alumina refineries. The cost of energy is a major culprit.
The clear implication of Rusal's undertaking, therefore, is that it may either build new power plants at Kirkvine and Alpart, or expand the proposed US$100-million, 30-megawatt one at Ewarton, and then, perhaps, 'wheel' power to the other refineries. The latter idea seems the most logical in economic terms and in the context of the Government's emerging energy strategy, under which private players will have greater leeway to craft their own energy solutions.
Rusal's decision on Ewarton is not without cost to Jamaica. Having already discounted the bauxite levy for the past three years, the Government will give it up altogether for a year. Similar concessions will no doubt be made for Kirkvine and Alpart.
For now, Jamaica saves jobs. In time, the levy should flow again.
At the time of its introduction, it was predicated on receiving a return for a finite resource, which would then be invested to build the country's productive capacity for the time when bauxite was depleted. In the 38 years since, we have earned around US$4 billion, or J$360 billion at today's exchange rate. But we have little to show for the inflows into the Capital Development Fund.
Our recommendation is that the fund be reconfigured and managed like the PetroCaribe Fund, providing loans for development projects, rigorously analysed for their benefit to the economy, with tested rates of returns and an obligation to repay, guaranteed by the Government.
Jamaica's commercial quantities of bauxite won't last forever.
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