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EDITORIAL - Timely deal with Russians on Alpart

Published:Friday | December 26, 2014 | 12:00 AM

In timing and substance, this has been a good week for Jamaica's bauxite-alumina industry and the broader economy. But even as we welcome the news, we watch the developments with caution, in the face of geopolitical events concerning Russia.

Three days before Christmas, Phillip Paulwell, the mining and energy minister, and Igor Dorofeev, the Jamaica country head of the UC Rusal, the Russian aluminium company, forged an agreements that, ultimately, will lead to the upgrading and reopening of Rusal's 1.65-million tonne Alpart refinery, in the island's south coast parish of St Elizabeth. So, both sides have buried the hatchet, and Jamaica has withdrawn its threat to rescind Rusal's bauxite-mining leases related to the Alpart refinery.

In the meantime, until the refinery is reopened in two years' time, Rusal will be allowed to mine two million tonnes of bauxite annually for shipment to its integrated aluminium smelter in the Siberian city of Krasnoyarsk. The immediately significant element of this deal is that Rusal will pay Jamaica's bauxite production levy, and seemingly at the rack rate of 7.5 per cent of the price realised by the firm for alumina.

2008 financial meltdown

This is important in the context of what has happened to the tax since the global financial meltdown of 2008 and the leverage it could provide the Government in its negotiations with other companies. For instance, in the 2008-2009 fiscal year, when the bottom fell out of the industry, Jamaica collected only 51 per cent of the J$8.6 billion projected from the levy. Since then, levy receipts have hovered at around J$1.5 billion or approximately 37 per cent of the 2008-2009 inflows of J$4.44 billion.

Indeed, Rusal pays no levy on production at the Ewarton, St Catherine, alumina refinery, the tax break being among the incentives for it to reopen the plant. Similarly, Noranda, which mines four million tonnes of bauxite for export, without any up-steam operations, pays no levy. Their agreement is up for renewal early in 2015, and the Government is likely to make the case that if Rusal pays on its mining and export of raw bauxite, so, too, should Noranda.

Ethane-fired power plant

The more significant element of the deal, however, is Rusal's now apparently firm plan to build an ethane-fired power plant at the refinery, which would significantly reduce the cost of production and enhance its efficiency, thereby removing Alpart as a 'swing producer', to be in operation only when the price of aluminium is high enough to keep second- and third-tier productivity units viable.

Additionally, the idea seems to be that the Alpart refinery would have up to 100 megawatts of energy to sell to the national power grid at a price that would seemingly help the Government to accomplish its energy rationalisation strategy and delivery of electricity at a cost at least 30 per cent cheaper than at present.

Two issues, however, need to be addressed to the satisfaction of Jamaicans.

First, up to now, ethane has been largely used in the petrochemical industry, and not widely as a fuel. So, people will want to be persuaded of its efficacy in the latter. Then there is the matter of Rusal's capacity to finance the near half-billion US-dollar project in Jamaica. The company has this year significantly restructured and cut its debt. It is not clear, though, how Western economic sanctions will impact this dynamic.

The need for clarity is urgent.

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