Editorial | Reshape bauxite-alumina industry

Given the turmoil in global commodity markets, it is surprising that Prime Minister Andrew Holness and Finance Minister Nigel Clarke had nothing to say about the future of Jamaica’s bauxite-alumina industry in their contributions to the Budget Debate.

The silence, in the immediate circumstances, is pronounced for the fact that the island’s only currently operating alumina refinery, the 1.25 million tonne WINDALCO plant, is owned by UC Rusal, whose single largest shareholder (44.95 per cent) is Oleg Deripaska, one of the Russian tycoons sanctioned by the West in retaliation for Russia’s war on Ukraine. He is accused of being part of Vladimir Putin’s inner circle. Should the targeting of Mr Deripaska seep to UC Rusal, though the Russian no longer holds a majority stake in the company, that could be problematic for the Jamaica operation. We expect that the Government has been developing a strategy for responding to any such eventuality.

Perhaps these issues are being left to Audley Shaw, the new mining mister, although he shares the portfolio for bauxite-alumina with Dr Clarke, who last year, in the midst of board controversies, was assigned responsibility for Clarendon Alumina Production (CAP), which controls the Government’s 45 per cent stake in the Jamalco alumina refinery. The other 55 per cent is owned by the commodities trading and mining outfit, Noble Group. Whoever has the task of articulating the issues, it ought to include ideas for a reset of the industry, which is floundering for direction.

SERIOUS PROBLEMS

Indeed, after 70 years, Jamaica’s bauxite/alumina industry faces serious problems and has complex questions to answer about its future. For instance, the island’s largest alumina refinery, Alpart, a 1.65 million tonne facility, owned since 2016 by China’s Jiuquan Iron and Steel Company (JISCO), has been closed for more than two years. Having previously been mothballed for nearly a decade, the plant had a single year of production under JISCO before it was shut down again, ostensibly for refurbishing and expansion. There are doubts that JISCO will go through with these plans.

Further, last August a fire at Jamalco put that refinery out of operation. It is expected to remain closed for at least another three more months and won’t be in full operation before September. So, the WINDALCO refinery apart, the only industry player currently in full operation is Discovery Bauxite (formerly Noranda), which ships ore to a refinery in Gramercy, Louisiana, owned by Atlantic Alumina, a 49 per cent stakeholder in, and manager of, the Jamaica mining operations. The Jamaican Government is the majority owner.

But these are not the only issues that the industry has to deal with. There are matters of competitiveness and, therefore, the need for investment to enhance efficiency. Then there is the reputational damage faced by the industry that operates in proximity to communities, which are affected by pollution from the mining and refinery operations and believe that the firms are often indifferent to their concerns and exploitative of their circumstance.

Indeed, some environmentalists have lobbied for the industry’s closure, claiming that the damage it does outweigh what it offers. There are arguments to the contrary, but not definitively provable with empirical data.

As Diana McCaulay, the past chairman of one of the industry’s consistent critics, Jamaica Environment Trust (JET), wrote in this newspaper recently: “Over the almost 70 years of its operation, JET could not find any rigorous attempt to quantify or compare the benefits and costs of the bauxite industry in Jamaica. It is difficult not to conclude that the value of the industry to our economy has become merely an article of faith rather than a position informed by recent data or objective analysis.”

There is an important fact that ought to cause serious attention to these criticisms and the policy responses to them: Jamaica’s readily remaining and readily accessible/mineable reserves of bauxite – an estimated 230 million tonnes – is sufficient to last only another 30 years. Why, therefore, bother?

We believe that there is still a case to be made for bauxite-alumina, not least of which is that there is nothing remotely close to substitute for the foreign exchange that would be forfeited with the early death of the industry. The Government’s revenue projections for the coming fiscal year doesn’t suggest that it expects any earning from the bauxite production levy – an above-the-line tax the companies pay on their output. The pickings will also be slim from royalties. However, with the price of alumina, at above US$330 a tonne, even with only WINDALCO production, Jamaica’s gross alumina export would be over US$400 million this year.

CONCERNS ABOUT THE INDUSTRY

Further, the concerns about the industry notwithstanding, there is little doubt that sector, with its relatively high-paying jobs, has significantly improved the economic well-being of nearby communities, even though, as Ms McCaulay pointed out, JET’s research showed that most communities didn’t believe they got a fair share from the sector for the disruptions they faced. Importantly, though, people don’t want to see the back of the industry. “They did not want the industry to close down, but they wanted their rural livelihoods to continue and not have their health or the health of their children compromised,” McCaulay wrote.

The emerging global environment and the findings such as those contained in JET’s research and provide powerful reasons for the Government to engage in a new, constructive conversations about the operation, and regulation, of the industry going forward. Which provides an opportunity for Mr Shaw to leave a significant legacy on the sector.

Mining the remainder of Jamaica’s bauxite reserves can’t happen without some impact on communities. The issue is to mitigate the worst of these effects and for the companies to be responsible partners with communities. Mr Shaw, in this regard, must do two things. In crafting new operational strategies he must have the industry’s critics, including the environmentalists, in the room for honest and transparent deliberations. Secondly, he must rebuild a badly faltering regulatory apparatus – not only for bauxite-alumina, but the entire mining sector. With respect to those institutions not under his direction, he must strongly lobby for repair. The bottom line aim must be a genuine partnership.

RESUSCITATING JBI

Mr Shaw’s priority should be resuscitating the Jamaica Bauxite Institute (JBI), the agency that conducted research, provided general regulatory oversight and offered policy advice to the Government. JBI continues to exist, but largely as a shell. Its expertise is diminished and dispersed. It has to regain its robustness and independence.

That bauxite is a finite resource that is even starker now than before. In planning for the next 30 years, the administration has to keep that in mind.

In the first four decades after its launch in 1974, the bauxite production levy contributed US$4 billion to the Capital Development Fund (CDF), which was supposed to be used to finance projects for Jamaica’s post-bauxite life. Much of that money, however, went to general expenditure.

Going forward, the Government must be more prudent with the taxes and levies from bauxite and alumina, with robust and perhaps independent oversight of the use of those resources. Something akin to a sovereign wealth fund seeded with resources from the industry might be considered. Policymakers should also consider, too, a mechanism, primarily funded by the industry, to finance the development of the parishes and communities where bauxite is mined and where people live with the effects of the activity.