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Alcoa, IMF force Gov't's hand

Published:Thursday | March 22, 2012 | 12:00 AM

A warning from Alcoa that it will shut down the Clarendon-based Jamalco operations if the administration refuses to pay its share of the cost to operate the plant, as well as heightened concerns by the International Monetary Fund (IMF) about significant arrears owing by the state, forced the Government to table the $11.2-billion Third Supplementary Estimates that were approved in the House of Representatives yesterday.

Alcoa, an American company, is a partner with the Jamaican Government through Clarendon Alumina Partners (CAP) in Jamalco, which refines alumina. Alcoa owns 55 per cent of the plant.

Contained in the Third Supplementary Estimates tabled by the Government this week is $5.2 billion to pay bills owed by the state for its contribution to the operations of the Jamalco plant.

Trying to sell stake

The Government has been involved in negotiations to sell its stake in the bauxite company. This forms part of a number of demands made by the IMF as a precursor to a new agreement with the Fund.

Financial Secretary Dr Wesley Hughes conceded that the Government owed a significant sum to CAP and costs were building up every day because the administration had not been paying its share of the production cost. The Government owns 45 per cent of the shares in the company.

"To be quite frank, it was a very tough negotiation, it was touch and go about whether or not the plant would continue to operate, so we had to make a judgement call to decide to pay the US$60 million," Hughes told Parliament's Public Administration and Appropriations Committee yesterday. The committee was reviewing the Third Supplementary Estimates in Gordon House.

Hughes said the Government had initially programmed J$2.5 billion for payment to the company but this was rejected.

According to the financial secretary, the negotiators had advised the Government that representatives from Alcoa had declared that the initial sum programmed was inadequate. He said the company insisted that the Government had to pay its bill and "so we decided it's better to keep the plant going and pay down the additional sum".

The financial secretary also said part of the discussion Jamaica had with the IMF was that if the arrears payments were brought into the Budget this year, it would mean that the primary balance target would be lower and the deficit would be higher.

"We came to an understanding last week with the Fund that it is best to put these in this year's Budget so that we will start next year's Budget with a cleaner slate."

He said funds injected into the Budget days before the end of the financial year were garnered from revenues pulled in during the final quarter of the fiscal year.