Jamaica flirting with the possibility of wresting Windalco away from Rusal

Ja flirting with the possibility of wresting Windalco from Rusal

Bauxite sources in Jamaica are already floating the idea, privately, that UC Rusal may have to be cajoled into giving up controlling interest in its local bauxite operations to avoid the consequences of threatened US sanctions against the Russian company and its primary shareholder, Oleg Deripaska.

But the situation remains fluid amid signs earlier this week that the United States was softening on the sanctions when it delayed their implementation against Rusal for five months.

Still, the Jamaican Government expects Rusal, the owner of Windalco, to face problems acquiring its raw material inputs for its local operations, as laid out Tuesday by Minister of Transport & Mining Robert Montague in an update to Parliament on the sanctions threat.

The Government is still to meet with the Russian ambassador to Jamaica - a meeting for this week was delayed as the diplomat was travelling - but Montague sent a clear signal Tuesday that the Government was prepared to take over Windalco in the "national interest", even while noting it would be "a last resort".

"They [Rusal] are not interested in selling," said one industry official a day later, while noting that Jamaica may have to force Rusal into diluting its interest in Windalco. He had no immediate suggestion on how it could be accomplished, but nixed any thought of nationalisation.

Rusal's country manager has already advised the Government that they intend to retain ownership of Windalco. Still, Montague mentioned the possibility of the Government acquiring control on Tuesday; and he also floated the possibility of a buyout under an Employee Share Ownership Plan, ESOP, saying it "could allow the workers and/or local investors to assume a controlling interest in the business and thereby avert the sanctions' negative impacts".

Rusal's country manager was said to be out of office and unavailable for comment.

Opposition Spokesman Phillip Paulwell says the Jamaican Government has no funds to buy back Windalco, and that the better option would be a Jamaican private-sector arrangement involving the ESOP.

"I would not support the Government of Jamaica actually purchasing the company from Rusal," said Paulwell. "We have never had Jamaicans partici-pating in this industry. Now that the industry is on the upturn in terms of the price of alumina being high for a number of years, it would be a good opportunity for Jamaican private-sector persons to get involved," he said.

Jamaica once owned a portion of Windalco but sold its last seven per cent holding to Rusal in 2014 to clear a US$21-million debt to the metals company, giving it 100 per cent control. The transaction happened under Paulwell as minister in charge of mining at the time.

This week, the US Department of Treasury published General License 14 and issued a statement modifying aspects of the sanctions and delaying in the timeline for companies and individuals to wind down contracts and other engagements with UC Rusal from May 7 to a final date of October 23.

The sanctions would effectively ban Rusal from doing business in US dollars and exporting aluminium to the US. Last week, the Russian government signalled it was considering the possibility of nationalising Rusal to inure it from the sanctions, but later appeared to back off of that position, according to different reports.

A local industry source said what Russia was contemplating was "temporary nationalisation", but he indicated the action may not be well received by the international markets.

But: "If Russia does this, it will be able to support Rusal - providing oil, etc," the person said. "Jamaica would not be required to take action in this scenario. It would mean they would not need to do anything in that direction. The problem they will still face is that it is a company with most of the inputs or raw materials being American-made or sourced."

In Jamaica, where Windalco operates two plants, at Ewarton in St Catherine and Kirkvine in Manchester, Montague said 1,200 jobs are tied to its operations, and that Rusal was responsible for more than a quarter of industry export earnings.

Over the past five years, the top three markets for Windalco's alumina has been Russia - 34 per cent; Holland - 32 per cent; and Canada - 17 per cent. Only two per cent was supplied to the United States, but Montague suggested that there was no solace in what appears to be limited market exposure for the Jamaican operation.

"The small quantity of alumina being shipped to the US does not reduce Rusal's exposure, particularly since the sanctions are so structured that there is a risk that the quantities that are shipped to other countries outside of Russia may attract sanctions," he told lawmakers. "This might result in the vast majority or all of Windalco's alumina and hydrate being shipped to Russia," he said.

Last year, bauxite and alumina exports from Jamaica topped US$600 million. Windalco accounted for US$164 million, or 27 per cent, of those earnings, Montague said.

avia.collinder@gleanerjm.com