EDITORIAL - A good development for alumina, but ...

UC Rusal's announcement of its plan to reopen its Kirkvine alumina refinery is good news that will be especially welcomed by the Golding administration as it begins staring down the barrel of a general election in an economy starved of growth and jobs.

But even as the government basks in the potential of this development, it raises questions about the administration's broad strategy for the recovery of bauxite/alumina, and whether it has employed the most creative of tactics.

We raise these matters out of fear that without a rigorous and broad engagement of all the stakeholders in the sector in a drive to build the competitiveness of the industry, Jamaica will remain a swing producer in the alumina business, with its plants being among the first to be mothballed in times of difficulty.

In the context of the situation in which the Jamaican industry has fallen, UC Rusal's decision to reopen the plant from July - although the Jamaican authorities say this is subject to ratification by Rusal's bankers - is not surprising.

Most inefficient

Jamaica's alumina refineries are the mid-tier of world efficiency, with the 60-year-old, 600,000-tonne a year Kirkvine works being the most inefficient of the lot. Kirkvine requires a higher global benchmark price for alumina for it to begin to achieve marginal returns. Moreover, given its age, notwithstanding its receipt of upgrades over the years, the longer the plant stayed out of production the more likely it would stay close for good.

The global situation, with the receding of the recession and China's renewed appetite for commodities to fuel its growth, has moved in Kirkvine's, and ultimately Jamaica's, favour.

For example, at US$2,575.25 a tonne on the London Metal Exchange (LME), aluminium is at its highest price since September 2008, although still off its last peak of $3,380 in July 2008.

Alumina price tracks that of aluminium at between 12 per cent and 15 per cent, hence the US$396 a tonne some markets have been quoting for the product. Some analysts, perhaps including Rusal's, believe that the price could rise this year to as high as US$450.

Encouraging

This is encouraging for Jamaica, unless the government has negotiated fiscal regimes - about which it has been quiet - that would cause it to forgo levies as taxes in the industry for the jobs (in Kirkvine's case 1,000) that come with the reopening of plants.

In the 2008-2009 fiscal year, before the collapse of the Jamaican industry, the government projected to earn over J$8.6 billion from the bauxite levy. Instead, it got $4.4 billion. In the current fiscal year, it budgeted for $729 million from the levy, but in the first 10 months it took in $189 million of the projected $434 million.

Renewed production, on the face of it, is good for the fiscal numbers.

The question, however, is about what is sustainable for Jamaica, hence our questions about strategy and tactic.

In the 1990s when the Jamaican bauxite industry was in trouble, the late Michael Manley, terminally ill at the time, led negotiations between the companies, unions and the government that culminated with a memorandum of understanding in which all sides gave something to the enhancement of the efficiency in the sector.

In the event it is not being used, such a strategy would be worthwhile today.

The opinions on this page, except for the above, do not necessarily reflect the views of The Gleaner. To respond to a Gleaner editorial, email us: editor@gleanerjm.com or fax: 922-6223. Responses should be no longer than 400 words. Not all responses will be published.