EDITORIAL: Government must stand up to Rusal

This newspaper is not unmindful of Jamaica's need for foreign investment in broad segments of the economy and the impact that such inflows can, and do, have on job creation.

In that regard, we welcomed UC Rusal's reopening last June of its alumina refinery at Ewarton, St Catherine, and look forward to the imminent firing up of its Kirkvine works in Manchester.

These, like the Alumina Partners (Alpart) refinery in St Elizabeth, which remains mothballed, were initially closed in 2009, at the height of the global recession, because Rusal, owned by Russian businessman Oleg Deripaska, said they were too expensive to operate.

The impact of the collapse of the mining sector on the Jamaican Treasury has been devastating. In the 2007-2008 fiscal year, Jamaica earned approximately J$5 billion from the production tax it charges bauxite miners and alumina refiners, linked to the price of aluminium on the London Metal Exchange (LME).

For the fiscal year that ends in four days, the Government will do well if the levy brings in J$300 million.

Understandably, the Government gave Rusal hefty concessions, including rebates of up to 50 per cent, on the levy, for reopening Kirkvine. The gain was hundreds of jobs and economic activity in communities that were hard-hit by the closure.

Rusal's reopening of Ewarton, though, was not driven by altruism, or because Mr Deripaska is ignorant of economics. Rusal wants a reasonable return on its investment. That is what the Government's concession and the rising demand and prices for aluminium, and therefore, alumina, are helping Rusal to do.

Hard bargain

So, we expect Rusal to drive a hard bargain. What we do not, however, contemplate, is our Government allowing itself to be taken to the cleaners.

Herein lies our disquiet: Rusal's demand for the reopening of Kirkvine and the hints that the Golding administration may have neither the strength nor will to resist.

At around US$2,600 a tonne, aluminium prices are around 18 per cent above the average for 2010 when Ewarton was reopened, or 58 per cent above where they were in 2009. The rise was not a single jump, but rather, an incremental upward movement, growing stronger as the global economy improved.

Yet, as was reported by this newspaper last Friday, Rusal - although it could make money at Ewarton at last year's LME prices - is demanding concessions that are twice as good for restarting Kirkvine.

Moreover, Mr Deripaska's men, it has been reported, are playing hardball with the Jamaican Government, wanting not only fiscal but other concessions. The Government, given its obligation to meet debt and fiscal-deficit targets under its loan agreement with the International Monetary Fund, may have to acquiesce.

That is disturbing.

We believe that Rusal's investment in Jamaica is beneficial and ought to be welcomed. Like every investor, it deserves a decent return on its capital, and in the circumstance, no one ought to frown on concessions to Mr Deripaska. But the negotiations are not to be held at the OK Corral.

There is a mutuality of interests in this matter, a concept about which Prime Minister Bruce Golding and his legal advisers have talked a lot, and loudly, in the past.

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.