EDITORIAL - Be careful who wears CAP

It emerged last week that UC Rusal, the aluminium company controlled by the Russian tycoon Oleg Deripaska, had acquired the 35 per cent of the Alpart alumina refinery in Nain, St Elizabeth, it didn't already own.

It remains hazy as to how, or when, the Jamaican Government learned of the deal between Rusal and its former partner, the Norwegian energy and smelting conglomerate Norsk Hydro. But the arrangement should be a matter of serious interest to the administration.

This newspaper asserts the right of businesses in general, and UC Rusal and Norsk Hydro in particular, to take decisions that are in their strategic and/or economic interest. Countries have similar rights.

It is against this backdrop that this newspaper believes that the Jamaican Government must consider carefully its approach to divesting ownership of Clarendon Alumina Production (CAP), which owns 45 per cent of the Jamaican alumina refinery at Halse Hall, Clarendon.

Of course, CAP has lost a significant amount of money in recent years, and its sale, as part of efforts to reduce the fiscal deficit, the administration has said, is among the outstanding issues to put back on track Jamaica's troubled standby agreement with the International Monetary Fund (IMF).

There are two suitors for CAP: Glencore, the commodity trader that owns around nine per cent of Mr Deripaska's firm and from which Rusal bought two alumina refineries in Jamaica; the other is the American company Alcoa, which already owns 55 per cent of Jamalco. Alcoa is a relative latecomer to the fray, and it is assumed that its entry is out of concern for who could be its eventual partner in the Halse Hall facility.

Near-monopoly control

Already, UC Rusal controls just under 65 per cent of the 4.35 million tonnes of alumina refining capacity in Jamaica. Mr Deripaska's men have made it known that he would like to acquire CAP, and with it the Government's holding in Alcoa. Indeed, the Government, at one point, openly sought to link Rusal's reopening of the mothballed Kirkvine refinery to its acquisition of CAP. Put another way, many people view Glencore as operating as Rusal's proxy.

Should that be the case and Glencore is successful in acquiring and transferring CAP to Rusal, Mr Deripaska would then control more than 79 per cent and be in a position of near monopoly in Jamaica's alumina industry. It would have not only strategic influence but the capacity to dictate financial terms to the authorities. And as it has shown in the Kirkvine talks and the earlier negotiations regarding the reopening of the Ewarton plant, Rusal plays hardball.

Our Government must consider carefully whether it wants to be in this near-monopoly position, even if doing otherwise delays the divestment of CAP.

Moreover, the demands for urgency are not the same as before. The arrangement under which CAP's future sales securitised a Glencore loan to the Jamaican Government is heading to an end. CAP, therefore, is in a position to negotiate new terms for the sale of its alumina.

Additionally, at around US$385, the price of alumina is now over 60 per cent higher than three and half years ago, giving the Government better leverage in negotiating the issue with the IMF, even if Alcoa drops out and it can't immediately find a buyer.