EDITORIAL - Cover all angles on CAP

The Cabinet, we have been told, has signed off on the sale of the Government's 45 per cent stake in the Jamalco alumina refinery, which will remove one of the sticking points in Jamaica's negotiations with the International Monetary Fund (IMF) for the rehabilitation of its stalled standby agreement with the Fund.

Clarendon Alumina Production (CAP), the vehicle that holds the Government's Jamalco shares, has, in recent years, lost a lot of money. The IMF, therefore, insists that it should be let loose as part of efforts to rein in the fiscal deficit and take control of the public debt.

No one can quarrel with that. What will be of issue is to whom the Cabinet has approved the sale of CAP and on what terms. These, we have been told, will be announced soon, perhaps next week.

The smart money, however, says that CAP has gone to Glencore, the commodity trader that owns nine per cent of UC Rusal, the aluminium giant controlled by the Russian oligarch, Oleg Deripaska. And that is where the terms of the sale become especially important, which the Government should consider adjusting if, indeed, Glencore is the buyer and all the loopholes are not closed.

First, UC Rusal, through its Ewarton and Kirkvine facilities, and lately its full ownership of the Alumina Partners (Alpart) refinery, now controls 65 per cent of Jamaica's alumina production capacity.

Mr Deripaska is known to want to add CAP to his Jamaican portfolio of assets. Indeed, earlier this year, his point men openly told Jamaican negotiators that the divestment of CAP to UC Rusal would have to be a quid pro quo for the reopening of the mothballed Kirkvine plant.

Jamaica initially resisted. For, as we noted previously, ownership of 45 per cent of the Jamalco refinery would push Rusal's control of Jamaica's alumina production capacity to 79 per cent. That figure excludes the seven per cent of Kirkvine and Ewarton owned by the Government, but which is subject to Rusal's strategic actions. In other words, Rusal would have near monopoly influence over Jamaica's alumina production business.

That couldn't be good for Jamaica. Nor is it the kind of situation that the IMF usually likes to see in national economies. We would be surprised, therefore, if the Fund would force Jamaica to close a deal that gave the business to Rusal.

Other possibilities

But as the saying goes, there are many ways for skinning cats. In this instance, there is the possibility of Glencore, if it is the buyer, flipping CAP to Rusal - as it did with Kirkvine and Ewarton when it acquired those plants from the old Alcan. If, indeed, it is Glencore that is the agreed buyer, the agreement should expressly forbid an onward sale to Rusal.

Perchance the Government had to hold on to CAP a bit longer, we believe it is now in a better position than in the past to make a credible business and economic case to the IMF. First, the loan securitisation deal, using CAP alumina, that caused the company to rack up big losses when the alumina market went, is almost at an end. And the price of alumina is now substantially higher than three years ago.

Hopefully, the Government has considered all angles on this one. If it hasn't, there is a bit of time to scramble.