EDITORIAL - Clarify the CAP clarification

Peter Phillips' attempt at rectifying the confusion created by Phillip Paulwell over the Government's plan for its 45 per cent in the Jamalco alumina refinery raised new issues that require clarification.

The divestment of those shares, held by a vehicle called Clarendon Alumina Partners (CAP), is in keeping with the Government's policy of ridding itself of lossmaking enterprises.

The International Monetary Fund (IMF) is, of course, keen on this strategy. For the lossmakers put pressure on the fiscal accounts, stress the Government's ability to generate strong primary balances and, thereby, weaken its capacity to fixing Jamaica's problem of too much debt.

In CAP's case, the company, despite it being a significant improvement on the recent past, is expected to lose more than J$1.6 billion in the current fiscal year. Indeed, its accumulated deficit is expected to reach over J$26 billion.

So, there was understandable consternation when Mr Paulwell, the mining minister, announced there would be no divestment of CAP, notwithstanding his proviso of "at this time".

Dr Phillips, the finance minister, says this is because the price offered by Glencore, the commodity trader, with which the previous administration was negotiating, "was significantly below the value of an efficiently producing asset". Well enough!

But there is a curious twist, the rationale for which is neither easily nor immediately discernible. It demands explanation from the Government.

Continued forward-sale deals

The same Glencore, we have been told, has an option for the purchase of the shares, exercisable, according to Dr Phillips, "between the period January 1, 2015 and December 31, 2020".

In the meantime, Glencore will provide operating loans to CAP, to be serviced from proceeds of alumina sales to the commodity dealer. The suggestion, it seems, is for a continuation of existing forward-sale deals with Glencore until these come to an end, when a new one will kick in.

Such arrangements are not unusual. It would, however, be in everyone's interest for the Government to be fully transparent about the status of the existing deals, as well as the proposed terms of the new one, given what transpired with those now in place. After they were negotiated, the world went into recession, the price of alumina collapsed, and CAP was left with huge losses. Dr Phillips said that CAP will be insulated against a recurrence. But how?

Further, Glencore will have a five-year option - seven if the counting, as it reasonably should, starts now. Either way, that is a long time, during which there can be significant twists and turns in markets and a shift in policy imperatives.

It seems entirely possible for Glencore to string Jamaica along until the end of 2020 and then not exercise its option to buy. Suppose, in the meantime, Jamaica receives a credible offer, at a higher price, from a potentially better partner than Glencore, will there be an immediate escape clause for the Government?

The Government must address these and other murky issues thrown up by Dr Phillips' remarks. For while we understand that there are now many suitors out there for the CAP shares, the Government must not paint itself into a box in which there is no room to manoeuvre.

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