EDITORIAL - Rusal grab back a worthy idea

We can only assume that the Simpson Miller administration's notice of intent to rescind UC Rusal's bauxite mining concessions for two of its Jamaica alumina refineries - Alpart and Kirkvine - is a strategic move aimed primarily at enhancing its efforts at enticing Chinese interests to the sector. And the Government, we would expect, would be prepared for the implications of its move; for it is one, whatever its legal merits, to which Rusal is unlikely to accede without a fight.

In that respect, this development could have in it echoes of the 1970s, but without the intensity of the period, when a previous People's National Party government, led by Michael Manley, moved to impose a production tax on the sector and gain a greater stake of the industry. But, however the negotiation with UC Rusal unfolds, this newspaper is sympathetic to the apparent intent of the Government.

Recent history and the global business and economic environment provide important contexts for this issue.

One chunk of the contentious mining rights came with Rusal's acquisition of Ewarton (670,000 tonnes) and Kirkvine (610,000 tones) when it merged with Glencore, which acquired the plants from Alcan. The other, related to the 1.7-million tonne Alpart refinery, was part of its acquisition of that refinery from Norsk Hydro.

The high cost of alumina production in Jamaica, driven substantially by the price of energy, has for nearly three decades caused the island to be largely a swing producer in the global alumina sector. When prices are high, we do well. During economic downturns and declining demand, our alumina plants are among the first to face closure, which has been the case with Alpart and Kirkvine since 2009, following the global economic meltdown. Rusal has only kept Ewarton in production because the Government has waived the production levy on that facility and has provided other concessions. Moreover, as Rusal restructures its business, including reducing capacity, Jamaica doesn't seem to figure highly in its future. And in any event, the old, horridly inefficient Kirkvine would hardly be worth the cost or bother to attempt resuscitation.

RELUCTANT TO PART

But having its bauxite reserves on its books - more than 200,000 tonnes related to Alpart and Kirkvine, according to Mining Minister Phillip Paulwell - is good for UC Rusal's balance sheet. It is an asset with which it would be reluctant to part. Except that there is perhaps a technicality, presuming that Mr Paulwell is correct in interpreting the agreements to mean that Rusal required explicit mined bauxite and refined alumina for more than six months. The facilities have been idle for five years.

All this comes against the backdrop of Jamaica's discussion with the Chinese firm, Xinfa, for the export of bauxite from Jamaica to help meet domestic demand in the face of an Indonesian ban on the export of its ore, and an improbable deal for the construction of a new two-million tonne refinery. The availability of accessible reserves around developed infrastructure would strengthen Mr Paulwell's hand. In addition, as we suggested previously, it would be cheaper and make more sense, if indeed they wanted an alumina refinery, for them to acquire and upgrade Alpart.

Mr Paulwell says he has given Rusal six months to reopen its plants or lose the mining concessions. If, indeed, he has a credible Plan B, and it is as we have suggested, he should go for it.

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.