EDITORIAL - Energy key to alumina's survival

We are relieved that Phillip Paulwell, the mining minister, either misunderstood the message that was being conveyed to him by UC Rusal's man in Jamaica, or that the company may be having second thoughts about its plan to mothball its alumina refinery at Ewarton, St Catherine.

This newspaper, of course, believes the latter scenario to be the most likely case, and that Oleg Deripaska's company was flexing its muscles to extract even more tax concessions from the Jamaican Government.

Either way, Jamaica, as ought to be clear from Rusal's statement on the matter, is not out of the woods. Indeed, the issue serves to highlight structural problems in the island's alumina industry - the most profound of which is the cost of energy - that are in need of urgent attention if we are to have a long-term future in the business.

UC Rusal effectively controls 65 per cent, or around 2.6 million tonnes of Jamaica's alumina production capacity, which, obviously, gives it negotiating heft with the Government. That muscle would have been accentuated by the fact that 80 per cent of Rusal's capacity, represented by two refineries - Alpart and Kirkvine - have shuttered for more than two years, since the global economic crisis deepened in 2009.

It is understandable, therefore, that the Jamaican Government would have acquiesced to Rusal's request for a stay on the production tax that bauxite/alumina companies that operate here pay.

Effective strategy

It seems, though, that Mr Deripaska may have been angling for more with his signal of a closure. Rusal was possibly outflanked by Mr Paulwell's decision to speak out, an effective strategy given the governance/business ethics fires Rusal is having to confront around the world.

But beyond manoeuvres and muscle-flexing, there are some significant truths to be faced and hard decisions to be taken by the Jamaican Government with regard to the sector.

First, Jamaica's alumina plants, particularly those controlled by Rusal, are old and small, lacking the economies of scale that help compensate for production inefficiencies. Crucial to this, energy is the largest cost factor in alumina production, and the refineries in Jamaica are fired by power plants that burn expensive oil. Cost inefficiencies place Jamaica's alumina refineries on the lower half of the global-league table of competitiveness.

The upshot is that we have been a swing site in the global matrix of alumina production: when the price of aluminium - on which the price of alumina is based - is high, Jamaican plants operate. When the prices are in decline, as is currently the case - alumina costs a bit over US$1,830 a tonne against more than US$3,000 in February 2009 - the companies move production elsewhere.

One part of the solution to this problem is for the firms to expand and make efficiency upgrades to their refineries, which the Jamaican Government has been attempting to get from Mr Deripaska, without success.

But the real potential game-changer is a cheaper fuel than oil. We have talked a great deal about a conversion to natural gas. But the process appears to have lost momentum.

Further, rather than pursuing a national strategy, there is a cacophony of crosstalk that is getting us nowhere fast. It is time to go beyond talk and get things done - transparently and efficiently.

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.

Source: http://jamaica-gleaner.com/gleaner/20120715/cleisure/cleisure1a.html

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