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Minister of Finance and the Public Service, Audley Shaw, yesterday (Jan. 20) moved a motion in the Lower House, seeking Parliamentary approval for Government to guarantee payments amounting to US$127.7 million by Clarendon Alumina Production Limited (CAP), to Alcoa Minerals of Jamaica LLC (Alcoa).
The provision is under the Approved Organisations and Authorities (Government Guarantee) Loans Act.
Of the sum, US$10 million will be paid out in the first instance and the remaining US$117.7 million over a 12-month period.
According to a Ministry Paper tabled by Minister Shaw, CAP’s financial position has been negatively impacted by a number of “extraordinary issues,” including the acquisition of two loans totalling US$190 million between 2000 to 2002, to assist the country’s fiscal budget, and fund refinery and residue-disposal lake expansion works as well as for capital sustaining projects.
“The repayment arrangement was by way of two 10-year alumina supply contracts with Glencore AG on less than favourable terms, due to half of the alumina being sold at a fixed price averaging US$178.00 per tonne, while the remainder was linked to a percentage of the London Metal Exchange price,” the Ministry Paper said.
The Ministry Paper also informed that in October 2001, a wildcat strike at the Jamalco plant resulted in CAP suffering net losses of US$20 million. Since 2003, the high price of oil, the single largest commodity in the Jamalco operation, has cost CAP significantly more than was expected.
In addition, adverse weather conditions during the period 2004 to 2007, contributed to the loss of an estimated 170,000 tonnes of alumina, and combined insurance excess cost of approximately US$16 million were substantially responsible for US$35 million in production cost overruns as at the end of 2007.
“The cumulative effect of the extraordinary cost and the unfavourable alumina supply price has resulted in a significant level of debt, which stood at US$141.5 million on October 31, 2008. That debt continued to accumulate by an additional US$22 million up to December 2008, at the estimated monthly rate of over US$16 million per month,” the Ministry Paper said.
CAP is a wholly owned Government company, which owns approximately 45 per cent of the joint venture bauxite mining and alumina refining business conducted by Alcoa under the name of Jamalco at Clarendon Alumina Works.