Statement to Parliament on Implications of Sanctions on UC RUSAL By the U.S.- Hon Montague

Mr. Speaker, the Members of this Honourable House are aware that the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) added, amongst others, seven Russian oligarchs and twelve companies they own or control, to its Designated Nationals List (the OFAC Sanctions).

Mr. Oleg Deripaska, the single largest shareholder in UC RUSAL, which is the parent company of West Indies Alumina Company (WINDALCO), and En+ Group P.L.C., a Jersey company holding 48.13% equity interest in UC RUSAL, were named amongst those on the OFAC sanctioned list.

As a result of being named on the list, all assets of Mr. Deripaska and these entities that are within US jurisdiction have been frozen, and US persons are prohibited from dealings with them.

Additionally, non-US persons could face secondary sanctions for knowingly facilitating significant transactions for, or on behalf of the individuals or entities sanctioned.

WEST INDIES ALUMINA COMPANY (WINDALCO)
Mr. Speaker, this will have very significant implications for Jamaica’s Mining Industry.

WINDALCO owns the Kirkvine Alumina Works in Manchester and the Ewarton Alumina Works in St. Catherine.

The Kirkvine facility has been closed since May 2009 and sections of it have been systematically cannibalized to help maintain the Ewarton alumina refinery. WINDALCO currently employs approximately 1,200 persons. Some 630 are directly employed at the Ewarton refinery which also employs approximately 450 contractors. The other persons are employed in WINDALCO’s agriculture business.

Over the last 5 years the majority of alumina produced by WINDALCO has been exported to Russia (34%), Holland (32%), and Canada (17%). Less than 2% of its alumina was sold to the United States. The small quantity of alumina being shipped to the USA does not reduce RUSAL’s exposure, particularly since the sanctions are so structured that there is a risk that the quantities that are shipped to other countries outside of Russia may attract sanctions. This might result in the vast majority or all of WINDALCO’s alumina and hydrate being shipped to Russia.

A significant threat to the Plant’s continued operation and profitability is that majority of the caustic soda, flocculants, spares and services used in the refinery are sourced through the United States.

WINDALCO, through its ownership of approximately three thousand heads of cattle, accounts for roughly twenty per cent of Jamaica’s production of fresh milk and is also a major producer of local beef.

ACTIONS TAKEN BY THE MINISTRY OF TRANSPORT AND MINING AND THE CABINET

Mr. Speaker, the Ministry of Transport and Mining has been fully mobilized and is monitoring and analysing developments relating to the sanctions and UC RUSAL.

I have met with UC RUSAL’s Country Manager to convey the position of the Government of Jamaica, which is primarily to protect the workers and contractors, the environment, and the economy; and for him to inform of his company’s plans for WINDALCO.

I have also met with representatives of the US Embassy in Kingston, unions representing WINDALCO’s workers, the Attorney General’s Office, the Ministry of Finance and the Public Service, the Ministry of Foreign Affairs and Foreign Trade.

I briefed Cabinet via a Note on Monday, April 23, 2018, and earlier today, I met with the Opposition Spokesman on Mining, the Hon. Phillip Paulwell.

I have extended an invitation to the Russian ambassador for a meeting. However, owing to both him and his Charge de Affairs being out of country, the meeting has had to be rescheduled.

While some details of the most recent round of U.S. sanctions against Russia, certain Russians and Russian-owned companies are clear, other details are still unfolding. As such, yesterday, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) published General License 14 and issued a statement modifying aspects of the sanctions. The primary modification is a delay in the timeline for companies and individuals to wind down contracts and other engagements with UC RUSAL to October 23, 2018 from the original date of June 5, 2018.

The statement, in part, noted that the U.S. “will not impose secondary sanctions on non-US persons for engaging in the same activity involving RUSAL or its subsidiaries that the General License 14 authorizes”. It also noted that “RUSAL has felt the impact of US sanctions …., but the U.S. government is not targeting the hardworking people who depend on RUSAL and its subsidiaries”.

This is a promising development.

IMPACTS OF THE SANCTIONS

The markets, companies and individuals have responded to the U.S. sanctions against Deripaska and UC RUSAL with a significant degree of seriousness. Some of the reactions include:• The plummeting of the value of UC RUSAL’s share traded on Hong Kong exchange by 50% on April 9, 2018 and has remained low since;
• Glencore’s plan to swap its 8.75% stake in RUSAL for shares in En+ Group has dissolved;
• Three directors of the UC RUSAL Board have resigned, including Glencore’s CEO;
• RUSAL has asked debtors to “immediately withhold all payments” to the company;
• The London Metal Exchange (LME) announced that effective April 17, 2018 it will conditionally suspend the listing of RUSAL’s metal in response to the US sanctions. Therefore they will not accept or take delivery of metal from RUSAL;
• RUSAL’s products have become “unattractive” on the international commodity markets, with traders looking to minimize their exposure;

• The sanctions have resulted in a surge in aluminium prices to a six (6) year high. This impact is expected to be temporary and since yesterday prices for the metal have started to decline;
• Both Moody’s and Fitch have withdrawn all ratings of UC RUSAL.

Mr. Speaker, despite UC RUSAL’s intention to continue to operate in Jamaica as normal, the Ministry of Transport and Mining’s analyses indicate that normal operations will become increasingly difficult, especially if the company refuses to dilute its ownership, to conform with the sanctions, and various suppliers of goods and services elect to refuse its business out of fear of secondary sanctions from the USA.

WINDALCO’s Ewarton refinery therefore faces the possibility of significant disruption in production given the pending difficulty and increased cost to source and import raw materials, especially flocculants, caustic soda, fuel and spare parts. However, it has indicated that it will, if necessary, import these products from Russia and other places.

Should the plant be closed, the loss of export earnings to the Jamaican economy would amount to approximately US$164 million per annum. That is roughly 27% of the Bauxite/Alumina Industry’s annual export earnings for 2017.

The impact of the plant’s possible closure on the economy of Ewarton and areas from Bog Walk to Moneague and adjoining districts would be significant. However, if control of the company is assumed by parties that have not been targeted by the US sanctions, production at WINDALCO may remain unchanged.

ENVIRONMENTAL CARE

Mr. Speaker, the Ministry is taking various measures to ensure the integrity of the red mud disposal system at the Ewarton plant. The proper shut down of the plant, if the worst arises, is of major importance.

COURSES OF ACTIONS CONSIDERED BY THE MINISTRY

Mr. Speaker, to the extent that UC RUSAL, has informed of its intention to retain WINDALCO, the Ministry cannot be complacent and allow the critical dates of May 7 and October 23, 2018 to pass without taking decisive action to protect the interest of the workers, contractors, Jamaican suppliers, the environment and the GOJ.

The following actions have therefore been considered:
• Lobby the US to effect changes to the sanctions such that the Jamaican economy is not negatively impacted.

• Facilitate the introduction of local ownership including the implementation of an Employee Share Ownership Plan (ESOP) at Ewarton. This could allow the workers and/or local investors to assume a controlling interest in the business and thereby avert the sanctions’ negative impacts.
The Ministry of Labour and Social Security, the Ministry of Justice, the Ministry of Finance and the Public Service, and the Attorney General have been asked to provide guidance on this possibility.
• The GOJ assumes control of or a controlling interest in WINDALCO in the national interest. This is a last resort. However, it is a tool that the GOJ may be required to utilize.
Mr. Speaker, the situation regarding the sanctions against UC RUSAL is very dynamic. This is especially so because UC Rusal is actively lobbying the US Government and allies of the US who have been negatively impacted by the sanctions have also been lobbying the US Government. Additionally, Russia appears intent on taking steps that may conform to the demands of the sanction.
CONCLUSION

Mr. Speaker, a united bipartisan approach is required in our response to the impacts of the sanctions. In this vein, I have invited the Opposition Spokesman on Mining to a meeting with the hope that we can arrive at a bipartisan position, devoid of political mileage, to ensure that we protect the interest of the threatened workers, contractors, local suppliers of goods and services and the Government of Jamaica (GOJ).

The Ministry of Labour and Social Security, the Ministry of Justice, the Ministry of Finance and the Public Service, the Ministry of Foreign Affairs and Foreign Trade, the Ministry of Economic Growth and Job Creation and the Attorney General will be asked to provide guidance on possible courses of action to protect the interest of the workers, other Jamaican entities, the environment and the Government of Jamaica.

We will continue to monitor this dynamic yet critical situation and provide updates to the House from time to time. Mr. Speaker, we are approaching this crisis as Jamaicans and there can be opportunities in this crisis.
We must remain calm, communicate with all stakeholders stay true to our principles and be guided by our 3 core priorities: protecting our workers, the environment and the countries revenue.