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Opinions of Friday, 28 May 2004

Columnist: Abban, George

Alcoa In Alumina ?Politrcks? In Ghana

The Government of Ghana has taken the bold and prudent decision to acquire the 90% shares in Valco offered by Kaiser Aluminum Corporation of the U.S.A. The news bulletin indicated that the government of Ghana has come into an agreement with Alcoa, the 10% shareholder in Valco, to operate the plant. Under the agreement it is anticipated that Alcoa will:

i) increase its shareholding in Valco and
ii) explore the possibility of developing the bauxite deposits in Ghana.

This deal must be the greatest news to Alcoa this year. Since the year 2001, Alcoa has idled/curtailed its production capacity by over 600,000 tons per year representing approximately 15% of its global plant capacity. The reasons for such a major policy decision of capacity curtailment are:

i) high energy costs
ii) high labour costs
iii) high environmental management costs
iv) high maintenance costs

The agreement with Alcoa may seem to indicate that the Company (Alcoa) was chosen as the natural ally because it is an existing shareholder. However, one may ask the first question: What are the benefits to be derived by Alcoa and the people of Ghana under the agreement?

ALCOA
i) market for alumina

ii) secured source of aluminium ? including Ghana?s share

iii) subsidised power price for aluminium produced

iv) cheap offtake of the Valco shares off-loaded by Ghana

v) Management/Technology transfer fee

GHANA
i) re-engagement of about 1000 employees of Valco

ii) no freight cost on metal sold to the Aluworks factory

iii) development of Alumina Refinery that will use Ghana bauxite

The second question is: How sincere is Alcoa about ?exploring the development of bauxite deposits in Ghana??

It is recalled that Kaiser, when in disagreement with the government of Ghana over power price, also expressed a similar intention. Alcoa is the largest aluminium producing company in the world. The Company therefore employs top class geologists for its business who already know Ghana?s bauxite quality and the economics of developing an alumina refinery here compared to other countries with world class deposits. Alcoa, which acquired the 10% shares of Reynolds Metals in Valco some four (4) years ago, has also acquired deeper knowledge of the bauxite deposits in Ghana from the BASCOL Feasibility Report of 1975.

Notwithstanding all the information (BASCOL Report, etc.), Alcoa has carried out a Feasibility Report on the development of an Alumina Refinery in Guinea using its (Guinea?s) large, rich bauxite deposits.

Further to that, Alcoa has gone ahead (as is normal in the industry) to sign a Memorandum of Understanding (MOU) with Alcan ? on 10th May,2004 -to develop 1.5million tons per annum Alumina Refinery in Guinea to process the bauxite deposits of that country. The International Finance Corporation (IFC) of the World Bank Group has been invited to participate in the new Guinea Alumina Refinery Project. The IFC will provide funds and ?sanitise? the country risk of Guinea.

Industry reports indicate that two-thirds (2/3) of alumina produced worldwide is consumed by the producers and/or their subsidiaries. Alcoa also supplies approximately 45% of the balance of alumina traded in the free market in the industry. Analysts are all in agreement that expanding an existing Alumina Refinery reduces the investment cost per ton of alumina by as much as 40%. For this reason, a completely new Alumina Refinery was last built in 1984. Increases in demand for alumina over the twenty(20) year period have been met exclusively by expansion in installed plant capacities. It is noteworthy that a new Refinery is under construction currently in Australia.

The third question which requires serious consideration is: ?Why would Alcoa build a new Alumina Refinery in Ghana when:

i) the Company is developing a new one currently in Guinea?

ii) the global alumina plant capacity is limited by primary smelter demand?

iii) it can expand the Guinea project at 40% saving on investment cost?

iv) the Guinea bauxite deposits are the largest and richest in the world?

v) Guinea already has the technology and trained personnel to engage?

It does appear from the above that Alcoa?s motive for entering into the agreement with the government of Ghana is to create a market for its alumina currently traded in the market. In the medium-term and long-term, it would secure the market for the new Refinery to be built in Guinea. Ghana would then undergo the same frustration we went through with Kaiser in the past. For the benefit of the younger generation, Kaiser signed an agreement with Ghana in the 1960?s to build an Alumina Refinery (in Ghana) to feed the Valco smelter. But what happened is now history as the Company directly and indirectly frustrated such an investment simply because it supplied the Valco smelter with alumina from its plant in Jamaica.

One may want to know what our country stands to lose if the Alumina Refinery is not developed in Ghana.? Let me answer by giving some of the benefits that would be derived by the country from the development of an Alumina Refinery in Ghana:

i) Salt project development

ii) Caustic Soda production

iii) Plastic Granules production

iv) Cassava Starch production

v) Reconstruction/Rehabilitation of Tema/Accra-Kumasi?Nyinahin railway

vi) Titanium Dioxide production

vii) Direct employment of over 200,000 people

viii) Indirect employment of approximately 1(one) million people

ix) Taxes and Royalties

x) Foreign exchange generation of over US$300million per year.

xi) Contribute about 10% to the GDP

The fourth question is: ?Should the country (Ghana) lose all these benefits and in addition subsidise the energy price (by approximately US$40million per year) for a large multinational like Alcoa??

Let?s not forget that due to high energy cost in the USA, Alcoa has curtailed 15% of its global primary aluminium installed capacity.

It is my considered opinion that Alcoa as the Operator and/or Manager and/or majority shareholder of the Valco smelter, when acquired by the government of Ghana, would not be in the interest of our dear nation.

THE DEVELOPMENT OF AN ALUMINA REFINERY BASED ON GHANA BAUXITE DEPOSITS AT NYINAHIN AND KIBI WOULD THEN BE KILLED FOREVER.

Let us not push ourselves into the trap of Alcoa only to cry foul tomorrow. We will not be able to get out of the alumina ?politricks? if we fall into the trap.

We should buy time and search for an appropriate partner who would develop the Alumina Refinery in Ghana. This is our time to develop an integrated aluminium industry in Ghana.

LONG LIVE GHANA OUR MOTHERLAND

George Abban,
Adelaide House,
London Bridge, EC4R 9HN
U.K.

Views expressed by the author(s) do not necessarily reflect those of GhanaHomePage.