Dear Editor,

I was pleased to read in your issue (l9.l0.200l) [ please note: link provided by LOSP web site ] that the President of Guyana said that Alcoa would write off the US$60.0 million debt ABC owes it. I hope this write off means write off, and not conversion of the debt to preference shares in the new ABC. Preference shares in the company could have a preferred position to both its earnings and assets. In short, Guyanese would still be liable for the US$60.0 million. I hope the President was not inadvertently misled. I will assume his statement was correct, and Alcoa has agreed to write off the debt.

Your issue of October 20 also reported that the President said that the new ABC would be cost neutral to the Government. I doubt it. The Government of Guyana would own 100% of the company after it purchases the additional 50% of the company's shares from Alcoa for US$1.00. Since the Government has apparently agreed for ABC to sell BPU-Reynolds 1.2 million metric tons of metal grade bauxite annually at about US$17.00 per metric ton, and since the company's cost is projected at US$20.00 per metric ton, its projected loss would be US$3.00 per ton, and US$3.6 million annually. Given that its cost is more likely to be no less than US$25.00 per metric ton, based on its current experience, it may lose US$8.00 per ton, and as much as US$9.6 million annually. Since the Government would be the sole shareholder of the new ABC, it would have to finance this loss. It would have to provide the company with an annual subsidy that could reach as high as US$9.6 million.

The Government has apparently also agreed for the new ABC to sell BPU-Reynolds chemical grade bauxite at US$35.00 per metric ton. BPU-Reynolds is not a consumer of chemical grade bauxite; the consumers of this product are the producers of alum and other aluminium chemicals. What the Government is doing by selling this product to BPU-Reynolds, is facilitating the company with additional income by selling it 300,000 metric tons at US$35.00 per metric ton, which it would on-sell to the existing ABC and probably Bermine and Linmine customers at the US$40.00 per metric ton these customers now pay. This is effectively making a gift of US$1.5 million annually to BPU-Reynolds, if it could sell the total 300,000 metric tons. What is the consideration for this gift?

We do not need BPU-Reynolds to sell our chemical grade bauxite. ABC could do that, since the customers are less than ten; or at least it should be covered by the Alcoa management contract. Guyana has already lost US$5.00 per metric ton on its chemical grade bauxite through Reynolds International Inc. (RII) reducing the price in an attempt to corner the chemical grade bauxite market, thereby forcing Bermine and Linmine to reduce their price. They did this in contravention of the Joint Venture agreement, which specifically provided for bauxite of that grade to be sold to Guymine. RII's reduction of the price did not result in increased sales, but in reduced revenue of about US$1,125,000 on the 225,000 metric tons the three companies now sell. This is a straight gift to the chemical bauxite customers, who would pay US$45.00 per metric ton for the product. We are now about to facilitate them further by slitting our throats. No wonder we are poor, and will become poorer. It is time the Government look at the total bauxite picture and ensure that the nation gets the true value for this non-renewable natural resource.

Excluding the value of the bauxite in the ground, which I estimate at US$4.00 per metric ton, and therefore about US$5.6 million annually for 1.4 million metric tons, Government's subsidy to the new ABC operation could be in excess of US$10.0 million (US$9.6 million +US$1.5 million). Consequently, I cannot see how the new ABC would be cost neutral to the Government. Also, is it in our interest for the Government to pay at least US$10.0 million annually for 350 jobs for Guyanese or just over US$28,000 per job? I doubt it.

Based on the information I have seen in the press, here are the likely winners and losers of the Aroaima Rescue Plan:

Winners:

Alcoa: When it acquired Reynolds, it probably took into account that Reynolds' receivable of US$60.0 million from ABC was uncollectible, and therefore adjusted downward its acquisition price. Additionally, if it does write off the US$60.0 million debt, it gets a reduction in its corporate taxes. Alcoa will also get a management fee for managing the new ABC. The fee seems to be a secret.

BPU-Reynolds: It would still collect much, if not all of the US$60.0 million debt from ABC through Government subsidies, which may exceed US$10.0 million annually, and US$60.0 million after six years, plus subsidized local labor.

Government: It gets to tell the people that it has saved them US $60.0 million, because Alcoa has agreed to write off the debt. It hopes the people would not see the linkage between the write off and the subsidies.

Losers:

The people of Guyana: They give away subsidies in excess of US$10.0 million annually, plus about US$5.6 million, the value of 1.4 million metric tons of bauxite extracted annually, plus the value of the labour bauxite workers will subsidize BPU-Reynolds.

I hope the Government will let Guyanese, the shareholders of the nation's bauxite deposits, know the full details of its dealings with Alcoa and Reynolds. Those dealings have not been sufficiently transparent. Guyanese want to know what is going on. They want to evaluate the Government's stewardship of the assets they have entrusted to it. They do not want secret deals on their behalf. Government must keep the public fully informed all the time.