By Patrick Denny
The bauxite company Alcoa has asked the government to indicate by next week whether it should start winding up its operations here, President Bharrat Jagdeo disclosed yesterday.
Stabroek News
August 24, 2001
Briefing the press at the Office of the President, he said that Alcoa's projection for the industry as a whole was uniformly bleak.
Alcoa is the government's joint venture partner in the Aroaima Bauxite Company in the Berbice River. Its reserves, according to Alcoa, are due to run out in three years and it proposed to the government earlier this year that it merge its operations with the Bermine operations at Kwakwani. It also recommended that the merged operations be the nucleus of a new company and that a debt of US$57 million, owed by Aroaima to Alcoa, be converted to equity in the new company. It also forwarded that the new company should be sold at an appropriate time to a buyer Alcoa will identify. If accepted, the proposal would mean closing down the Everton operations and the loss of 540 jobs over three years as the workforce is reduced from 940 to 400.
Alcoa had been pressuring the government for a response to its proposal by the end of May and later extended this to the end of June. It also later threatened that if it could not have a positive response to the main elements of its proposal it would need to look at alternative measures to reduce its exposure in Guyana.
At yesterday's press briefing, President Jagdeo said that the joint bauxite committee which had been looking at various proposals for resuscitating the industry will present its view to himself and PNC/R leader, Desmond Hoyte, as to how the government should proceed.
The joint bauxite committee was set up by President Jagdeo and Hoyte following criticisms of the government's intention to proceed with the proposal by Alcoa for consolidating the bauxite operations in the Berbice river.
Yesterday, President Jagdeo recalled that he had warned that the alternative to the Alcoa proposal had to be realistic and capable of being speedily implemented. At risk, he said, were the jobs of the workers in the industry in the Berbice River.
Since then he said that the conditions had deteriorated even further and he hoped that if it continued "that the same people who were saying that they had all the wonderful solutions to the problem of bauxite mining in Berbice, that those people will not run away now."
He added that he hoped that they would stay and "take the blame squarely."
President Jagdeo said that if the government had moved ahead as it had wanted to with the Alcoa proposal "it may have caused some social problems but at least we may have been able to consolidate bauxite production at a lower level without it affecting the Treasury."
He stressed that the government could not afford any more subsidies to the industry as it was already providing $1 billion to the Linmine operations. To provide more subsidies, he said, "would simply mean cutting other programmes - education, health care, people's roads, all of these."
President Jagdeo said that he wanted to see those investors the government critics said were willing to invest in the Bermine operations, adding that he hoped that at the end of the day "they [the critics] do not dump it all back at the government's doorstep."
Alcoa officials informed the government as well as the bauxite negotiating team drawn from the joint bauxite committee with whom they met on Monday about the bleak prospects for the bauxite industry.
Alcoa's concern for the future of its operations here was prompted by ABC's sole customer, BPU?Reynolds saying that it was not prepared to purchase ABC's production above US$17.50 per tonne. The Alcoa representatives told the negotiating team that this price was unrealistic. BPU?Reynolds also indicated to ABC that its purchase would be far less than the 1.5 million tonnes ABC produced annually. BPU?Reynolds is the company to which Alcoa sold its Corpus Christi plant when it took over Reynolds. The sale was a requirement for the approval of the merger.
BPU?Reynolds is also the company identified by Alcoa to which it would sell its interest in the new company it proposed to form between ABC and the Bermine operations at Kwakwani. BPU-Reynolds is basically the former owner of ABC with the Guyana Government.
On Wednesday, Prime Minister Sam Hinds told Stabroek News that Alcoa would be hard pressed to justify to its shareholders continuing with a loss?making venture as ABC. ABC produces metal grade bauxite for which world prices, according to Alcoa, are softening.
But sources close to the bauxite negotiating committee are concerned that the committee cannot be sure if Alcoa's position is negotiating bluster in the absence of some indications from the government as to its position on the concern which led Alcoa to consider winding up it operations here.
Despite having a member of the ABC board as one of its members, the team has been unable to ascertain the government's position so that it could inform its strategy in the negotiations with Alcoa.
Alcoa's concern about the increasing gap between the current downward trend in metal grade bauxite prices and the cost of production here was first disclosed at an ABC meeting at which the government was represented by its nominees on the ABC board, Robeson Benn and Neil Kumar.
It also reiterated these concerns when it met the bauxite negotiating team on Monday, when Stabroek News understands the team had asked that they be put in writing and this was promised by yesterday. Stabroek News understands that the Alcoa report was discussed at a Cabinet sub-committee meeting yesterday. It understands too that the Prime Minister is to table some proposals on the issue.
In a telephone interview with the Stabroek News on Wednesday, the Prime Minister explained that the downturn in certain sectors of the world economy had impacted on the price of metal grade bauxite and suggested that the downturn could last anywhere from six to 36 months, depending on which expert one spoke to.
The Prime Minister stressed that as currently organised the industry would find it hard to compete at the prices prevailing for metal grade bauxite. He explained that the immediate challenge facing the industry now was whether it was at all possible to close the gap between present production cost and the present and projected world prices for metal grade bauxite.
He would venture no opinion as to whether the Alcoa proposal for the future of ABC was the only option available, but explained that prices had softened since then and much time had been lost since the proposal was tabled.
Sources close to the bauxite industry locally have pointed out that the industry has never been solely dependent on the sales of metal grade bauxite as it produces chemical, refractory and abrasive grade bauxite. They said in that respect the Alcoa proposal had not addressed the needs of the industry as a whole and made nonsense of its proposal to close down Everton.
The Bermine Employees Group has put forward a proposal that would keep the Everton facility open and upgraded as well as relieve the government of finding capital for rehabilitating its equipment. The group has met the negotiating team and was supposed to sign a confidentiality agreement soon before submitting a business plan as requested by the negotiating team.