By Douglas McIntosh
KINGSTON, Jamaica, (JIS) – The government is to provide Jamaicans with the opportunity of owning a stake in the Jamalco alumina refinery in Clarendon, upon completion of the incorporation process; as disclosed by minister of finance and the public service, Dr Nigel Clarke, who said that the government’s vision is to go public with its stake in the newly formulated entity.
Speaking during Tuesday’s (November 30) sitting of the House of Representatives Dr Clarke said that since the emergence of the country’s bauxite industry in the 1960s, no Jamaican has ever had a direct economic interest in a bauxite/alumina plant in Jamaica. “This government will change that. Jamaicans will have the opportunity to directly own a piece of a major industrial asset (Jamalco) operating in our bauxite-alumina industry,” he noted.
Dr Clarke maintained that this vision “is within reach”, adding that the ministry, working in tandem with Noble Group Holdings Limited, which has a joint stake in Jamalco, appointed a new nine-member Board, chaired by Port Authority of Jamaica chief executive officer, Professor Gordon Shirley, for the government-owned Clarendon Alumina Production Limited (CAP), which holds a 45 percent interest in the refinery, to oversee the incorporation process preceding the proposed initial public offering (IPO).
The appointment followed CAP’s transfer from the ministry of transport and mining to the ministry of finance. Dr Clarke said the incorporation process is being undertaken to replace the existing unincorporated joint-venture arrangement between CAP and General Alumina Jamaica, a subsidiary of Hong Kong-based Noble Group Holdings Limited (formerly Noble Group Limited), which trades in energy products and industrial raw material.
He explained that under the unincorporated joint venture, there is no limited liability company called ‘Jamalco’. Instead, CAP and Noble were required to contribute working capital monthly to acquire the inputs of production and, in return, receive their proportional share of alumina as output, which they sell on the world market.
The minister told the House that this arrangement has existed for more than 30 years, with Glencore and Alcoa preceding Noble as the government’s partner. He said, notwithstanding this, the unincorporated nature of the venture in its current form, represents an untenable fiscal risk to the government of Jamaica.
This, Dr Clarke said, as Jamalco does not have the ability to borrow, adding that where capital was required for the entity, the Government has “borrowed its proportional share”.
“Complicating matters [is the fact that] an indebted and cash-strapped Government has, in the past, borrowed against future alumina sales and repatriated the proceeds to the central treasury upfront, while fixing the price that CAP receives for its alumina over several years. This has been a practice for over 30 years, mostly born of necessity,” he pointed out.
As such, Dr Clarke said CAP has had significant cash-flow challenges “over an extended period of time”, with “substantial cash calls [to the government] from time to time”.
The minister said, all told, the government has provided financing to CAP in excess of US$800 million over the past 16 years, and that the entity racked up losses in 15 of those, with the exception being 2016/17 when it recorded a profit, adding that total losses exceed US$700 million. He indicated that for an extended period, CAP depended on Noble to finance working capital obligations on its behalf. Consequent on this, Dr Clarke pointed out, CAP “built up large working capital liabilities to Noble” and that in light of this, the unincorporated joint-venture arrangement “has outlived its usefulness”.
The minister advised that the government loaned CAP US$137 million last year to repay its interest-bearing obligations to Noble. This allowed CAP to terminate its alumina sales agreement, which was replaced by a marketing agreement resulting in the entity receiving the same market price for its alumina as Noble.
“This put CAP in a vastly improved position with respect to its finances. Combined, these re-engineering steps… have allowed CAP to enjoy profitability, thus far, this year… for the first time in six years and only the second time in 16 years,” Dr Clarke indicated. “Importantly, CAP has been able to make its working capital calls from its internally generated resources rather than borrowing from Noble. This, too, is a major achievement,” he added.
Dr Clarke told the House that the finance ministry loaned CAP a further US$60 million to repay Noble the non-interest-bearing working capital loan accumulated from the former’s inability to finance its share of working capital requirements over an extended period.
“So, after owing Noble substantial sums for all, if not most of the last 15 years, today CAP owes Noble, not one red cent,” he declared. The government has been working on the incorporation process over the last four years towards “having all the vast array of assets – factory, land, machines, equipment, and liabilities required for operations – fully vested in a new limited liability version of JAMALCO”, said Dr Clarke.