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12.07.2004 Business & Finance

Alcoa's Valco 'PolitRicks'

By Public Agenda
Alcoa's Valco 'PolitRicks'
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.... Anxiety Expressed Over Impending Deal Government's decision to acquire the 90% shares in Valco offered by Kaiser Aluminum Corporation of the U.S.A., at a time when it is busy offloading its stake in essential services such as water, energy, health and education, has been received with mixed reaction among analysts, industry watchers and civil society groups. Some as a bold and prudent move has described the deal, expected to be concluded soon, on the part of government. But others see it as nothing short of a double standard in government's policy posture.

Information available to Public Agenda, indicate 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 increase its shareholding in Valco and explore the possibility of developing Ghana's bauxite deposits. The deal, according to analysts, must be the greatest news to Alcoa this year. The company, which has since 2001, cut back its production by over 600,000 tons yearly, representing approximately 15% of its global plant capacity, due to rising cost of energy, labour, environmental management, and plant maintenance, is set to seize the opportunity to revamp its fortunes.

Alcoa must have been chosen as the natural ally because it is an existing shareholder, and the company must have gleefully embraced the opportunity, because it offers among other things, a secured market for its alumina produced from its global operations,secured source of aluminium, including Ghana's share,subsidised power price for aluminium produced,cheap off take of the Valco shares off-loaded by Ghana, Management and Technology transfer fee.

For Ghana, the deal holds good promise for the re-engagement of about 1000 employees of Valco laid off, following the closure of the plant, zero freight cost on metal sold to the Aluworks factory, andspells good prospects for the development of an alumina refinery that will use Ghana's bauxite.

There is some disquiet among some civil society activists, however, over Alcoa's sincerity about the exploration of bauxite deposits in Ghana, and the development of local alumina refinery.

The fear is borne out of the experience with Kaiser. It is recalled that the exploration of Ghana's bauxite deposits at Kibi, and Nyinahini were part of the initial agreement with Kaiser. The latter failed to honour that part of the deal, but sought to use its supposed intent to do so, as a bargaining chip in its negotiations with the government of Ghana over power price, prior to the shut down of the factory.

Alcoa, the largest aluminium producing company in the world, which acquired the 10% shares of Reynolds Metals in Valco some four (4) years ago, has over the period, 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 May 13, 2004, to develop 1.5million tons of bauxite processing per annum in Guinea. 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 of alumina produced worldwide is consumed by the producers and/or their subsidiaries. Alcoa 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. Alcoa certainly needs a market for the alumina it is churning out, and Valco offers just that opportunity.

The questions that have raised doubts about the sincerity of Alcoa in exploring Ghana's bauxite deposits, and which need answering are: Why would Alcoa invest in another alumina refinery in Ghana, whenthe company is developing a new one currently in Guinea? And when the global alumina plant capacity is limited by primary smelter demand?

Again, why would Alcoa embark on such an expensive programme, when it can expand the Guinea project at 40% savings on investment cost? And when the Guinean bauxite deposits are the largest and richest in the world, with the technology and trained personnel to do the job?

It does appear from Public Agenda investigations, that Alcoa's motive for entering into the agreement with the government of Ghana is to obtain subsidisedenergy from Ghana in the production of aluminium,and create a market for its alumina, currently traded in the market.

In the medium-term and long-term, Alcoa would secure the market for its new refinery under construction in Guinea.

Ghana would then undergo the same frustration it went through with Kaiser in the past. It is to be recalled, that Kaiser signed an agreement with Ghana in the 1960s to build an alumina refinery in Ghana, to feed the Valco smelter. But the company directly and indirectly frustrated such an investment simply because it supplied the Valco smelter with alumina from its plant in Jamaica.

Developing an alumina refinery in Ghana, will amount to maximising the country's net benefit from the whole deal. It will enhance the development and growth of the Salt,Caustic Soda,Plastic Granules, and Cassava Starch industries in the country. It will also facilitate the reconstruction and rehabilitation of the Tema/Accra-Kumasi - Nyinahin railway infrastructure, and could providedirect employment to over 200,000 people, andindirect employment to approximately 1(one) million people.

Experts say the programme would generate foreign exchange in excess of US$300million per year, and contribute about 10% to the GDP.

If the deal is sealed as it stands, Ghana will end up subsidizing Alcoa's electricity bill by US$40million a year. If added to this, Alcoa fails to develop a local alumina refinery, as Kaiser did, the country would have lost out miserably, and missed the opportunity for developing an integrated aluminium industry, with the capacity to inject some momentum into the country's national development strides.