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WHILE the Government of Jamaica contemplates its way out of the commitment to its portion of the loss-making Clarendon Alumina Productions, taxpayers will have to find an additional $4.4 billion to finance the losses that racked up this year alone.
This is according to Minister of Finance, Audley Shaw, who said the government's minority share of 45 per cent in the company part-owned by Jamalco, would be added to the budget come April.
"And I am now looking at a bill for the remainder of this fiscal year which we are going to have to draw onto the budget... of $4.4 billion," Shaw said. "We entered an agreement in 2005 to supply alumina to a company at a fixed price in a highly energy-intensive industry. You can get into an arrangement of a fixed price contract regardless of the increased cost of energy?"
The agreement was entered into in 2005 with Glencore, in which millions of US dollars in loans from the commodity company would be repaid through 10 year alumina supply contracts, more than half of which would be supplied at a fixed price. The remainder would be pegged to the equivalent of 12 per cent of the price of aluminium on the London Metal Exchange.
However, according the Shaw, the contract has cost the government and taxpayers millions in losses and in 2010, as the price of oil increases and the demand for and price of alumina decreases, has cost billions.
"With all of that we have to be supplying the product with our partner, Jamalco. Every time Alcoa supplies the amount to the particular company, Glencore, the difference between the price that we supply them for and the price that it cost Alcoa to produce the product, you and I have to pay that difference," said Shaw.
He said the government will have to get out of the contract through divestment or renegotiations with Glencore and utilise the funds in more sustainable ways. The government has proposed to sell its 45 per cent stake in Jamalco to Chinese firm, Zhuhai Hongfan but that deal has come under scrutiny from the contractor general.
"The Government is working hard and doing its best to get out of it. We are working hard to not only renegotiate that contract but more importantly to divest that as well. We have divested Air Jamaica, we have divested the Sugar Company of Jamaica we have to find a way now to divest Clarendon Alumina Productions. Because when we do that we are able to get the fiscal space so that we can do things that are better for the country and more sustainable," said Shaw.
According to Shaw, the excess money generated by the 2004 PetroCaribe agreement that is currently being used to maintain the Government's commitment to the loss-making entity could be better used in development.
"The PetroCaribe money for too long we have been using it to maintain loss-making public enterprises. When I came to office as minister hundreds of millions of dollars of the PetroCaribe fund was being used to prop up Air Jamaica. Millions of dollars being used to prop up the Sugar Company of Jamaica. Money being used to prop up our ownership in the Caribbean Alumina Production", Shaw said. "I believe that the PetroCaribe money, some of it, must be directed to education because I can't think of any other investment in our future in terms of economic sustainability that can be as important as investing in our human resource," he said.
The PetroCaribe arrangement involves refining crude oil from Venezuela shipping it to Caribbean states such as Jamaica and wholesaling it to existing retailers. Under the arrangement with Jamaica, 40 per cent of the purchase price of petroleum products to Jamaica will be provided as concessionary loans for 25 years, with interest charged at one per cent per year when prices equal or exceed US$50 a barrel.
http://www.jamaicaobserver.com/busin...amalco_8095308
This is according to Minister of Finance, Audley Shaw, who said the government's minority share of 45 per cent in the company part-owned by Jamalco, would be added to the budget come April.
"And I am now looking at a bill for the remainder of this fiscal year which we are going to have to draw onto the budget... of $4.4 billion," Shaw said. "We entered an agreement in 2005 to supply alumina to a company at a fixed price in a highly energy-intensive industry. You can get into an arrangement of a fixed price contract regardless of the increased cost of energy?"
The agreement was entered into in 2005 with Glencore, in which millions of US dollars in loans from the commodity company would be repaid through 10 year alumina supply contracts, more than half of which would be supplied at a fixed price. The remainder would be pegged to the equivalent of 12 per cent of the price of aluminium on the London Metal Exchange.
However, according the Shaw, the contract has cost the government and taxpayers millions in losses and in 2010, as the price of oil increases and the demand for and price of alumina decreases, has cost billions.
"With all of that we have to be supplying the product with our partner, Jamalco. Every time Alcoa supplies the amount to the particular company, Glencore, the difference between the price that we supply them for and the price that it cost Alcoa to produce the product, you and I have to pay that difference," said Shaw.
He said the government will have to get out of the contract through divestment or renegotiations with Glencore and utilise the funds in more sustainable ways. The government has proposed to sell its 45 per cent stake in Jamalco to Chinese firm, Zhuhai Hongfan but that deal has come under scrutiny from the contractor general.
"The Government is working hard and doing its best to get out of it. We are working hard to not only renegotiate that contract but more importantly to divest that as well. We have divested Air Jamaica, we have divested the Sugar Company of Jamaica we have to find a way now to divest Clarendon Alumina Productions. Because when we do that we are able to get the fiscal space so that we can do things that are better for the country and more sustainable," said Shaw.
According to Shaw, the excess money generated by the 2004 PetroCaribe agreement that is currently being used to maintain the Government's commitment to the loss-making entity could be better used in development.
"The PetroCaribe money for too long we have been using it to maintain loss-making public enterprises. When I came to office as minister hundreds of millions of dollars of the PetroCaribe fund was being used to prop up Air Jamaica. Millions of dollars being used to prop up the Sugar Company of Jamaica. Money being used to prop up our ownership in the Caribbean Alumina Production", Shaw said. "I believe that the PetroCaribe money, some of it, must be directed to education because I can't think of any other investment in our future in terms of economic sustainability that can be as important as investing in our human resource," he said.
The PetroCaribe arrangement involves refining crude oil from Venezuela shipping it to Caribbean states such as Jamaica and wholesaling it to existing retailers. Under the arrangement with Jamaica, 40 per cent of the purchase price of petroleum products to Jamaica will be provided as concessionary loans for 25 years, with interest charged at one per cent per year when prices equal or exceed US$50 a barrel.
http://www.jamaicaobserver.com/busin...amalco_8095308
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