SEPT 2010- Smelter Project Cancelled

On September 8th, 2010, the People’s Partnership announced that it was cancelling a $600 million project to build a 125,000 tonnes-per-year aluminum smelter. This never happened.

“In addition to the health and environmental risk, there is also serious concern as to Alutrint’s viability and the optimal use of our gas. This project shall cease,” the then Finance Minister Winston Dookeran said during a presentation of the 2010-2011 national budget.

Brazilian conglomerate Votorantim Group has a 40 percent stake in the proposed 125,000 metric-tonnes-per-year aluminum smelter complex while the Trinidad and Tobago government held the remaining 60 percent.

ChinaExim Bank was providing a credit facility of $400 million for construction of the project.

The cancellation of the Alutrint smelter complex effectively ended a court battle over the project.

The Environmental Management Authority had issued a Certificate of Environmental Clearance to Alutrint for the project. But a court quashed the certificate after anti-smelter groups and individuals filed for judicial review, claiming the EMA’s decision was based on inadequate and flawed information.

EMA’s appeal of that ruling was rendered moot by the decision taken on September 8th, 2010.

An ex­am­i­na­tion a Cab­i­net note of Ju­ly 16, 2010, on the eco­nom­ics of Alutrint, re­vealed the plant would have been prof­itable if it was com­plet­ed. But the Cab­i­net note re­vealed that the cost of en­er­gy to the smelter was out­weighed by the ben­e­fits the coun­try would reap.

In terms of gas util­i­sa­tion:

Alutrint would have paid US$0.85 per mmb­tu.

“The Alutrint smelter will con­sume 46.5 mil­lion cu­bic feet a day which rep­re­sent 1.1 per cent of to­tal dai­ly nat­ur­al gas con­sump­tion. This 1.1 per cent in­cludes nat­ur­al gas con­sumed by the pow­er plant for Alutrint’s pow­er re­quire­ments. “When com­pared to oth­er gas based in­dus­tries, the Alu­minum in­dus­try presents a fa­vor­able in­vest­ment (in terms of Capex) per unit quan­ti­ty of gas utilised, as well as a high di­rect em­ploy­ment and in­dus­try-com­pet­i­tive re­turn on in­vest­ment. The alu­mini­um in­dus­try is unique in terms of its po­ten­tial for ex­pan­sive down­stream in­dus­tries. Re­turns on in­vest­ment nor­mal­ly in­crease no­tably with the in­cor­po­ra­tion of down­stream in­dus­tries,” the note stat­ed.

In terms of the en­vi­ron­men­tal and health im­pact:

“Alutrint has re­duced and/or mit­i­gat­ed the en­vi­ron­men­tal risk lev­els from these ef­flu­ents and waste prod­ucts by the pro­vi­sion of the buffer zone, the de­sign of the smelter, use of im­port­ed pre­baked an­odes and ex­port of the spent pot lin­ers. The com­pa­ny at­tained the en­vi­ron­men­tal stan­dards set by the EMA, in­clud­ing the HF stan­dard on one mi­cro­gram, for the ini­tial pro­pos­al for the one pot line. How­ev­er, with two pot­lines the com­pa­ny will be un­able meet the HF stan­dard of one mi­cro­gram. This will jeop­ar­dise the project and the pro­posed joint ven­ture with Vo­toran­tim.”

How would it have benefitted Trinidad and To­ba­go?

a) The cre­ation of 700 di­rect jobs with the po­ten­tial of 2100 in­di­rect jobs (Com­mu­ni­ty) and 7000 jobs (down­stream),

b) Down­stream de­vel­op­ment,

c) Gas util­i­sa­tion: en­er­gy mon­eti­sa­tion for lo­cal busi­ness de­vel­op­ment,

d) Trans­fer of tech­nol­o­gy: the Chi­nese tech­nol­o­gy is one of the most ad­vanced in the alu­mini­um in­dus­try. T&T would have ben­e­fitted from us­ing the most ef­fi­cient and clean­est tech­nolo­gies in alu­mini­um smelt­ing.

e) In­fra­struc­tur­al de­vel­op­ment: port, road net­works, ed­u­ca­tion and health fa­cil­i­ties

f) Po­ten­tial Cari­com link­ages: sup­ply of in­put ma­te­r­i­al (alu­mi­na from baux­ite); al­so mar­kets for alu­mini­um val­ue added prod­ucts and

g) In­ter­na­tion­al Ex­port Mar­ket: lever­ag­ing ac­cess to ex­ter­nal mar­kets through in­ter­na­tion­al part­ners (share­hold­ers) eg Latin Amer­i­ca and Chi­na.

The costs for project ter­mi­na­tion fell in­to two cat­e­gories:

One-time Costs

1. Sep­a­ra­tion costs for cur­rent em­ploy­ees of Alutrint: US$0.5 mil­lion

2. To en­gi­neer­ing, pro­cure­ment and con­struc­tion con­trac­tor, Chi­na Na­tion­al Ma­chin­ery and Equip­ment Im­port and Ex­port Cor­po­ra­tion (CMEC), for ter­mi­na­tion:

a. Amounts payable for any work car­ried out: US $7 mil­lion

b. Cost of plant and ma­te­ri­als or­dered for the works de­liv­ered to CMEC: con­tin­gent li­a­bil­i­ty

c. Any oth­er cost or li­a­bil­i­ty which in the cir­cum­stances was rea­son­ably in­curred in the ex­pec­ta­tion of com­plet­ing the work-con­tin­gent li­a­bil­i­ty

d. Cost of re­moval of tem­po­rary works and con­trac­tor’s equip­ment from the site and re­turn of items to Chi­na: US$1 mil­lion

e. Cost of repa­tri­a­tion of CMEC’s work­ers em­ployed in con­nec­tion with the works at the date of ter­mi­na­tion: US$1 mil­lion

3. Project agree­ment with Vo­toran­tim: US$5.7 mil­lion

4. Joint Ven­ture with Sur­al: no cost but sub­ject to lit­i­ga­tion

5. Loan agree­ment with EX­IM Bank of Chi­na: es­ti­mat­ed cost was to be pro­vid­ed by Min­istry of Fi­nance

Re­cur­rent Costs

1. Land lease to Na­tion­al En­er­gy Cor­po­ra­tion: US$1.9 mil­lion

2. Elec­tric­i­ty pur­chase oblig­a­tion to the Trinidad Gen­er­a­tion Un­lim­it­ed: US$33 mil­lion ($209 mil­lion)

3. Rental of pier and stor­age fa­cil­i­ties: US$9.6 mil­lion

To­tal cost of oblig­a­tions: US$44.5 mil­lion

Na­tion­al En­er­gy Cor­po­ra­tion

Tasked with the pro­vid­ing the in­fra­struc­tur­al re­quire­ment for the Alutrint project, the NEC has fi­nan­cial ex­po­sure in the sum of $922 mil­lion as fol­lows:

1. Loan from Na­tion­al Gas Com­pa­ny for de­vel­op­ment of Union Es­tate: US$58mil­lion

2. Loan from NGC for es­tab­lish­ment of port, stor­age and han­dling fa­cil­i­ties at La Brea: US$82 mil­lion

3. Debt to Hous­ing De­vel­op­ment Cor­po­ra­tion for con­struc­tion of hous­es for Square Deal house­holds: US$5.6 mil­lion

Con­tracts Af­fect­ed

Of 18 con­tracts signed, two have been com­plet­ed and 16 are af­fect­ed:

1. Mem­o­ran­dum of Un­der­stand­ing GORTT/ Peo­ple Re­pub­lic of Chi­na: no di­rect cost im­pact

2. Share­hold­er’s Agree­ment GORTT/Sur­al: The Gov­ern­ment is seek­ing to ter­mi­nate agree­ment with Sur­al, price is un­der ne­go­ti­a­tion

3. Buy­er’s Cred­it Loan Agree­ment: GORTT/Chi­na EX­IM Bank

4. Gov­ern­ment Con­ces­sion­al Loan Agree­ment: GORTT/Chi­na EX­IM Bank: This agree­ment ex­pired at the end of May 2010 and an ap­pli­ca­tion was made to ex­tend the term of the con­ces­sion for a fur­ther six months. A re­sponse was be­ing await­ed.

5. Project Agree­ment: GORTT/Vo­toran­tim Met­als: ex­pired in Sep­tem­ber 2010. No di­rect fi­nan­cial ex­po­sure oth­er than costs in­curred dur­ing the pe­ri­od of the project agree­ment.

6. En­gi­neer­ing, Pro­cure­ment and Con­struc­tion Agree­ment: Alutrint/CMEC. This con­tract was signed on De­cem­ber 2005.

7. Tech­ni­cal Spec­i­fi­ca­tion to EPC Con­tract (re­vised): Alutrint/CMEC–no cost im­pact

8. Ba­sic En­gi­neer­ing and Equip­ment Pro­cure­ment Re­view Agree­ment: Alutrint/Chi­na Met­al­lur­gy In­dus­try Ser­vices Co: may have a cost im­pact but can’t be quan­ti­fied at this time.

9. Cer­ti­fied Ver­i­fi­ca­tion Agent: Alutrint/ABS Con­sult­ing: no cost im­pact

10. Ch­agua­nas Of­fice Build­ing Lease: Alutrint/On­line Tech­nol­o­gy: Con­tract ter­mi­nated in Feb­ru­ary 2011

11.Im­port Du­ty Con­ces­sion: GORTT/Alutrint: no cost im­pact

12. Gas Sales Agree­ment: Alutrint/Na­tion­al Gas Com­pa­ny of T&T

13. Land Lease Agree­ment: Alutrint/Na­tion­al En­er­gy Cor­po­ra­tion: an­nu­al lease rent US$ 1.9 mil­lion

14. Dock & Ma­rine User Agree­ment: Alutrint/Na­tion­al En­er­gy Cor­po­ra­tion–these two com­bined re­sult in an an­nu­al cost of $11 mil­lion by Alutrint to NEC.

15. Wa­ter Sup­ply Agree­ment: Alutrint/Wa­ter and Sew­er­age Au­thor­i­ty: no cost im­pact

16. Pow­er Pur­chase Agree­ment: Alutrint/T&TEC /Trinidad Gen­er­a­tion Un­lim­it­ed: take or pay oblig­a­tion of US$33 mil­lion a year.

As of January 2014, the Government was facing a US$100 million claim in the United States from the minority shareholder of the US$400 million Alutrint smelter plant—Venezuelan company Sural—as a consequence of the previous administration’s decision to cancel the smelter plant.

“This office has been advised that the minority shareholder in the Alutrint plant … is currently exercising its right under the contract to arbitration wherein it is making substantial claims against the Government of Trinidad and Tobago for its arbitrary cancellation of that contract. My information is that this arbitration is taking place in the United States and that the claims being made are well upwards of US$100 million, being prosecuted by high-quality lawyers of the minority shareholder,” said PM Keith Rowley.

As of October 2017, the Government had entered into a multimillion-dollar joint private-public sector initiative as it moves to revive the aluminium smelter project that had been shelved in September 2010.

The Government said that it is injecting TT$35 million (one TT dollar=US$0.16 cents) into the project with Alutech Limited, with Energy Minister Franklin Khan indicating that it would be a 60/40 arrangement.

Khan said that previous People’s National Movement (PNM) administrations had intended to get involved in the aluminium industry, adding that this was the rationale behind the aluminium smelter plant which was cancelled by the previous Government.

“However, we still feel we can salvage a downstream aluminium industry based on imported elements,” he said, noting that the aluminium industry was lucrative.

“Strange enough, over this time of depressed commodity prices, one of the few prices in the world that have not been depressed is aluminium and that is largely because of the motor car industry and aluminium wheels which have now become ubiquitous throughout the motor car industry,” he said, telling legislators that the scheme is a small investment.

PM Dr Keith Rowley told the Parliament’s Standing Finance Committee then that the State had been dealing with various claims made against it following the decision by the last Government to end the smelter plant project.

“There is some settlement with respect to the closure of the project where the minority partner would have had claims against the State.

“Those matters are still in negotiations; however, both parties have agreed to go forward and some of the settlement considerations would be taken into account.”

But Rowley told legislators, “This is not the end of it. We are in discussions with the Chinese Government with respect to settlement of another claim with respect to the closure and abandonment of the smelter project that is a much larger sum.”

He added that “the failures and the arbitrations and the liabilities we are dealing with… are as a direct result of the UNC shutting down the aluminium project which started with a smelter and down streaming”.

He said the smelter project was being financed by the Chinese Import/Export bank, noting “we have liabilities there”. He also said that equipment worth US$40 million “had been in a warehouse ever since”.

“What we are trying to do now is to restart the project so as to save the down streaming side based on imported inputs since we have killed the smelting side of it.”

2 comments on “SEPT 2010- Smelter Project Cancelled

  1. Dr Joseph Mills on

    Mr Minister..
    I cannot see the immediate need for Aluminium in Trinidad at present.. We are trying to save the day from blunders made by the last PP Govt.However, in long term the only people who can gain from the immediate continuation is the Chinese financing conglomerate. These are some of the risk that China needs to understand when financing these mega projects
    This aluminium smelter and prep. project does not look so rosy in light of our dwilding natural gas supply..I can understand that 1.1 % of our daily gas consumption would appear to be a drop in a bucket, but to serve which God..
    Trinidad would be better of restarting our steel industry to enhance our construction and general infrastructural development efforts.

    Reply

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