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MINUTES OF THE HONOURABLE JAMAICA HOUSE OF REPRESENTATIVES At a meeting of the Members of the House of Representatives held pursuant to adjournment at Gordon House in the City and Parish of Kingston on Tuesday, the 8th DAY OF JUNE, 2010 PRAYERS Prayer was offered by the Reverend Ronald Thwaites. CALL OF THE ROLL PRESENT WERE: Hon. Delroy Hawmin Chuck, M.P., Speaker Mrs. Marisa Colleen Dalrymple-Philibert, M.P., Deputy Speaker Hon. Andrew Holness, M.P., Minister of Education and Leader of the House Hon. Dr. Kenneth Leigh O’Neill Baugh, M.P., Deputy Prime Minister and Minister of Foreign Affairs and Foreign Trade Hon. Pearnel Patroe Charles, M.P., CD, Minister of Labour & Social Security Hon. Dr. Horace Anthony Chang, M.P., Minister of Water & Housing Hon. Neville Andrew Gallimore, M.P., Minister of State in the Ministry of Labour and Social Security & Deputy Leader of the House Hon. Clifford Everald Errol Warmington, M.P., Minister of State in the Ministry of Water and Housing Hon. William James Charles Hutchinson, M.P., Minister of State in the Ministry of Agriculture and Fisheries Hon. Daryl Wesley Phillip Vaz, M.P., Minister without Portfolio in the Office of the Prime Minister with responsibility for Information and Communication Hon. Robert St. Aubyn Montague, M.P., Minister of State in the Office of the Prime Minister Mr. Noel George Delano Arscott, M.P., Clarendon, South Western Mr. Luther Bartley Monteith Buchanan, M.P., Westmoreland, Eastern Mr. Peter Murcott Bunting, M.P., Manchester, Central Mr. Roger Harold Clifford Clarke, M.P., Westmoreland, Central Dr. Donald Keith Duncan, M.P., Hanover, Eastern Mr. Colin Alfred Alexander Fagan, M.P., St. Catherine, South Eastern Dr. Fenton Rudyard Ferguson, M.P., St. Thomas, Eastern Dr. Morais Valentine Guy, M.P., St. Mary, Central Ms. Lisa Rene Shanti Hanna, M.P., St. Ann, South Eastern Mr. Ian Dave Hayles, M.P., Hanover, Western Mrs. Sharon Merle Hay-Webster, M.P., St. Catherine, South Central Mrs. Maxine Antoinette Henry-Wilson, M.P., St. Andrew, South Eastern Mr. Joseph Uriah Hibbert, M.P., St. Andrew, East Rural Mr. George Anthony Hylton, M.P., St. Andrew, Western Mr. Derrick Flavius Kellier, M.P. CD, St. James, Southern Mr. Othneil Damion St. Elmo Lawrence, M.P., St. Ann, North Western Mr. Desmond Gregory Mair, M.P., St. Catherine, North Eastern 2 Mr. Clive Arthur Mullings, M.P., S. James, West, Central Mr. Phillip Feanny Paulwell, M.P., Kingston Eastern & Port Royal Mr. Dean Alexander Peart, M.P. CD, Manchester, North Western Mr. Michael Anthony Peart, M.P., Manchester, Southern Dr. Donald Gladstone St. Clair Rhodd, M.P., Portland, Eastern The Most Hon. Portia Lucretia Simpson Miller, ON, M.P., St. Andrew, South Western Mr. Ernest Augustus Smith, M.P., St. Ann, South Western Rev. Ronald George Thwaites, M.P., Kingston, Central STATEMENTS BY MINISTERS The Minister of Energy and Mining, the Honourable James Robertson made the following statement: The Contractor-General has announced his intention to carry out an investigation into the proposed sale of the government’s 45% equity in Jamalco. The government will cooperate fully with the Contractor-General in the conduct of his investigations. In fact, the Contractor-General first became aware of the matter in April 2009, when, on the instructions of the Prime Minister, as acknowledged by him in a letter dated April 29, 2009, the then Permanent Secretary in the Ministry of Energy and Mining and the Chairman of BATCO met with the Contractor-General to discuss issues related to the HongFan proposal. HongFan initially sought to purchase alumina but from the very outset indicated its interest in acquiring the government’s shares in JAMALCO. There are two important considerations that have guided the proposed transaction. Firstly, the government’s 45% ownership in Jamalco, through Clarendon Alumina Production (CAP), had become a costly burden which the Jamaican taxpayers could no longer bear. The problems began in 2000 when CAP was unable to meets its share of operational costs and proceeded to borrow US$125 million initially from Glencore as an advance which was repaid by a US$125 million loan secured from the international capital market. US$55 million of this amount was diverted to help the government to finance its budget. In 2002, a further US$65 million was borrowed from GLencore to meet CAP’s share of plant expansion costs. 3 In 2006, a further US$200 million was secured from the international capital market, US$69 million of which was used to repay the balance on the US$125 million loan, US$126 million to settle further debts that CAP had accrued and US$5 million toward working capital. The loans from Glencore were repayable through 10 year alumina supply contracts with more than a half of the supply at a fixed price and the remainder pegged to the equivalent of 12¼ % of the price of aluminum on the London Metal Exchange. Sharp increases in the price of oil and caustic soda led to a situation where the cost of production far exceeded the price we were receiving under these arrangements. The huge drop in alumina prices caused by the recession without a commensurate fall in oil prices further aggravated the dilemma. At the end of 2008, we were losing over US$130 on every ton of alumina produced, incurring losses on CAP’s operations at an average rate of US$10 million per month. As the debts piled up and CAP was unable to meet its payments, the government was required to make good on the payments. In fact, in October 2008, Alcoa issued to CAP a formal notice of default. The seriousness of this cannot be overlooked as it would have impacted the US$200 million globally traded bonds with grave implications for all GOJ sovereign bonds. The government had to step in. Between 2007 and 2010, the government, through the Ministry of Finance and the Public Service and the Petrocaribe Fund, has had to pump approximately US$250 million to meet CAP’s obligations to Jamalco. CAP’s current indebtedness stands at just under US$400 million. Under the IMF agreement, the government could not continue to finance these losses. They had to be cauterized. The government had to divest itself of its shares in Jamalco. The second issue relates to the selection of HongFan as the preferred bidder. Divesting our shares in Jamalco involves much more than simply selling an asset. There are strategic considerations that have to be weighed carefully to determine what is in the best long- term interests of Jamaica’s alumina industry. China, with its fast growing economy, is the largest market for alumina. In addition, the selection of a buyer for our shares had to take into account the need to maintain and strengthen the partnership with Alcoa which owns 55% of the shares in Jamalco. HongFan had expressed an interest in acquiring our Jamalco shares in 2008. The government spent considerable time conducting due diligence on the company. Founded in 1992, it controls or has significant investment in a number of aluminum plants in China. It has supply contracts with Chalco, China’s largest aluminum company and is the exclusive agent for all of Chalco’s aluminum products in the US market. HongFan’s interest was maintained through 2009 when the industry fell to its lowest point, several plants around the world were being shut down and hardly any investor was prepared to take on new ventures. Its offer includes not only a substantial price commensurate with independent evaluation but the assumption by HongFan of the costly supply contracts which are 4 responsible for a substantial part of the accumulated losses and some of which run until 2013. Its offer is also better than that submitted by one of the major global players in the alumina industry. HongFan has the support of the China Development Bank, the world largest development bank. During the Prime Minister’s visit to China in February, he met with Chalco and the China Development Bank to confirm their support for the deal. In April, representatives from Chalco and the China Development Bank visited Jamaica for further discussions and toured the plant jointly with senior officials from HongFan and Alcoa. The agreement which was approved by Cabinet has not yet been consummated as, under the joint venture agreement between CAP and Alcoa, Alcoa has the right of first refusal and has until the end of June to exercise that option. Yesterday, I attended a meeting in New York for joint follow-up discussions with HongFan and Alcoa. As I have already stated, all the relevant government entities will cooperate fully with the Contractor-General in his investigations. (The Prime Minister, the Honourable Bruce Golding entered and took his seat). (Dr. Patrick Harris, M.P., Trelawny, Northern, entered and took his seat). (The Minister of Transport and Works, the Honourable Lester Henry, entered and took his seat). (The Minister of Health and Environment, the Honourable Rudyard Spencer, entered and took his seat). (Mr. Franklyn Witter, M.P., St. Elizabeth, South Eastern, entered and took his seat). (The Minister of State in the Ministry of Industry, Commerce and Investment, the Honourable Michael Stern, entered and took his seat). (The Minister of Industry, Commerce and Investment, the Honourable Karl Samuda, entered and took his seat). (Dr. St. Aubyn Bartlett, M.P., St. Andrew, Eastern, entered and took his seat). (Mr. Derrick Smith, M.P., St. Andrew, North Western, entered and took his seat). 5 ANNOUNCMENTS The Clerk laid on the Table of the House a copy of the following: Ministry Paper No.
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