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Aluminum Price Outlook

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					Aluminum in Africa
A case study for Earthlife Africa eThekwini and Friends of the Earth
JULY 11, 2007
Terri Hathaway, International Rivers Network, US/Cameroon

While the aluminum industry‟s interest in Sub-Saharan Africa is growing
tremendously, the sector‟s contributions to Africa‟s economic and human
development to date remain dubious. Aluminum is the world‟s second most used
metal, and the aluminum industry is made up of some of the world‟s most powerful
companies. These companies regularly secure advantageous energy and infrastructure
deals for their aluminum production, but with questionable economic benefit or
development for the countries where they operate. The government-level support
which these companies receive comes at the cost of fewer resources applied to the
chronic under-development of human needs. In several countries the aluminum
companies are by far the largest consumers of electricity– often using great quantities
of electricity in places where a large majority of the population has no access to
modern energy services.

Aluminum producers use more electricity than any other industry. Bauxite is
converted into primary aluminum in three stages: first, bauxite ore is mined, the
bauxite is then refined into alumina (aluminum oxide), and finally the alumina is
smelted into primary aluminum. This process (particularly the smelting of alumina
into aluminum) is the world‟s most energy-intensive industrial process. About half of
all electricity consumed by the aluminum industry comes from hydropower dams, a
percentage that is expected to increase. Energy inputs account for up to half the cost
of aluminum production, leading to migration of aluminum processing plants in recent
years from the traditional industrial centers like the United States and Europe to
developing countries where companies find that cheaper electricity, fewer regulations
and lower-paid workers make building new production facilities cost-effective.

Today less than one out of every four sub-Saharan Africans has access to electricity.
In rural areas, where the vast majority of the population lives, the rate of access
plummets to only one in every ten. That equals 500 million sub-Saharan Africans
today, and is expected to grow to 650 million by 2030.1 Yet sub-Saharan African
governments are making electricity available to aluminum companies at some of the
lowest costs in the world.

Throughout its history, the aluminum industry has been dominated by a few
companies which are vertically integrated, dominating all three phases of aluminum
production. The industry today remains highly concentrated: three companies --
Alcoa, Alcan, and Rusal -- produce more than one-third of the world‟s primary
aluminum. Russian-based Rusal, previously the third largest aluminum company,
obtained the industry‟s top spot after a 2006 merger with Russian-based Sual and the
alumina assets of Swiss-based Glencore. The early aluminum industry was similarly
run by global cartel agreements amongst the few powerful companies. Canadian-
based Alcan, today the target of a possible takeover by US-based Alcoa, was the
product of an anti-trust court ruling in 1945 which split the two companies from

1
 International Energy Agency. 2002. World Energy Outlook. Paris: OECD/IEA. Available at:
http://www.iea.org/textbase/nppdf/free/2000/weo2002.pdf.
shared ownership. Should the takeover of Alcan happen, Alcoa would again take
position as the world‟s largest aluminum company over Rusal.

Economies of scale and relatively low shipping costs allow these companies to
complete each phase of aluminum production in the worldwide location where inputs
are cheapest, regardless of distance. Bauxite is mined and shipped by a subsidiary
mining company to a subsidiary alumina refinery, then shipped to a subsidiary
aluminum smelter and turned into primary aluminum. It is then sold or shipped onto
another subsidiary company where it is turned into a final aluminum product. Alcoa
operates in forty-four countries; Alcan operates in fifty-five countries and Rusal
operates in seventeen countries. The threat of changing production location also
provides greater leverage for companies when negotiating with governments which
are often involved in just one phase of the production.

Despite business practices which exploit local people and developing economies,
these companies manage to maintain a popular image of sustainability, environmental
soundness, and charitable development. Alcoa received an award at the World
Economic Forum for being one of the world‟s most sustainable corporations in 2005,
2006, and 2007, and in 2007 Alcan received an award for excellence in corporate
sustainability from the corporate-sponsored World Environment Center. 2 Likewise, in
February 2007, Alcoa announced a US$68,000 donation from the Alcoa Foundation
for a youth clinic in Ghana and Alcan continues to promote its progressive policy of
testing and treating employees for HIV as a key contribution to its corporate social
responsibility in Cameroon.3 These awards and charitable practices help the
companies maintain their strong, positive image while making token contributions to
the socio-economic development of countries.

Yet their clean and green image often doesn‟t reflect the exploitation of the people
and economies impacted by their business operations.
Research by International Rivers Network (IRN) has found a pattern of aluminum
production projects throughout the global south which involved:
    Construction of large, destructive dams to generate hydroelectricity for
       powering aluminum plants;
    Social and environmental impacts of aluminum production which were not
       considered or adequately addressed;
    Prioritization of the aluminum sector‟s energy needs in national energy
       planning;
    Undisclosed, long-term financial contracts favorable to the aluminum
       companies;
    Production viability built on access to cheap (often below-cost) energy, low-
       paid workers, and weak regulatory systems; and,


2
  Alcoa. 2007. “Alcoa Named One of the Most Sustainable Corporations in the World for the Third
Consecutive Year (press release).” January 25. Available at: http://www.csrwire.com/News/7337.html;
Alcan. 2006. “Alcan Receives World Environment Center‟s 2007 Gold Medal Award for Sustainability
(press release).” November 8. Available at: http://www.csrwire.com/PressRelease.php?id=6785.
3
  Alcoa. 2007. “Valco-Alcoa Foundation Youth Clinic Inaugurated in Ghana (press release).” February
14. Available at: http://www.csrwire.com/News/7523.html; Alcan. 2006. “Alcan Highlights Efforts To
Fight Aids In Africa At First European CEO Summit On Business And HIV/AIDS (press release).”
October 13. Available at: http://www.csrwire.com/News/6743.html.
       Host countries receiving poor financial deals and carrying the burden of
        economic risk. 4

This pattern is true in Africa as elsewhere. Below are summary experiences of the
aluminum industry in five African countries: Ghana, Cameroon, South Africa,
Mozambique and Guinea.

Ghana
Built between 1961 and 1965, the World Bank-financed Akosombo dam was the
backbone of then Ghanaian President Nkrumah‟s plan to spur the newly independent
country‟s industrial development with an integrated aluminum sector. Today,
Akosombo dam generates two-thirds of the country‟s power, although less than half
the population has access to electricity.5 The Volta Aluminum Company‟s (VALCO)
aluminum smelter is the single, largest consumer of Ghana‟s electricity, requiring 350
MW of Akosombo‟s current capacity of 1020 MW. Corporate insistence on cheap
electricity has meant Ghana‟s residential consumers are increasingly subsidizing the
operating expenses of aluminum companies. Fifty years after Ghana‟s independence,
the country‟s aluminum sector has helped US-based companies Kaiser and Alcoa
profit while showing little benefit to the country‟s economic or industrial
development.

When it was built, Akosombo dam‟s reservoir flooded nearly four percent of Ghana‟s
land mass and became the largest man-made lake in the world.6 Regardless of its
mammoth reservoir, power production has suffered repeatedly from low reservoir
levels due to drought. In February 2007, VALCO closed for the eleventh time since
operations began in 1967 due to low reservoir levels caused by poor rainfall. The
reservoir will likely be adversely impacted in the future by warming temperatures and
increased evaporation rates as well. While the most recent closure has left 700
employees out of work and is expected to last until 2008, it has helped to boost
aluminum prices on the world market, allowing Alcoa to profit.7

VALCO was originally owned 90% by US-based Kaiser Aluminum. The Government
of Ghana was locked into a long-term power contract with VALCO that hindered the
government‟s ability to provide more electricity to residential and commercial
consumers. VALCO received electricity at a locked-in, “ultra-low” rate, while
residential tariffs more than doubled, in part due to growing demand beyond the
government‟s after-VALCO supply.8 When Kaiser's original thirty-year power deal

4
  Switkes, G. 2005. Foiling the Aluminum Industry. Berkeley, CA: International Rivers Network.
Available at: http://www.irn.org/pdf/aluminum/Foiling2005.pdf.
5
  Ghana‟s major energy plants are: Akosombo dam, 1020 MW; Kypong dam, 160 MW; Takadori
thermal plant, 550 MW; and Tana Diesel plant, 30 MW. For electricity access rates, see Table 1.
6
  McCully, P. 1996. Silenced Rivers. London: Zed Books.
7
  2007. “VALCO To Suspend Operations,” Daily Graphic. March 15. Available at:
http://www.myzongo.com/VALCO-to-suspend-operations.html; Dovi, E. 2007. “Africa's Major
Aluminum Producer Closes Amid Ghana Energy Crisis,” VOA. March 16. Available at:
http://www.peakoil.com/article24308.html.
8
  Zachary, G.P. 2003. “Black Star: Ghana,, Information Technology and development in
Africa.” In D. Sarewitz et al.(eds.) Knowledge Flows and Knowledge Collectives: Understanding the
Role of Science and Technology Policies in Development. Consortium for Science, Policy &
Outcomes. Available at: http://www.cspo.org/home/cspoideas/know_flows/Rock-Vol1-5-
Complete.PDF.
ended in 1997, a battle over power rates ensued, going into international arbitration.9
The government was forced to import oil and use thermal generators to help meet its
non-VALCO demand.

The terms of the original agreements, including a fifty-year master agreement signed
in 1962 between Ghana and Kaiser, were extremely favorable to the company. Kaiser
received a thirty-year, guaranteed supply of electricity, with an option to renew for an
additional twenty years. VALCO was granted a ten-year tax holiday, followed by a
ceiling on the corporate income tax Ghana could levy on Kaiser. Kaiser also received
a fifty-year exemption from paying any tariffs on the alumina and other inputs it
imports for the smelter, or on the primary aluminum which it exports.10

The original agreement also established the VALCO Fund to which Kaiser
contributed fifty percent of its after-tax profits -- or $200,000, whichever was higher -
- in lieu of certain taxes, as an attempt to ensure that Ghanaians benefited from the
smelter. However, by manipulating the price of aluminum sold back to the parent
corporation, VALCO insured that it showed little, if any, profit.11

In 2003, after months of closure, a new Memorandum of Understanding (MOU) was
signed between Kaiser and the government of Ghana to restart the aluminum
smelter.12 But Kaiser, with support from US government institutions including OPIC,
arm-twisted the government of Ghana into buying its share a few months later.13
VALCO is now owned 90% by the Government of Ghana and 10% by Alcoa, which
gained its share through a merger with US-based Reynolds in 2000.

VALCO remained closed for nearly two years until 2005. A new MOU, including a
new power rate agreement, was signed by Alcoa and the government to restart smelter
operations and to consider building Ghana‟s envisioned, integrated aluminum
industry, including further developing its bauxite mines and building an alumina
refinery; however, the integrated industry would be 60% owned by Alcoa.14

Although Ghana has bauxite it has no refinery. VALCO continues to import alumina
from Alcoa‟s mining and refinery operations in Jamaica. Ironically, the Ghana
Bauxite Company, 80% owned by Alcan, mines Ghanaian bauxite and exports it to
Scotland.15 This has affected Ghana‟s ability to create its own vertically integrated
aluminum industry, holding Ghana in a less powerful position in negotiations with


9
  Government of Ghana. 2003. “The Position of Ghana on the Arrangements with Valco.” May 7.
Allafrica.com. Available at: http://allafrica.com/stories/200305070811.html
10
   Burnett, N. 1980. “Kaiser Shortcircuits Ghanian Development,” Multinational Monitor, v1, n1.
Available at: http://multinationalmonitor.org/hyper/issues/1980/02/burnett.html.
11
   Ibid.
12
   “News Advisory: Kaiser Aluminum and Government of Ghana Sign Memorandum of
Understanding.” May 30, 2003. Business Wire. Available at: http://www.encyclopedia.com/doc/1G1-
102576700.html.
13
   Kramer, R. 2003. “Ghana: US Firm Opens Talks to End Dispute with Ghana's Government,” May
27. Allafrica.com. Available at: http://allafrica.com/stories/200305271005.html.
14
   Brooks, D. 2005. “Alcoa inks pact to develop Ghana's aluminum industry,”American Metal Market.
Jan 27. Available at: http://www.findarticles.com/p/articles/mi_m3MKT/is_3-4_113/ai_n9480771.
15
   Girard, R. 2005. Can Alcan Claim to be the Best? Polaris Institute. Available at:
http://polarisinstitute.org/files/Alcan.pdf.
Alcoa as well undermining its efforts at economic development.16 Media reports from
June 2007 now identify Alcan as making a deal with the government to develop a
refinery and expand its bauxite mining operations, although media reports over the
years had earlier identified Alcoa, Rusal and BHP Billiton having both expressed
interest in investing in an alumina refinery in Ghana.17 These reports repeatedly raise
the hopes of Ghanaians to develop an integrated aluminum industry, but whatever
deal is finally struck will likely come with costly government incentives, and any
benefit Ghana receives will be second only to assured profits for the investing
company.

Cameroon
Like VALCO in Ghana, the Alucam aluminum smelter in Cameroon is the single
largest consumer of energy in the country. Plans to expand the aluminum industry are
having significant influence over the country‟s energy planning, but with little
evidence that the people of Cameroon will benefit. Only twenty percent of
Cameroonians have access to electricity, with only five percent having access in rural
areas.18

Alucam (built in 1957) was originally a venture of the French-based Pechiney
aluminum company, but Alcan became owner after taking over Pechiney in a 2003
merger. Today, Alucam is equally owned by Canadian-based Alcan and the
government of Cameroon, with the remaining 5% owned by the French Development
Agency (AFD). Alucam‟s current power purchase agreement, though not publicly
disclosed, grants a highly subsidized rate for electricity consumption. Alucam
purchases 40% of the power produced by AES-Sonel, compared to 25% purchased by
residential and other low-voltage users, yet Alucam‟s payments make up only 12% of
AES-Sonel‟s revenue compared to 54% from low-voltage (residential) consumers.19
The current agreement ends in 2009, and a new power purchase agreement seems to
be tied to Alcan‟s negotiations to expand its operations in Cameroon and to secure
new, long-term favorable terms. Terms of the new power purchase agreement and
other negotiation agreements will likely remain out of public view.

In October 2005, Alcan announced plans for a major investment of about $900
million to nearly triple the Alucam smelter‟s production and indicated that it requires
the construction of two dams – Lom Pangar and Nachtigal – in order to do so. Support

16
   Agbemabiese, L. & Byrne, J. 2005. Commodification of Ghana‟s Volta River: An Example of Ellul‟s
Autonomy of Technique,” Bulletin of Science, Technology & Society, v25, n1, 17-25. Available at:
http://ceep.udel.edu/publications/sustainabledevelopment/2005_sd_commodification_Volta%20River_
Agbe&Byrne.pdf.
17
   2007. “Bauxite refinery in Ghana soon,” World Aluminum Market. June 20. Available at:
http://www.world-aluminium-market.com/news/detail.htm?id=5380; 2004. Russian Aluminium Giant,
Rusal, 'Eyes' Ghana's Valco. The Crusading Guide, Embassy of Russia in Ghana.. Available at:
http://www.ghana.mid.ru/ros_ghana/51.html; Ablorh-Odjidja, E. 2002. “A Billion Dollar Bauxite
Refinery for Ghana?” profileafrica.com. December 5. Available at:
http://www.ghanaweb.com/GhanaHomePage/features/artikel.php?ID=30575. Significant bauxite
reserves have been found in Ghana‟s protected forests. It‟s likely that an expansion of bauxite mining
in Ghana would require the removal of government protections and subsequent destruction of affected
forests.
18
   For electricity access rates, see Table 1.
19
   Girard, R. 2005. Can Alcan Claim to be the Best? Polaris Institute. Available at:
http://polarisinstitute.org/files/Alcan.pdf.
for Lom Pangar dam is expected from AFD and the World Bank. The Nachtigal
hydropower dam will be financed, developed and operated by Alucam along with the
expansion of the existing aluminum smelter, development of associated infrastructure,
and possibly bauxite mining. If the dams are not constructed, Alcan has made it clear
that it will eventually leave the country. Alcan‟s “double or nothing” expansion
strategy is arguably the most powerful factor in the decision to build the dams.

Alucam currently imports alumina from Guinea where Alcan has significant bauxite
holdings. Cameroon has bauxite reserves and the 2005 Letter of Intent signed with
Alcan included some exploration rights. In 2005, the government of Cameroon also
issued a permit to US-based Hydromine for bauxite exploration in northern
Cameroon. In January 2006, the two parties signed an agreement to build a deep sea
port at Kribi and a railroad connecting Kribi and Edéa; talks are also continuing on
the development of an alumina refinery in which Dubai Aluminum Limited is also a
partner.20 In June 2007, Développement sans Frontières, a Cameroon NGO, sent an 18
page letter to President Paul Biya, outlining concerns about the impacts of new
mining and advocating for benefit sharing with local communities many of which saw
nearby villages negatively affected by the World Bank Chad-Cameroon Oil
Pipeline.21 As in Ghana, it‟s unclear that bauxite mined in Cameroon would be used
as an input into aluminum production in Cameroon, but may instead be exported to
another plant for refining.

It remains unclear whether or how the Cameroonian public will benefit from the Lom
Pangar dam or from the planned expansion of the country‟s aluminum industry. 22
Requests for release of financial records from the Ministry of Finance have gone
unanswered and there is no evidence of support from the government to ensure public
disclosure of its financial deals with Alcan or to provide avenues for public
accountability of the company. Likewise, no records of Alucam‟s contribution to
Cameroon‟s national budget are publicly available, making it impossible to trace the
historical economic benefit or predict future benefits.

Staff from Global Village Cameroon, a Cameroonian NGO, have repeatedly met with
representatives of Alucam and Alcan, and requested documentation of the economic
benefit of the aluminum sector in Cameroon. To date, only an Alucam annual report
for 2005, released in April 2007, has been received. The World Bank has likewise
raised concerns about the aluminum sector‟s use of Cameroon‟s electricity and is now
calling for a cost-benefit sector analysis before the construction of new dams in
Cameroon.23 Alcan has said they are undertaking their own economic analysis to be
released in mid 2007, but any analysis publicly released by the company will likely
downplay the extent of economic impacts their operations in Cameroon have on the
country.


20
   Musa, T. 2007. “Cameroon negotiating 2.8 mln T alumina unit project,” Reuters News Agency. May
24. Available at: http://africa.reuters.com/country/CM/news/usnL24401270.html.
21
   Musa, T. 2007. “Locals demand cut from Cameroon alumina project,” Reuters News Agency. June
15. Available at: http://africa.reuters.com/metals/news/usnL15816269.html.
22
   For a more detailed report on this issue, see: IRN, BIC & GVC. 2006. In Whose Interest? (joint
report). Available at www.irn.org/pdf/lompangar/WhoseInterest.pdf.
23
   World Bank. 2006. Interim Strategy Note for the Republic of Cameroon FY07/08. Available at:
http://siteresources.worldbank.org/INTCAMEROON/Resources/ISN_english.pdf.
South Africa
Since the 1970s, South Africa has been home to two existing smelters, the Hillside
and the Bayside smelters located in Richards Bay, about 150 kilometers north of
Durban. In 2006, South Africa‟s government-owned utility, Eskom, and Canadian-
based Alcan signed a 25-year power agreement for 1,355 MW of electricity beginning
in 2010 for an aluminum smelter. The deal, reportedly worth $2.7 billion, would place
the aluminum smelter as the anchor tenant of the government‟s planned Coega
industrial development zone.24 Alcan said it will maintain a twenty-five to forty
percent interest in the Coega smelter; South Africa's state-owned Industrial
Development Corporation (IDC) will own fifteen percent. The government of South
Africa has already spent some $700 million on developing the industrial development
zone, and will spend even more preparing a deep sea port and electricity upgrades.25

Once built, Coega would be the largest smelter in Africa and represents one of the
single, largest foreign direct investments in South Africa‟s history. The quantity of
electricity is enough to light half of Cape Town, or about a half million households,
and a significant commitment of total electricity supply given the great need for
electrification in South Africa's poorer areas. Though the power rates are secret, the
government said it agreed to lower tariffs in order to create 6,000 jobs during the
plant‟s construction and 1,000 jobs for the smelter‟s operation.26 Without disclosure
of the agreed electricity tariffs, the public is unable to scrutinize the economic benefits
of the deal against the employment creation.

In December 2006, Earthlife Africa Johannesburg submitted a "Promotion of Access
to Information Act" (PAIA) request regarding Eskom's deal with Alcan regarding the
Coega aluminum smelter. In particular, Earthlife Africa requested information
regarding the price at which Eskom would sell electricity to Alcan, the conditions of
supply, and if Alcan could sell any unused electricity. To date, Eskom has refused to
supply a detailed response, citing confidentiality agreements and trade secrets.
Earthlife Africa has called upon Eskom, Alcan and the government of South Africa to
release the details of the agreement signed between Eskom and Alcan, including a
detailed justification should Eskom and Alcan believe elements of the agreement
should not be publicly disclosed. In a February 2007 press release, Tristen Taylor,
Energy Policy Officer at Earthlife Africa, said, “With the deal between Eskom and
Alcan already signed, the only people whose rights could be infringed upon by
releasing the contract between Eskom and Alcan are the South African people. Maybe
Eskom is afraid of the public reaction if it sold electricity to Alcan at a ridiculously
low amount, such as 0.02 cents a kilowatt hour.”27 There is little room for public trust
if even the basic conditions of this 25-year contract remain secret.

In order to help cover $2 billion in investments for the next five years, Eskom has
asked South Africa‟s national energy regulator for tariff hikes of 18%, a rate increase

24
   2007. “South Africa: An Expensive Guest,” (editorial) Business Day. June 25. Available at:
http://allafrica.com/stories/200706250300.html.
25
   ibid.
26
    Yakabuski, K. 2007. “There‟s no loss of power in Alcan‟s deals,” Globe and Mail. February 8.
Available at: http://www.theglobeandmail.com/servlet/story/LAC.20070208.RYAKA08/TPStory/
27
   Earthlife Africa Jhb-SECCP. 2007. Eskom‟s Secret Deal with Alcan: Refusal to Release Details
(press release). February 19. Available at:
http://www.sangonet.org.za/portal/index.php?option=com_content&task=view&id=6476&Itemid=389.
from which Alcan is expected to be fully shielded. It is therefore in the public interest
to know the price at which Alcan will purchase its electricity and the conditions of
supply. Without public disclosure, Alcan could be getting its electricity far below
market cost and South African residential and commercial consumers could be
effectively subsidising the electricity usage of one of the world‟s largest aluminum
companies. Alcan has the fiscal capacity to pay a fair price for the electricity it
consumes without exploiting the energy and economic development opportunities of
under-developed countries.

As a public asset, Eskom has a responsibility to ensure electricity for all citizens of
South Africa. Nearly half of rural South Africa, and one-third of South Africa‟s total
population, still lacks access to electricity. South Africa has recently suffered from
rolling blackouts caused, according to Eskom, by a lack of capacity.28 Yet, the utility's
huge commitments to the aluminum industry, combined with an already tight energy
supply, make meeting these challenges all the more difficult.

The world's largest mining firm, Australian-based BHP Billiton, already owns and
operates the Hillside and Bayside aluminum smelters in South Africa. In 1994, South
African-based GENCOR bought a majority stake in then Royal Dutch/ Shell-owned
Billiton. Billiton became an independent company in 1997, and in 2001, independent,
UK-based Billiton merged with Australian-based Broken Hill Proprietary (BHP)
Company, becoming the largest mining company in the world.

Built under South Africa‟s apartheid regime, the power agreements for Hillside and
Bayside linked energy prices to the international market price of aluminum, allowing
the smelters to pay below cost rates for the electricity when the aluminum prices
dropped. BHP Billiton is also the sole owner of the Ingwe coal mine in South Africa,
the country‟s largest coal operation. Hillside was built in 1993 and underwent an
expansion in 2003. Today, BHP Billiton continues to import its bauxite from
Australia.

The governments of South Africa and Russia also acknowledge that there are
discussions underway of Rusal possibly opening an aluminum smelter in the country
with an expected energy consumption of 1300 MW.29

Eskom, arguably the most powerful electricity company in Africa and one of the
largest power utilities in the world, is predicting a shortage of power supplies in
coming years and is racing to develop new power projects. The utility is supporting
the development of hydropower dams at Inga in Democratic Republic of Congo
(DRC), Kuanza in Angola, and the Mphanda Nkuwa dam on the Zambezi River in
Mozambique. Attracting energy intensive customers like Alcan is helping drive
energy development choices which affect the entire region. These plans represent a
massive investment in power supply for a centralized grid system which excludes the
majority of sub-Saharan Africans. This affects energy planning not only in southern
Africa but the entire continent. It‟s not clear if these are the best economic or energy
choices for South Africa.

28
   2007. “Electricity Blackouts in South Africa,” clickAfrique.com. January 18. Available at:
http://www.clickafrique.com/Magazine/ST010/CP0000002287.aspx.
29
   Onstad, E. 2007. “Aluminium Giants Planning Smelters,” Mineweb (Reuters). March 20. Available
at: http://www.mineweb.co.za/mineweb/view/mineweb/en/page504?oid=18453&sn=Detail
Mozambique
The Mozal aluminum smelter, located near the capital of Maputo, opened in 2000 and
underwent a first expansion (Mozal II) in 2003. The smelter, Mozambique‟s single,
largest foreign direct investment, is owned by BHP Billiton (47%); South Africa‟s
government via the International Development Corporation (24%); and Mitsubishi of
Japan (25%); the Government of Mozambique owns a mere 4%. The International
Finance Corporation (IFC) provided a total of $145 million in financing for the
original Mozal and Mozal II.30 Currently, the smelter requires 900 MW of electricity;
the proposed expansion known as Mozal III would bring the smelter‟s total power
consumption to 1350 MW.31 However, the total consumption of the rest of
Mozambique, where only seven percent of the country has access to electricity, is just
300 MW.32

Mozal‟s power is supplied through a contract signed with MOTRACO, a consortium
of publicly owned electricity companies of Mozambique, South Africa and Swaziland
(EDM, ESKOM and SEB, respectively) which directly connects to Eskom‟s
transmission system. Some of Mozal‟s electricity may actually originate from the
Cahora Bassa dam (2,075 MW) in Mozambique, which exports a majority of its
electricity to Eskom in South Africa before it is re-imported from Eskom to
Mozambique. For years, Eskom bought power from Cahora Bassa at below-cost
because there was not enough local demand in Mozambique.33

The first expansion, Mozal II, was completed in 2003 and allowed Mozal to double its
original production level. A second expansion, Mozal III, is planned for the relatively
new smelter. Plans to build the 1,300 MW Mphanda Nkuwa dam in Mozambique
downstream of Cahora Bassa dam on the Zambezi River would help facilitate
electricity for use in the proposed Mozal expansion.

The combined output of BHP Billiton‟s operations in Mozambique and South Africa
make them the world‟s fifth largest producer of aluminum, with a total operating
capacity of one million tons of aluminum. In February 2006, BHP Billiton also signed
a Memorandum of Understanding with the government of the Democratic Republic of
Congo to build a $2.5 billion aluminum smelter, dependent on the construction of
Inga 3 hydropower dam on the Congo River and a deep sea port.34 This plan would
make the aluminum smelter a cornerstone investment for the development of further
hydropower development at the much touted Inga site.

Guinea

30
   IFC. 2001. IFC Invests in Mozal II-Expansion of Aluminum Smelter in Mozambique (press release).
July 2. Available at:
http://www.ifc.org/ifcext/pressroom/ifcpressroom.nsf/PressRelease?openform&52F1B14F925E6B878
5256A7D00646470.
31
   Hoover, R. 2001. “Damming the Zambezi for Aluminum: Proposed Dam a „Power Play‟ to Gain
Control of Upstream Dam?” World Rivers Review, v16 n5, p.10-11. Available at:
http://www.irn.org/pubs/wrr/issues/WRR.V16.N5.pdf.
32
   Ibid.
33
   JA & IRN. 2006. Damning the Zambezi (fact sheet). International Rivers Network. Available at:
http://www.irn.org/pdf/mphanda/MphandaFactSheet2006_en.pdf.
34
   2006. BHP Sees Big Aluminum Smelter Project,” Africa Mining Intelligence, n126, February 15.
Available at: http://www.africaintelligence.com.
Guinea has the world‟s largest bauxite deposits -- about a third of the world's total --
and is the second leading bauxite producer after Australia. Guinea produced some
19.2 million tons of bauxite in 2005. Mining accounts for 90% of Guinea‟s exports;
likewise, bauxite accounts for 90% of all mining.35 Guinea also has the only refinery
in West Africa which turns bauxite into alumina, which is then exported elsewhere for
smelting. Plans are underway for a new refinery and Guinea‟s first smelter, giving
Guinea the potential pieces of a vertically integrated aluminum industry, but it‟s likely
that the sector will be managed to benefit the foreign companies before the national
economy. Bauxite mining began in 1952 and operations grew rapidly in the 1970s.
Bauxite mining in Guinea takes place through three companies: Compagnie des
Bauxites de Guinee (CBG), Alumina Company of Guinea (ACG, formerly Friguia)
and Societe des Bauxites de Kindia (SBK).

CBG is the largest and is owned 51% by Halco -- a consortium in which Alcoa has a
45% stake, Alcan has a 45% stake, and privately held Dadco, 10%. Alcoa is the
operator of the facility, which produces fourteen million tons of wet bauxite a year.36
CGB holds a 10,000 square mile concession to develop and mine bauxite in
northwestern Guinea, through the year 2038. Open pit mines include Boké, Sangaredi,
Bidikoum, and Silidarou. Bauxite from CGB supplies Alcoa's refineries in Texas and
Spain, Alcan's refineries in Quebec and Texas, and a refinery in Germany owned by
VAW.

In 2001, Rusal also took over management of SBK on the basis of a 25-year
concession agreement with the government of Guinea. In 2006, Rusal took full
ownership of ACG, the next largest bauxite producer in Guinea and owner of the only
alumina refinery in sub-Saharan Africa. Rusal is now the largest foreign employer in
Guinea and plans to double its production capacity in the country, including at its
bauxite mine in neighboring Guinea-Bissau owned under ACG. 37 Rusal is also
considering the construction of a new bauxite and alumina complex at the Dian-Dian
bauxite deposit.

Besides activity in Guinea, Rusal purchased a majority stake of the Nigerian
aluminum smelter, Alscom, in February 2007. The smelter had been closed for
several years due to poor management. In June 2007, the violent and unjust legacy of
Nigeria‟s oil exploitation spilled over into the renewed Alscom operations when six
Russian expatriates working at the smelter were added to the ever increasing list of
kidnapping victims, generally conducted by militant groups of the under-developed,
oil-rich Niger Delta.38

35
   Guinea Mining. Encyclopedia of the nations: Africa: Guinea. (author, date unknown.) Available at:
http://www.nationsencyclopedia.com/Africa/Guinea-MINING.html.
36
   Vaccaro, A. 2007. “Guinea in turmoil,” The Northern Miner. February 5. Available at:
http://www.northernminer.com/issues/ISarticle.asp?id=183103&story_id=197870111906&issue=0205
2007.
37
   United Company RUSAL in Guinea. Rusal. (date unknown.) Available at:
http://www.rusal.com/index.php?lang=eng&topic=3&subtopic=57&subtopic2=193&subtopic3=195;
2006. “RUSAL and Government of Guinea Agree to Privatisation of Bauxite and Alumina Complex in
Fria, Guinea,” AZoM.com. April 13. Available at: http://www.azom.com/details.asp?newsID=5247;
IPS, SEEN, & TNI. 2001. Behind the Shining: Aluminum‟s Dark Side. Available at:
http://www.saanet.org/kashipur/docs/seenalum.htm.
38
   2007. “Six Russians kidnapped in Nigeria,” BBC UK. June 3. Available at:
http://news.bbc.co.uk/2/hi/africa/6716821.stm.
Numerous strikes by miners and more recent general strikes across Guinea are
impacting bauxite operations. Exports were drastically reduced when striking workers
shut down CBG‟s operations in January 2007.39 This and two previous strikes, in
April and June 2006, were organized by the National Confederation of Guinean
Workers (CNTG) and the Guinean Workers Union (USTG), with the most recent
mobilizing civil society groups as well.40

A second alumina refinery is planned in Guinea under the name Guinea Alumina
Corporation. The refinery would produce three million tons of alumina per year, and
will be owned by Canadian-based Global Alumina, BHP Billiton, Dubai Aluminum
and Mudabala Development Corporation.41 Global Alumina has tried to make a social
development spin to its refinery in Guinea. While it‟s possible that the company is
taking a more positive approach with the local communities than other companies
involved in the countries aluminum sector, the communities are still at great risk
without legally binding agreements for compensation.42 Without a strong regulatory
framework for handling toxic waste produced from the refinery, the soil and local
water supplies may wind up contaminated.

In June 2007, China Exim Bank agreed to finance the $1 billion Souapiti hydropower
dam. Souapiti has long been connected to plans for Dian-Dian, Guinea‟s first
aluminum smelter which would require almost half of the dam‟s 750 MW capacity.43
The government of Guinea has reportedly offered 2 billion tons of bauxite reserves in
exchange for China‟s investment in the dam. Reports of developing the aluminum
smelter could soon follow, and Chinese investors may be at the top of the list.

China‟s growing industrial demand for primary aluminum makes Africa a likely
target of China‟s government. New ownership of mines, refineries and smelters by
Chinese businesses such as the Aluminum Corporation of China, Chalco, could be on
the horizon. China Exim Bank is financing several major hydro dams across Africa in
exchange for oil and mineral resources, and Souapiti is probably not the last
aluminum-associated hydro dam to be financed by the Chinese government. China‟s
hands-off approach to African governments means that its involvement won‟t change
the exploitation of African economies by aluminum corporations.

Conclusion
Africa‟s participation in the global aluminum market remains tightly controlled by
private corporations. The power disparity between these corporations and most
African governments is great and too often, aluminum sector plans have benefited
these powerful, foreign companies while project risks are borne by the people and

39
   CBG Bauxite (Aluminium Ore) Mining Operations, Guinea. Mining-Technology.com. (author, date
unknown.) Available at: http://www.mining-technology.com/projects/cbg/.
40
   2007. Republic of Guinea: Humanitarian Profile. UN office for the Coordination of Humanitarian
Affairs. Available at: http://www.irinnews.org/country.aspx?CountryCode=GN&RegionCode=WA.
41
   2007. Global Alumina Completes Joint Venture Agreements (press release). Global Alumina. May
21. Available at: http://www.globalalumina.com/ga_new/newsnpress_5-21-07.htm.
42
   Hultman, T. 2006. “Guinea: Country Finds Hope in Alumina Refinery,” UN Global Compact
Quarterly. Allafrica.com, November 17. Available at: http://allafrica.com/stories/200611170959.html.
43
   Samb, S. 2007. “China to fund $1 bln hydro dam in Guinea,” Reuters News Agency, July 7.
Available at: http://www.washingtonpost.com/wp-dyn/content/article/2007/07/07/AR2007070700621.html.
economy of the host country. In virtually all cases in Africa, the benefits of the
aluminum sector have not made any significant positive benefit on a country‟s
development path, and in some cases, may be causing serious diversions and
worsening socio-economic divisions. Time and again, opportunities for African
countries to benefit from the aluminum sector have been thwarted, and without
systematic changes to the agreements which bind aluminum sector operations in
Africa, future opportunities will predictably meet the same fate.

The aluminum sector, often representing a majority of, or even exceeding national
energy needs, is skewing the planning processes for national and regional energy
development. Similar to the concept of “virtual water” in arid regions, aluminum
production should be seen as “virtual electricity” in energy-poor regions.44 The
economic benefits and trade offs of an industrial development scheme based on
aluminum production should be closely scrutinized against energy needs for other
consumers. Governments should move cautiously in planning their aluminum
industries and civil society should be a partner at every stage of the planning process.
Where a government chooses to allocate electricity for the aluminum industry as an
economic development scheme, adequate data should be publicly available to allow
independent analysis of the economic costs and benefits reflected in the aluminum
industry as a vehicle for economic development.

Based on the analysis of the experiences given above, the additional following actions
are recommended:

        Further independent evaluation of the impacts of the aluminum sector on
         affected communities, national energy planning, and national economies in
         Africa should be conducted. The pattern of negative experiences in Africa and
         beyond should be widely shared to promote public awareness of the impacts of
         the aluminum industry and protect public interests in future plans.

        Civil society groups monitoring MDGs in Africa should pay special attention
         to the fulfillment of energy-dependent goals in countries where the aluminum
         sector significantly affects energy consumption, especially Ghana, Cameroon,
         and Mozambique, and should highlight the aluminum industry‟s use of energy
         and receipt of government subsidies as costs to meeting the MDGs.

        Governments in countries where less than half the population has access to
         electricity should refrain from providing long-term, low-cost electricity to the
         aluminum industry until the government develops a plan to provide affordable,
         modern energy services to a majority of its residents. In countries where
         agreements with aluminum companies already exist, governments should
         allow an independent review of its financial agreements with aluminum
         companies and identify a plan prioritize energy services for a majority of its
         population.



44
   The concept of virtual water refers to water consumption as an input into goods which are imported
and exported, as a reflection of options in water use and management. For example, it takes
approximately 1,500 liters of water to produce 1kg of wheat, 4,500 liters for 1kg of rice and 100,000
liters for 1kg of aluminum. For more information, see: http://en.wikipedia.org/wiki/Virtual_water.
      Public disclosure of all agreements between aluminum companies and
       governments should be required to allow public scrutiny of individual project
       benefits and impacts.

      End consumers of aluminum should increase recycling efforts to reduce the
       demand and impact for aluminum production.

      Legal tools such as access to information laws should be in place to give
       affected communities and civil society groups leverage in disclosure of
       agreements between government and aluminum companies which are not in
       the public interest. Utility regulatory bodies and legal court systems should be
       strengthened to support actions taken in the public interest.

      National and regional energy planning processes should follow the
       recommendations of the World Commission on Dams. For example, the
       process should be participatory, and draft and final documents should be
       released for public comment and consultation.

      National energy planning processes in African countries should prioritize
       energy for human development needs especially as outlined in the Millennium
       Development Goals.

      Reports of all revenues paid to government entities by aluminum companies
       should be publicly available. This includes revenues from bauxite mining and
       aluminum production.

Groups involved in monitoring specific projects in individual countries are probably
unaware of similar efforts in other African countries as well as the broader
involvement of the same, few companies across the continent. African civil society
groups monitoring individual aluminum sector projects should partner together to
better monitor the impact of the aluminum production lifecycle on the economies,
people, and environment in Africa. As a coalition, they will have more comprehensive
information about aluminum sector experiences across the continent (and beyond),
and will gain more leverage in seeking resolutions to the exploitation of African
resources by aluminum corporations. As a group, they will also have greater strength
to seek implementation of the above recommendations.
Table 1: Aluminum Production in Africa, by operation, and national access to electricity, by country45

                                                                                                                          Smelter                        % pop       % rural
                                                                                    Production                            Electricity   % pop with       living in   pop with
               Aluminum Sector                                                      capacity             Direct           requirement   access to        rural       access to
                                                                                                                                                    46          47
Country        Company                    Private ownership                         (tons/year)          Employees        (MW)          electricity      areas       electricity
Algeria        proposed aluminum          Mubadala Development Corporation          700,000              unknown          unknown       98               40          96
               smelter                    Dubai Aluminium
Cameroon       ALUCAM aluminum            46.7% Alcan                               110,000 (260,000     600 (current     300           20               47          5
               smelter (and proposed      5% Agence Française de Dévéloppement      after expansion)     operation)
               expansion)
Cameroon       Proposed bauxite mining    Hydromine                                 unknown              unknown
               and alumina refinery       Dubai Aluminium
Democratic     proposed aluminum          BHP Billiton                              unknown              2,000            unknown       7                67
Republic of    smelter                                                                                   (construction
Congo                                                                                                    and operation)
Egypt          Egypt Aluminum             none                                      300,000              unknown          unknown       94               58          95
               Company smelter
Ghana          Volta Aluminum             10% Alcoa                                 200,000              700              912           45               54
               Company smelter
Ghana          Ghana Bauxite              80% Alcan                                                      330
               Company
Guinea         Compagnie des Bauxites     51% Halco Consortium (45% Alcoa, 45%      14,000,000           2,500                          5                63          2
               de Guinee (CBG)            Alcan, 10% Dadco)                         (bauxite)
Guinea         Alumina Company of         100% Rusal                                2,800,000            unknown
               Guinea (ACG) [formerly                                               (bauxite)
               Friguia]                                                             600,000 (alumina)
Guinea         Compagnie des Bauxites     Rusal                                     3,000,000            900
               de Kindia (CBK)                                                      (bauxite)
Guinea         proposed Sangaredi         33.3% Global Alumina                      450,000 (alumina)    unknown
               alumina refinery           33.3% BHP Billiton                        3,000,000
                                          25% Dubai Aluminium                       (alumina)
                                          8.3% Mubadala Development Corporation



45
   Data compiled from World Bank, UN, industry and news sources, unless otherwise noted.
46
   Data is from International Energy Agency (IEA). 2002. World Energy Outlook: Energy and Poverty. Available on-line at:
http://www.worldenergyoutlook.org/weo/pubs/weo2002/EnergyPoverty.pdf. Paris: IEA. Also available at: http://earthtrends.wri.org. Data for Guinea from
http://www.unctad.org/sections/ldc_dir/docs/ldcmisc20053_gui_en.pdf.
47
   Data is from Population Division of the Department of Economic and Social Affairs of the United Nations Secretariat. 2004. World Urbanization Prospects: The 2003
Revision. Urban and Rural Areas Dataset (POP/DB/WUP/Rev.2003/Table A.7), dataset in digital form. Available on-line at http://www.un.org/esa/population/ordering.htm.
New York: United Nations. Also available at: http://earthtrends.wri.org/.
Table 1, continued
                                                                                                                             Smelter                         % pop       % rural
                                                                                      Production                             Electricity    % pop with       living in   pop with
               Aluminum Sector                                                        capacity             Direct            requirement    access to        rural       access to
                                                                                                                                                        48          49
Country        Company                     Private ownership                          (tons/year)          Employees         (MW)           electricity      areas       electricity
Guinea         Proposed Dian Dian          unknown                                    Unknown              Unknown           300 - 400
               aluminum smelter                                                                                              MW
Mozambique     Mozal I & II aluminum       47% BHP Billiton                           550,000              1,150             1300 MW ,      7                62          2
               smelter and proposed        24% International Development              (800,000 after                         (950 MW
               Mozal III expansion         Corporation 25% Mitsubishi Corporation     expansion)                             for Mozal I,
                                                                                                                             II)
Nigeria        Alscon aluminum             77.5% Rusal                                190,000              1,800             500 MW         40               52          19
               smelter (set to re-open)    7.5% Ferrostaal AG                                                                (adjacent
                                                                                                                             gas power
                                                                                                                             plant)
South Africa   proposed Coega              25 – 40% Alcan                             720,000              6,000             1,355 MW       66               42          46
               aluminum smelter            15% International Development                                   construction      (675 MW in
                                                                                                                               st
                                           Corporation                                                     1,000             1 phase
                                                                                                           operation         only)
South Africa   Hillside & Bayside          100% BHP Billiton                          685,000 (Hillside)   unknown           1095 MW
               aluminum smelters                                                      250,000 (Bayside)                      (combined)

Table 2: African production of primary aluminum50
     year           tons per year
     2001           1,369,000
     2002           1,372,000
     2003           1 428 000
     2004           1 711 000
     2005           1 739 000

48
   Data is from International Energy Agency (IEA). 2002. World Energy Outlook: Energy and Poverty. Available on-line at:
http://www.worldenergyoutlook.org/weo/pubs/weo2002/EnergyPoverty.pdf. Paris: IEA. Also available at: http://earthtrends.wri.org. Data for Guinea from
http://www.unctad.org/sections/ldc_dir/docs/ldcmisc20053_gui_en.pdf.
49
   Data is from Population Division of the Department of Economic and Social Affairs of the United Nations Secretariat. 2004. World Urbanization Prospects: The 2003
Revision. Urban and Rural Areas Dataset (POP/DB/WUP/Rev.2003/Table A.7), dataset in digital form. Available on-line at http://www.un.org/esa/population/ordering.htm.
New York: United Nations. Also available at: http://earthtrends.wri.org/.
50
   In 2005, Mozambique and South Africa contributed 60% of total African primary aluminum production (roughly 5% of the global production), with the rest coming from
Cameroon, Egypt, Ghana, and Nigeria. Campbell, K. 2006. “ „If we had the electricity, we could go ahead with Mozal III and Hillside III+‟,” Engineering News. February 24.
Available at: http://www.engineeringnews.co.za/article.php?a_id=81345.

				
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