Caribbean leaders
realise a dream as...
Hydro Aluminum invests US$650M
by Emile Valere
Photo: ASP Photography
In November 1998, when the Trinidad and Tobago Government announced a deal with the Norwegian firm Hydro Aluminium to construct two massive aluminium plants on the island, it was the realization of a dream more than than 20 years in the making.
Hydro Aluminium intends to use its proposed aluminium plants in Trinidad to develop its customer base in North and South America, said its President Eitvind Reiten.
The company, a subsidiary of the Norwegian-based Norsk Hydro ASA,
signed a project agreement with the Trinidad and Tobago government
in November as a framework for their proposal to construct aluminium
plants on the island.
Initially the company plans to build a TT$1.5 billion aluminium
smelter, including a power plant, with the intent to invest a
further TT$1 billion on a second smelter.
"An aluminium plant in Trinidad and Tobago would be an important
part of Hydro Aluminium's strategy," said Reiten. Hydro Aluminium
is Europe's leading supplier of aluminium cast house products
and is currently experiencing strong growth in the United States,
said the company.
Overall the company has a capacity production of 740,000 tons
per year in its current aluminium plants.
"We are now aiming for a comparable position in the Americas
and eventually in the rest of the worldand to achieve this we
saw that we needed our own production facility outside of Europe."
This project is not the first high ticket investment project in
Trinidad for Norsk Hydro. It currently produces 250,000 metric
tons of ammonia in its wholly owned subsidiary Hydro Agri Trinidad
Ltd. It also holds a 49 percent stake in the Trinidad Nitrogen
Co. Ltd. facility at Pt Lisas which produces another 1.2 million
metric tons per annum of ammonia.
With the project agreement signed, the company will now conduct
soil and site evaluation tests and a final engineering study before
it makes a firm commitment, Reiten said. That leaves another 14
months before construction starts, he said.
"An investment of this magnitude and this complexity is a
major challenge for any organization, be it commercial or government,"
he said.
Negotiations for the project agreement were also complex, said
Frank Look Kin, president of the state-owned National Gas Co.
of Trinidad and Tobago, which supplies natural gas to all the
downstream users in the country.
"I must say the negotiations were tough but fair," he
said. To be sure, Hydro Aluminium already has a 10-year tax free
holiday, among other things.
That will go a long way to ensuring that the company recoups its
initial investment, particularly since it may be funding the project
from Norsk Hydro's balance sheet.
"Initially, we plan to fund it (the smelter) as a 100 percent
corporate finance project from our balance sheet," said Reiten.
What's more, the company will share the cost for its power plant
with Amoco Power Resources Ltd., a unit of the Chicago-based Amoco
Corp., along with another independent power generation company.
"Hydro will take a minority position in the power plant and
give priority to the smelter," said Reiten. The share structure
of the power plant has not been finalized.
Meanwhile Amoco and the unnamed independent generation company
will manage the power plant, estimated to generate some 400 megawatts
of electricity - about half the current electricity usage in the
country, using 200 million cubic feet of natural gas per day for
25 years.
Amoco, a major oil and natural gas producer in Trinidad, was approached
to get involved in the project by Hydro Aluminium, said Mike Drennon,
vice-president of the Gas Asset Utilization unit at Amoco Energy
Co. of Trinidad and Tobago.
"Its likely that we may sell gas to the power plant through
the National Gas Company we've sent in a very competitive bid,"
he said.
Trinidad's government also expects perks from the proposed smelter.
Other than natural gas sales, the smelter is expected to create
2,500 jobs during peak construction and about 550 permanent jobs
when the first plant is completed.
The two proposed smelters, which will take about three years to
construct each, are estimated to each produce 237,000 metric tons
of aluminium. Each smelter will produce about 1.4 percent of the
aluminium produced in the Western World last year.
Thus the construction of the aluminium smelter in Trinidad will
fulfill a Caribbean dream which has been a regional government
initiative for almost 25 years.
In 1974, the Prime Ministers of Trinidad and Tobago, Guyana and
Jamaica agreed to develop an Aluminium Smelter facility as a regional
project, with the first plant to be constructed in Trinidad and
the second smelter facility to be built in Guyana. The raw material,
alumina, would be supplied from Jamaica and Guyana, while energy
from Trinidad's natural gas reserves and Guyana's hydro resources
would power the respective plants.
The first part of that agreement proposed a smelter facility in
Trinidad producing 75,000 tonnes per annum. By 1977 a feasibility
study suggested that the proposed smelter would not be economically
viable and that a smelter producing 150,000 tonnes per annum would
be more profitable. This was later increased to 180,000 tonnes.
After almost 10 years of feasibility studies and the formation
of a joint venture company, the Regional Smelter Concept was put
on hold due to dwindling government revenues and the poor aluminium
market outlook at the time.
Since then, the governments of Trinidad & Tobago and Jamaica
have revisited the Regional Smelter Concept but it was found impractical
based on electricity and prevailing alumina prices.
During the past two decades, several multi-national companies
also expressed interest in investing or constructing aluminium
smelters in Trinidad, but these initiatives did not pan out because
of various other reasons.
However, in late 1995, initial discussions on the Hydro Aluminium
smelter started with the new United National Congress government
which had just been swept into power in Trinidad and Tobago.
Six months later, as the negotiations progresses Hydro Aluminium
commenced negotiations over gas pricing with the National Gas
Company.
Hydro Aluminium is the second billion dollar plant to be attracted
to Trinidad within five years. The first was the liquefied natural
gas producer, Atlantic LNG Company of Trinidad and Tobago, which
is currently under construction. Its first shipment is scheduled
for the second second quarter of 1999.
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