Monday, April 09, 2007

Another Industrial Revolution

by Mary King
Trinidad Express
April 9, 2007

The EMA has given its approval for the construction of the Alutrint smelter. An important consideration is that Alutrint is 60 per cent owned by us and it will be using electricity, as its largest single expense, derived from our natural gas resources. Hence we as the majority owner have to be satisfied that the economics are efficient.

It simply is not good enough for Alutrint to say that it is satisfied with its business model; i.e. given the gas price it was able to obtain from our Government it will be profitable. The question is, profitable for whom, the Venezuelans? Surely, we have to monetise our natural gas reserves so that we can obtain the resources to develop ourselves economically and socially. But the major metric of economic development is by how much have we improved the productivity of the additional natural gas used by the creation of the industry. Also we need to provide the wherewithal to replace the energy sector rents with foreign exchange earnings from the on-shore sector as the former diminishes.

At last the Minister of Energy has been forced to admit that we are short of proven reserves to supply our commitment to Jamaica, embarrassingly so, and even for a new LNG train. He hopes that we will find and produce more gas from the joint T&T/Venezuelan field or the deep sea fields, which were in general refused the last time the blocks were out for bids. Surely, any natural gas reserves we still possess, have to be utilised to provide us both with local energy security and increasing returns on their exploitation.

If we sell gas to the smelters so that the smelters make the normal international return on investment, and gas prices are severely subsidised, then this is economic un-development. We can all recall the statement by Colin Pratt, an Alcoa expert, that smelters are put where energy resources are stranded, i.e. there is little else you can do with the energy, selling it for anything you can get, even for a handful of brightly coloured beads (Minshall). For example, Norway's hydro electric energy is stranded and is used for smelting while its natural gas is pumped into the European pipeline fetching much higher prices.

The international figures suggest that the price of electricity for competitive smelters, which depends on the price of natural gas used to fire the gas turbines, is around US 1.5 cents per KWh which is below what T&TEC sells at, US4 cents, even with its subsidised gas prices. The gas price to Alutrint appears to be a national security secret, hidden away even from our Parliament.

We are certainly not building the smelter to provide local employment. One of the experts at the PNM Government symposium, Paul Lochner, showed us that smelters do not provide much employment. Possibly we are building the smelters so that we can benefit from downstream activity. i.e. the creation of locally owned companies that use the aluminium to make finished products. Our experience with the iron and steel plant, ISPAT, is that though the plant produces more flexible primary products, billets and wire, it has not been able to stimulate a sophisticated downstream private sector industry.

The Alutrint smelter is expected to produce some 125,000 tonnes per year of primary products as ingots and wire, like ISPAT, and intends to export 80 per cent of these products with the balance allocated for local production of motor car wheels plus another 5,000 tonnes per year. In reality, Alutrint does not include a significant local downstream industry. But we were told at the PNM Government symposium that downstream plants are not located where there is cheap energy, but where there is a large market for the finished products. Hence Alutrint is about exporting its primary products to these established markets. Surely then in our scenario, where gas supply is limited, where smelters, like the Pt Lisas model, provide little employment, where the returns on natural gas are uneconomic, the building of smelters is inexplicable.

But the comment by the Prime Minister as he launched the e-Teck flagship building is enlightening. He sees T&T as embarking on a second industrialisation thrust. Other countries are involved instead in a knowledge-based thrust even in the use of their natural resources. If we examine what our human resource intends to do at Alutrint we see that the knowledge and innovation come from abroad, from the Chinese who are adept at poisoning their own environment while we again manage, operate and maintain heavy industrial plant. There are none as deaf as those who will not listen.


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