To buy or not to buy

New African, Apr 2004 by Asmah, George Frank

GHANA

A lively debate has erupted following the announcement by Kaiser International to sell its 90% shares in the Tema-based Volta Aluminium Company (VALCO) to the Ghana government. To buy or not to buy is now the question facing the government. George Frank Asmah reports.

Suddenly everybody is talking about VALCO. The government and Kaiser signed a memorandum of understanding on 19 December last year for the transfer of the majority shares. The American multinational, Alcoa, which owns the remaining 10%, has the right of first refusal, subject to VALCO's corporate governance requirements.

Seemingly over-excited, the Ghanaian government has already engaged SM a team of advisors to enable it to take H the best decision in the interest of the B country. But President John Agyekum Kufuor has already said that the execution of "Kaiser's offer would mark Ghana's industrial re-birth and give the country the opportunity to exploit its large bauxite deposits.

According to Kaiser, the 90% shares is estimated at about $100m. "Kaiser is pleased that the transaction provides the opportunity for VALCO's majority ownership and economic potential to be transferred to the people of Ghana," said Jack A. Hockema, Kaiser's president and CEO.

But Yaw Osafo-Maafo, Ghana's finance minister, told New African (see NA, March) that the government was unlikely to run VALCO as a state-owned enterprise if it did acquire it. "It will certainly offload it to the private sector or bring on board a private operator. The government will not like to be seen operating VALCO. That is not how our government thinks. We are private sector oriented."

Kaiser and Ghana have been unequal friends and business partners for about 40 years. Ghana's industrialisation largely began with Kaiser's commitment to the building of the Akosombo Dam and power facility.

Industry and finance watchers are, however, optimistic that the transfer of VALCO's majority ownership could provide Ghana with a great opportunity to establish a comprehensive aluminium-based industry which could propel the government's agenda of making the country a middle-income industrial nation by the year 2020. Currently, Ghana exports bauxite from Awaso in its raw form whilst large deposits of the ore remain untapped at Nyinahin in the Ashanti Region and Kyebi in the Eastern Region.

Many questions have been asked about why Kaiser wants to sell its shares, but the most pertinent has been: "Why does Kaiser want to offload its majority ownership of a 'profitable' company?" Production at VALCO has been suspended for about a year now. The immediate reason was that the level of the water in the Akosombo Dam had gone so low that to allow VALCO to continue to operate would mean depriving other electricity users of power.

But recent reports have said the level of the water in the dam had sufficiently risen to allow power to be restored to VALCO.

Experts, however, say the main issue why VALCO may not be able to operate profitably now, is the difference between the price it wants to pay for the electricity from the dam and what the government wants to charge. VALCO pays about 2 US cents per kwh, while other hydropower users in Ghana such as the mines pay about 5 cents per kwh. On the international market, aluminum smelters pay up to 3 cent per kwh.

Kaiser had re-negotiated a new agreement with the Rawlings' government, but it could not be ratified before Kufuor's government took over in January 2001. The new parliament would not ratify the agreement either, forcing the government to set up a new committee to examine the whole VALCO deal, which led to a misunderstanding between Kufuor's government and VALCO for nearly three years.

According to Kingsley K. Inkoom, the former public relations officer of VALCO: "The offer of shares by Kaiser to Ghana, to some of us, is like saying we are fed up with you. Take it and see whether it will be wise to run the aluminium smelter on thermal power or hydropower at anything beyond 3 cents per kwh and make profits. We should caution the government and ourselves, lest we purchase an albatross. The offloading of the shares will not in itself ensure that our bauxite deposits are developed."

Records show that apart from Australia, which has been able to mine bauxite, converted it to alumina and operated an aluminium smelter successfully for years, most countries look at the areas where they have comparative advantage and develop them.

Guinea, for instance, has large bauxite deposits but does not own an aluminium smelter and does well without it.

VALCO, from its inception, has been importing all its alumina for smelting from Kaiser's mines in Jamaica and Australia. Kaiser has no obligation to mine Ghana's own vast reserves of bauxite.

Indeed, it was with that understanding that Kaiser agreed to partly finance the building of the Akosombo Dam to enable it to operate the smelter at Tema; and for about 40 years, to faithfully import all its alumina whilst Ghana's own bauxite was exported elsewhere.