Editorial | The CAP divestment

That the administration has resuscitated the plan to sell the Government’s 45 per cent stake in the Jamalco alumina refinery is not surprising.

What causes surprise is the urgency with which Prime Minister Dr Andrew Holness has reportedly mandated that the divestment strategy be formulated and the vehicle that has, seemingly, been entrusted with the job: the newly created Ministry of Mining and Geology. Divesting a state asset, especially one that operates in the global sphere and in an area of significant complexity, is unlikely to be a simple or straightforward matter. In that regard, either Dr Holness or the mining minister, Floyd Green, should address the obvious questions that arise from this development.

Notably, the Ministry of Mining and Geology, as a stand-alone portfolio, is barely a fortnight old. Previously, the functions it is to cover were tacked onto the responsibilities for agriculture and fisheries, to which Mr Green also attends. There has been speculation that the new ministry was created as a parking space of sorts for Darlene Morrison, the former financial secretary, who might have fallen out of favour with the finance minister, Fayval Williams.

Whatever may be the prime minister’s motivation for expanding the suite of ministries, Ms Morrison will clearly have to hit the ground running in her new job. In her first public outing as permanent secretary for mining and geology a week ago, Mr Green announced not only that the divestment of the Jamalco stake was back on the agenda after a six-year hiatus but also that he had been given barely a month to say how it was to be done.

“The prime minister has mandated that within 30 days, we need to come to Cabinet with an implementation plan,” Mr Green said. “We are probably into day three of the 30.”

many moving parts

It is not clear how far the Government reached in the divestment project when the idea was floated at the start of the 2020s, initially under former mining minister Robert Montague and afterwards by then finance minister Nigel Clarke, or which of those ideas remain relevant or practical today. However, divesting a public enterprise has many moving parts, the management of which relies on a variety of skills and expertise.

Usually, the finance ministry and its agencies are at the heart of the project, including the Development Bank of Jamaica, which establishes the enterprise team and manages the sale. With respect to the Jamalco deal, that, in the earlier period, would have been a seamless arrangement since Clarendon Alumina Production (CAP), the vehicle that holds the Government’s 45 per cent stake, already fell under the finance ministry. Prime Minister Holness placed it there during quarrels between CAP boards as well as disagreements between board members and management. Last week’s announcement suggests that CAP is now firmly under the control of the Ministry of Mining and Geology. However, in the Government’s Statement of Revenue and Expenditure for selected public bodies, CAP is listed among the companies falling under the finance ministry.

questions to be addressed

While there is no question about Ms Morrison’s ability as a skilled public servant and her competence in the management of public finances, she will not have at the Ministry of Mining and Geology the same range of expertise that was available to her at the finance ministry. In other words, she may not be able to command the same level of seamlessness in the divestment process.

Additionally, among the questions to be addressed and resolved in this enterprise are the Government’s larger strategic and economic considerations in the divestment. The Government’s partner in the 1.2-million-tonne alumina refinery is Century Aluminum, which also owns aluminium smelters in the United States and Iceland.

One consideration is whether the Government would be inclined to sell to Century, should that company wish to purchase the stake, or to another buyer with an interest in the venture. Alternatively, there is the possibility of the administration seeking to float the CAP shares on the Jamaica Stock Exchange, which appeared to be the preference of Dr Clarke, the former finance minister, when the matter was under his control.

strategic asset

An important factor overlaying all of this, however, is the price the Government could command for CAP as an entity or for its stake in Jamalco if CAP is stripped out of the equation. While CAP’s financial statements, as set out in the public bodies report, are relatively sparse and do not allow for a full assessment of the company’s health, the entity is projected to record a loss of US$45.9 million in the current fiscal year against an estimated loss of US$56.5 million in 2025-26. Its total reserves, net of liabilities, stood at negative US$193.4 million. CAP, as an ongoing entity, needs capital and survives because it is a government-owned company.

On the other hand, CAP legally owns 45 per cent of the alumina produced by Jamalco, which in the past has proved a strategic asset for Jamaica. Indeed, CAP was established in the mid-1980s when Jamalco’s then owner, the Aluminum Company of America (Alcoa), intended to close the plant during a global recession. CAP took over and operated the facility, helping to save Jamaica’s bauxite and alumina industry.

The Government has much to think about in this divestment project. It must be handled with care.