Alutrint in its newspaper advertisement, ’The Birth of an Exciting New Industry’, claims that its emergence in the nation’s downstream energy industry promises employment, opportunities and advantages for the entire national economy while increasing employment to gas ratio. Hence, the vision is emerging for T&T to fabricate competitive downstream commercial gas-based aluminium products.
The health issues of the smelter are being otherwise ventilated. But, to revisit the analysis of Alutrint’s claim that it will add to our economic development, one has to assess certain metrics. For example, assigning more of our depleting resources to a particular industry has to be examined over the range of opportunities available.
Economists have accepted that any incremental step forward in economic development should improve on the current productivity of our human, capital and natural resources.
Though the establishment of Alutrint may increase our Gross National Income (GNI) by transferring value from our natural resources into liquid cash, a major metric of economic development is, by how much have we improved the productivity of the additional economic factors used in creating and operating this ’new and exciting’’ industry? Consider that before the economic recession, with a GNI /capita in T&T of around US$13,000 and almost at full employment, using the available FDI and depleting our natural resources, T&T’s figure was still below those of Singapore (US$30,000), Ireland (US$25,000) and even the Bahamas (US$20,000) -- all countries without significant natural resources.
Hence, to improve our economic position any move forward should increase the productivity of these factors. If the ratio of retained income to the real costs of associated capital, labour and natural resources does not surpass that of, say, LNG or methanol, low as they are, then Alutrint is of no real economic benefit to us. Further, there is little addition of capital assets that can be exploited when the petroleum is no more.
When I chaired the Joint Select Committee of Parliament (JSC) under which Alutrint fell, the committee attempted such a productivity analysis-fundamental to which was the selling price of natural gas (as a proxy to the price of electricity) to Alutrint. The authorities, including the politicians in charge, refused to give this information to Parliament despite being ordered to do so by the JSC. It is interesting that a group of NGOs has recently required of Alutrint a cost benefit analysis on how our (their) resources are to be utilised. I expect that this request will be treated with the same contempt as the political elite treats the Parliament.
It is worth noting that in 2007 economist Gregory McGuire said that the maximum price that investors were willing to pay for electricity was of the order of US1.5 cents per kWhr while T&TEC, using subsidised gas, sold electricity commercially at US4cents. The new government power plant will not do any better.
Fact: smelters are sited on ’islands’ of stranded energy. Colin Pratt, one of the experts invited to speak at the Government symposium called to justify the building of T&T smelters, responded in the negative to a question on whether he considered T&T’s natural gas to be stranded-there were more lucrative gas-based opportunities.
When T&T’s gas was a flared and stranded commodity then aluminium smelters might have been an economic proposition-not now. Pratt reminded us that though Norway has many smelters it uses its stranded hydro power in the aluminium industry and for higher economic returns reserved its gas for the European pipeline; and further, that the US has not built a smelter in a long time, not only because of environmental concerns but because the US has more economically lucrative uses for its scarce resources, especially since it imports gas.
The Alutrint advertisement referred to the provision of employment. At present the people at La Brea look on, betrayed, as Chinese labour builds the plant and is expected to operate it also. Paul Lochner, another expert at the symposium, told us that built-smelters provide few jobs. He warned that it is important for the Government/Alutrint to downplay the inflated job expectations.
The advertisement also promises that Alutrint will extend the nation’s downstream industry. Listen again to Pratt: ’The location of downstream plants depends on where the market is.’ This suggests that it would not be in our interests to set up significant downstream industries locally. But more importantly is that their competitive advantages depend on their ability to differentiate products based on knowledge, intellectual property (design, patents etc.). The necessary higher order economic factors are non-existent in T&T and their creation requires large and sustained investment in human and physical capital. The generation of these advanced and riskier factors requires an Innovation System in the sector. None exists.
maryking@ttt.net.tt
