Alcan group nixes Venezuelan buyout

The Alcan-Alcoa consortium has declined to submit a bid in the privatization of Venezuela’s aluminum companies, stating that the risks inherent in the current privatization process far outweigh the potential rewards.

Alcoa and Alcan had agreed to form a joint venture to acquire four of the country’s aluminum plants, with Alcoa owning 60% and Alcan the remaining 40%. The companies have since informed Venezuelan Investment Fund President Alberto Poletto that they will not attempt to carry out such a transaction.

In March, the consortium withdrew from the last privatization process because of a deterioration of the Venezuelan aluminum companies’ profitability, an increase in their costs and the government’s failure to provide sufficient legal certainty.

“We decided to participate in the current process in the hope and understanding that these shortcomings would be remedied,” Alcan Vice-President Daniel Gagnier told Poletto in a letter. “Unfortunately, the changes announced by you [on June 2] are not substantive, do not address our concerns and increase the legal risk and uncertainty.”

Gagnier said the consortium is particularly concerned that the recent changes were not submitted for consideration and approval to the Venezuelan Congress, “a fact which, in the view of our Venezuelan attorneys, casts serious doubt on the legality of the current process.”

He added: “We believe that, at a minimum, opinions that congressional approval was not needed should have been obtained from the Attorney of the Republic, the Office of the Legal Counsel of the Congress of the Republic and the Comptroller of the Republic.”

Three other consortia — Billiton-Pechiney-Century Aluminium Company-Sural, Norks Hydro-Reynolds, and Kaiser — have expressed interest in the second public tender, which is expected to be held late this month.

Meanwhile, in Kazakstan, United Kingdom-based metals trader and producer Trans-World Group says Kazakstan Mineral Resources (KMRC), with which it continues to battle for control of the country’s ferro-alloy, alumina and iron ore production facilities, has made an application to the Supreme Court of Kazakstan in which “[KMRC] appears to be asking for nothing less than that the companies concerned should be split in such a way that the assets would belong to KMRC and the liabilities, including the registered bank debt, should remain with Trans-World.”

Trans-World is just one of a number of western companies to have invested heavily in reviving ailing industries in the countries of the former Soviet Union, only to find that once plants are made profitable, local authorities harden their stance on the companies’ rights and obligations.