Alcoa Idles Italian Plants Following EU Ruling

Alcoa Incorporated (Pittsburgh, PA), the world's leading aluminum producer, decided to shut down two plants in Veneto and Sardinia in Italy after a European Commission (EC) ruling directed Alcoa to pay back differential power tariffs that the company has been enjoying since 2006, which are now being construed as an illegal subsidy.

According to Industrial Info Resources (Sugar Land, TX), during the past year the EC revised the Emission Trading Scheme for 2013-20, as well as the broader Climate and Energy Guidelines, which originally required EU nations to reduce 1990 emissions levels 20 percent by 2020.

Accordingly, emission levels were capped at 21 percent lower than 2005 levels by 2020, and the guidelines were expanded to cover several industrial sectors. The proposed revisions also required power generation utilities to pay for all effluent emissions from 2013, while the industrial sector was still granted concessions on these emissions. This implied that industry did not have to pay for emissions up to permitted levels under the 'Carbon Leakage' rules stipulated by the EU. Under the scheme, industries would continue to thrive despite emission laws and would still enjoy carbon credits based on their operating efficiencies.

Given this scenario, the EC reached the conclusion that preferential power tariffs offered to Alcoa since 2006 were not based on any specific environmental or developmental criteria, and only served to reduce the operating costs of the company. The subsidies allowed the company to be more profitable compared to competitors via a power-consumption levy on the public.

Alcoa has countered this ruling by quoting the Commission's earlier decision to grant electricity at preferential rates in 1995. However, the company shut down the two Italian plants, as operating the electricity-intensive smelter units at open market power prices was not cost-effective. Company sources stated that heavy-industry initiatives were being de-prioritized by this ruling.

However, the earlier grant was valid for only ten years and was sanctioned to enable industries to utilize Italian energy at competitive prices in comparison to those prevalent across Europe. The EC has stated that those market conditions are no longer active at present, and hence Italy was wrong to have extended the subsidies for 2006-10. Alcoa has been directed to reimburse all tariff incentives from the Veneto plant and a portion of the incentives obtained to January 2007 on the Sardinia plant, with the remaining amount being waived on account of effective administrative practices.

Alcoa will continue with metal production in Italy, but both plants in question will be phased out temporarily by the end of December 2009, slashing about 2,000 direct and indirect jobs in the process, and taking four percent of Alcoa's global capacity offline. The plants at Fusina and Portovesme in Italy have a combined capacity of 194,000 tons per year. In the meantime, Alcoa intends to appeal the ruling.