EC Italian power tariff decision prompts Alcoa smelters shutdown

The European Commission's ruling that Italy must end its preferential electricity tariffs to Alcoa is a "dark day for European heavy industry," Alcoa's CEO Klaus Kleinfeld said.

RENO, NV - 

Alcoa announced Thursday it will temporarily idle production at two aluminum smelters in Italy after the European Commission ruled Thursday that the Italian government must end preferential electricity tariffs to Alcoa.

In its decision, the EC said, "The preferential electricity tariffs that Italy offered Alcoa for its aluminum smelters in Sardinia and Veneto from 2006 to 2010 only contribute to reducing Alcoa's operating costs and have no other justification.

"They therefore give the company an unfair advantage over its competitors, which have to operate without such subsidies. The commission has therefore ordered Italy to end the illegal subsidies and to recover part of the aid already paid from Alcoa."

Competition Commissioner Neelie Kroes said, "Price subsidies that result in artificially low energy prices for selected companies waste taxpayers' money and distort competition in the Single Market. Alcoa will have to pay back most of the illegal subsidies."

In response, Alcoa CEO Klaus Kleinfeld called it "a dark day for European heavy industry. The EC is sending a signal to investors and workers that heavy industry is no longer a priority."

"The EC's decision, which was not based on a complaint by a competitor or any third party, will effectively shut down Italian aluminum production and make the European aluminum industry less competitive in the worldwide markets," he said. "Alcoa will appeal the decision and take immediate action to improve the profitability of our smelter operations."

Alcoa aluminum smelters in Fusina and Portovesme, Italy are being idled. The smelters have a combined capacity of 194,000 metric tons of aluminum annually and have a combined employment of 1,000 jobs.  The process to curtail the smelters will begin immediately, with completion expected in the second half of December.

The curtailments will cut Alcoa's total global smelting system curtailments to 24%. Alcoa also expects to take a fourth quarter 2009 charge of between US$300 million and $500 million, pretax, including temporary curtailment and recovery actions.

Alcoa argues the tariff was in place for more than 10 years in Italy and was approved by the EC in 1995, the year Alcoa purchased the smelters. It was aimed at providing competitive power to energy-intensive industries in Italy.

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