EU orders repayment on alumina tax break

BRUSSELS, Feb 8 - Canadian alumina producer Alcan, Ireland's Aughinish and Eurallumina of Italy must pay back state aid found illegal and future aid will be suspended, the European Commission said on Thursday.

The producers get a fuel tax exemption for production of alumina but that is conditioned on signing environmental pacts. Alcan, the world's second-largest maker of primary aluminium, was operating in France, the Commission said.

But the three companies have failed to reach environmental agreements and the Commission decided they must repay 20 percent of the tax break since Jan. 1, 2004. It did not specify what amount needed to be paid back.

The Commission ordered the tax break suspended in its entirety until the cash is returned. Alumina is an intermediate product made from bauxite ore and used in smelters to make aluminium.

At the same time, a German tax break given to steel producers got a green light from the Commission. The tax break is given for energy products used as a raw material as well as a fuel.

Aughinish Alumina, which produces 1.8 million tonnes of alumina per year, is a subsidiary of Switzerland-based commodities trader Glencore International.

Glencore did not specify how much it would have to repay.

"All we can say is it will not have a large impact on the company," a spokeswoman said.

When the Aughinish refinery was constructed between 1978 and 1983, it was the largest construction project in Europe at the time and the investment, equating to 1 billion euros, was then the largest ever single private investment in the Irish economy.