Russian alumina giant warns on carbon tax

THE Australian arm of Russia's Rusal, controlled by billionaire oligarch Oleg Deripaska, has warned Canberra that the proposed carbon tax could jeopardise future investments, including in the huge Queensland Alumina refinery near Gladstone on the central Queensland coast.

In a recent submission on the government's proposed carbon tax and transition arrangements to an emissions trading scheme, Rusal, the world's biggest maker of aluminium, warned that the proposed policy "poses a threat to the continuing financial viability of QAL and to further expansions of the facility".

The QAL joint venture of Rio Tinto and Rusal is expected to warn its 1500 employees and contractors about the consequences for the refinery under the proposed tax. The Rusal board is also set to debate at a meeting in Hong Kong tomorrow whether the refinery has a long-term future.

At QAL there are growing concerns that the new tax will render the refinery globally uncompetitive and see the refinery's owners pursue investments elsewhere.

Rusal, which owns a 20 per cent stake in QAL, believes the proposed framework for the carbon tax will see the QAL penalised disproportionately to its peers.

With Rusal weighing up some of its other major investments elsewhere in the world, the aluminium giant is expected to discuss whether QAL warrants further investment.

Rusal, which is listed in Hong Kong, believes the mooted structure of the tax would see Queensland Alumina's emissions taxed at 9.6 times the rate of other Australian refineries. It is understood that this impost could put planned long-term investments in the project in doubt.

QAL, which is 80 per cent owned and operated by Rio, was built in the 1960s. According to the joint venture's website, the operation contributes about $200 million a year to the local economy.

The refinery, which ranks as one of the biggest in the world and which would cost an estimated $5 billion to $6bn to replicate today, is capable of producing 4 million tonnes of alumina a year.

It is understood that, under the right conditions, the refinery is capable of being expanded to a 5 million tonnes a year capacity.

Rusal's Australian representatives are believed to have failed to secure a meeting with Environment Minister Greg Combet to discuss their concerns.

The company's concerns lie with the structure of the compensation rate proposed under the policy. The model proposed offers compensation based on average alumina refineries.

Because compensation will apply a single rate per tonne of alumina based on average industry emissions, the model will not take into account the higher emission rate of alumina out of QAL.

Under the fixed compensation rate model, QAL would end up being compensated for about 65 per cent of its emissions, compared to 94.5 per cent compensation levels for its Australian rivals.

Rusal wants to see QAL offered the same 94.5 per cent compensation rate. "It should be noted that in compensating QAL at 94.5 per cent of its baseline, QAL will still pay more carbon tax than the Australian industry average and will thus have a greater financial incentive to reduce emissions in line with the policy aims of the government," QAL says