Norsk Hydro: Long-term ICMS tax framework established for Hydro’s Brazil operations

The Brazilian state of Pará has published a long-term ICMS tax framework for the aluminium producer Norsk Hydro ASA and related entities, developed between the parties. A new 15-year framework will replace the existing ICMS deferral on July 17.

“Our ambition is to develop robust and viable operations in Pará and to be an enabler for sustainable growth in the region. To do this, we need stable and predictable framework conditions. We are pleased to have agreed on a long-term ICMS framework for Hydro’s operations in Pará,” says Alberto Fabrini, executive vice president and head of Bauxite and Alumina in Hydro.

The aluminium plant Albras, the alumina refinery Hydro Alunorte, and the bauxite mine Hydro Paragominas are covered by this framework. Hydro will publish further details on the framework as soon as possible on Hydro website.

ICMS is a value added tax collected by the Brazilian states. The aluminium industry in Pará has an ICMS deferral on intra-state purchases, which expires July 17, 2015. Hydro Paragominas, Hydro Alunorte and Albras have been subject to ICMS taxation on diesel and, since February 1, 2014, also de facto on fuel oil, as the state of Pará changed the collection point of ICMS tax from the distributor located in the state to oil refineries located outside the state of Pará. Currently this amounts to around BRL 250 million on an annual basis.

Under the new 15-year ICMS framework, Hydro Paragominas and Hydro Alunorte will continue to pay ICMS on diesel and fuel oil, while other intra-state purchases will have a renewed deferral for the period. Albras will pay ICMS on a 50 percent basis of electricity purchases, while other intra-state purchases will have a renewed deferral for the period. ICMS tax paid by Albras on electricity is expected to be offset by increasing domestic sales of primary aluminium, at a sales price including ICMS

. Hydro will continue to support verticalization through the aluminium value chain, contribute to development in the region and act as an enabler for sustainable growth in the state of Pará. Bauxite production at Hydro Paragominas is refined at Hydro Alunorte alumina refinery. Alumina from Hydro Alunorte is used as raw material in the primary aluminium plant Albras, a joint venture between Hydro and the Japanese consortium NAAC (Nippon Amazon Aluminium Co. Ltd.). Hydro also extends the value chain through selling 50,000 tonnes liquid aluminium annually from Albras to local cable producer Alubar. Hydro and Albras will increase domestic sales volumes on market terms to support the establishment of new value added downstream industries in Pará. Albras is also planning to high-grade its portfolio by upgrading 40,000 tonnes of its annual production capacity from standard ingot to primary foundry alloys, for sale to the domestic market.

Through the “from B to A” improvement program, Hydro has over the last years initiated significant efforts to lift production to nameplate capacity at Hydro Paragominas (9.9 million tonnes) and Hydro Alunorte (6.3 million tonnes), while reducing costs and improving operations. The increase to nameplate capacity has been achieved at Hydro Paragominas. Hydro Alunorte is still increasing production towards nameplate capacity. During the process of stabilizing and increasing production, Hydro Alunorte has identified additional measures to lift production beyond nameplate capacity, towards 6.6 million tonnes.

The CAP alumina refinery project is a joint venture between Hydro and Dubal Holding LLC. The project is currently put on hold due to market conditions. The CAP project will be subject to a technical review and Hydro is investigating the potential for continuing this project within 2018, should the market conditions improve sufficiently. This will require expanding the Paragominas bauxite mine to 14.8 million tonnes.

Hydro Paragominas has a nameplate production capacity of 9.9 million tonnes of bauxite annually. Hydro Alunorte, owned 92% by Hydro, has a nameplate capacity of 6.3 million tonnes alumina annually and is the world’s largest alumina refinery. Albras, owned 51% by Hydro and 49% by the Japanese consortium NAAC (Nippon Amazon Aluminium Co. Ltd.) has an annual production capacity of 460,000 tonnes. The CAP project, owned 81% by Hydro and 19% by Dubal Holding LLC, is expected to have an initial annual capacity of 1.9 million tonnes of alumina. All operations are located in the state of Pará in Brazil.