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After 14 yrs and no profits…Rusal continues to enjoy sweeping tax concessions
A decade and a half ago, the Government of Guyana entered an agreement with subsidiaries of UC Rusal for the management of the Aroaima Mining Company (AMC) and for the development of the Kurubuka area.
The company not only inherited assets, including equipment and housing units with infrastructure, but also operations, which were considered going concerns.
Some 15 years later, in 2019, Rusal’s local subsidiary, the Bauxite Company of Guyana Inc. (BCGI) is still here.
Up until mid-February, things were progressing well for the Russian management. There were over 500 workers.
Bauxite by the boatloads was leaving the shores.
In fact, even when sanctions were placed on Rusal last year by the US, the company in Guyana never eased its operations. It was stockpiling bauxite and when the sanctions were lifted, normalcy resumed.
The company, however, is now in the spotlight because of a labour matter where workers have refused to leave Aroaima, a housing area in Region Ten under their control.
The workers were fired in February after objecting to a measly one percent increase in their pay.
After weeks of tense back-and-forth, the union and the company have finally agreed to have talks. One such meeting happened on Friday and another is set for Tuesday.
The situation is not resolved with workers continuing to block the Berbice River, in Region Ten, not allowing bauxite ships to pass.
The problem with Rusal/BCGI now is that it is being reported that the company never declared a profit.
With the Government of Guyana owning 10 percent of the company, the question that would be asked is which company operates without making a profit for a decade and a half.
In fact, when the Government, in the mid-2000s invited Rusal to invest in AMC which was being operated by the state and which was experiencing declining production and sales, it was agreed that they would be granted tax concessions and other incentives.
According to the Fiscal Incentives Agreement, which was signed March 2005 between Guyana, the Bauxite and Alumina Mining Venture Limited, located in Cyprus; Bauxite Company of Guyana Inc. (BCGI) and Guyana Trading Company Limited (GTC), registered in the British Virgin Islands, Rusal/BCGI enjoyed years of tax breaks.
This housing area at Aroaima, Region 10, was one of the properties that Rusal acquired under its management and bauxite purchase arrangements.
The Fiscal Incentives Agreement would be one of the many arrangements that the then government signed onto.
Among other things, BCGI was exempted from the payment of income, corporation, and property taxes for the period of five years commencing from the effective date of the management agreement.
It was agreed also that the company will be exempted from the payment of Withholding Taxes on interest, dividends and lease payments to its affiliate for the whole period of existence of the arrangement.
The company was given a free rein to import all items that it says is related to its operation.
The deal includes exemption from payment of all and any duties, including Customs Duties, and taxes, including purchase taxes, on equipment, machinery, motor vehicles and supplies.
With regards to the last, the Government agreed that the company would benefit from these concessions for how long Rusal/BCGI remains here.
It was agreed, too, that the company would not pay any royalty for any bauxite produced during the first five years.
After that, the government, under then President Bharrat Jagdeo, agreed that royalty shall be payable at the rate of 1.5 percent on the Freight On Board (FOB) value of shipments from New Amsterdam.
The Guyana Government then, went further. It agreed that all preferences, privileges, and incentives provided by the agreement shall continue for the whole period of Rusal/BCGI existence in Guyana, subject to JVC’s compliance with its obligations.
The government also agreed that it cannot just make amendments to, and changes of applicable laws that can directly affect the financial position and or operations of the company, without its prior approval.
Under the mid-2000s arrangement, Rusal/BCGI was supposed to manage the Aroaima mining area and facilities and to explore and develop the Kurubuka deposit.
The arrangements with Rusal would raise questions about the negotiating capacity of the country’s officers, especially when it comes to ensuring that the country gets a good bargain.
In this case, it seems that despite the many warning signs, like the continuous claims that no profits were being made, little was done.
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