Alcoa 2009 Annual Report Download - page 121

agreement outlines an allocation of payments to the MOE for emergency action and natural resource damages and the
scope and costs for a proposed soil remediation project, which is expected to be formally presented to the MOE in
2010. The agreement is contingent upon final acceptance of the remediation project by the MOE. As a result of
entering into this agreement, Alcoa increased the reserve by $12 for Fusina. Additionally, due to new information
derived from the site investigations conducted at Portovesme in 2009, Alcoa increased the reserve by $3.
Investments. Alumínio is a participant in several hydroelectric power construction projects in Brazil for purposes of
increasing its energy self-sufficiency and providing a long-term, low-cost source of power for its facilities. Two of
these projects, Machadinho and Barra Grande, were completed in 2002 and 2006, respectively.
Alumínio committed to taking a share of the output of the Machadinho and Barra Grande projects each for 30 years at
cost (including cost of financing the project). In the event that other participants in either one of these projects fail to
fulfill their financial responsibilities, Alumínio may be required to fund a portion of the deficiency. In accordance with
the respective agreements, if Alumínio funds any such deficiency, its participation and share of the output from the
respective project will increase proportionately.
With Machadinho and Barra Grande, Alumínio’s current power self-sufficiency is approximately 40% (will be
approximately 70% once the hydroelectric power projects described below are completed and operating at full
capacity), to meet a total energy demand of approximately 690 megawatts from Brazilian primary plants. Alumínio
accounts for the Machadinho and Barra Grande hydroelectric projects as equity method investments. Alumínio’s
investment participation in these projects is 30.99% for Machadinho and 42.18% for Barra Grande. Its total investment
in these projects was $264 (R$460) and $182 (R$436) at December 31, 2009 and 2008, respectively. Alcoa’s maximum
exposure to loss on these completed projects is approximately $530 (R$920), which represents Alumínio’s investment
and guarantees of debt as of December 31, 2009.
In 2006, Alumínio acquired an additional 6.41% share in the Estreito hydroelectric power project, reaching 25.49% of
total participation in the consortium. This additional share entitles Alumínio to 38 megawatts of assured energy.
Alumínio’s share of the project is estimated to have installed capacity of approximately 280 megawatts and assured
power of approximately 150 megawatts. In December 2006, the consortium obtained an environmental installation
license, after completion of certain socioeconomic and cultural impact studies as required by a governmental agency.
Construction began in early 2007 and is expected to be completed in 2011. Total estimated project costs are
approximately $2,100 (R$3,600) and Alumínio’s share is approximately $530 (R$920). As of December 31, 2009,
Alumínio has contributed approximately $440 (R$770) towards the $530 commitment.
In early 2007, construction began on the Serra do Facão hydroelectric power project. Construction of this facility is
expected to be completed in 2010. The implementation of construction activities had been temporarily suspended in
2004 due to the temporary suspension of the project’s installation permit by legal injunction issued by the Brazilian
Judicial Department (Public Ministry). Since 2004, this project was placed on hold due to unattractive market
conditions. In mid-2006, market conditions became favorable and Alumínio proceeded with plans to begin
construction. In September 2006, the national environmental agency renewed the installation permit allowing
construction to commence. Alumínio’s share of the Serra do Facão project is 34.97% and entitles Alumínio to
approximately 65 megawatts of assured power. Total estimated project costs are approximately $580 (R$1,000) and
Alumínio’s share is approximately $200 (R$350). Through March 31, 2009, Alumínio contributed approximately $130
(R$220) towards the $200 commitment. In April 2009, the consortium obtained long-term financing for the remaining
costs of construction. As a result, the participants in this project will no longer be required to provide capital for their
share of the project costs. Instead, the participants were each required to guarantee (expires 2027) a portion of the
consortium’s debt. Additionally, in May 2009, the consortium returned a portion of previous capital contributions to
the participants, of which Alumínio received $53 (R$110). This return of capital contributions was reflected in
Additions to investments on the accompanying Statement of Consolidated Cash Flows. Alumínio accounts for the
Serra do Facão hydroelectric power project as an equity method investment and its total investment in this project was
$89 (R$156) and $83 (R$200) at December 31, 2009 and 2008, respectively. Alcoa’s maximum exposure to loss on
this project is approximately $200 (R$350), which represents Alumínio’s investment and guarantee of debt as of
December 31, 2009.
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