Alcoa 2009 Annual Report Download - page 26

Brazil – Electricity
The Alumar smelter is almost entirely supplied by Eletronorte (Centrais Elétricas do Norte do Brasil S.A.) through a
long-term power purchase agreement expiring in December 2024. Eletronorte has supplied the Alumar smelter from
the beginning of its operations in 1984. Alcoa Alumínio S.A.’s (Alumínio) remaining power needs for the smelter are
supplied from the Barra Grande hydroelectric project.
Alumínio owns a 30.99% stake in Maesa – Machadinho Energética S.A., which is the owner of 83.06% of the
Machadinho hydroelectric power plant located in southern Brazil. Alumínio’s share of the plant’s output is supplied to
the Poços de Caldas smelter, and is sufficient to cover 55% of its operating needs.
Alumínio also has a 42.18% interest in Energética Barra Grande S.A. – BAESA, which built the Barra Grande
hydroelectric power plant in southern Brazil. Alumínio’s share of the power generated by BAESA covers the
remaining power needs of the Poços de Caldas smelter and a portion of the power needs of Alumínio’s interest in the
Alumar smelter.
With Machadinho and Barra Grande, Alumínio’s current power self-sufficiency is approximately 40%, to meet a total
energy demand of approximately 695 megawatts from Brazilian primary plants.
Alumínio is also participating in a number of other Brazilian hydropower projects. Two of these projects have received
the Environmental License Permits from the Federal Government and started construction in 2007:
•Estreito, northern Brazil – Alumínio’s share is 25.49%
•Serra do Facão, in the southeast of Brazil – Alumínio’s share is 34.97%
Both projects are in the final stages of construction, with Serra do Facão expected to begin generating power in the
second quarter of 2010, and Estreito in the first quarter of 2011.
The Pai Querê project in southern Brazil (Alumínio’s share is 35%) and the Santa Isabel project in northern Brazil
(Alumínio’s share is 20%) are still in the process of obtaining necessary environmental licenses.
If these projects are completed, the power will be used in Alumínio’s smelters or sold into the Brazilian grid.
Europe – Electricity
Until December 31, 2005, the company purchased electricity for its smelters at Portovesme and Fusina, Italy under a
power supply structure approved by the European Commission (EC) in 1996. That measure provided a competitive
power supply to the primary aluminum industry and was not considered state aid from the Italian Government. In 2005,
Italy granted an extension of the regulated electricity tariff that was in force until December 31, 2005 through
November 19, 2009. (The extension was originally through 2010, but the date was changed by legislation adopted by
the Italian Parliament effective on August 15, 2009.) In July 2006, the EC announced that it had opened an
investigation to establish whether the extension of the regulated electricity tariff granted by Italy complies with
European Union (EU) state aid rules. On November 19, 2009, the EC announced a decision in its investigation, stating
that the extension of the tariff by Italy constituted unlawful state aid, in part, and ordered the Italian government to
recover a portion of the benefit Alcoa received since January 2006 (including interest). Alcoa is appealing this decision
and is separately seeking an annulment of the EC’s decision to open its investigation regarding the Italian power tariff
extension. Additional details about this matter are in Part I, Item 3. (Legal Proceedings) of this report. Since January 1,
2010 both the Portovesme and Fusina smelters have been supplied under short-term bilateral contracts with power
suppliers which do not give rise to future volume commitments for the smelters.
The company’s smelters at San Ciprián, La Coruña and Avilés, Spain purchase electricity under bilateral power
contracts that commenced in May 2009 and are due to expire on December 31, 2012. Prior to the establishment of
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