Alcoa 2010 Annual Report Download - page 123

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 $274 (R$461) and $264 (R$460) at December 31, 2010 and 2009, respectively. Alcoa’s maximum
exposure to loss on these completed projects is approximately $450 (R$760), which represents Alumínio’s investments
in both projects and guarantee of debt for Machadinho only (the guarantee by the participants in the Barra Grande
project was released by the lender effective December 29, 2010) as of December 31, 2010.
In early 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 the 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 2012 (start-up of the
facility is expected to begin in the first half of 2011 with full capacity reached in 2012). In early 2010, the consortium
approved an increase of approximately $720 (R$1,300) in estimated costs to complete the Estreito project as a result of
currency, inflation, and the price and scope of construction, among other factors. Total estimated project costs are
approximately $2,920 (R$4,900) and Alumínio’s share is approximately $740 (R$1,250). As of December 31, 2010,
Alumínio has contributed approximately $680 (R$1,140) towards its commitment.
Construction began on the Serra do Facão hydroelectric power project in early 2007 and is expected to be completed in
early 2011 (this facility is currently operating at full capacity). 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 $600 (R$1,000) and Alumínio’s share is approximately $210 (R$350). Through March 31, 2009,
Alumínio contributed approximately $130 (R$220) towards its commitment. In April 2009, the consortium obtained
long-term financing for the remaining costs of construction. At that time, the participants in this project were no longer
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. In mid-2010, the capacity under the long-term financing arrangement
was exhausted; therefore, the participants were once again required to begin providing capital for their share of the
remaining costs. Through December 31, 2010, Alumínio has contributed an additional $20 (R$30) towards its
commitment. Separately, in May 2009, the consortium returned a portion of previous capital contributions to the
participants, of which Alumínio received $53 (R$110), which 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 $116 (R$195) and $89 (R$156) at
December 31, 2010 and 2009, respectively. Alcoa’s maximum exposure to loss on this project is approximately $240
(R$400), which represents Alumínio’s investment and guarantee of debt as of December 31, 2010.
In 2004, Alcoa acquired a 20% interest in a consortium, which subsequently purchased the Dampier to Bunbury
Natural Gas Pipeline (DBNGP) in Western Australia, in exchange for an initial cash investment of $17 (A$24). The
investment in the DBNGP was made in order to secure a competitively priced long-term supply of natural gas to
Alcoa’s refineries in Western Australia. This investment was classified as an equity investment. Alcoa has made
additional contributions of $125 (A$160), including $9 (A$9) and $31 (A$42) in 2010 and 2009, respectively, and
committed to invest an additional $10 (A$10) to be paid as the pipeline expands through 2011 (Alcoa’s commitment
was reduced by $11 (A$13) after a review of the estimated equity needs of the consortium in relation to the remaining
expansion). In addition to its equity ownership, Alcoa has an agreement to purchase gas transmission services from the
DBNGP. Alcoa’s maximum exposure to loss on the investment and the related contract is approximately $480 (A$470)
as of December 31, 2010.
Purchase Obligations. Alcoa is party to unconditional purchase obligations for energy that expire between 2012 and
2041. Commitments related to these contracts total $228 in 2011, $293 in 2012, $268 in 2013, $270 in 2014, $267 in
2015, and $5,527 thereafter. Expenditures under these contracts totaled $129 in 2010, $87 in 2009, and $96 in 2008.
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