Alcoa 2012 Annual Report Download - page 53

corporate waste. This derivative action stems from the previously disclosed civil litigation brought by Alba against
Alcoa, and the subsequent investigation of Alcoa by the DOJ and the SEC described above. This derivative action
claims that defendants caused or failed to prevent illegal bribes of foreign officials, failed to implement an internal
controls system to prevent bribes from occurring and wasted corporate assets by paying improper bribes and incurring
substantial legal liability. Furthermore, plaintiff seeks an order of contribution and indemnification from defendants.
The derivative action is in its preliminary stage and Alcoa is unable to reasonably predict an outcome or to estimate a
range of reasonably possible loss.
Italian Energy Matter
As previously reported, before 2002, Alcoa purchased power in Italy in the regulated energy market and received a
drawback of a portion of the price of power under a special tariff in an amount calculated in accordance with a
published resolution of the Italian Energy Authority, Energy Authority Resolution n. 204/1999 (204/1999). In 2001, the
Energy Authority published another resolution, which clarified that the drawback would be calculated in the same
manner, and in the same amount, in either the regulated or unregulated market. At the beginning of 2002, Alcoa left the
regulated energy market to purchase energy in the unregulated market. Subsequently, in 2004, the Energy Authority
introduced regulation no. 148/2004 which set forth a different method for calculating the special tariff that would result
in a different drawback for the regulated and unregulated markets. Alcoa challenged the new regulation in the
Administrative Court of Milan and received a favorable judgment in 2006. Following this ruling, Alcoa continued to
receive the power price drawback in accordance with the original calculation method, through 2009, when the
European Commission declared all such special tariffs to be impermissible “state aid.” In 2010, the Energy Authority
appealed the 2006 ruling to the Consiglio di Stato (final court of appeal). On December 2, 2011, the Consiglio di Stato
ruled in favor of the Energy Authority and against Alcoa, thus presenting the opportunity for the energy regulators to
seek reimbursement from Alcoa of an amount equal to the difference between the actual drawback amounts received
over the relevant time period, and the drawback as it would have been calculated in accordance with regulation
148/2004. On February 23, 2012, Alcoa filed its appeal of the decision of the Consiglio di Stato, and that appeal
remains pending. On March 26, 2012, Alcoa received a letter from the agency (Cassa Conguaglio per il Settore Eletrico
(CCSE)) responsible for making and collecting payments on behalf of the Energy Authority demanding payment in the
amount of approximately $110 million (€85 million), including interest. By letter dated April 5, 2012, Alcoa informed
CCSE that it disputes the payment demand of CCSE since (i) CCSE was not authorized by the Consiglio di Stato
decisions to seek payment of any amount, (ii) the decision of the Consiglio di Stato has been appealed and that appeal
remains pending, and (iii) in any event, no interest should be payable. On April 29, 2012, Law No. 44 of 2012
(44/2012) came into effect, changing the method to calculate the drawback. Alcoa believes that under 44/2012 its range
of reasonably possible loss is from $0 to $50 million (€39 million). Following the effectiveness of 44/2012, Alcoa has
received no further demands from CCSE. At this time, the Company is unable to reasonably predict an outcome for this
matter.
European Commission Matters
As previously reported, in July 2006, the European Commission (EC) announced that it had opened an investigation to
establish whether an extension of the regulated electricity tariff granted by Italy to some energy-intensive industries
complies with European Union (EU) state aid rules. The Italian power tariff extended the tariff that was in force until
December 31, 2005 through November 19, 2009 (Alcoa has been incurring higher power costs at its smelters in Italy
subsequent to the tariff end date). The extension was originally through 2010, but the date was changed by legislation
adopted by the Italian Parliament effective on August 15, 2009. Prior to expiration of the tariff in 2005, Alcoa had been
operating in Italy for more than 10 years under a power supply structure approved by the 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. The EC’s announcement expressed concerns about whether Italy’s extension of the tariff beyond
2005 was compatible with EU legislation and potentially distorted competition in the European market of primary
aluminum, where energy is an important part of the production costs.
On November 19, 2009, the EC announced a decision in this matter stating that the extension of the tariff by Italy
constituted unlawful state aid, in part, and, therefore, the Italian Government is to recover a portion of the benefit
Alcoa received since January 2006 (including interest). The amount of this recovery will be based on a calculation that
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