Alcoa 2013 Annual Report Download - page 137

September 22, 2012, the EC announced that it had filed an action against the Italian Government on July 18, 2012 to
compel it to collect the recovery amount, and on October 17, 2013, the ECJ ordered Italy to so collect. On
September 27, 2012, Alcoa received a request for payment in full of the $310 (€250) by October 31, 2012. Following
discussions with the Italian Government regarding the timing of such payment, Alcoa paid the requested amount in five
quarterly installments of $69 (€50) beginning in October 2012 through December 2013. Notwithstanding the payment
request, Alcoa’s estimate of the most probable loss of the ultimate outcome of this matter and the low end of the range
of reasonably possible loss, which is $219 (€159) to $418 (€303), remains the $219 (€159) (the U.S. dollar amount
reflects the effects of foreign currency movements since 2009) recorded in 2009. At December 31, 2013, Alcoa no
longer has a reserve for this matter. Instead, Alcoa has a noncurrent asset of $126 (€91) reflecting the excess of the
total of the five payments made to the Italian Government over the reserve Alcoa recorded in 2009. The full extent of
the loss will not be known until the final judicial determination, which could be a period of several years.
As a result of the EC’s November 19, 2009 decision, management had contemplated ceasing operations at its Italian
smelters due to uneconomical power costs. In February 2010, management agreed to continue to operate its smelters in
Italy for up to six months while a long-term solution to address increased power costs could be negotiated. Over a
portion of this time, a long-term solution was not able to be reached related to the Fusina smelter, therefore, in May
2010, Alcoa and the Italian Government agreed to a temporary idling of the Fusina smelter. As of June 30, 2010, the
Fusina smelter was fully curtailed (44,000 metric-tons-per-year). For the Portovesme smelter, Alcoa executed a new
power agreement effective September 1, 2010 through December 31, 2012, replacing the short-term, market-based
power contract that was in effect since early 2010. This new agreement along with interruptibility rights (i.e.
compensation for power interruptions when grids are overloaded) granted to Alcoa for the Portovesme smelter
provided additional time to negotiate a long-term solution (the EC had previously determined that the interruptibility
rights were not considered state aid).
At the end of 2011, as part of a restructuring of Alcoa’s global smelting system, management decided to curtail
operations at the Portovesme smelter during 2012 due to the uncertain prospects for viable, long-term power, along
with rising raw materials costs and falling global aluminum prices (mid-2011 to late 2011). As of December 31, 2012,
the Portovesme smelter was fully curtailed (150,000 metric-tons-per-year). This curtailment may lead to the permanent
closure of the facility; however, Alcoa will keep the smelter in restart condition through June 2014.
In June 2013, Alcoa decided to permanently shut down and demolish the Fusina smelter due to persistent
uneconomical conditions (see Note D).
In January 2007, the EC announced that it had opened an investigation to establish whether the regulated electricity
tariffs granted by Spain comply with EU state aid rules. At the time the EC opened its investigation, Alcoa had been
operating in Spain for more than nine years under a power supply structure approved by the Spanish Government in
1986, an equivalent tariff having been granted in 1983. The investigation is limited to the year 2005 and is focused
both on the energy-intensive consumers and the distribution companies. The investigation provided 30 days to any
interested party to submit observations and comments to the EC. With respect to the energy-intensive consumers, the
EC opened the investigation on the assumption that prices paid under the tariff in 2005 were lower than a pool price
mechanism, therefore being, in principle, artificially below market conditions. Alcoa submitted comments in which the
company provided evidence that prices paid by energy-intensive consumers were in line with the market, in addition to
various legal arguments defending the legality of the Spanish tariff system. It is Alcoa’s understanding that the Spanish
tariff system for electricity is in conformity with all applicable laws and regulations, and therefore no state aid is
present in the tariff system. While Alcoa does not believe that an unfavorable decision is probable, management has
estimated that the total potential impact from an unfavorable decision could be approximately $95 (€70) pretax. Also,
while Alcoa believes that any additional cost would only be assessed for the year 2005, it is possible that the EC could
extend its investigation to later years. If the EC’s investigation concludes that the regulated electricity tariffs for
industries are unlawful, Alcoa will have an opportunity to challenge the decision in the EU courts.
On February 4, 2014, the EC announced a decision in this matter stating that the electricity tariffs granted by Spain for
year 2005 do not constitute unlawful state aid.
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