Alcoa 2014 Annual Report Download - page 137

The Alcoa affiliate that holds Alcoa’s interests in the smelting company and the rolling mill company is wholly owned
by Alcoa, and the Alcoa affiliate that holds Alcoa’s interests in the mining and refining company is wholly owned by
AWAC. Except in limited circumstances, Alcoa may not sell, transfer or otherwise dispose of or encumber or enter into
any agreement in respect of the votes or other rights attached to its interests in the joint venture without Ma’aden’s
prior written consent.
A number of Alcoa employees perform various types of services for the smelting, rolling mill, and refining and mining
companies as part of the construction of the fully-integrated aluminum complex. At December 31, 2014 and 2013,
Alcoa had an outstanding receivable of $30 and $31, respectively, from the smelting, rolling mill, and refining and
mining companies for labor and other employee-related expenses.
Capital investment in the project is expected to total approximately $10,800 (SAR 40.5 billion) and has been funded
through a combination of equity contributions by the joint venture partners and project financing by the joint venture,
which has been guaranteed by both partners (see below). Both the equity contributions and the guarantees of the project
financing are based on the joint venture’s partners’ ownership interests. Originally, it was estimated that Alcoa’s total
equity investment in the joint venture would be approximately $1,100, of which Alcoa has contributed $952, including
$120 and $171 in 2014 and 2013, respectively. Based on changes to both the project’s capital investment and equity
and debt structure from the initial plans, the estimated $1,100 equity contribution may be reduced. As of December 31,
2014 and 2013, the carrying value of Alcoa’s investment in this project was $983 and $951, respectively.
The smelting and rolling mill companies have project financing totaling $4,515, of which $1,133 represents Alcoa’s
share (the equivalent of Alcoa’s 25.1% interest in the smelting and rolling mill companies). In conjunction with the
financings, Alcoa issued guarantees on behalf of the smelting and rolling mill companies to the lenders in the event that
such companies default on their debt service requirements through 2017 and 2020 for the smelting company and 2018
and 2021 for the rolling mill company (Ma’aden issued similar guarantees for its 74.9% interest). Alcoa’s guarantees
for the smelting and rolling mill companies cover total debt service requirements of $177 in principal and up to a
maximum of approximately $60 in interest per year (based on projected interest rates). At December 31, 2014 and
2013, the combined fair value of the guarantees was $8 and $10, respectively, which was included in Other noncurrent
liabilities and deferred credits on the accompanying Consolidated Balance Sheet.
The mining and refining company has project financing totaling $1,992, of which $500 represents AWAC’s 25.1%
interest in the mining and refining company. Also, in January 2014, the mining and refining company entered into
additional project financing totaling $240, of which $60 represents AWAC’s share. In conjunction with the financings,
Alcoa, on behalf of AWAC, issued guarantees to the lenders in the event that the mining and refining company defaults
on its debt service requirements through 2019 and 2024 (Ma’aden issued similar guarantees for its 74.9% interest).
Alcoa’s guarantees for the mining and refining company cover total debt service requirements of $120 in principal and
up to a maximum of approximately $30 in interest per year (based on projected interest rates). At December 31, 2014
and 2013, the combined fair value of the guarantees was $4, which was included in Other noncurrent liabilities and
deferred credits on the accompanying Consolidated Balance Sheet. In the event Alcoa would be required to make
payments under the guarantees, 40% of such amount would be contributed to Alcoa by Alumina Limited, consistent
with its ownership interest in AWAC.
Under the project financings for both the smelting and rolling mill companies and the mining and refining company, a
downgrade of Alcoa’s credit ratings below investment grade by at least two agencies would require Alcoa to provide a
letter of credit or fund an escrow account for a portion or all of Alcoa’s remaining equity commitment to the joint
venture project in Saudi Arabia. This requirement would be effective only if at the time of a second downgrade in
Alcoa’s credit ratings below investment grade, Alcoa’s equity investment was below 67% of its equity commitment in
any of the three joint venture companies. A second downgrade in Alcoa’s credit ratings occurred on April 11, 2014;
however, Alcoa had already contributed more than 67% of its equity commitment in each of the three joint venture
companies prior to this downgrade. As a result, this requirement is no longer applicable.
In June 2013, all three joint venture companies entered into a 20-year gas supply agreement with Saudi Aramco,
replacing the previous authorized gas allocation of the Ministry of Petroleum and Mineral Resources of Saudi Arabia
(the “Ministry of Petroleum”). The gas supply agreement provides sufficient fuel to meet manufacturing process
requirements as well as fuel to the adjacent combined water and power plant being constructed by Saline Water
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