For Jamaicans ever to be able to come together in a meaningful way, we must first be prepared to be true to ourselves. This applies to exposing the truth about the Government's handling of the country's economic affairs, including the alumina assets it holds on behalf of the people of Jamaica.

The thrust of my article, titled 'A Lost Birthright', published on February 1, was that government should avoid owning and operating commercial businesses unless such ownership is strategically necessary and that it should divest assets which are not a strategic necessity in order to free up capital for investment in infrastructure to promote economic expansion and development.

Not using funds wisely

Fifteen years ago, Clarendon Alumina Production (CAP) had a value of approximately US$500 million. An infrastructure project with enormous economic and social development value, that could have been developed based on the realisation of CAP, is a highway connecting Kingston and Montego Bay. Had we sold CAP when it had a value of US$500 million and used the proceeds to finance the highway, we would have had today an appropriately financed highway linking our two cities, with all the attendant economic and social benefits and at little or no ongoing cost to taxpayers.

Instead, there is now a massive cost on the budget arising from the privately financed, shortened version of the highway that we have today.

Hundreds of millions of dollars invested in Jamalco by the Government since then could have been applied to important social and development purposes. We could have avoided the build-up of over US$500 million of debt at CAP, the servicing of which has to be borne by the public purse.

The needs of the health services, education, road maintenance and assistance to our farmers - for which the people already paid taxes - have all been subordinated to the wasteful expenditures which could easily have been avoided.

No longer an asset

The irony is that after all of this CAP is no longer an asset to the people, but is now a net liability which is likely to leave the taxpayer holding a debt of over US$250 million after it has been disposed of.

The debt racked up by CAP did not come about by accident. The alumina industry worldwide has been viable and profitable. The norm is profits, not persistent losses. CAP's performance has not been normal because it entered into bad contracts and made bad price-fixing decisions which resulted in revenues from its sales of alumina being lower than the cost of production over an extended period of time.

These losses were financed with debt, the servicing of which has had a compounding effect. Which precise loan was related to what activity is quite immaterial. Debt is debt.

The people of Jamaica had every right to expect government to sell the alumina it owns at a profit. This it could have done through forward contracts (which despite the criticisms is the best way of selling the product) and price-hedging decisions as close to the top of the market as practicable.

Only extraordinary luck would allow a trader to hit the peak of the market and no one should expect any trading company to achieve this.

What is expected, however, is that by closely monitoring market pricing trends, our trading company would get prices much closer to the top than to the bottom of the market. Our performance has not met these reasonable expectations.

Market price predictions coming from industry publications and delivered at conferences are interesting, but must always be viewed in the context of empirical evidence. Trends indicated by actual prices on the futures market are always more reliable than these predictions.

Forecasts are, at best, educated guesses based on assumptions which may or may not turn out to be accurate. Forecasters have historically been as frequently wrong as they have been right. Relying on them is always a gamble and government should never gamble with taxpayers' assets.

Common sense, prudence

The entire history of our price-hedging decisions is replete with decisions which have resulted in prices realised falling well below what could have been achieved.

What is prudent for a seller, as we are, is to watch and wait when prices are trending upwards as was the case up to early July 2008.

However, it is not only prudent, but absolutely critical that when prices are trending down, a seller be alerted to the need to fix prices to secure some of the gains achieved in the run-up, as well as to avoid losses should the downward trend continue.

After the first week of July, long before the global economic crisis became evident, the market for aluminium turned negative and continued downward for nine straight weeks before the crash of Lehman Brothers on September 15, 2008. The closing price for every week registered a decline. However, we waited to lock in prices, despite clear warning signs that things could get worse with the rapidly collapsing United States housing market and the need for the US government to bail out Bear Stearns. Additionally the deadline for locking in 2009 prices was September 30.

In these circumstances, to rely on the hope of an upturn based on predictions in some publications, which have oftentimes been wrong, was little better than choosing clairvoyance over evidence.

What was required was neither hindsight nor prescience, but common sense and prudence. The application of these all too uncommon qualities would have led us, in a falling market, to set a floor at which we would set our price. At the start of July 2008, when the market price for 2009 aluminium peaked at the near historical high of around US$3300 per ton, a floor should have been set at around $3100.

Instead, we waited and waited while the market plunged lower and lower. By the time the global financial meltdown hit with Lehman's collapse on September 15, the price for 2009 deliveries had fallen to US$2600 from the high of US$3300 in early July. What were we waiting for? Serendipity? Someone must have been either sleeping or not thinking.

Had the common-sense decision to set a floor of US$3,100 in the falling market been taken, alumina prices of US$380 per ton would have been secured for the entire year 2009. Instead, we will have to deliver at the price of US$225 per ton secured so far, with the likelihood that it will fall even further for the remainder of the year, as the market continues to decline. The market is now only US$1,400 per ton (US$170 per ton for alumina), the result of the global economic meltdown which no one could have predicted. Even in the best-case scenario, the loss to the country would be over US$50 million for quantities contracted to be delivered in 2009.

While the sale of CAP might bring an end to the on-going losses, the net result of the sale is likely to incorporate the value of all the contracts being held by CAP, including the price-setting arrangements associated with them, and the sale price will be accordingly negatively affected.

Wasteful ownership

The performance of government as a steward of our alumina assets only confirms my view that government ownership of commercial assets is invariably wasteful of the people's capital.

I was chairman of the joint board of the Bauxite Trading Company and Jamaica Bauxite Mining and a member of the board of CAP for one year in 2006/07 and my views on the management of the Government's assets in the sector stated in my article were very well known then.

However, the institutional edifice presiding over government's interest in the sector has long been a sacred cow that brooks neither questioning nor criticism, and from all indications continues to be so, even after a change of government.

However, as we all know, for progress to be made sacred cows often need to be slain. In the present circumstances, the cow seems to have slain itself, regrettably at great cost to the country.

For too long, governments have behaved as if their purpose were to preserve personal power bases rather than to promote the interest of the people. I hope we will soon begin to see a change of course.

Claude Clarke is a former trade minister and a manufacturer. Feedback may be sent to columns@gleanerjm.com.