From the TUC

The fallout from Alcan: We need a better way to do business

17 Nov 2011, by in Economics

As the full social economic implications of the closure of the Rio Tinto Alcan smelter at Lynemouth are digested in Whitehall, it is worth considering what lessons must be learned.

Yesterday, I highlighted how the cumulative impact of energy policies, including the proposed carbon tax,   has substantially increased costs for Energy Intensive Industries within UK manufacturing. The Alcan aluminium smelter at Lynemouth is one of hundreds of others firms across the UK now exposed to considerable energy cost rises and levies. It is essential that George Osborne announces relief and additional support as soon as is practicable so that other companies aren’t tipped over into choosing closure.

The second part to the equation is the aggressive profit targets Rio Tinto sets its sites.

The firm demands an annual return of 40%. It is high in the current global context high but one they believe they can realise in other parts of the globe. There is a wider point about corporate decision-making. 40% did not have to be a figure carved in stone or one that should determine the survival of the site. After all, Rio Tinto is not a company in crisis. Far from it. The latest financial data from August 2011 reveals Rio Tinto’s global operation achieved record first half net earnings totally $7.6 billion. This represents a 30% increase on their first half results from 2010.

The profit targets were set in boardrooms far away from the East coast of Northumberland. There is no workforce representation on Rio Tinto’s board when these decisions were taken. Had there been they would have been able to highlight how those working at the Lynemouth site were embarking on new lean production practices to further boost productivity. They would have been able to raise the fact that Rio Tinto bought Alcan in 2007 at the worst time for aluminium prices as this table shows.

chart 
Worker representatives could have argued that it was unfair and unwise to take a short-term view of its UK returns in comparison to smelters in Norway, Cameroon, Australia, Oman, Iceland and France. Instead we are faced with a multinational company taking a hasty verdict on Government energy policy An entire community in South East Northumberland will pay the price.

Equally, Alcan workers have a legitimate grievance that Government has not already taken action to address the cumulative impact of its energy policies on heavy industries.

Rio Tinto’s global code of business conduct states:

‘Actions speak louder than words. The behaviour of each and every one of us will influence how well we perform and how the world views Rio Tinto.’

Let’s all hold them to that. It is now time for Rio Tinto to properly support the workforce and work flat out with agencies and government to provide support and opportunities in its disposal in the coming months. Similarly the Government must swiftly establish and announce a package required for other Energy Intensive Industries as well as new measures for job creation in South East Northumberland. Beyond this we need greater corporate accountability to both the workforces that generate the wealth and responsibilities to the communities in which they operate. It is incumbent on all decision-makers to establish a better way of doing business in the future.

2 Responses to The fallout from Alcan: We need a better way to do business

  1. Financially Illiterate
    Nov 17th 2011, 11:23 pm

    >>>The firm demands an annual return of 40%.

    That sounds like a lot. Please can you explain more about precisely what that means?

    What return were Rio Tinto making at Lynemouth before a carbon tax? What they would have been making with a carbon tax, had they stayed open? What’s the average rate of return in manufacturing more generally? Or in the average business?

    Many thanks.

  2. pe
    Nov 18th 2011, 8:52 am

    yes, could I second Financially Illiterates request: how do you define the annual return of 40%