UPDATE 2-Alcoa plant gets EU boost on Italy power prices

Wed Oct 3, 2012 2:32pm EDT

By Stephen Jewkes

MILAN Oct 3 (Reuters) - The troubled Italian smelter of aluminium group Alcoa will be able to continue using special contracts allowing it to buy electricity at lower prices until 2015 following a decision on Wednesday by the European Commission.

The Commission ruled that the so-called interruptibility power contracts on the islands of Sardinia and Sicily did not constitute state aid, giving a green light to the schemes being used by heavy-energy users there for the next three years.

Alcoa has decided to shut its aluminium smelter in Sardinia, blaming high power prices for undermining its competitiveness.

"This is good news for the government though the extension is only for three years and that might deter potential buyers of the Alcoa plant," an industry source said.

The Italian government is looking for a possible buyer for the plant to avoid job losses on an island that already has a 15 percent unemployment rate.

"It is not a final solution but it is part of a mosaic we need to piece together to give a future to the workers," the president of the Sardinia Region Ugo Cappellacci said.

Swiss commodities trader Glencore recently suspended talks over a possible offer for Alcoa after Italy rejected its request for sharply discounted power prices.

Glencore is one of a series of companies eyeing the Alcoa smelter.

"Other companies that have expressed an interest are (Swiss company) Klesch, two foreign groups and Turin-based Kite Gen. But I wouldn't totally rule Glencore out quite yet," a source close to the situation said on Wednesday.

On Tuesday, Cappellacci also said the region had not lost hope in Glencore.

A newspaper report in La Repubblica on Saturday said German investment company Bavaria Industriekapital was interested.

Bavaria Industriekapital, a Germany-based holding company specializing in manufacturing and service industry investments, did not reply to an email sent by Reuters on Tuesday.

CRIPPLING POWER

Italy has some of the highest electricity prices in Europe with a price of around 70 euros/Mwh and some Italian companies have threatened to relocate to find cheaper energy costs.

The situation is particularly critical on the islands of Sicily and Sardinia because of the less developed power connections compared to the mainland.

Glencore had asked for a power price at the plant of no more than 25 euros per megawatt hour for 10 years compared to a price of 35 euros/MWh proposed by the government.

"At this point we need to use these 3 years to complete the interconnections with abroad and press ahead with an industrial policy that keeps steel, aluminium, cement, glass, paper and ceramics businesses in Italy," member of parliament and former industry junior minister Stefano Saglia said On Wednesday.

Under interruptibility contracts, big companies accept that their power supplies can be halted by the grid operator if needed to re-balance the electricity network or avoid blackouts.

In return the companies are offered discounts on the price they pay for power.

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