The land Alcoa dammed

The land Alcoa dammed The rise and fall of the aluminum industry in Suriname

A struggling country's past and future shaped by Alcoa and its aluminum April 23, 2017 | Part 1 of 4 Reporting by Rich Lordand Len Boselovic Photography by Stephanie Strasburg It electrified this South American country even as it drowned a jungle, so the 1.2-mile-long dam Alcoa built here to harness the Suriname River is more than stone and turbines. It’s a symbol, in this tropical land of 560,000, of progress, trauma and a global company’s ability to dominate a little country’s landscape and society. Now the Alcoa Corp. is leaving Suriname, and the Afobaka Dam’s future rivets everyone from the capital’s dealmakers to the forest’s subsistence farmers. In a country just north of the equator that would fit within a combined Pennsylvania and West Virginia — a country that’s already in a downturn locals call “the crisis” — Alcoa’s decision to permanently end mining and refining has delivered a resonating blow. The Afobaka Dam, Suriname, South America Alcoa, the aluminum company founded in Pittsburgh in 1888 that eventually spanned six continents, set up shop here in 1916 when it found bauxite beneath the jungle floor. Cutthroat conditions in the global aluminum market compelled a shutdown in November 2015. Halfway through that century, Alcoa finished the dam, flooding a forest people’s heartland but also jolting a plantation-based economy into the industrial age. Alcoa created mammoth mining and refining sites and raucous river towns, building a middle class while toughing out a nation’s independence, civil war and an unstable government. “You need to understand that after 100 years of [Alcoa] being in Suriname, this thing is so emotional for Surinamers,” said Ruben Halfhuid, managing director of Suralco, the Alcoa subsidiary in the country. “But there are also people who are thinking of these things ... in an adult way.” Controversial negotiations between the company and the government — focused largely on the dam but also on environmental and humanitarian issues — are coming to a head, even as protests against the president’s economic policies clog the streets. Alcoa’s departure from a country with little global profile could test the company’s commitment to a sustainable approach to metals. “We are not strong against a company like Alcoa,” said Jennifer Simons, chair of Suriname’s National Assembly. “This is a very large thing for a small country.” In March, a Pittsburgh Post-Gazette team, supported by the Pulitzer Center on Crisis Reporting, explored Alcoa’s dam, crumbling towns that the company had built, abandoned strip mines, jungle resettlement villages and halls of government that echo with accusations of secret deals. This series will explore the close of Alcoa’s Suriname century through those places and their people, from the business magnate negotiating the dam’s future in the capital to the elderly matrons who still recall their flight from jungle villages as the reservoir filled. Just as the Afobaka Dam’s development occurred in the middle of that century, it’s now a centerpiece of a country’s turmoil.



‘Paying way too much’

The Brokopondo Reservoir in Suriname, some 618 square miles flooded to provide water for the Afobaka Dam, forced the relocation of 43 villages with some 6,000 residents — some of whom still wait for electrification of their villages.

‘Paying way too much’ On a blazing day in Paramaribo, Suriname’s leading businessman, Rudi Dilip Sardjoe, sat in an air-conditioned office on the palm-shaded avenue of Galileistraat, attributing much of what is best about this capital city to Alcoa. He said it’s hard to imagine “if Alcoa was not here, how Paramaribo would look. Because we got a lot of funds from them, and we benefited — our education system, everything — one or the other way.” Overgrown bush grows up alongside the now defunct Paranam Operations for Suralco, a subsidiary of Alcoa. That’s a view the company touts at every turn. Even as production slowed, Alcoa touched Surinamese life at many levels, supporting everything from schools for special needs students to homes for seniors with dementia. But there has long been a counter-narrative — that foreign companies, enabled by a weak government, take far more than they give — and now the dam that provides more than half the country’s electricity also powers that storyline. “We’re paying way too much at the moment” for the dam’s power, said lawmaker Gregory Rusland, the country’s former minister of natural resources. “It’s a major issue that we have to look at today.” Some say Suriname’s now-ending ride on the aluminum industry’s roller coaster started with a sharp-eyed convict. According to documents in the Alcoa files at Pittsburgh’s Sen. John Heinz History Center, legend has it that around 1898, an escapee from France’s penal colony of Guiana fled west into what was then a Dutch territory and spotted some reddish rocks. He happened to be from Les Baux, in France, and recognized the ore named for his hometown. Word got around, and by 1915 mining companies had representatives combing the hills for bauxite — aluminum’s ore. At that point the market for aluminum foil was only 5 years old, and the metal was just emerging as the key component in lightweight aircraft. Alcoa found in Suriname, circa 1916, “an almost forgotten and impoverished Dutch colony … which had to look forward to a future without a glimmer of hope,” according to a glossy, celebratory magazine the company produced in late 2014. It was a land of subsistence farms and wild rubber extraction, plus “colonial plantations” producing cocoa, coffee and sugar. In Alcoa’s first half-century there, the company mined bauxite to the east and south of the capital and sent it abroad, by boat, for processing. In 1958, the company, the local minister-president and the Dutch governor agreed on a plan to power an ore-to-aluminum industrial complex and signed the 75-year Brokopondo Agreement, named for the town just north of the proposed dam site. From 1959 through 1965, Alcoa built the Afobaka Dam, and in Paranam a refinery to turn bauxite into alumina, and a smelter to convert that to aluminum ingots. The plans were crafted “on the drawing table of Alcoa’s Engineering Department in Pittsburgh,” according to a company history of the project. Alcoa's plans to leave the country have left the ownership of the Afobaka Dam — here, at dawn — up for debate. About 10 million cubic yards of sand, rock, clay and concrete went into building the Afobaka hydroelectric dam, about 70 miles south of Paramaribo. Backed by a 618-square-mile and 264-foot-deep reservoir, the dam was designed to generate 189 megawatts of electricity, although it now operates at about two-thirds of that capacity. The lengthy Brokopondo Agreement contained just one sentence about the 6,000 people living in 43 villages just upstream of the dam — leaving it to the government to “remove the population, the buildings and other property from the reservoir area.” In 1964, Georga Burger was 23, and a mother of three, when her village, Ganzee, was flooded as a result of Alcoa's Afobaka Dam. Now she lives in Brownsweg, in one of the wooden houses built by Suriname's government for many of the 6,000 dislocated jungle dwellers.

‘A very good deal for Alcoa’

Workers drilling blast holes in the Rorac Mine on April, 22, 1954 in Paranam, Suriname. (Courtesy of Heinz History Center archives)

‘A very good deal for Alcoa’ Shortly after Suriname became independent in 1975, Alcoa’s employment in the country settled at about 5,000. Many of the workers were unionized. Their families got free education and health care. Their country got power — at a price. The 1958 agreement gave Suriname’s government a fraction of the dam’s cheap electricity priced at 0.4 cents per kilowatt hour. But circumstances changed in 1999 when Alcoa closed the smelter, a big user of the dam’s electricity. Although many say the smelter’s small size and environmental issues were the reasons for the shutdown, there was a nagging suspicion among some that Alcoa had another motive. Henk Ramdin, Suralco’s general manager until retiring shortly before the smelter was shuttered, said many employees at the time believed the company could make more money selling the power than it could making aluminum. “They didn’t say it openly, but I could feel it,” Mr. Ramdin recalled. An Alcoa spokesman wrote that such decisions are based on “a comprehensive evaluation of market conditions, regulatory certainty, and capital requirements,” but declined to be more specific. The sky at dusk is cut by the orange glow of the shuttered refinery at the Paranam Operations of Suralco, a subsidiary of Alcoa. Because it no longer needed electricity to fuel the now-closed smelter, Alcoa initially wanted to use the power to generate steam needed at its Paranam refinery. But Suriname’s government wanted to purchase the surplus electricity, according to Mr. Halfhuid, and Alcoa agreed to provide it. However, that meant Alcoa had to purchase oil to generate steam for its refinery. To offset those costs, Alcoa based the price of the electricity it sold to the government not on the cost of running the dam, but largely on the price of heating oil, then $13.28 per barrel. “This was a very good deal for Alcoa,” said Viren Ajodhia, a Paramaribo energy consultant. “Physically, they [the government] were getting the power from Afobaka. Financially, they were getting it from Paranam.” The oil price-based electricity contract and Suralco’s declining operations meant that by 2010 or 2011, Suriname was paying more to Suralco for electricity than it was receiving in tax and other revenue from the company’s operations, according to Ms. Simons, the speaker of the National Assembly. Just how much the government is now paying Alcoa is a matter of dispute. Suralco’s Mr. Halfhuid put the price at 3 cents per kilowatt hour, or “about $3 million per month,” which he described as a bargain. He declined to say how much it costs Alcoa to generate a kilowatt hour. Mr. Rusland, though, put the price at 8 or 9 cents per kilowatt hour vs. the 0.25 to 0.4 cents per kilowatt hour he estimates it costs to generate the electricity. Georga Burger in the one room house in New Ganze, Suriname she was relocated to when her village was flooded to provide water for the Afobaka Dam. Burger left with her children as the water rose around her old house, leaving many of her belongings and animals. An Alcoa spokesman wrote in response to questions that the cost of generation "is much higher than this speculative estimate," and that the price charged the government is contractual and ensures "that the asset continues to operate reliably, efficiently and safely.” Mr. Ajodhia estimates the government is paying Alcoa about 5 cents per kilowatt hour plus an annual surcharge of $1.2 million. He said whatever the price is, it is a significant multiple of what it costs Alcoa to produce the electricity. “People are throwing a lot of numbers around just to confuse the issue,” he said.

Bauxite to aluminum

Bauxite to aluminum

A company ready to go home

A broken boat sits by the shoreline of the Brokopondo Reservoir in Suriname.

A company ready to go home The dispute over the dam and electricity pricing came to head in October 2015, when Alcoa and Suriname’s current minister of natural resources signed a nonbinding memorandum of understanding outlining proposed terms for Alcoa’s departure. Alcoa agreed to clean up its mines and industrial sites to U.S. standards, to consider eventual mining of bauxite in western Suriname, and to give the dam to the country’s government at the end of 2019 — 13 years before the Brokopondo Agreement ended. Red bauxite roads run for miles around the shuttered mining and mill operations that once made Suralco one of Suriname's largest employers. The company, a subsidiary of Alcoa, has promised to remediate the land. Until then, the government would continue to purchase electricity from Alcoa using the formula based on the price of oil. The memorandum of understanding provides that the oil price on which electricity rates are based automatically escalates $3 a barrel annually until then. It guarantees that Suriname will pay more for electricity each year if the government accepts the nonbinding agreement. The National Assembly unanimously rejected the memorandum a month later, with members arguing that an end to Alcoa’s manufacturing should mean an immediate government takeover of the dam, and presumably lower electricity prices. The assembly was roiled again in February, when members learned that the minister of natural resources had continued to negotiate under the memorandum anyway. “Alcoa decided to leave the country early. I think that has consequences,” National Assembly member Krishna Mathoera said in a March interview. “The most important thing is the dam. That should be handed over to Suriname immediately.” Said Ms. Simons, the speaker: “The dam is ours.” President Desi Bouterse shows no inclination to demand a prompt transfer of the dam. Mr. Sardjoe, who heads a presidential commission negotiating with Alcoa, said the country lacks leverage. “When you’re coming in my house, it’s easy to deal with the terms and conditions under which you can come in the house. But [when someone is] leaving the house,” he said, it’s hard to “tell the guest, hey, you can leave under these conditions.” If the company and country can’t settle, matters would ultimately be decided in an adversarial arbitration process before the International Chamber of Commerce in Paris. “My president,” said Mr. Sardjoe, “will not make war over bauxite.”



Who owns the dam?

Construction of the Afobaka Dam in the Brokopondo District of Suriname in 1963. (Courtesy of the Heinz History Center archives)

Who owns the dam? To get a sense of how Alcoa might fight an effort to seize the dam, Suriname’s government is watching a dispute over Alcoa’s former Yadkin hydroelectric dam in Baden, N.C., 2,600 miles to the north. North Carolina sued the aluminum producer in 2013, more than a decade after Alcoa closed a smelter there. The state’s argument was the same as Suriname’s: You closed up shop, so the dam is ours. “The benefits of the Yadkin River belong to North Carolina’s people,” then-Gov. Pat McCrory said at the time the lawsuit was filed. “We should be able to use it for North Carolina water needs and to create North Carolina jobs.” A federal judge disagreed, ruling in 2015 that Alcoa had proved it owned portions of the Yadkin River where its four hydroelectric dams are located. The state appealed the decision, but the federal appeals court affirmed the lower court’s ruling this month. People play soccer as dusk falls on the village of Adjuma Kondre in Suriname. The village's water sources have been impacted by Alcoa's nearby mining operations. In the meantime, Alcoa sold the Yadkin dams to an affiliate of Cube Hydro Partners, whose portfolio includes two dams on the Allegheny River in Freeport, one on Mahoning Creek in Armstrong County, and another on the Cheat River in Monongahela, W.Va. Arconic, the new company created in November when Alcoa separated its parts and components business from its mining, refining and smelting businesses, received $238 million from the sale of the Yadkin dams and expects another $5 million in additional payments. The immediate future of North Carolina’s economy did not hinge on the dam case. Alcoa’s decision to leave Suriname, though, came as the country entered a period the locals call “the crisis” — a decline in gross domestic product of 10 percent last year, combined with 55 percent inflation. Strikes, power outages and floods have added to the tumult. This month in Paramaribo, thousands of people have repeatedly protested against the government and its failure to stop inflation. As Alcoa’s endgame plays out, leaving Suriname with little to show for its bauxite century but environmental issues and displaced jungle clans, the issue of the Afobaka Dam lies in the lap of a government that faces allegations of incompetence and criminality. The dam is an imposing reminder that, for all Alcoa has done for this troubled country, the company was a colonial guest that capitalized on the country’s resources. Now that it is no longer making things here, Alcoa is perceived as a privately owned utility that should be put out of business. “They are making money with the dam. … It’s our water they are using to generate electricity,” said Wendell Asadang, a National Assembly member from Brokopondo. “I don’t think that’s correct.”

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Alcoa leaves town

The sky at dusk is cut by the orange glow of the refinery at the Paranam Operations for Suralco, a subsidiary of Alcoa.

The bauxite brought the Pittsburgh company, but the market moved on Reporting by Len Boselovic In the early 1940s, Alcoa’s operations in this small South American nation fueled democracy’s arsenal. Bauxite that Alcoa mined in Suriname and exported to the United States was refined and smelted into aluminum, then forged into propeller blades, engine parts and other components of weapons that the Western Allies used to defeat Germany and Japan in World War II. More than 75 percent of the bauxite used by U.S. aluminum producers during the war years came from Suriname. Eventually, employment at Alcoa’s Suralco subsidiary peaked at more than 5,000, transforming a colonial plantation economy into a middle-class society that became the envy of its neighbors, much as the steel industry did for Pittsburgh. The now defunct Paranam Operations for Suralco, a subsidiary of Alcoa. But today, the same kind of economic trauma that distressed Pittsburgh when steel collapsed is playing out in Suriname. Alcoa’s Suriname century is ending, bringing with it a severe recession, runaway inflation and a struggle over ownership of a hydroelectric dam that provides most of this Georgia-sized country’s electricity. The global aluminum maker announced in January that it will permanently idle its Paranam refinery, where bauxite ore mined nearby was refined into alumina, the white powder from which aluminum is made. The refinery has not operated since late 2015. Bauxite reserves convenient to the refinery have been exhausted, something that Alcoa has been predicting would happen for more than 20 years. Suralco and government officials have been studying how to tap more abundant but lower quality reserves in western Suriname for years, but they never figured out a cost-effective way to transport the ore about 250 miles to the Paranam refinery, which Alcoa said is not equipped to process the lower quality ore. Today, Suralco is part of Alcoa World Alumina and Chemicals, a joint venture created in 1995 by combining Alcoa’s bauxite, alumina and alumina chemicals business with related businesses owned by Alumina Limited of Australia. Alcoa owns a controlling 60 percent stake in the venture, which is why its executives are leading negotiations with Suriname. Alcoa said energy and operating costs made the Paranam facility the highest-cost refinery in its system and that developing new sources of bauxite for the refinery is not justifiable based on current market conditions. The mercilessly competitive aluminum business has also been a factor, especially predatory competitors heavily subsidized by the Chinese government who have driven down the price of alumina. The fact that the aluminum market has shifted to Asia and the Middle East has added even more pressure. Could the refinery have been saved? Among some Alcoa veterans, there is a nagging belief that Alcoa and the Suriname government could have done more to preserve the country’s economic engine. “The old Alcoa that I have known would never have done this,” said Henk Ramdin, a former Suralco managing director who is credited with saving the company during a six-year civil war that ended in 1992. Mr. Ramdin said he had developed a plan to ensure there was enough bauxite to justify keeping the refinery open. He believes Alcoa’s interest waned about a decade ago, when responsibility for Suralco’s operations shifted from executives in North America to executives in Brazil, where Alcoa was making major investments. “I think that this plant has another 15 or 20 years of life,” he said. “We have enough bauxite for it.” Economic development consultant Deryck Ferrier blamed the Suriname government for not letting Alcoa develop the western bauxite reserves. But he also said Alcoa should have done more to preserve an industry that played such a significant role in U.S. history. Economic development consultant Deryck Ferrier in his office in Paramaribo, Suriname, believes the now idled Alcoa refinery in Paranam should be restarted, saying, “Suriname cannot do without the aluminum income." “Let me tell you, we won the war,” Mr. Ferrier insisted. “Alcoa should do some soul searching as to why this neglect came about,” he said. “Without the aluminum industry, we will suffer a serious decline for a very long period.” The 1916 decision to pursue bauxite in Suriname — 28 years after Alcoa was founded on Smallman Street in Pittsburgh — was one of the company’s first steps toward becoming a far-flung integrated aluminum producer with mining, refining and smelting operations spanning the globe. Charles Martin Hall’s discovery of a low-cost way to produce aluminum, backed by Mellon Bank financing and deftly commercialized by Capt. Alfred E. Hunt, made Alcoa one of the linchpins of Pittsburgh’s industrial prowess. Its success provided thousands of employees with well paying jobs with ample benefits, in Pittsburgh and abroad. But like its corporate peers, Alcoa eventually faced a slower growing U.S. market and opportunities for more explosive growth abroad. So it established outposts in exotic locales such as Suriname, Brazil, Jamaica, Australia, Iceland and, most recently, Saudi Arabia, to capitalize on burgeoning demand for the lightweight metal for the aerospace, automotive and other industries. It addition to pressure from China’s heavily subsidized aluminum makers, Alcoa was confronted by governments that dangled enticing incentives, including low-cost electricity that is the lifeblood of the industry. Gradually, those enticements played a more significant role in decisions on where Alcoa and its competitors invested. The company’s most significant investment in the country occurred when Alcoa and the Suriname government signed the Brokopondo Agreement in 1958. The jungle is slowly engulfing homes in the now largely vacant manager's village that once housed the families of upper level Suralco employees and their families in Paranam, Suriname. Under the terms of the pact, the government agreed to move about 6,000 indigenous people and descendants of slaves from a 1,600-square-kilometer rain forest along the Suriname River about 70 miles south of Paramaribo, the nation’s capital. Their villages were replaced by a 260-foot-deep reservoir for a 1.2-mile-wide hydroelectric dam on the river. Electricity generated by the dam powered an alumina refinery and aluminum smelter that Suralco built nearby at Paranam, and it electrified Paramaribo. Alcoa top brass regularly updated shareholders on progress in Suriname, culminating in a 1965 announcement that Paranam alumina had been shipped to Vancouver, Canada, and that an initial batch of finished metal had been poured at “the world’s first aluminum complex incorporating mining, refining and smelting at one location.” The opening of the two plants in 1965 temporarily caused the country’s per capita income to spike 10 percent annually for four years, according to the Central Bank of Suriname. Energy and bauxite Those heady days, like the steel industry’s high times, are long gone. The Brokopondo Agreement was supposed to last until 2033, but the bauxite concessions Suriname awarded to Suralco as part of the agreement ran out long before then. There were other issues. Alcoa closed the smelter in 1999, largely because of environmental concerns and its small size. Without a home market for its refined alumina, the Paranam refinery turned to export markets. In recent years aluminum production in North and South America, the refinery’s natural markets, has been cut dramatically. Aluminum producers in Asia or the Middle East still need bauxite, but the cost of shipping the ore from the Western Hemisphere makes it less competitive, said John Mothersole, an aluminum industry analyst with IHS Markit, a global economics consulting firm. “Why is the refinery closed? Because of the cost of bauxite and the cost of energy.” Energy prices compounded the challenge. Alcoa said the Paranam refinery’s energy costs were among the highest in the world and that there was no long-term solution to that issue. Terece Muir, a senior consultant with CRU Group, a global consulting firm specializing in mining, metals and fertilizers, said the refinery’s costs were higher than those of 75 percent of its competitors. She said dwindling supplies of low-cost bauxite are also a problem. Ruben Halfhuid, Suralco’s managing director, agreed. “Why is the refinery closed? Because of the cost of bauxite and the cost of energy,” he said. Alcoa knew for a long time that the bauxite that fed its Suriname’s operations would be depleted in the not-too-distant future. Alcoa retiree Russell Yester remembers being told to investigate how to get distant bauxite back to the Paranam refinery when he was stationed in Suriname from 1971 to 1975. “There’s more bauxite in the country,” said Mr. Yester, who lives in McCandless. “It’s just back in the jungle.” In a 1996 report filed with the U.S. Securities and Exchange Commission, the company wrote that “current mine reserves … are expected to be depleted in 2005.” In 2002, when Alcoa entered into a bauxite mining and alumina refining venture with BHP Billiton in Suriname, the partners said they would spend up to $8.5 million over approximately two years to develop the western reserves. Alcoa also said it would examine whether to build another hydroelectric dam and smelter adjacent to the bauxite. Former Suralco employee Remy Vyzelman did a feasibility study for former Alcoa chairman and CEO Alain Belda, who was ready to make a major investment in Suriname, according to Mr. Vyzelman. But the Suriname government did not award concessions to mine the western reserves. “We missed a huge opportunity to make a second huge quantum leap,” Mr. Vyzelman said. ‘Just buying time’ In 2015, Alcoa agreed to conduct yet another feasibility study on the western reserves as part of a nonbinding memorandum of understanding the company offered to the government commission negotiating the terms of Alcoa’s withdrawal. The proposal would involve building a new refinery at a cost of $3 billion or more, according to Rudi Dilip Sardjoe, the Surinamese business magnate who chairs the government negotiating team. Suriname economist Viren Ajodhia said it will be the fifth study of the western reserves. Everybody already knows the quantity and quality of the bauxite they hold, he said. “There is nothing to be feasibly studied. It’s just buying time,” he said. “They [Alcoa] do not want those reserves to be available to anyone else.” Mr. Halfhuid, Suralco’s managing director, disagrees. He said technology and market conditions have changed since the last study. Mr. Halfhuid acknowledged that the cost of energy will be a challenge. Alcoa said it is premature to say whether the company would be interested in developing the western reserves. “I doubt there is a 5 percent chance of a new bauxite mine or refinery in Suriname, owing to world overcapacity in China and elsewhere. It is no reflection on Suriname per se,” said John Tumazos, an independent metals analyst based in Holmdel, N.J. Mr. Mothersole said the huge drop in aluminum production in the Western Hemisphere means there would not be a convenient market for the alumina the refinery produced. Still, just as Pittsburgh clung to the hope of reviving Big Steel, there are dreams of reviving Suriname’s aluminum industry. Mr. Ferrier and Amrish “Danny” Lachman, a former Suralco manager who is director of graduate studies and research at Paramaribo’s Anton de Kom University, envision restarting the Paranam refinery and adapting it to process the lower grade bauxite from western Suriname. “The refinery can act as a catalyst for economic development,” Mr. Lachman said. Mr. Ferrier said modernizing the existing refinery would cost less than building a new one. He envisions a Surinamese-built monorail moving the western bauxite about 250 miles to the updated Paranam refinery. Improving the harbor and river channel to accommodate larger vessels would attract more industry to the town, he said. “We must get the plant restarted,” Mr. Ferrier said of the Paranam refinery. “Suriname cannot do without the aluminum income.”

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Reporting

Rich Lord

rlord@post-gazette.com

412-263-1542 Reporting

Len Boselovic

lboselovic@post-gazette.com

412-263-1941 Photography

Stephanie Strasburg Design & Development Zack Tanner

Animation Graphics James Hilston & Ed Yozwick




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