THE GUYANA-ALCAN CONFLICT AND THE NATIONALIZATION OF DEMBA*

3. TIIE NEGOTIATIONS

The Government’s tactic was to notify the company of the proposed date of the start of negotiations first, obtaining agreement to December 7th as the date. The next step was to establish the non-negotiable points both to the company and to the public before the talks actually began. By informing the company of these points in a private letter (the contents of which were revealed by Alcan), the Government sought to strengthen the hand of its negotiating team which could refuse to accept proposals in conflict with the non-negotiables. And by telling the public – in the Prime Minister’ broadcast of November 28, the Government sought a national consensus which could be presented to the company and to the outside world as the political legitimacy for it position. These non-negotiable points were spelt out as follows:

1. The Government’ s participation shall be a majority.
2. Participation will be by means of purchase of a share of the assets of the company.
3. The valuation of the assets for the purpose of acquiring such a majority share shall be the written down book value of the company’s assets for income tax purposes at December 31, 1969 plus any addition during 1970 mot by re-appraisal or re-evaluation.
4. The payment for the Government’s participation shall be out of Government’s share of the future after-tax profits of the undertaking.
5. Government’s majority shall carry with it the effective control which inheres in a majority holding.
6. Regardless of the date of any agreement which might be arrived at between the Government and the company, the effective date of acquisition shall be deemed to be January 1, 1971.

An analysis of these non-negotiables will show that the Government’s aim was to acquire its majority share while at the same time pre-empting in its own favour certain features, which in the Zambian and Chilean agreements bad been modeled so as to defeat substantially the very purpose of the majority holding. By referring to “effective control” the Government was in effect saying to Alcan ”no management contract, no minority shareholders rights which will paralyse our decision-making powers as the majority shareholders”. By specifying written down book value for income t.ax purposes the Government was saying “no valuation at replacement c08t or market value” which could result in the Government’s paying two or three times the income tax value – a difference amounting to hundreds of millions of dollars. By specifying payment out of Government’s share of the future profits the Government was saying two things. First that as a result of participation its financial position should not be made worse off. This was a direct lesson from the Chilean and Zambian experience where payment was made through Government bonds issued when the price of copper was very high and the Government’s share of profits was at the outlet more than enough to cover the payments, but subsequently the price of copper fell and the Governments faced the prospect of paying more than they were receiving. Secondly by tying payment to future profits the Government was providing an inducement to Alcan to cooperate, as a minority shareholder, in ensuring that future profits were in fact made.

The non-negotiable points however, still left a considerable area open for bargaining and concessions on both sides. The Government’s share could be fixed at anywhere between the theoretical limits of 99 and SJ percent as a result of negotiations. The proportion of the Government’s share in future profits after tax to be allocated to payment for the assets was negotiable. Although the Government insisted on effective control the area and extent of Alcan involvement in management and decision-making was negotiable. And since the question of the marketing of Demba products was not mentioned as a non-negotiable the way was left open for Alcan to negotiate long-term purchase contracts for these products as part of the agreement

In the week between the statement of non-negotiables and the start of the talks with the company, there was reaction from both the Guyanese public and the company. From the public there was a clear and overwhelming support for the principle of Government ownership and control of bauxite in general and Demba in particular, and for the valuation and payment terms outlined by the Government. The only significant divergence from the Government’s proposals came from the Opposition PPP and a University economist, both of whom demanded that the Government “Tek all” i.e. aim at full nationalisation of both Demba and the mailer operation Reynolds Guyana Mines. Thus, by the tart of the talks themselves the Government was able to tell the company that its p08ition was “likely to be criticised, if at all, only for its moderation”.

Alcan’s reaction showed the surprise, if not consternation, at what they perceived as a sudden and dramatic change of attitude and tactics by the Government. The company announced its “regret that the Government of Guyana has, by what appears to be a unilateral decision, decided on a radical change in the arrangements under which the Demerara Bauxite Company has operated in Guyana.” (11) The company said it would nonetheless meet with the Government on December 7, as planned “to seek clarification on the points raised”, assured its shareholders, employees and customers that it would “safeguard their interest” and that “if supplies of metal-grade bauxite and alumina are affected Alcan believes that alternative sources of supplies can be arranged”.

Taken as a whole, Alcan s reaction revealed a number of significant features in its attitude. To begin with the company almost certainly never expected the degree of politicisation with which the Government had invested the issue by making public its proposals and generating national support. Furthermore it was probably quite genuinely shocked that the Government should specify non-negotiables and was in addition taken back by the severity of the non-negotiables from its own point of view. In other words the company must have expected talks taking place quietly and away from the glare of publicity, with neither side and certainly not the Government – adopting a fixed position from the outset. Hence the company made it clear both to the Government and to its shareholders, that its attendance on December 7th did not imply acceptance of the non-negotiables, and further, that it was prepared to do without Demba’s products if it came to that. Thus to all intents and purposes the confrontation between Guyana and Alcan began from this time – before the talks began.

And this atmosphere of confrontation was tangible as the talks opened in the Board Room of the Guyana Development Corporation. The Government assembled a large and varied team of negotiators drawn from the top levels of the Government service and from the academic world. Under the leadership of the Minister of Mines and Forests,(then Minister without Portfolio) it included the Solicitor-General, the Commissioner of lnland Revenue, the Chief Statistical Officer, the Permanent Secretary in the Ministry of Economic Development, the Director of Geological Surveys, Senior Economists from the Bank of Guyana, the Guyana Development Corporation and the Guyana Marketing Corporation, two Special Advisers, with the President of the Mines Workers Union and the Mayor of Markenburg (the mining community) as observers. Thus there was virtually no statement made by the Demba/Alcan team on any aspect of Alcan’s or Demba’s operations which was not immediately subjected to close, searching and suspicious scrutiny by someone on the Government team. The Demba team , as it turned out, consisted almost exclusively of officials from Alcan’s Head Office in Montreal, and at one time the Alcan Vice-Presidents in charge of Finance. Smeling and Raw Materials were all present.

It would also be foolish to pretend that the attitudes displayed around the negotiating table did not reflect the wider confrontation taking place everywhere between the Third World and the world of metropolitan capitalism. As far as the Demba/Akan negotiators were concerned, they were dealing with ” native. ” for whom they had a fundamental contempt; some of them made no attempt to hide this while others made heroic efforts which only wore thin under stress, fatigue and provocation. And many of the Guyana team felt they were dealing with foreign exploiters and either did not trouble to hide this attitude or were polite except under conditions of stress, fatigue and provocation.

Nonetheless, too much emphasis should not be given to the personalities involved in the actual talks since both teams were negotiating under instructions and both represented larger and more impersonal forces. What took place in the talks between December 7th and February 20th is now a matter of history, and Guyana’s version – which has so far not been challenged – was set out by the Prime Minister in his speed) of February 23rd. lo effect, Demba/Alcan never agreed to the Government’s non-negotiables taken as a whole. Nor did the company ever begin serious bargaining on the basis of the Government’s proposals. Rather it advanced a counterproposal on the 15th of December, which was modified on the 9th of February. The basic element of this counterproposal was that a partnership would be formed be­ the Government and Alcan. The Government would contribute $GSO million in cash, raised from the World Bank or some other source outside from Alcan; and Alcan would contribute Demba. The Government’s $5O million would be applied immediately to finance an expansion of calcined bauxite production, this expansion to be the only expansion to be engaged in by the new company at least for the next five years. The new company would repay Alcan for the value of Demba ‘s assets contributed as a loan, largely out of its depreciation fund.

What this proposal meant was that rather than participating in Demba as it is now the Government would have to raise G$5O million as a condition of participation in a new undertaking. Secondly the Government’s money would be applied to an expansion scheme which had been designed and engineered by Alcan and which, significantly , excluded the possibility of expanding alumina and initiating aluminium production. It would have to agree to this particular expansion scheme before it became involved in the bauxite enterprise and had the opportunity to evaluate the expansion possibilities from the inside. Thirdly paying Akan largely out of the depreciation fund of the enterprise meant paying before taxes and before profits, and indeed put such payments in the category of deductible costs. Hence whether profits made or not Alcan would still be paid. Also by insisting on payment out of the depreciation fun, dm addition to the compulsory distribution of all profits, the enterprise would be completely stripped of its ability to finance its own expansion.

ln addition Alcan proposed that the responsibility for operational management of the new company would rest with a Chief Executive Officer nominated by Alcan. The powers and authority of this person were defined so broadly as to combine in a single office much of the powers normally exercised by a Board of Management and a Board of Directors, and indeed this C.E.O. would, in the words of a colleague, “make the Czar of Russia look like a democrat” .

Certain other features of the Alcan proposal were modified during the course of the talks. At the outset Alcan proposed that the company would be capitalised at approximately G$100 million, 51 percent owned by Alcan and 49 percent by the Government. The Government’s $49 million equity would be provided by the World Bank loan and Alcan’s $51 million by contributing Demba The remainder of the value of Demba – approximately $49 million would be contributed as a loan to the new company repayable by annual instalments at a commercial rate of interest. Subsequently, in February, this was modified as follows:

1. the company would be capitalised at $100, 51 percent to Guyana and 49 percent to Alcan.
2. The entire amount of Demba’s assets would be contributed as a loan.
3. the company and its shareholders would not be subject to any Guyana tax of any kind i.e. income, corporation, property, withholding, import or export duty, royalty, or any impost, nor any exchange control restriction with respect to interest, dividends or fees for its shareholders.
4. the company’s profits, after meeting a small amount of fixed capital additions and repayment and interest charges on its debts, would be allocated 70 percent to Government and 30 percent to Alcan.

The effect of these modified proposals was that Alcan would recover the entire value of its investment in Demb.1, at a commercial rate of interest, and would during and after such recovery, be a 49 percent shareholder in an expanded enterprise. Since the company would pay no taxes of any kind its 30 percent share in the dividable profits actually would amount to the same as if it had about SO per­ cent of profits after taxes, so that the 70-30 spilt of profits was completely illusory and moreover linked to a complete abrogation of the Government’s sovereign taxation rights over the largest industry in the economy. All in all Alcan would take far more out of the enterprise through debt repayment and profits, than it had been taking out of Demba, without putting any new money in at all. In addition, it would have operational control of the enterprise and would have secured an expansion path which would not threaten Alcan’s established alumina and aluminium production elsewhere and which was consistent with Alcan’s worldwide strategy.

The Government on its side would have had to incur an immediate increase of $50 million in the national public debt, would have earned relatively little increased income from the industry, would have committed itself to an expansion which excluded alumina and aluminium, and would have had little if any control over the enterprise.

Thus it became evident that the needs of Alcan and the needs of Guyana, as expressed in the negotiating positions taken up across the bargaining table, were irreconcilable. Weeks and weeks of long discussion did nothing but confirm this irreconcilability. According to the Prime Minister:

“It seems to me that there is no alternative to us saying ‘thus far and no further’ .. We have offered peace and reason and been met with unreason. We have offered partnership and have been threatened with continued domination. Our choice is between being men or being mice.” (12)

In the circumstances the Government had broadly speaking, two options. First it could accept the Alcan proposals in their essence, in the hope that the $50 million could be found to make its participation effective and more important, in the hope that the proposals could have been presented to the Guyanese nation being consistent with the Government ‘s non-negotiables and indeed as being a triumph for the Government. Fortunately the Government has a great respect for the intelligence of the Guyanese population.

The only other option was of course nationalisation , for which the Government had been psychologically prepared from the time the talks began and for which physical preparations of one kind or another were initiated and continued during January and February. The talks with Alcan were formerly broken off on February 20th and the decision to nationalise announced on February 23rd, the first anniversary of the cooperative republic.

The immediate problem brought about by the decision to nationalise was not operational, but political. The company continued to maintain production in the days following the decision and the expatriate staff did not run to board the nearest airplane. Indeed this was hardly surprising since it would suit Alcan to take as much of Guyana’ s bauxite products as possible right up to the last day, and the company cannot find jobs for the 70 expatriates in the industry overnight. Alcan has announced its wish to see an orderly handing over to Government ownership – what it wants in return for this is not clear at the time of writing.

The immediate task was to pass a Nationalisation Bill which would at the same time change the Guyana Constitution (made in Lancaster House) to substitute ‘reasonable compensation” for “prompt and adequate” in the section dealing with nationalisation. The Government’s position was that the only reasonable method of payment is payment of future profits since, to use the words of Minister Jack in addressing the Georgetown Chamber of Commerce, “Guyana is a poor country, and we are poor because of companies like Demba which have been exploiting us”. To secure passage of the Bill the Government needed the support of the Opposition in order to obtain the required two-thirds majority in the National Assembly. And although the Opposition PPP had long advocated “Tek all” there were a number of outstanding grievances which it found convenient to raise at this time, most of which related in one way or another to the exclusion of it or its followers from the political system. After a week of daily intense discussion between the Prime Minister and the Leader of Opposition an agreement was announced on· the 1st of March – the so-caned Bumham-Jagan “Peace Plan” – which surprised many in Guyana through the range and extent of Government con ions to the Opposition. The main features are as follows:

i) The Opposition Party is to be represented on all Government Corporations, boards and committees, including the new nationalised bauxite company to be set up.

ii) The election commission is to be reconstituted under the constitution and be given wider powers.

iii) Dr. Jagan is to submit proposals for the creation of a permanent Anti-discrimination, Anti-Corruption Committee.

iv) The Government will pursue a fair-employment policy towards Guyanese trained in Eastern Bloc countries.

v) The part of the National Security Act which gives the Minister of Home Affairs wide powers of arrest and detention and the right to declare a state of emergency in any area of the country will not be renewed in June. Also there is to be no denial of the right to peaceful demonstration, and the practice of denying passports to supporters of the PPP who wish to travel abroad including to socialist countries, will be discontinued.

vi) Parliament will meet more often to debate Opposition motions and bear questions, and

the Prime Minister and Opposition Leader will meet at least once every month.

vii) The Rice Producers’ Association, which is made up of elected representatives of the rice farmers but known to be sympathetic to the PPP, is to have representation once again on the Rice Marketing Board.

viii) There is to be a new attitude to the collection of rentals from farmers in the Black Polder district. Dr. Jagan had complained of the dismantling of farmers’ houses in order to district. Dr. Jagan had complained of the dismantling of farmers’ houses in order to collect rentals.

ix) The Government is to make arrangements to ascertain which of two contending trade unions – one pro-opposition and the other traditionally associated with the Government party – is truly representative of the sugar workers.

x) Party leaders are to have the right of selection and recall of the elected, representatives on their party list.

It is possible of course to interpret the “Peace Plan” as the high price truculently demanded by the Opposition in return for supporting the Nationalisation Bill, and grudgingly paid by the Government. But this probably understates Dr. Jagan’s willingness to support the nationalisation, and Mr. Burnham’s willingness to arrive at a truce, if not working understanding with the Opposition. Dr. Jagan has Iong been an advocate of nationalisation and it is unlikely that he would have liked to have gone down in history as the man who blocked the nationalisation of Demba, even had the Government’s concessions not been so large. On Mr. Bumham’s side be must be acutely aware of the need for Opposition support not only or even mainly for the legislative measure, but during the period of difficulties and dislocations “which almost certainly lies ahead as a result of the decision to nationalise.

In closing, there are only three brief comments I would like to make. First that how well Guyana. makes out now depends not only on its technical competence in organising and running the production operations, but also on the extent to which the population as a “whole is involved in the process of nation-building and the defence of its rightful heritage. Secondly that what has taken place and will take place. Guyana will certainly affect developments in Jamaica and Surinam, and Guyanese are now aware of their responsibility to prove an example to others in the Caribbean who demand the repossession of our resources. And finally, just as the Guyanese have in a certain sense accepted responsibility for us – we in our tum bear an important responsibility to support them in this undertaking in whatever way we can.

• Text of a talk given on the Trinidad and Barbados Campus of the U.W.I. an din Kingston, in the week of 15-20 March, 1971.

1. The circumstances of Alcoa’s history In British Guiana are recounted In greater detail in my “The Denationalisation of Caribbean Bauxite : Alcoa in Guyana” New World Quartarly, Volume 5, No.3.
2. The name – changed to Alcan Aluminium Limited in the 1960s. This Is the holding company for the worldwide network of Alcan subsidiaries and affiliates. It is the parent of the Aluminium Company of Canada which In turn WII the parent of Demba until nationalisation.
3. See H.D. Huggins, Aluminium In Changing Communities , London, Andre Deutsch In Association with the Institute of Social and Economic Research, 1966, p. 35.
4. Charlotte Muller, Light Metals Monopoly, AMS Press, New York, 1968, pp. 88-95. Chapters II-IV provide an excellent account of Alcoa’s early history as a monopoly.
5. For a more systematic discussion – this writer’ s The Caribbean Bauxite Industry, I.S.E.R. Mona, 1967.
6. Broadcast by Mr. J.G . Campbell, President of Demba, August 26, 1970 .
7. From ” A Guyana version on of Demba’s record” by Economist, Guyana Graphic. August 27, 1970, p.1.
8. Thus, is well analysed by Maurice St. Pierre, Industrial Unrest in Guyanese Mining Community, Critchlow Labour College, Georgetown · 19619, and Cedric Grant, “Company Towns in the Caribbean” Caribbean Studies, April, 1971 Puerto Rico.
9. For an analysis of the Chilean case see Keith Griffin, Under-development In Spanish America, (London, George Allen end Unwin, 1969) pp.149-1 73., and this writer’s Copper in Chile: A Study in conflict between Corporate and National Economy, ISER, Mona, (Forth coming).
10. See alto this writer’s Why we need to nationalize bauxite, and how to do it, New World Jamaica Pamphlet No. 6 , ‘9 71. Reprinted In N. Girvan and O. Jefferson (Eds.) Readings in the Political Economy of the Caribbean New World Group Ltd., Mona, 1971 .
11. Press Statement by Alcan, November 30, 1970.
12. From the speech of February 23rd, 1971.