If the decision is upheld, it is estimated that its effect will represent an additional cost of approximately 60 million reais (NOK 150 million) per quarter for Hydro, which will be charged to the business area. Bauxite & amp; Alumina.
"We are concerned about this sudden change in the tax legislation of Pará and we are doing everything possible to reverse the situation, being in dialogue with the legislators of Pará", said the executive vice president and director of Bauxita & amp; Alumina, Johnny Undeli.
"Hydro's ambition is to develop robust and viable operations in Pará and to be a facilitator for sustainable growth in this resource-rich region. However, in order to work towards our ambition, we need predictability and stability."
In Brazil, the ICMS, tax on the circulation of goods and provision of services, is collected by the states of the federation. In Pará, the aluminum industry has deferred ICMS to be renewed in 2015, which results in the exemption from ICMS on purchases of goods and intrastate services. However, recent changes regarding petroleum-based fuels pass the point of collection of ICMS from distributors to refineries, which are located outside the State of Pará.
The decision is similar to that taken in 2012, when Alunorte paid ICMS on oil-based fuels for nine months. Subsequently, the decision was reversed.
In addition, Hydro and its electricity supplier agreed to pay ICMS on the purchase of electricity used by Alunorte and the Paragominas bauxite mine in the period following the conclusion of the transaction with Vale on February 28, 2011. The The agreement value is NOK 280 million, of which NOK 170 million is related to the ICMS tax on the purchase of electricity for the period and NOK 110 million is related to tax penalties.
The mandatory payment of ICMS on electricity was previously contested by employers, but in light of an unfavorable court decision between an electricity supplier and the authorities of Pará, it was agreed to make the payment, enabling the supplier to participate of electricity in the fiscal amnesty of Pará. The amnesty allowed the process to end with very reduced penalties.
In the future, eight million reais (NOK 20 million) will be paid per quarter of ICMS on the purchase of electricity, increasing costs especially at Paragominas.
Penalties will be treated as items excluded from the results for the fourth quarter of 2013, but the ICMS charge will be included in the operating results for the same quarter.