Montenegrin aluminium smelter KAP is preparing to halt operations as rising electricity prices make its production uneconomic.
The company has warned its workers that preparation works will begin for a gradual halt of production as of December 15 due to the increased electricity price set by power company EPCG from January 2022, Mina Business reported on December 1.
The sharp rise in electricity prices in Europe have affected aluminium producers with Dutch Aldel halting production of primary aluminium back in early October, until at least early 2022. The price of aluminium hit a 13-year high on October 11.
ING described a “perfect storm” in the sector. “[S]urging energy prices from Europe, especially for natural gas and power, add to risks of margin squeezes at smelters. In the aluminium smelting cost breakdown, electricity accounts for around 40%. So far [as of October], the announced cutbacks due to energy prices are relatively small,” ING analysts said but warned that “if energy prices stay higher for longer then the risk of further cutbacks adds to more aluminium supply losses, on top of those from China”.
Currently, KAP pays €45 per MWh plus VAT, while on international markets the electricity price is now around €250 per MWh. However, KAP’s contract with EPCG expires at the end of the year.
According to Mina Business, EPCG wants a price of €183 per MWh as of January so that it will not suffer financial losses. KAP’s owner, local company Uniprom, says it cannot afford to pay this price.
If Uniprom halts work, its 500 employees will lose their jobs, Mina Business reported.
Uniprom claims the hiked price is discriminatory and would also lead to significant losses for the state budget from taxes KAP will not pay after halting production.
“For us, it is most acceptable to link the electricity price to that of the aluminium price on the bourse, which was not accepted,” Uniprom said in a statement quoted by Mina Business.
EPCG responded that it has been importing electricity at an average price of €92 per MWh in the past 11 months.
The government of Prime Minister Zdravko Krivokapic will discuss the situation and seek a solution. Earlier on December 1, Krivokapic said the two companies should find a solution.
“Everything should be reviewed, but if you look at the energy market at the moment, we would see how acceptable the price of electricity in Montenegro is and that there is no businessman who cannot be competitive, because everyone else [outside the country] pays higher prices,” Krivokapic told reporters.
This is not the first time the two companies have had disagreements. In 2016, KAP decided to end its contract with EPCG and import cheaper electricity from the Slovak company LE Trading.
However, 2017, a three-year contract with EPCG was signed at electricity price of €38.9 per MWh.
Uniprom acquired KAP in 2014 for €28mn.