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Saltaluminium slacs and their utilization solution in Russia’s conditions.
Vorozhtsev V. P., Puzanov D. S. Non-commeercial Partnership “The Council of Secondary Non-FerrousMetallurgy Industrial Enterprises”. Report on the 3d International Conference“Aluminium re-cycling”.
Official statistics says that annually in the world we make about4.000.000 tons of “white” aluminium slacs (with low content of salt flux or itscomplete absense) and about 5.000.000 tons of the so called “black”, or saltwaste slacs. A considerable part of salt slacs that contains only aluminium(total estimation – more than 70 mln dollars), is annually soil disposed.
Slacs, containing aluminium, are generated during primary aluminiumprocessing, during aluminium alloy production and manufacturing items fromthem, as well as during scrap and waste re-processing. Slac, received onvarious production sites, differs in content of aluminium, aluminium oxide andflux. Slacs, as a rule, contain 5-80% of aluminium in different forms, fromfree metal to oxides. Besides, they contain aluminium nitrite and carbidetogether with admixtures of oxides and other compounds of other metals.
Slac has value. And the more extractable metal it contains, the higher isits price. Actually, in the world metallurgy slac is more and more becoming acommodity. Objectives of enterprises which produce slacs lie in the lesseningof the slac quantity, providing for its good quality and high content of metalin it.
To re-process “white” slacs, a number of efficient methods has beendeveloped. We won’t consider them in the given report. However, finally, asubstantial part of re-processed products having metal aluminium, as well assome other types of waste and scrap are cast together with salt flux. Today,flux cast in rotor furnace is the most economically efficient type ofextracting aluminium from secondary materials that contain huge quantity ofnon-metal admixtures or have developed surface. However, this method has one bigflaw: Flux cast produces salt slac.
Flux used in this process consists of sodium chloride (NaCl) andpotassium (KCl), usually with a small admixture of fluorine compounds. Manyresearches dedicated to developing optimal flux composition for secondary aluminiumraw have been accomplished in the world, however it hasn’t been inventedanything better than the mixture of sodium chloride and potassium.
Cast of low-grade aluminium waste and scrap (foil, beverage cans, dirtysmall scrap as well as products enriching slacs) is performed as a rule inrotating furnaces of two types – tilting and non-tilting. Sometimes, for fluxcast of low-grade scrap reverberatory furnaces are used. Dependant upon furnacetype the number of added salt flux, composition and quantity of obtained slac,content of metal aluminium in it – change. However, slac received in varioustypes of flux casts has one common feature: it always contains a considerableamount (from 20 to 80%) of water solublechlorides and fluorines. Besides, as it has been noted before, it alwayscontains aluminium nitrites and carbides, magnesium and a number of othermetals in this or that quantities.
These peculiarities make salt slac a dangerous material for theenvironment. If this slac is kept in the open air, atmospheric precipitationsevoke educing toxic and explosive gases from it.
(Í2, ŃÍ4, NH3, PH3, H2S, C2H2, HCN, HF). The quantity of gases, depending oncast technology used, may be from 12 to 40 m3/t. Besides, wash-out by stormsewage or thawed waters of soluble chlorides may lead to pickling of soil andcontamination of underground waters.
Usually,salt slacs containing metal aluminium more than 7-10% were processed by way of mechanic enrichment;it allowed to partially extract metal aluminium. The remaining metal is storedin slac disposals and special depots. In this operation, the volume of wastegoes as high as 60-90% from the initial slac volume, though it is possible toextract not more than 50-70% of aluminium that it contains.
If we takesalt slacs with lesser metal content we will find out that this method iseconomically unefficient; that’s why some countries prefer to bury these slactypes at disposal sites as solid industrial waste.
Burial of salt slac waste as well as low-grade slacs is a“hang-to-the-expense approach”, because, as we’ve specified above, it isnecessary to prevent negative impact of precipitations onto the buriedmaterials and direct contact of them with soil. However, burial cost greatlydiffers in different countries. For instance, in the U.S.A., waste burial costin 1997 made 20-60 US$/t, and even in the given circumstances up to thebeginning of the new millennium U.S. annually stored on sites up to a milliontons of salt aluminium slacs. At the same time, in Germany and Japan, wheretoxic waste burial cost reached 200-250 US$/t, they use for many yearswaste-free methods of re-processing salt aluminium slacs. We should note that anumber of countries whose enterprises specialize on complex slacsre-processing, receive state subsidies, for even not long ago there haven’tbeen any economically efficient way of waste-free re-processing of thesematerials.
Nevertheless, salt slacs are highly valued, because they contain grossamount of useful substances in them, though they make big problems whiledealing with them. Salt slacs burial as well as disposed poducts of theirmechanical enrichment are very expensive and ecologically insecure procedures,it may be considered as unefficient treatment with expensive resources. And thesites where slacs are stored even utilizing the most up-to-date methods of preventionecology impacts may well be compared with ecologic bombs with delayed action.
In Russia, we annually produce about 180 th. tons of salt slac only as aresult of aluminium waste and scrap cast. The cost of burying wastes from thisoperations, after we extract aluminium reguluses, does not exceed 20 US$ perton, that’s why they are stored in disposals almost in 100% volume.
Scientific, economic and ecologic assumptions that are spread out now,permit us to presume that in the nearest future there will be a tendency ofgradual supplanting the natural raw materials with man-caused ones, free-wastetechnologies that will solve problems of extracting valuable materials fromwastes, including those for constructions, with high exploitation features,will sooner or later prevail. At fullest, it may be related to aluminium wastesalt slacs re-processing.
Our country has repeatedly attempted to solve the problem of “black”waste re-processing. At the beginning of 70-s of the last century, anexperimental regeneration flux plant worked at the Podolsk Plant of Non-FerrousMetals. Technological scheme of re-processing slacs at this plant includedleaching salt part, filtration of water solution and subsequent evaporationwith getting reverse flux. At the same time, they received at this plant clearaluminium reguluses ready for cast and water-free non-metal admixtures whichmay be stored in disposals without problems.
Exploitation experience of this plant has showed that flux salt solutionis very aggressive, and all equipment in contact with it should be producedfrom stainless steel (in high deficit at that time!). Besides, the brineevaporation process due to its high energy consumption makes this method ofslac re-processing economically unefficient, because the solution volume thatis formed during leaching reaches 10 m3 per one slac ton.
In 80-s, at Mzensk plant “Vtorzvetmet”, they also tried to solve theproblem of complex re-processing aluminium salt slacs by way of leaching withsubsequent evaporation of the brine. They used dehydration of the solution inan apparatus of boiled layer. As a result, they obtained a very convenient forstorage and usage, not compressed and easily melted granular reverse flux.However, the economic outcome of such re-processing was still negative.
At the beginning of 90-s, GosNIIChlorProect Institute designed for thePodolsk Plant of Non-Ferrous Metals another variant of workshop for waste-freesalt slac re-processing. It was so designed to be able utilize all volume ofwaste of the given enterprise. This original project envisaged:
Though the principal task – provision of economic efficiency of theprocess – has not yet been solved. Resulted from development of the economicpart of the project, it became obvious that energy consumption of salt solutionevaporation brings to zero all benefits of the given technology, and, in orderto surmount this obstacle we should engage the heat of outgoing gases offurnaces. But we didn’t manage to solve this problem as engineers.
As far as I understood from Mr. Romberg’s report, ALSA technology usedat AGOR enterprises is not self-repaying too.
Recently, a number of new, more efficient variants of separationpotassium and sodium chlorides and other marketable products from solutionswhile leaching salt slacs have been developed.
Metallwarenfabrik Stokach (MST) from Germany together with Sulzez EscherWiss (EW) developed and introduced into exploitation a plant for re-processingsalt slacs which enables regeneration of slat flux and condensate of secondaryvapour. Distinctive features of this plant are as follows: four stages of vacuum evaporation and usage ofcentrifuge fro separation of salts. The obtained salts have humidity of lessthan 2% and may be used for another utilization in casting aluminium waste.
To further research possible variants of salts regenerations fromsolutions obtained from leaching aluminium slacs, University of Tennessee SpaceInstitute – UTSI, U.S.A. studied transformation of solutions rich withchlorides into a product containing carbonates and bicarbonates. This job isbased on the idea of re-carbonization and de-chlorization of widely known andavailable weak-main anion-change tars. This technology is analogous to the onethat is used for softening water while removing scales in boilers. Saltregeneration process from aluminium slacs in this method permits to obtainmarketable products (soda and potash) in dry form and solution of calciumchloride that can be sold; 74 US$ of net profit per one ton of re-processedslac.
Elaborations of American Alumtech company also make impression, thiscompany has used method of electrodialysis to raise concentration of saltsolution before crystallization of reverse flux.
It’s important to note that Alumtech received a state grant in the sumof 400 th/ dollars for developing this new technology.
We may state that new methods of waste-free salt aluminium slacsre-processing are substantially complicated. To realize any of them it’snecessary to erect a new plant with its own technology, expensive equipment,automated process parameters control. For rather small enterprises thatre-process waste and scrap of aluminium and which have small volumes ofslac-formation (500-3.000 tons per year) purchasing of modern plant for deepre-processing of slacs wouldn’t be possible and economically justifiable. So,based on the said above, we may well come to a conclusion that it’s necessaryto build in Russia huge factories with centralized re-processing of aluminiumsalt slacs. These factories should have excess capacities of, say, 20 th. tonsand more per year.
In solving this task, we can’t make without joint attempts of bigenterprises of the industry and state organs. Our Council is ready to take therole of a center that may co-ordinate actions of the industry in thisdirection, and for that we would like to receive your support, support ofparticipants of the present Conference.
Considering vital importance of this problem in ecologic sense as wellas in energy-saving, basing ourselves on principles of social responsibility ofbusiness, our Council thinks that it is necessary to work out and realize awhole complex of target measures aimed at constructing all-Russia system ofsalt slacs re-processing.
This program may become an effective mechanism of cooperation betweenthe state and the business in solving a serious ecologic problem. And it is inthis sphere that we may successfully realize the principle of waste-freetechnologies development stimulation, the one about which a Ministry of Energyand Industries report repeatedly said.
Fulfillment of this program will allow to use it as a model forpromoting quite a number of other ecologically important programs that arelinked to re-processing dangerous wastes.
Undoubtedly, solution of this problem demands, along with goodwill, veryserious state support, as well as consolidation of attempts of all industrialplayers who are also interested it it.
If this program has a state status, it would inevitably may turn into areal step towards Russia’s entry in the world economic system.
In Moscow, at the end of previous 2005, under the aegis of
the Council of Secondary Non-Ferrous MetallurgyIndustrial Enterprises there was
held our first working meeting,
at which participants discussed a project of Federal Law “About stateregulation in the sphere of waste and scrap re-processing of non-ferrous andferrous metals”. Two magazines published the most actual speeches of theparticipants.
A deputy of the State Federal Assembly of Russian Federation, 1stassistant of Chairman of State Duma’s Industry, Construction and Science-intensiveTechnologies Committee, Nickolai Ashlapov: “I’ll remind of the principalmoments of this bill.”
It is widely known how critical is the situation with thefts of metal scrap inour country. I must say that this theme worries many deputies, executive powerworkers, and – mostl of all, – citizens who suffer from this in the utmost. Ican’t remember a week that does not pass without receiving complaints fromvarious regions. These complaints apply to the Speaker of the State Duma,Gryzlov B., different deputies representing different regions. All compalintscontain concrete events and thefts of metals, especially from non-ferrousgroup. Altogether (since second election membership), we have had in Duma sixbills which consider these matters to this or that degree. There are severalones which apply to, say, general responsibility. There are as well fourbills which directly touch upon regulations of metal waste and scrapcirculation. Today, circulation constantly grows, and statistics of the previousyear shows the number of about 20 mln tons per year, if we take all metals.Despite the fact that only 3-5% may be related to thefts (metal which wasstolen), we should estimate that even the number of 5% from this quantity isvery big. Besides, this is a very serious problem, a powerful strike ifelectrical wires are stolen, or telephone cables, etc. Damages from thisbarbaric actions of some citizens who are engaged in this “industry”, can notbe compared to benefits our country is having from this activity. We have hugeproblems with thefts of metal and these are very acute. Many representatives ofregions – well, I’m not talking about deputies, because the deputies are justconductors of ideas and thoughts which are made public and come from regions –I’m talking of mayors of cities, towns, province governors and just citizenswho would like and constantly and repeatedly claim to fully ban collection ofmetal scrap as a type of business activity.
I had to spend lots of efforts to explain that this was a very importantdirection in our economy, especially in the ferrous metallurgy, becausere-processing of waste metals and scrap metals make a substantial amount ofmetal produced, sometimes up to a half of all production. That is why we ofcourse didn’t agree with such proposals, and didn’t consider this radical wayof solution of the problem. Nevertheless, having analysed those six bills thatwe’re now having in the State Duma, in May we established a working group whichwas formed by representatives of all fractions. We have elaborated agreedposition about the problem and finally this led to a bill. This bill almostbecame a law in July, for it was approved by the State Duma and the FederationCouncil.
At the end of July, the President of Russia vetoed the given law, because itswording didn’t satisfy the President’s Administration. Today, we have tore-write this bill one more time, because it’s unsufficient in regulating normswhich will allow to put in good order relations in this sphere.
I’d like to remind of the principal provisions of this bill. These were two.First, we have established a new provision: all companies which are engaged incollecting, re-processing of metal wastes while receiving a licence should ownspecific equipment that re-process metal waste and scrap.
Second, the companies which cast metal waste should also have licences onexploitation of highly explosive objects. This licence is a serious one, itcan’t be obtained by enterprises that don’t own plants and equipment allowingrefining.
Why did we do so? The answer is simple – firstly, by limiting factors we aresolving the problem of removing companies-ghosts, which withdraw taxes out ofthe country, or more specifically, from the country’s budget.
And secondly, – we are intending to get rid of the so called “garage-type” or“Chinese” furnaces, with the help of which, as you should be well aware of,(perhaps, it was made even on purpose!) all traces of crimes are justeliminated. I mean thefts which are committed maybe not by companies-re-processors,but by people, deliverers of scrap, but companies assist in eliminating traces.After re-processing of scrap we couldn’t find anything criminal in anonimouspieces of metal.
In the nearest future, I’ll be reporting this subject on a Duma’s sitting,there will be establsihed a special commission – we have come to an agreementabout it with the President’s Administration. The law vetoed by the Presidentis going to be elaborated, we will consider the President’s insistent wishes totoughen the law’s provisions.
We invite experts from your industry to participate in this commission, inother words, you will become participants of this commission with a right ofdeliberative vote, you may propose ideas, work together with us and influence,as a minimum, the shaping of position of the State Duma and, I guess, of theGovernment.
Our task now is to elaborate this bill in the shortest term possible and passthe law, so that, starting from 1st of January, it acts. Iunderstand that we’re making certain inconveniences for you, but please believeme, it’s a compromise with the help of which you may well continue working. Allyou need is to change your attitude. Because the period of barbaric, pirateactivity is ending; we are now to change rails and become civilised, make newbusiness relations, start to pay taxes. And the most principal thing about itall, we are going to destroy the most “terrific” designs: we won’t put up withexisting of “business” schemes that promote stoling metal and causing huge damageto our economy.
Igor Malyshev, adviser of the RF Government Department for Industrial Growth:
”Measures to put in order this market are unsufficient..”
Vetoing the given bill, the President, most of all, specified that the sphereof application of this law was poorly regulated. True, there are manyquestions, for instance, some definitions came to this bill from other laws:law about wastes, from licencingregulations.. and I can’t say that many of them are apt. There were manyquestions, a simple one, for example – written: laying-in is collection andkeeping of scrap. It may turn it then this way – any enterprise that keepsscrap in its storehouses ot even a port that is engaged in transporting thisscrap – do they have to have a licence? So, we have several questions of thekind. In other words, you have to more precisely write words that describe thislaw application’s sphere, exclude ambiguities, starting with a definition ofwhat scrap itself is. Now, the bill has the following: Scrap is waste that isgenerated during metal production. But there are many wastes during metalproduction, there is no specific relation to metal waste. Second moment whichthe President specified in his veto says about unsufficient measures to putthis market in order and prevent thefts
Alexander Kogan, RF Federal Assembly deputy, member of the State Duma Committeeon
Budget and Taxes:
”In this case, it is a complex measure, it will permit to make more transparentscheme of collecting metal scrap..”
To explain the reasons that made us amend several laws of Russian Federation,including those relating to taxes, I’ll be quoting now several numbers, it’salways useful to return to them and confirm them in our discussion: 53.000crimes in only 2004 are linked to non-ferrous metal thefts. I have cited onlythose registered; what I mean is that we may multiply this number by two havingin mind those crimes that haven't been registered. About taxation sphere: Sucha tax as VAT is returned to producer, if a product is exported, eitherpartially or fully; we have statistics – about 17 bln Roubles of loss to ourbudget, that is to say that the budget loses this sum only in this sphere,without saying a word about other industries. Besides, honest taxpayers suffertoo, recent practice shows that about 50% of cases on returning VAT is still incourts, 70% of them enterprises win, and 30% of them are put in the long “box”due to different reasons – either the enterprises don’t have confirmationdocuments, or packs of documents are unsufficient. Besides that, even afterhearings in courts, a case about returning VAT is delayed up to 3-5 months,even if there is an arbitrary court’s decision to return VAT; all honesttaxpayers suffer from this without any reason. That is why the administrationof VAT has been changed specifically in this industry as well. We agreed on twoconcepts. The first one – through tax agent, that is to acknowledge a buyer asa tax agent, so that returning of VAT will start only in case if there aredocuments confirming that this VAT has been paid to the budget. But this schemeturned out to be rather cumbersome, so we went another way, a more simple one,when re-processors became VAT-payers. That is why we’ve specified the industrywhich has property as industry taxpayer, the one that suffers inconvenience ifit has to re-register its activity and which won’t make companies-ghosts withits own property it has on that trade which it is engaged in now. That is whywe have came to such conclusions and decided so. You know that the given billon VAT was signed and approved by the President, and, starting from 2006, thegiven norms will be monitored by tax inspections, by the Ministry of Financesand everything will be traced – how VAT payment will be going. It’s clear thatin the given industry (rather specific) there exist many self-employed,individual businesses, or very small companies, indeed, they are engaged incollecting metal scrap. It is clear also that this process should beadministered and it is very hard, that’s why so many thefts, including VATthefts. Principally, cameral check-ups one by one, when VAT payments wereexamined in many metal processing plants, resulted in lots of courtscases. When tax inspection came to trace VAT returns to a factory that exportits production, it usually took a time-out, because now it has the right to doso, and checked all links on VAT, it resulted in stepping close to a certainnon-existent company that simply didn’t pay VAT.
So, this was a matter of a court dispute, when the budget didn’t receive VAT,and an enterprise – an honest tax-payer demanded VAT return because it exportedits product. No doubt, the most simple way which was found was to give aprivilege to such enterprises. By the way, decision to use or not to use thisprivilege is completely a taxpayer’s right. That is why we decided to give thisprivilege to VAT collectors and now VAT payer is only enterprise-re-processor.
This decision was made and it came into force. Or, to be more precise, the lawis signed, including the President considering the fact that the law has beenpassed. We assumed that this law would be passed together with the law aboutscrap circulation, so that we might enter this issue fully, but, you know, thelaw’s fate, that is why we hope that in the nearest future it would beconsidered and would be passed as well. So now we’re having a complex measure,it will allow to make metal scrap collection more transparent and payment oftaxes before its metal re-processing. So this novelty is now on the run.
Mikhail Sergeev, Chief of Industry Analysis of the Federal Tax InspectionDepartment of RF: “..well, they fall under deep detailed check-up in the firstplace.”
It’s known that 119th law dated 22 July, 2005, amended 21 Chapter of the TaxCode: “VAT”, and it came into force from 1st of January, 2006. Someamended provisions will come into force from 1st ofJanuary, 2007. The article 149 says that an enterprise may refuse to usethis privilege (subparagraph 24, paragraph 3, article 149), informing inwriting its tax inspection not later than 1 day of the tax period it’s foing tocancel. Other conditions are as follows: this refusal should last not less thanone year and it can’t be used separately, that is to use the privilege inrelations with one customer and refuse to use it with another. That is, if yousell to Ivanov without this privilege, and to Petrov with this one. By this,any enterise either refuses fully or uses this privilege and doesn’t pay VAT.This provision is the most principal. Further on – amendments to the Chapter 21constitute transfer from administration of VAT to the method of its calculationbased on its shipment. Accordingly, we have amended article 167 in the momentof determination of the taxation base, when this moment is now the most earlydate either the date of actual shipment, or the date of receivinggoods, or payment or partial payment for future shipment or provision ofservices. Simultaneously, deductions will be enabled either after receivingshipments or receiving invoices from suppliers. What special moments will bethere, I mean cooperation between companies and tax inspection, tax controloffices, and we will pay special attention to thhese matters – I’ll tell youlater. The majority of enterprises that operates in this sphere is oriented atexporting products, and, for such enterprises our law-maker has brought ina substantial indulgement – he cancelled charging taxes from received advancepayments for future export shipments. Here, we excluded this norm from article162 paragraph 1, where what has been remained is charging VAT from advancepayments in the internal market, excluding those cycles of production whichamount to more than 6 months. All present here, I mean participants of themarket, I guess, this doesn’t touch, because no one has 6-month productioncycle. But there is one negative moment, that’s as follows: In the constructionthe article 154, it is written – which says that if zero VAT is engaged for theschemes when a seller receives money for future shipments or services – we allunderstand that this zero VAT should be somehow confirmed beforehand, and itshould be confirmed by appropriate documents. Confirmation of zero VAT is doneby a tax inspection by way of issuing a special decision within 3-monthsperiod, and plus condition that all documents should be presented to this taxinspection within 180 days after shipment is actually done. Official positionof tax inspection is as follows: the date of actual shipment is the date ofmaking customs declaration for exporting goods. But if you look through lettersand some papers of the Ministry of Finances, you’ll see then that a shipmentcustoms declaration date is placement of shipment for export customs mode. Igot my own personal position about it, and it differs from the official one,though the official position, you know, it’s as I told you.
Further on.. we have as follows now: if zero VAT is applied,then advance payments for future operations are not charged by taxes, but, ifyou don’t do that in time, I mean, confirm zero VAT procedure, you then have topay this tax. As usual, by the date of actual shipment, asearlier, nothing has changed ever since. In the given situation, all theseoperations and all the monies received as advance payments are taxable, becauseall these operations are taxed 18% instead of 0%. We see that the norm ofarticle 154 doesn’t work here. We are waiting explanations from the Ministry ofFinances for this matter; we have indicated our position to them. Earlier we werethe Ministry of Taxes and Fees and we have had clear positions for each case inthe field of tax administration. Right now, we are representing factually anexecutive and control organ, and dominating methodological position forapplication of some legal provisions for us is the position of the Ministry ofFinances. This relates to advance payments. Further on.. there is a smallamendment in the article 165, it deals with confirmation of a seller’sintention to enable 0% of VAT. We know that to do so, to confirm zero VAT, weneed a bank excerpt that confirms hard currency receipt from a foreign buyer.Earlier, this norm – second subparagraph of the first paragraph of the article165 was very tough, i. e. from the actual foreign buyer, the one who’s buyingyour goods. Majority of disputes between tax inspections and taxpayers can bebrough down to the fact that payments for goods had been done by third parties,that’s why we didn’t confirm zero VAT. Now, this issue has been regulated, i.e. you present a bank excerpt, it confirms that the person who actually paidyou was acting on behalf of an actual buyer of your products and with whomyou’re having direct contacts.
Now about tax deductions. A base for such a deduction now is an invoice and thefact of posting. This posting of goods is made on the basis of primarydocuments and should be reflected in your accountancy registers. We don’t havequestions at this point. Invoice – clear. All requirements of article 169 ofthe Tax Code of the Russian Federation are clear and given precisely to thepoint, I can’t provide you with any comment on them. Some payment documents areexcluded from tax deduction, I mean, documents confirming that the tax has beenpaid to suppliers. What does it tell us? On the one hand, your businessprocedures have become easier, because you don’t have to pay tax to supplier,but you still may deduct tax, on the other hand, we have and tax inspectionhave more headaches, because some taxpayers are tempted to make invoices thatwill never be paid or provided for with goods. This is our problem, how we’regoing to control it, etc, but I’m drawing your attention to the following –yes, those invoices that fall under zero VAT and are not paid and by which taxinspections don’t see any taxable basis will inevitably evoke suspicion and maycause a separate check-up. Right at this point we have to make an accent forthis in the construction of the Constitutional Court. All of you know itslong-suffering Decision No 169-0 which it made in 2004, by which the Court’ssecretariat gave extensive explanations in which again very extensively, thoughclearly, was indicated that the Constitutional Court understood a taxpayer’slack of conscientiousness. This may be formulated by the following words: Ataxpayer’s lack of conscientiousness is an activity that doesn’t bear anycommercial goal, but deviation from paying taxes: say, a return of taxes fromthe budget under the disguise of shipments exported. This is criminal way of making money. That isto say, this is an activity aimed not at receiving profits, but aimed at makingmoney using ways that fall under criminal activities. That was all I wanted tosay about tax deductions. The Constitutional Court published its Decision No169-0 with supplements No 324-0 on the 4th of November 2004. Whatdoes it tell us about? Analysing 169-O – it's written exclusively for leasingscheme of illegal VAT return in the internal market. There we would findclassics of illegal leasing scheme of VAT return. Immediately a taxpayer asks aquestion: What should goodwill taxpayers do if they took loans and paid forquite a serious shipment or equipment or whatever? The Constitutional Courtexpressed itself clearly: If this is a part of credit means that isn’t going tobe ever paid back, or if there are other signs of a taxpayer’s lack ofconscientiousness, in particular one of the point the Court has indicated inDecision No 324 – if a supplier didn’t pay tax to the budget, then denialto return VAT is logical and it may happen. But the Court made a stipulation –if there are other facts that justify taxpayer’s lack of conscientiousness. Thetheme is very painful, for the given industry as well.
Now about the term of VAT return. In 2006, it is the same – 3 months from themoment of presenting your tax declaration and a pack of export documents,starting from 2007, the terms are reduced to 2 months, therefore tax inspectionhave been set in tougher frames, we should tune our work in a more fine way,more effectively, and this is what we’re planning to do this very year – raisethe quality of our work. I have told you all I wanted about the legal aspects.
Now some words about relations between tax collectors and taxpayers:Non-ferrous metal re-processing industry participants. It’s not a secret foranyone that recently the scale of using illegal VAT return scheme has reachedfantastic heights, impossible levels, tax inspections as well as state organsare exasperated, needless to say that tax bodies have never had patience. As aresult we’ve found a simple mechanism, in particular for ferrous andnon-ferrous metal scrap and waste, we use privileges for ferrous andnon-ferrous scrap and waste circulation in the internal market. What makes thismechanism different from the one that was earlier and the one that has been introduced quite recently? Ifearlier any item was charged with VAT, right now in any chain of suppliers wecan find someone, and it would be either a point that receives ferrous andnon-ferrous metal from deliverers, or an enterprise which produces something,has some production waste which it sells.
I. e. this chain has an end, it should have a limited number ofparticipants from any point of view: Economical or legal, and the finalsupplier or the point that buys scrap and waste from population or anenterprise that sells its production waste carry the principal load of VATpayment. I’d say honestly that despite the fact that I worked for more than 9years I have never met a situation that entire chain of suppliers of these goodswas crystal clear as a mirror and taxes were paid by every one and that thereweren’t a single company-ghost within. I’d like to stress this one more time –not a single one. Please believe me, I have vast experience and my colleguestoo, they inform me constantly that every chain of suppliers has dark links. Inother words, I would rather say that criminalization of this very industry hasreached the point of impossible level. In connection with the situation thelaw-maker offered this very mechanism, so now a lot will depend upon yourabilities, as the market participants, as leaders of the industry on whetheryou will be able to dictate conditions to suppliers, special conditions, on howyou’ll be able to assist our state, including youselves too, to construe andlegalize this market, to finish construction of this market in a legal course.I’d like to add also – if your chain of suppliers, starting from, say, a pointof buying scrap and waste from the population and some of its further linksbegin use VAT privilege, then no tax payment will be done in all the chain, andnothing will be returned to the end exporter as well. The arising minuses, Iguess, every one of you is now calculating, it deals with matters of pricing.I’d like to say right now that the Federal Tax Inspection won’t interfere withyour pricing matters, excluding control within the frames that have been setfor us in the article 40 part 1 of the Tax Code. The Federal Tax Inspectionwon’t interfere with competition of all participants of the market – you haveequal weight for us and we got no one more equal that anyone else. As it were,the state suffered only damages from the ferrous and non-ferrous metalcirculation, I mean certainly VAT that hasn’t been received in full – totaldamage reaches 17 bln Roubles, that is VAT deduction in the industry, in otherwords the amount of VAT that was really paid to the budget was less than whatthe state really returned to you as VAT deduction in the export deals. Well,the reason is understandable – majority of suppliers’ chains hascompanies-ghosts which don’t pay taxes. It will never be this way from now on,if all companies make use of the privilege. I’ll reserve my saying in thefollowing, sure, there were times of spontaneous scheme development, in1999-2001, but now all these schemes are falling to zero point, thoughregularly our tax inspections reveal such schemes and schemes of VAT return,everything still exists, but there are also a number of court decisions in theindustry, including decisions of the Supreme Arbitrary Court. As for me, suchdecisions don’t show any positive aspects of the tax inspections’ operations,they are rather discrediting the industry itself, honest taxpayers, and thisconcerns not only this industry, all other industries as well, all industriessuffer when they try to return VAT in export operations. Everything will dependon the industry’s capability to move itself out for, say, “white” level from,say, “gray” one. So, I’ve told you about my position in relation to usingprivileges of the article 149. I may say also that in case if starting from2006 the Federal Tax Inspection monitors this industry, and in case if itreveals taxpayers who didn’t turn to use this pribilege, they’ll be “guilty”themselves, because they would initiate profound check-ups of their operationsby tax bodies.
Yury Mikhailov, adviser of the Ministry of Energy and Industry of the RussianFederation:
”We will be glad to listen to any of your proposals..”
When a company receives a licence to trade in this sphere (storing ferrous andnon-ferrous metal scrap and waste), I guess, every region should first obtainfrom licencing organs and professionals who work in this region or neighboringones a conclusion about necessity of opening such a point or a production site.It’s them who work there should know for sure about prospects of collectingscrap and waste in this region, about opportunities to re-process thesescrap and waste or about transporting it somewhere else in the neighborhood. Righton this very assumption, I think, lies the opportunity to create a harmonicstructure of all the industry, including collection, storing, re-processing ofthe secondary raw materials. Because, what are we having now in the non-ferrousindustry? 2244 licences were issued by the 1st of January, 2005, 600of the licence-holders have never accounted for this type of the trade. Andeven more have accounted just nominally. We have same story in the ferrousmetals re-processing industry, 2600 licences issued, 700 licence-holdershave never accounted for their trades. So, let’s start from this point, i. e.licencing. I’m judging by letters from citizens, organizations, public organizaitons, traders, commercial companies that operate in this sphere, regional executive bodies. I make a conclusion that issuing licences is now a very poor procedure.Licencing bodies in the regions now do not have possibilities in any concretecase while issuing a licence to really get know of a site, equipment and peoplewho receive this licence. I’m not telling that this situation is everywhere,there are regions where licencing is traced fully. But, as a rule, licences aregiven without any necessary control afterwards or beforehand. Same is withcontrol over operation control linked to execution of trading. This does notmean that we should make big-scale check-ups and cover every site, but what Ithink is that there should be at least attempts to satisfy one’s own curiosity– how do the people, who received so many licences, work after all? That’s whywe think that recently the first that should be done is to put licence-givingin order. To do so we should specify the list of processes in this very trade,and we talked about garage refining. If we look at the licence provisions abouttrading with ferrous metals we wouldn’t see a term “cast”, so we wouldn’t seeit in the provisions about non-ferrous metals, and this, I think, would be anormal decision. It is necessary, besides, to specify such a term: Who is notobliged to receive this type of a licence! An enterprise buys scrap andwaste, these are the main raw materials for it, and the enterprise makesproduction out of it. Let’s suppose that it casts scrap into ferro-alloys ormakes fittings, whatever. Does this enterprise need a licence for performingthis very trade, does it need a licence for making use of scrap and waste? Eachregion interprets all these provisions in its own way. Each region’s taxinspection interprets differently, same with licencing bodies and militia. Allthese should be specified at the stage of issuing licences onsite. And we alsothink that the norm to inform licensee within 10 days before check-up shouldalso be excluded from the provisions. I visited two regions and happened to bepresent at one such a check-up, so when we arrived onsite we saw an absolutelyempty spot, there was nothing, really nothing. Before that the controllingbodies had assured me that this was one of the best points which boughtnon-ferrous scrap and waste from the population and re-processed it. Thismatter is linked to repeated inquiries that federation subjects send, they askabout how many copies a licence should have, what should be the term ofvalidity of a licence and when licences should be stopped or cancelled. Asyou know, now, having received a licence and making as many as necessary copiesof licences in the notary public one may use them throughout the country, whilehaving at hand only a copy of the licence. One of the proposals that wereceived from regions is the following: Copies of licences should be given bylicencing bodies themsleves only with specifications as to the term of validityof this copy, moreover, if this licence is cancelled or suspended it should bereturned to the licencing body it issued. This is one of the proposals. Thereis no assistance neither from licencing organizations, nor others, that’s why Ithink that only through cooperation of self-regulating organizations andlicencing bodies we can build up a normal legal and regulative base and construeand put in order all activities in this spheres. We should start from this verypoint, we shouldn’t start from anyhting else far and speculative. Let’sconsider this trade together with those who reside at a territory, whether theyfeel that this very trade is necessary for them. If we do so we’ll obtainobjective data, and they can serve us as a source for licencing bodies, as abase for making decisions, whether to issue a licence for a company or not. Youwell understand that at this very point we’ll need amending all provisions,adding something to provisions about ferrous and non-ferrous metal scrap andwaste trade activities. Perhaps, some things may need to be changed in actinglegislation, maybe federal laws, but all these will be revealed if we start toaccomplish the plan of measures which we’re doing now according to ourGovernment’s instruction. We are preparing our proposals and have alreadystarted to send them to federal organs of executive power. We will be glad tolisten to any of your proposal and are ready to cooperate with you in any givenmatter.
Vladimir Avdiysky, head of chairs “Economic and information security in bankingand
financing”, doctor of legal sciences:
”..we should come to get formed honest taxpayer.”
We introduced the term “honest taxpayer” in 1992. I introduced it as aprophylactic notion, as a measure for estimation for law-enforcement bodies. Atthat time no one paid taxes, we can say, it was tax brigandage, and we weresaying that we should come to get formed honest taxpayer, and, as you mightprobably remember, Mr. Podinok wanted to award honest taxpayers and dishonestones with corresponding medals. Alas, I have to agree with many of the previousspeakers, and add that our law-enforcement bodies haven’t yet turned into thoseforces whose principal function is to protect private property. And they shouldbe interested in protecting private property, so that taxpayers will justconstantly work without any disturbance. Right now out law-enforcement powersare absolutely indifferent to whether you work or you don’t, although we feedthem, as we feed all budget organizations. And, as I repeat and repeat, weshould take care about our golden sheep and shear it in such a way so that itnever freezes. Unfortunately, many don’t understand it. Protecting privateproperty doesn’t mean to visit companies with check-ups, it means to fightshadow economy, do everything so that this shadow economy turn into disfavour,i. e. create big risks for it and provide all honest people with possibilitiesto develop themselves better and faster. Alas, we don’t have this type of life.Our law-enforcement organs didn’t reform to get tuned to the market economy. Mylast remark is linked to the following: When you return home – try to pushthese notions at your places, you talk to your deputies, you talk to yourexecutive power officers as well. Of course, it’s impossible to turn overnightthe mentatlity of controlling and repressing organs, though, nevertheless Ithink that in creating this Council, this powerful Council, you’ve madesomething that even Duma pays attention to, even our Government knows about it,and all know that this Council is engaged in a very hard mission to legalizereal, but complicated business. I’m appealing to all of you, let’s take activepart in realization of the projects of this Council.
It’s not a secret that enterprises trading or ivolved into collection andre-processing secondary raw materials, irregardless of their types of property,consume electric energy in huge volumes, and see that the prices for energy inproduction grow constantly, too. We received several letters from our readerswith a request to comment on the situation. We re-sent these requests tothe Financing Academy for V. I. Avdiysky, head of chairs “Economic andinformation security in banking and financing”, doctor of legal sciences. Wetook as a sample ÎŔÎ “Vladimirenergo”and revealed through it the mechanism of energy pricing in Russia.
Recently, state regulation of pricing for production and services ofnatural monopolies is one of the instruments of the state economic policy. Inthe recent three years, special attention has been paid to economic validity ofpricing products and services of natural monopolies for a pre-planned period.Starting from 2002, development of prognoses of natural monopolies tariffschanges has become one of the constituents of the budget formation process.
In the article 145 of the Federal Law dated 12.30.2001 No 194-FZ “About FederalBudget on 2002”, it was established: “The Government of the RussianFederation together with passing legislation of federal law “About FederalBudget on 2003” to the State Duma should present prognosis of raising pricesfor gas, heat and electric energy in 2003 and take it into account incalculations for the given federal law legislation.”
In 2003-2004, parameters of increase of regulated prices and tariffs weredetermined based on a complex estimation of how the forecast prices on productsand services of the natural monopolies will influence the economy developmentin a short period. In 2003-2004, increase of prices (tariffs) for products andservices of the natural monopolies has been made at the federal level inaccordance with the Government decisions. Only one time at the beginning ofeach year. Wholesale prices for gas for industrial customers in 2003 raised by20%. Tariffs for electric energy raised in 2003 by 19%, and in 2004 – by 10%.(These numbers need a certain correction). To substantiate and specify someparameters of prices and tariffs increase an analysis of financial-economicactivities of subjects of the natural monopolies was annually perfomed. We usedgenerally recognized in the world methods of finance and investment analysis,by the results of which we optimized financial plans of the natural monopoliessubjects for the planned period.
However, to obtain aptitude of setting these prices (tariffs) for the productsand services of the natural monopolies no one from controlling bodies thatanalized their activities has taken into account the industry’s specifics,peculiarities of the national economy and methods of formation of expenses ofproduction operation which are conditions that promote development of theshadow economy.
It happens very frequent that in order to pass normative that regulate economicactivity of subjects at the territory of the Russian Federation no one analizesthe aftermath of their performance and their influence on the Russia’s economy.In its turn, this represents a danger to economic sesurity of our state,because a rise of prices (tariffs) of the natural monopolies negatively affectsthe country’s production, makes this production costs higher and incompetetiveat the internal and external markets.
A rise of regulated prices (tariffs) on the products and services of thenatural monopolies affected the economy condition in 2000-2003 greatly, and itconfirms existence of a restrictive factor that influences the total economicgrowth, and especially that in industries.
Taking into consideration the fact that parameteres of increasing the prices(tariffs) on the products of the natural monopolies’ products should not leadto any substantial growth of consumers’ expenses and negatively influence therates of economic growth, it is just expidient to carry out economic-legalanalysis of the production cycle, transfer and distribution of the heatand electric energy.
For this analysis’ base legal acts that regulate economic activity ofsubjects were taken. In particular, the act dated 10.11.1999 No 73 “Aboutaccepting recommendations for organization of count the heat energy and heatcarriers at enterprises, in offices of the communal service and those belongingto the budget sphere”, the Rules of heat energy count dated 09.12.1995No VK49-36, approved by theMinistry of Fuel and Energy of RF.
Taking as an example activities of ÎŔÎ“Vladimirenergo” and municipal enterprise “Heat networks” of the city ofVladimir we have investigated peculiarities of their technologic process andtransfer of the heat and electric energy in their affiliate “Vladimir TEZ”,formation of costs to produce electric and heat powers in ÎŔÎ “Vladimirenergo”, the order of realization ofthe heat energy of ÎŔÎ“Vladimirenergo” to municipal enterprise “Heat networks” of the city ofVladimir.
ÎŔÎ “Vladimirenergo”comprises its affiliates “Vladimir TEZ” and “Heat networks” which produces heatenergy by hot-power generator and boilers. They use natural gas as fuel. Thisgas is supplied by OOO “Vladimirregiongas” within the pre-arranged limitsaccording to the agreement signed between them.
Heat energy production technologic peculiarity is that the turbogenerator ofthe affiliate “Vladimir TEZ” producessimultaneously electric and heat energy. So, the higher is the watertemperature of direct feed, the more it produces electric energy, and the otherway around: The less the water temperature of direct feed, the less it produceselectric energy.
Some quantity of electric power production and its transfer is regulated by“Zentr-Energo” of the Unified Energy Systems of Russia, but this regulationaffects the temperature mode at the heat sources in “Vladimir TEZ”. As aresult, the temperature mode of transfer the heat to consumers is frequentlybroken and does not correspond to heat feed schedule. In accordance with theparagraph 14B chapter 3 – “Count of heat energy and heat carriers in the watersystems of water supply”, approved by Act of the Ministry of Constructionof RF dated 10.11.1999 No 73, using gauges, – the temperature of a heat carrierin the reverse conduit is taken by the temperature schedule of the heat feedregulation.
While making calculations to determine the quantity of heat energy that a heatsource produces, the formula 2.1 of the Rules of heat energy count dated09.12.1995 No VK49-36, approved bythe Ministry of Fuel and Energy of RF is usually used. I have received thefollowing results:
Resulting only in difference of temperatures (heat carrier feed was lower thanit was supposed according to the schedule), the count of the quantity of heatenergy that was produced by ÎŔÎ “Vladimirenergo”and the bill for municipal enterprise “Heat networks” of the city of Vladimirwas overpriced by 78.298.866.54 Roubles.
Besides that, if we take into consideration that our acting tax laws don’tstrictly determine what are technologic losses, ÎŔÎ “Vladimirenergo” counts cold water used for replenishment of the heatsystem as technologic loss. So it came this way: Without lessening expenses forheat energy production, it obtained illegal additional economic interest in thesum of 2.125.812 Roubles from its consumer – municipal enterprise “Heat networks”due to inclusion into the bill this sum (Decision of the ArbitrationTribunal of Bladimir region, case No Ŕ11-4804/2001-Ę1-6/195).As we see, the cost of heat energy for end consumers, including population,increased, and this was the reason of why communal services costs alsoincrease. In the conditions of the national economy functioning we may considerthe given fact as deliberate depreciation of tax base of ÎŔÎ“Vladimirenergo”.
In connection with it, and to solve this problem as well as to set parametersof the tariff’s policy and conditions of reliable operation of subjects of thenatural monopolies, we see a great need to thoroughly consider all issues thataffect expenses on their products (goods, services).
Unfortunately, we haven’t gained total transparency of costs (forinstance, on main and secondary activity directions), we didn’t reveal in fullall reserves to economize the expenses of the natural monopolies’ssubjects. Absence of sufficient transparency of economic activity of thenatural monopolies’ subjects hampers setting economically valid levels ofprices (tariffs).
If we draw our attention to technologic process peculiarities in the affiliate“Vladimir TEZ”, which simultaneously produces electric and heat energy, but thevolumes of electric power are controlled by “Zentr-Energo” of the UnifiedEnergy Systems of Russia, we then can assume that heat energy is a followingco-production in the given technologic process. We then may ask ourselves aquestion: in which of these two products, i. e. in the cost of electricty or inthe cost of heat energy, are the direct and indirect expenses counted? What isthe sharing of the costs and expenses between them?
For instance, while counting natural gas in material expenses two times: thefirst for electric power production and the second – for heat energy productionwe then have wrong increase of costs. It results in depreciation of the taxbase (income tax) of BOTH organizations (affiliate “Vladimir TEZ”, affiliate“Heat networks”, both belonging to ÎŔÎ “Vladimirenergo”).
If we consider application of expenses counting methods by way of deductingexpense for co-products we then must envisage that the volume cost of theco-production is deducted from the cost of the main one. While using thismethod the cost of the main production may be equal to zero or even negative,then if the enterpise sells its main product and receives money, it may be wellconsidered as net profit of the given organization.
Besides, if we take into account the fact that when a product is produced withzero or negative production cost it doesn’t logically have value added cost –the object of taxation – we then have a situation when the enterprise sells itsproduct and reckons VAT in the usual legal way, and in expoert supplies thisVAT is returned to the enterprise according to law from the budget. So, we areseeing how VAT “flows away” from the Federal Budget.
In connection with the said above, Id’ like to note that the recent form ofreckoning expenses in “boiler” method costs is unacceptable, for it doesn’tprovide for transparency of expenses formation. In the conditions of marketeconomy, more progressive expenses formations methods should function, the onesthat should lawfully determine taxation base at all levels for all budgets.
To solve this problem and elaboration of concrete proposals, we have analizedexpenses formation methods (cessation expenses on co-production method,indirect distribution expenses method, direct count method, combinedmethod). This analysis resulted in the following: possibility to excludeexpenses on co-products is limited by cases when the volume (by costs) of“co-production” makes not more than 3%. However, as practice shows, thegiven restriction on activity of an ecnomic subject is not performed at all, noone counts expenses differently on products and on co-products, there aren’tstrict complex production products classification. This state in the economyallows to count material expenses on complex production products several timesand make conditions for developing shadow economy. If we consider the fact thatright now classification of products when they come to out of the technologicprocess is conditionally separated into the main profuct, co-product, waste, wepropose that an economically well-grounded criterium should bedefined, the one that will permit to classify products of complexproductions for each product’s expense count. While doing so, if we take intoaccount that possibility to use this method limits itself to exclusion of expensesand this is also limited by 3% (for co-products), and only this limitationdoesn’t lead to distortion of production expenses number, we think that itis expidient to limit the volume of co-production with three per cent
We think that if we limit the volume by the cost of co-production we may wellremove contradictions of legal requirements in expenses count, there willappear an opportunity to legally use this method. So our proposal is to givethe right to economic subjects to determine methods of expenses formation bythemselves, and reflect it legally in the expense count policy. Fixing thesemethods don’t contradict the Russian President’s position, who obliges us tofind ways to minimize state regulations of economic subjects’ activity and strengtheneconomic levers.
Moreover, it is necessary to note that in accordance with the EnergeticStrategy of Development of Russia for the period up to 2020, that was approvedby Government Act dated 08.282003 No 1234-r, the main priority of changes inindustries is the following: rise of transparency of financial-economicactivity of subjects based on separate count of expenses in different forms oftrades.
Therefore, the proposed attitude in the part of strengthening of expenses countmethods in subjects’ accountancy is directed at more accurate classification ofproducts in accord to technologic process, transparency of expenses count basedon separate count for different products. In the end, this will allow to set atlast economically grounded prices (tariffs) for products and services of thenatural monopolies. This will also positively nfluence the rates of economicgrowth and dynamics of natural produce.
Several moments about 6% import duty on aluminiumand aluminium products to European Commonwealth
6% import duty to Europe on secondary aluminiumalloys from Russia was established by the same document which established sameprovision for the primary aluminium. Therefore, per se, Europe tied up allaluminium products from Russia in a single package. The duty on primaryaluminium from Russia and some other countries was introduced as a strategicprotection measure of the European market and since then has been considered asit were on all levels of decision-making in Europe.
What has been done and what’s going to be done in response to these measuresin Russia
In Russia, we’ve taken some measures to oppose this 6% import duty on theprimary aluminium. For instance, on the 6th of November, 2001,Russian aluminium producers sent a letter to Mikhail Kasianov in which theydescribed the situation with the primary aluminium and unfavourable economicstate of affairs, asking the Prime Minister for assistance. He was asked totake part in deciding the fate of the industry, viz cancel expoert duty onaluminium and its alloys (5%); lower rail way transportation tariffs foraluminium and alumina; in regulating tariffs for electric power andtransportation do not exceed rates of their growth comparing to rates of growthof prices on the industrial products; negotiate about cancelling import dutiesfor aluminium in EC countries that was entered in 1994 for Russian aluminium inEurope.
The secondary alloys were not mentioned then, probably because this idustryhasn’t been yet developed and organized.
Among the known actions in Russia about the secondary aluminium we shouldmention Appeal of TheCouncil of Secondary Non-Ferrous Metallurgy Industrial Enterprises of Russia tocancel the valid import duty for the secondary aluminium alloys(Supplement 1).
Briefly on the situation in Europe about the primary aluminium (for betterunderstanding the situation with export duties in general).
European industrial capacities in primary aluminium has set now on a stablelevel. In the visible future, there won’t be any serious changes to enlargethem. Yet, there is a possibility of lessening (by 200.000 tons per year) as aresult of production optmization and further mergers of huge producers.
There are some prognoses that EC will encounter growth of pure import of theprimary aluminium approximately 3% per year due to economic expansion andbigger need for aluminium in the key industries: auto and transport, food andbeverage staff packaging, construction and farmaceutics.
There are two groups of consumers of the primary aluminium in Europe: the firstis producers of the primary aluminium, they consume it by themselves almostfully (i. e. re-process it at their capacities) – these are the so called integratedproducers, and the second group: European small and medium enterprises –re-processors of the primary aluminium, they are independent, non-intergratedenterprises that work in market environment and compete with each other.
This second group (independent re-processors) couldn’t receive material fromEuropean or other produce without paying duty, so it has to purchase material(import it), i. e. receive the primary aluminium levied with 6% duty. This isthe reason why the independent producers a) pay more for the raw materials andget into worse competitive conditions, and b) they are deprived of reliable,regular supplies. Some estimations indicate that they annually lose about 470mln Euros. At the same time, the independent producers make 50% of workingplaces in the Europan aluminium industry and re-process about 50% of the totalvolume of the primary aluminium in Europe.
Consolidation of the aluminium industry, that has taken place and is stillgoing on, has also largely increased uncertainty and competitive flaws of theEuropean independent aluminium producers who even now widely encounter withstructural deficit of the primary aluminium and see with fear how the primaryaluminium is being concentrated in the hands of less number of owners. The problemof the independent producers consists in the following: They don’t have the primary aluminium that’snot levied by 6% duty, because it is consumed by the primary producersthemselves – this thing is called “structural deficit”.
Recently, only one European organization which fights for cancelling 6% importduty on the primary aluminium is FACE that unites independent producers ofaluminium in Europe (See reference in Supplement 3).
There were two ways in struggling for cancelling the import duty: Firstly, it’sWTO’s regulations, it considers this issue quite for a long time and spreadscancelling of import duties on theentire world. And the second direction, it’s FACE’s attempts to cancel importduties in a separate part of the world, namely, in EC countries. FACE came upwith apprehensions about possible delays in cancelling this duty in case thisissue is applied to the whole world in complex.
FACE actively cooperates with WTO on the cancelling of the import duty, but itstresses, in order to speed up theis decision, that first European dutiesshould be cancelled, at a limited territory. FACE hoped that it would reachserious progress at the WTO forum in September 2003 for the first time, whenduscussion on industrial tariffs was the main agenda. FACE, at that time withinframes of preparations to this forum, closely cooperated with the coalition ofaluminium consumers in 75 countries about duty-free world market of aluminium.FACE appealed the WTO forum and proposed that all duties for the primaryaluminium in the whole world should be abolished, it suggested also that thereshould be openness in discussion of tariffs and that those countries that havecast capacities and are not memebers of WTO should enter WTO so that the rulesbe same for every one and everywhere.
FACE lobbies this issue also through governments of EC countries and throughorgans of EC: Europarliament, EC Council of Ministries, European CustomsCodes Commission, that is through those organs of EC which at the end are theprincipal decision-makers.
We should take into account that European Commission should also co-ordinateits steps in cancelling duties with WTO, because EC has a system of tradeagreements with it.
The issue of abolishing these duties is a rather long and difficult process,for any decision in EC due to its internal procedures is long as well. Weshould add to this the fact that previously EC organs didn’t display muchreadyness to even consider the issue. In July 2003, FACE prepared a legalcomplaint on actions of European Commission after the latter refused tore-consider the tariff.
Allies and enemies of FACE in the issue of cancelling 6% import duty (who’sin Europe for and who’s against it)
It is known that among governments that were ready to cooperate with FACE aboutthis issue the government of Canada was “for” withtin WTO frames, and thegovernment of France was till lately was “against” it, therefore blocked allattempts in this direction at all international negotiations dedicated totariffs, meeting demands of its own aluminium producers. It is also knownthat in general European governments are influenced greatly by their nationalprimary aluminium producers.
The European primary aluminium producers have practically always been againstabolishment of duties, with the exception of only Alcan in 2002-2003 (thiccompany was an only one from the biggest world companies in Europe which spokefor duty-free aluminium market in Europe). This position depended at that timeon possible merger with Pechiney. Mergers lead to further concentrations of theEurope roll plants market, and in its substantial part it is shared amongAlcan, Alcoa, Pechiney and Hydro Aluminium, which influence greatly theissue of duty abolishment. I. e. theoretically, when they would feel that asituation meets their expectations, some of them may stay for the dutyabolishment, i. e. their opinions would be different.
There is a widely acknowledged opinion that main European industrial aluminiumand other non-ferrous production organizations have always been under influenceof primary producers. In a number of years, these producers have managed tocontrol all inforamtion that was transferred to national organs and EC bodies,thus keeping this attitude (almost all of them against cancelling 6% duty onprimary aluminium) intact or neutral.
The main groups of primary aluminium producers have very tight contacts withgovernments of their countries and national organs that are responsible forpricing and tariffs, thus they have very great political power, too. Thisinfluential power is backed by financial and technical possibilities of theprimary producers to actively lobby their interests; it relates also toexpertise performance and investigation of current market affairs, analysis of themarket situation, preparation of materials for decision-makers at theirnational or European levels.
I wanted to say that forces counteracting cancellin this duty are very powerfulstructurally, they are well organized at all levels, at national ones as wellas at that of Europe.
Situation with the secondary aluminium
In Europe, they haven’t yet studied it thoroughly. At least we didn’t find anyserious sign of such a work. In general, this issue – abolishment of duty forsecondary aluminium – is not reflected in the European open mass media at all.
Due to fragmented structure and small size of majority of its enterprises, ECindustry that consumes the secondary aluminium wasn’t able recently toundertake coordinated efforts, though the sector of the secondary aluminium ingeneral encountered problems. But all of these was not understood by statepowers and the states didn’t support them.
Speaking of deficit/availability/adequacy of secondary alloys in Europe, Imay assume that, referring to sayings of metal industry representatives, atleast severtal types of secondary aluminium alloys are very interesting,perhaps they are in deficit I Europe, probably due to shortcomings in theirinternal capacities or secondary raw materials deficit.
Speaking of European primary aluminium producers, there is an opinion thatrecently they are not interested in easing accees to Europe for any secondaryaluminium.
There is no any other organization in the sphere of the secondary aluminium,but FACE, which so actively stood against this 6% duty.