A top team from Canadian aluminum giant Alcan is in Port Elizabeth to conduct a joint study with South African officials on siting the multi-billion-rand Coega smelter.

The visit brings the long-awaited smelter a step closer to reality, with trade and industry department deputy director-general Lionel October saying that the project was “looking positive”.

While it remains the largest single foreign direct investment in the country’s history, October confirmed that its scale is expected to be reduced.

The plant envisaged by French producer Pechiney was to have been a $2,2-billion (R12-billion) venture in which South Africa’s Industrial Development Corporation and Eskom were each to have had a 12,5 per cent stake.

October said the current visit was one of several to the country over the past few months by the special Alcan team working on the project.

“They are negotiating contracts with regard to infrastructure, electricity and construction companies. They are putting the project together.”

Asked about the lengthy time-frames for the project, he emphasised that managing an investment of more than $1-billion (R6-billion) took time.

October confirmed that the trade and industry department had withdrawn a tax allowance that was going to be offered to the French aluminium company, Pechiney, before it was taken over by Alcan in 2003. The allowance would have been given to help reduce the cost of building the smelter.

October said the reason was that the details of the investment had changed.

“When the Canadians took over, they obviously conducted a review of all the projects Pechiney was undertaking and they have completed that review. They are continuing work on the project.

“What seems clear is that they will re-configure the project in some way. I think there will be some down-scaling of the size of the investment.”

Because of this, he said, the initial tax incentive had been withdrawn and an application would be made for a fresh package for the new project.

The incentive is based on the capital assets invested and the number of jobs created.

Alcan “have not yet applied for the next incentive package, but are working on the reconfigured project and revised application.”

October said he believed that Alcan would only make a final decision “later this year about continuing and thereafter there will be the issue of raising of the finance”.

But he emphasised: “Things are looking positive.”

Montreal-based Alcan is considering expanded production in South Africa, where energy costs are lower than in North America, using technology it acquired with its purchase of Pechiney.

If the Coega project goes ahead, construction should begin at the end of 2005 and production in 2008, Alcan said in November last year.

It expects the Coega facility to have a capacity of about 660 000 metric tons of aluminium a year.

The company announced in November that it would conduct a new feasibility study for the construction of the smelter at Coega along with the South African government and the IDC. Alcan said the three parties would continue to examine “the best value-creating alternatives offered by the Coega aluminium smelter project.

“The focus of this new study will be the use of the highly efficient and advanced AP30 or AP35 smelting technologies.”

The study is scheduled to be completed by the second quarter of 2005.

Coega has also reported considerable progress with a proposed ferronickel smelter, which is likely to be second only to the aluminum smelter in terms of the size of the investment it will represent.