Alcoa announced it will temporarily idle production at its two aluminum smelters in Fusina and Portovesme, Italy. The curtailment is a result of uncertainty in obtaining future power supply for the smelters at competitive rates and the financial impact of today’s European Commission (EC) decision that Italy’s extension of the existing electricity tariff after 2005 did not comply with European Union (EU) state aid rules and that a portion of the benefit received by Alcoa must be refunded. Alcoa is appealing the decision.

The tariff was in place for more than 10 years in Italy and approved by the EC in 1995, the year that Alcoa purchased the operations. It was designed to provide competitive power to energy-intensive industries in Italy, in line with similar energy costs in other EU countries.

“This is a dark day for European heavy industry. The EC is sending a signal to investors and workers that heavy industry is no longer a priority,” said Klaus Kleinfeld, Alcoa president and chief executive officer. “Particularly in today’s economic crisis, this decision is hard to understand. Skilled and long-term jobs will be lost, facilities will be closed, and companies in Europe will not be able to compete.”

Kleinfeld added, “The EC’s decision, which was not based on a complaint by a competitor or any third-party, will effectively shut down Italian aluminum production and make the European aluminum industry less competitive in the worldwide markets. Alcoa will appeal the decision and take immediate action to improve the profitability of our smelter operations.”

Without the tariff, the two smelters, which have a combined employment of approximately 1,000 and an additional 1,000 indirect jobs and a combined capacity of 194,000 metric tons of aluminum per year, are not viable at current Italian power rates.

The process to curtail the smelters will begin immediately, with completion expected in the second half of December. The company will work with appropriate works councils and employees at the smelters to gradually wind down production in a safe and efficient manner. Alcoa’s rolling mill in Fusina, which is adjacent to the smelter, is not directly impacted by this action.

“It is a terrible outcome for Italy,” said Marcos Ramos, president of Alcoa Primary Products Europe, “This EC decision will result in approximately 2,000 direct and indirect jobs being lost in Italy, not to mention the impact on the communities of Fusina and Portovesme. We will continue to use every lever in an attempt to gain access to competitive power so that we can get our people back to work.”

“I want to thank our employees and work councils, who have been doing an outstanding job, and our communities for their support," added Mr. Ramos. “This decision is in no way a reflection on their efforts. In fact, they have been helpful in explaining the urgency of the situation to officials.”

As part of the decision, the EC has ordered Italy to recover certain benefits derived by Alcoa under the tariff. Alcoa already has appealed the opening of the case by the EC and will also vigorously challenge the decision in the EU courts.

The curtailments in Italy will bring Alcoa’s total global smelting system curtailments to approximately 24 percent. The company will continue to take steps to optimize its global smelting system as market conditions warrant. The company expects to take a fourth quarter 2009 charge of between $300 million and $500 million, pre-tax, including temporary curtailment and recovery actions. Most, if not all, of the charge is not expected to impact fourth-quarter cash flow.