The analysis of the audited financial statements of Clarendon Alumina Production Limited (CAP) was undertaken to assist Parliament and the Public Accounts Committee (PAC) in their review of the financial performance of public bodies, in the context of the Fiscal Responsibility Framework. The Public Bodies Management and Accountability (PMBA) Act requires public entities to demonstrate prudent financial management of public resources.

Our review largely focussed on trends in CAP’s key financial ratios over the period FY2012/13 to FY2016/17. We found that CAP’s debt ratio reflected a trend decline to 1.02 for FY2016/17 from 1.66 in FY2012/13. In particular, the ratio fell sharply between FY2012/13 and FY2013/14, in a context where Government of Jamaica (GOJ) acquired 84.1 per cent of CAP’s outstanding loan obligations in 2013. This was a precursor to a Joint Venture Agreement with the Noble Group, which would also boost the likelihood of CAP’s divestment by improving its financial position and removing the need for further GOJ support. However, a substantial deterioration in CAP’s cash position necessitated US$27 million in loans from GOJ in FY2016/17 to settle outstanding arrears to the Joint Venture partner. The additional borrowing was contrary to GOJ’s stance regarding continued support to the entity. Of note, the deterioration in CAP’s liquidity position resulted in a context where more cash was demanded to finance CAP’s operations than was generated.

Consequently, CAP’s solvency position remained weak over the review period, despite marginal improvement to 2 per cent at end FY2016/17, which was well below the threshold of 20 per cent.  Further, CAP consistently recorded a negative working capital turnover, which was also linked to CAP’s inability to generate profits or a positive return on its investment. Accordingly, CAP will require greater operational efficiency by Jamalco in order to improve its financial position on a sustainable basis.