RIO DE JANEIRO - The Brazilian unit of world aluminum giant Alcoa Inc will face tough demands for environmental compensation for a new bauxite project in the Amazon, a representative of Para state's environmental secretariat Sema said Friday. "Sema officials will meet representatives of Alcoa Aluminio S.A. Monday to discuss the compensation payment due for Alcoa's Juruti mine," a Sema representative said by telephone.

 The minimum environmental compensation fee payable by any new project is 0.5 percent of the total investment value of that project, according to Brazilian federal law. "However, Sema plans to press for a higher amount in this case," she added. Although no formal position was publicly ready from Sema, the secretariat said it may seek a compensation fee of 0.75 percent of the project's value.

Sema and Para state's public ministry took Alcoa's Juruti project to task this year after local communities linked the project with environmental problems including water pollution that had led to a outbreak of Hepatitis A in the region.

Alcoa denied the allegations and gained a renewal of its project construction license from Sema.

Environmental compensation fees are typically invested in conservation areas where native forest cannot be touched, biological reserves or environmental research laboratories, she said. A higher value than that stipulated by law could be sought due to local conflicts stirred up by the project that is planned for an underdeveloped area in the west of Para state, according to the representative.

Juruti is due to go on-stream in 2008 with an initial production capacity for 2.6 million tones per year bauxite. In mid-2007, Alcoa Aluminio estimated the project's initial investment cost at 1.7 billion reais. However, the mine site has sufficient bauxite reserves to allow production of up to 12 million tones a year, Juruti mine development manager Tiniti Matsumoto Junior said in a recent interview.

The bauxite to be produced at the mine will feed the Alumar alumina refinery in Sao Luis, Maranhao state, whose capacity is being expanded to 3.5 million tones a year in an investment by Alcoa and its joint venture partners BHP-Billiton and Alcan. This in turn will provide feedstock to produce aluminum for export at the Alumar smelter alongside.

 The Sema representative noted that the project still needs to gain the secretariat's operating license before it can start producing.

 Alcoa representatives had not commented on the environmental compensation accord by Friday afternoon.

(By Reese Ewing, Reuters, 14/09/2007)