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June 12, 1998

Alcoa Not Bidding for the Venezuelan Aluminum Industry Assets in Second Offering

PITTSBURGH--June 12, 1998-- Alcoa today advised the Venezuelan government that they are not going to bid for the Venezuelan aluminum industry assets in this second offering. Below is the text of a letter from Paul O'Neill, chairman and chief executive officer of Alcoa, to the Venezuelan government:

June 12, 1998

Mr. Alberto Poletto

Mr. Efraín Carrera

Dear Mr. Poletto and Mr. Carrera:

This is to inform you that the Alcoa has decided that it cannot make a bid for the Venezuelan Aluminum Companies, because to do so would violate our fiduciary duty to our shareholders to invest their money in a responsible way.

We have reached this decision after the investment of around $10 million in expenses to support the investigation activity of more than 200 Alcoa/Alcan and contract employees over a two-year period. We believe we understand every aspect of the proposed transaction, and, as you know, I spent two days in Venezuela this week speaking with you and your associates, and with the Ministers of Planning and Finance. The purpose of this trip was to make sure that we had the most up-to-date understanding of the issues and possibilities.

Since the first failed auction, a number of changes have been made to the proposed contract terms. We are particularly concerned about three aspects of these changes.

First, our Venezuelan counsel cautions us that the changes made are probably not legal because they have not been approved by Congress. You assured us that the changes are legal. We asked for the written opinions of the Attorney General of Venezuela and of the Legal Counsel to the Congress. Neither has been forthcoming.

Second, some of the changes made to the transaction are mere expressions of intent, not legally binding. Several are serious; one example of this is that there is no long-term certainty regarding the availability of bauxite, the life-blood of the alumina refinery. A prudent investor would not accept this high risk uncertainty.

Third, some of the changes are undesirable from the point of view of a financially sound company and an environmentally responsible operator. On the financial side, one of the proposed contract changes is to give the successful bidder two years to pay off past due bills. A financially responsible company pays its bills on time, and would not need or want this provision.

On the environmental side, a proposed change would weaken the responsibility of the successful bidder to clean up the hundreds of millions of dollars of environmental damage that has been done in the past. We do not favor weakening the timetables for environmental compliance. As companies with our own dedication to being stellar environmental corporate citizens, we do not seek governmental permission to delay fixing the problems of the past or ask permission to follow bad environmental practices in any operations under our control.

As you will recall, there are many other points that we discussed in detail having to do with the long-term economic prospects of the aluminum companies. One of these points deserves special mention.

We have found that in order to operate anywhere in the world at world-class levels, it is essential to tell all of the employees the facts about every aspect of the business. As I said to all of you in our several meetings, the undeniable truth about the Venezuelan Aluminum Companies is that they currently employ more than 5000 too many people by world-class standards. We know this from our extensive global operating experience. In our conversations, it was indicated that the successful bidder could "work out" the problem. I fear this approach because I am afraid that if we were the successful bidder, and began to "work out" the problem, the workforce would be alienated, believing that we had deceived them.

We have reached the decision not to bid with real regret, because we believe that with correct policies and stable business conditions, Venezuela could have a bright future in the world aluminum industry, and that Alcoa and Alcan would be the best owners of the Venezuelan Aluminum Companies.

Perhaps on another occasion we will be able to help you fulfill this potential position in the world. Thank you for all of your courtesies to us and our employees.

Attached is the more detailed Alcoa Paper on Venezuelan Aluminum Privatization explaining our views of this transaction.


Paul H. O'Neill
Chairman and Chief Executive Officer