Tuesday, August 15, 2006

A Kitimat Civil War? City turns thumbs down on the Alcan expansion plan if it involves hydro sales.

Yesterdays announcement by Alcan of its plans to modernize its Kitimat Works smelter to the tune of 1.8 billion dollars, isn’t getting the warm and fuzzy feeling in parts of Kitimat today.

The City of Kitimat concerned that the aluminum giant is planning on focusing more on power sales and less on job creation, is apparently planning to continue on with its current court battle with the Aluminium Company.

And while that court case will wander through the system for a bit, in Kitimat itself there are conflicting opinions on the city’s case and what impact it may have on Alcan’s plans and how it may affect the city .

With the city led by Mayor Rick Wozney forming one group and an Alcan funded and favourable business group on the other, a split in Kitimat seems to be the one secure thing for the near term.

It’s an age old dilemma for any small town. Modernization means downsizing in today’s lexicon, and with the modernization plan in place Kitimat stands to lose over 500 jobs by the time the revitalized smelter is on line.

What is galling to many in the northwest is the belief that Alcan will be making huge sums of money off of electricity sales, money that many of those in the community feel should be returned in the way of increased employment opportunities.

It makes for tense times in the Aluminium city, where families will be called to stand on one side of the battle line or the other.

Three stories below, will give you a wide perspective of the current situation.

From the City of Kitimat’s point of view on how the Alcan project is more about power sales than it is about jobs

A piece that includes the thoughts of that business group, they suggest that the Alcan project will be bigger than the Olympics and that the city and Regional District has backed itself into a corner fixated on the power aspect.

We finish the post off with long time Alcan observer Ben Meisner, who is a critic of the Hydro plans of Alcan. He looks at the bigger picture beyond just Kitimat and how the province is subsidizing a huge corporation as it collects more and more revenue from power sales.

B.C. town battles Alcan over electricity sales
Globe and Mail Update
August 15, 2006

Vancouver — The northwestern British Columbia community of Kitimat is vowing to thwart a smelter expansion plan that would give Alcan Ltd. the right to sell excess power from its B.C. aluminum operations back to the hydro grid at lucrative prices.

Kitimat mayor Richard Wozney said he is concerned that Alcan is expanding its smelter — at a cost of $1.8-billion (U.S.) — after being given the right to sell power that he said should be used to support industrial development and create jobs in the region.

“This is not the best deal for Kitimat or for British Columbians,” said Mr. Wozney referring to an agreement between Alcan and the B.C. government, which was announced on Monday.

The district of Kitimat attempted to reinforce that view by filing a petition with the British Columbia Supreme Court last month.

The petition seeks a court declaration that power sales are a contravention of a 1950 Industrial Development Act which set the stage of construction of the Kitimat smelter and related hydro electric facilities.

The case centres on the district's view that hydro electric resources available to Alcan in the Nechako River will support a much larger smelter expansion than the one that the Montreal-based aluminum giant is contemplating.

Under the plan that was unveiled this week, Alan is set to increase its aluminum production by 60 per cent to 400,000 tonnes, a level that falls far short of the 550,000 tonne operation that the district is hoping for.

“We question why Alcan is downsizing their plans,” said Mr. Wozney. “The answer can only be that Alcan wants to entrench power sales in the original water-for-jobs agreement they signed with the Province,” he said.

Under the expansion plan, Alcan will have the right to sell sufficient excess power to keep the lights on in 225,000 homes, said B.C. Premier Gordon Campbell.

A spokeswoman for B.C. Hydro said the newly expanded smelter will require 675 megawatts of the power, much less than the 735 megawatts that she said the turbines at the nearby Kemano hydro electric power facilities can generate.

“Because of the low cost of producing electricity at Kemano — about $5 per megawatt hour versus the current long term electricity price of $75 per megawatt hour — Alcan can make very big profit by not producing aluminum and selling the corresponding electricity for export or domestic purposes,” said David Austin, a lawyer who acts for independent power producers. “ It can make money producing aluminum but not nearly as much,” he said.

The district of Kitimat is proceeding with the court case, after the B.C. Court of Appeal ruled in Alcan's favour.

Cynthia Carroll, the President of Alcan's Primary Metals Group, has said the ability to sell power was only a “minor factor” in the company's decision to proceed with the expansion.

Alcan's excess-electricity sales spark discord
Critics claim the sales violate a 1950 agreement
Derrick Penner, Vancouver Sun
Published: Tuesday, August 15, 2006

Alcan Inc.'s promise to spend $1.8 billion modernizing its Kitimat aluminum smelter did nothing to quell controversy within the small northwestern community over Alcan's sale of excess electricity from its Kemano power plant.

A business group aimed at promoting economic development in the region, formed with Alcan's help, lauded Monday's announcement as a long-sought stability for the plant,
Municipal officials, however, criticized the plan as shortchanging aluminum production in favour of continued power sales.

"It sounds great, because technological change allows [Alcan] to expand capacity," Trafford Hall, Kitimat's municipal manager said in an interview.

However, Hall said Alcan will still be breaking the 1950 agreement it signed with the B.C. government that granted the company use of water from the Nechako River at heavily discounted royalties in exchange for developing an aluminum industry in the northwest.
Hall said the expansion won't use all the electricity Alcan can generate from its Kemano power plant located in a remote mountainside about 90 kilometres southeast of Kitimat.
"We supported full expansion [of the Kitimat smelter]," Hall said, "[but] this significantly under-utilizes the water resource.

"And growth was important to offset some of the job losses due to technological change."
Hall said Kitimat will likely continue its court challenge of Alcan's power sales.
Alcan is proposing to build a 400,000-tone-per-year smelter to replace its existing, 50-year-old plant with 272,000 tonnes capacity. It would see Alcan's workforce in Kitimat shrink to about 1,000 from 1,550 today.

The plan also saw Alcan strike a new power sales agreement with BC Hydro, which includes a "smelter first" provision meaning that Alcan's power needs for smelting aluminum will take priority over contracted sales to the public utility.

BC Hydro CEO Bob Elton said that will see Alcan's sales to BC Hydro fall to 55 megawatts by the time the expansion is complete in 2011 from an average of 140 megawatts today.

Skeena MLA Robin Austin said the $1.8 billion-US investment is good news on one hand, because it means investment in an industrial plant that needed it. However, he added that "a private company has been given a huge windfall profit" with the power sales agreement.
"We've essentially given [Alcan] a river, and we're buying back . . . electricity at full market price," Austin said. "What's in it for British Columbians?"

Gerry Martin, president of the Kitimat-Terrace Industrial Development Society, a group of business people from the two communities, said critics are "really grasping at straws to find anything negative" about Alcan's announcement.

The construction project, Martin said, will be "bigger than the Olympics," and will be an investment that keeps Alcan's Kitimat smelter modern and competitive.
"It assures that there are 1,000 jobs there ongoing," Martin said, and sends a positive signal about the region to potential investors.

"Unfortunately the District of Kitimat has kind of backed themselves into a bit of a hole around this whole power-sales thing," Martin said. "They've alienated a lot of people they need to work with as partners, and it's unfortunate."

Alcan's Kitimat plans
$1.8 billion being spent to upgrade the aging smelter.
Resulting in a 60% increase in production of aluminum.
And more than 500 layoffs from workforce of 1,550.

Spin on Deal Will Leave You Dizzy: One Man's Opinion
Ben Meisner
Opinion 250 website
Tuesday, August 15, 2006 03:57 AM

Just what is the deal with the new smelter being built by Alcan in Kitimat?

The facility will operate with 850 fewer jobs than when the old facility was working at full capacity.

The company (according to its releases) now accounts for $217 million dollars in the provincial manufacturing economy. Take away $60 million of that which will be the reduction of a total of 850 jobs and you have lost 30% of the total manufacturing economy.

Is there any wonder why the city of Kitimat is shrinking?

The agreement signed in 1950 (which is the template for any new agreement ever signed by Alcan) says that the extra power can be used for the development of industry "within the vicinity of the works." That is what the District of Kitimat will use as the basis of its challenge in the courts come this fall. That is of course unless the province has inked a new agreement preventing that community from arguing that excess power was to be used for development of the "Pacific Northwest" an argument long held in this province.

According to Premier Campbell , when the new smelter is built, Alcan will be able to sell to the BC Hydro grid enough power to look after 225,000 homes. That translates into about $154 million in power sales annually by Alcan to the BC Hydro grid. Because of the amount of water rates they pay the province, Alcan will be able to make 1700 % on every mega watt they sell.

That means that the new smelter will be paid off in about 13 years ($1.8 billion US) without so much as one dime coming from the smelters operation. In the meantime, BC Hydro, owned by the people, will earn $217 million in 2006, serving the entire province with electricity while a single company, Alcan will earn $154 million for its sales to that grid.

Is there any wonder that Alcan has announced a new plant? A new plant along with the cold water release facility being planned by the province (with the province kicking in $50 million for the construction) will free up yet more water which means more money for the company.

Why in the world the contract signed in 1997 is being revised also leaves one wondering.

That contract between BC Hydro and Alcan was for a rate of about $28.93 back in 1994, adding on the inflation clause it would be no where near the $75 dollars that Alcan will now receive . Why would the province negotiate a new deal that costs the people of the province more, leaves ore scratching.

BC Hydro will also hand over $45 million to Alcan in 2007 and a further $66 million in 2011. Now under the deal that was cobbled together by then Premier Glen Clark, the province would supply the company any power lost for their expansion in Aluminum production, but this new plant will use less electricity and so why in the world are we in the province on the hook for a further $111 million?

I had a call in to the President of BC Hydro to explain this deal, but no call back.

In the end it is the people of the province who will pay for lost jobs, lost income in this province and increased profits for Alcan at the expense of the water rentals they receive.

All these concessions for what?

I’m Meisner and that is one man’s opinion.

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