Monday, August 28, 2006

Alcan's sweet power deal still a mystery

VICTORIA - The people in Kitimat complaining that the province is handing a giant gift to Alcan have been taking some hits lately.
Since the corporation announced plans to modernize its smelter, the critics have been painted as a bunch of out-of-touch, whiny ingrates.
Alcan’s announcement is great news, says Premier Gordon Campbell. It shows that B.C. is a good place to invest.
The smelter in Kitimat employs about 1,550 people and is the heart of the company town. Alcan has announced plans to spend about $2 billion to modernize the smelter. Production capacity will increase by more than 40 per cent, but new technology means the smelter will employ about 550 fewer people. There will be several hundred construction jobs as the work is done. And the investment likely guarantees that the smelter will be around for a few decades.
A lot of that is good news, especially the certainty. Alcan has operations around the world and there’s always the risk some other government will offer dirt-cheap power and the company will move on.
The job losses aren’t good news. Kitimat has seen a steady reduction in jobs at the smelter, with a damaging effect on residential property values and small businesses. The announcement that more than one-third of the jobs at the smelter will vanish is a major blow.
Usually you would still say tough luck. Technology has meant job losses in other industries. Companies adapt to global competitors or vanish. It’s painful, and sometimes government help is needed during the transition, but change is inevitable.
But there’s a difference here.
Kitimat exists because of a deal between Alcan and the provincial government reached in the later 1940s. The government wanted economic activity in the northwest. Alcan wanted cheap power and ocean access for an aluminum smelter. (Making aluminum requires lots of electric power to generate heat.)
B.C. had an extraordinary resource to offer. Back in 1928 a provincial bureaucrat named Frederick Knewstubb had looked up from a pile of maps in Victoria and announced that he had discovered one of the world's great hydroelectric sites.
He proposed damming the Nechako River, reversing its flow and sending the water rocketing down to the coast, driving turbines at the bottom. But the power wasn’t needed in the northwest and there was no way to get it out to other markets. Nothing happened.
Until 1949, when the province handed over the water rights and Alcan agreed to build the power project, smelter and planned community. It was a trade - cheap electricity for jobs.
But the government was prudent. Even though there was no transmission grid for Alcan to tap into then, then the agreement anticipated the risk that Alcan would just sell the cheap electricity at a profit instead of creating jobs. The act and agreements handing over the water rights said the power was to be used to make aluminum or for other industrial projects "in the vicinity of the works."
The people in Kitimat - including Mayor Richard Wozney, a former Liberal candidate - want the agreement enforced. If it was, they say, Alcan would have expanded the smelter to make use of the electricity at the same time as it modernized, preserving jobs.
Or the province could reclaim the power and make it available to other industries willing to develop in the area.
Instead, Alcan will keep on selling electricity from Kemano that was supposed to be used to generate economic activity in the region, first to BCHydro, then direct to the U.S. Profits are huge, because the energy is so cheap to produce. Conservatively, figure about $1 billion over the next 20 years - half the smelter project costs.
It’s been a long a battle for Kitimat, with few successes. The provincial government hasn’t given any real answers about why the original agreement is no longer valid, or when the public resource became Alcan’s property. Some straight answers would go a long way.
Footnote: Kitimat is continuing legal efforts to enforce the original agreement, but the chances of winning any real change look slim. Politically, the issue is costly for the Liberals. Former MLA Roger Harris, widely respected, lost to New Democrat Robin Austin by 440 votes in 2005. The government’s stonewalling on Alcan power sales was a big factor.


deaner said...

A minor correction: the electricity is needed for aluminum production to move the (dissolved) aluminum ion to the cathode and add three electrons (per Al atom) to reduce it to a metal, not for heat. There is probably some heat generated as the ions move in the solution, but the real heat input is required to melt the cryolite in which the raw alumina (Al2O3) is dissolved, and that heat ipnut is (at least at Kitimat) satisfied by natural gas.

Anonymous said...

I think you're ignoring the economic factors here. If this agreement forced Alcan to devote power produced at the dam only towards aluminum production, they might decide to simply close the smelter entirely. If Alcan could make more money producing aluminum than selling the power, I'm sure that they would focus on aluminum production. In the meantime, this province has also benefited from the extra electricity produced by clean hydroelectric generation as our power consumption has climbed over the past decades. Kitimat seems to be exhibiting a woeful ignorance of economic realities - their legal action is more likely to hurt than help.

Anonymous said...

Anon talks economic factors. I am starting to think maybe Alcan is telling us through your blogs responses."It's our way or the highway". Alcan got established in the area to produce aluminium using BC water. They weren't set up there to sell electricity to the Americans. Don't you figure the folks living locally have the brains to see the possibility of Alcan cutting and running after using our resources all these years. If the locals seeing the possibility of Alcan the good corporate citizen bailing on them and still wish to challenge the corporation more power to them. To suggest Alcan would make more money selling electricity than aluminium they would do so isn't the issue.Seems the world demand for aluminum isn't about to disappear any time soon. Wonder just how many perks the company got when they set up?

Anonymous said...

Dear Sir,

It has been with great interest and not a little amusement that I have read recent articles in your newspaper about what has been portrayed in your pages as the David and Goliath struggle between the town of Kitimat, BC, and the multinational company Alcan, over some inevitable job losses with their recently announced C$2 billion smelter modernisation. The town's mayor has been portrayed in your pages as the hero of the situation, supposedly working hard to save the town from destruction by the uncaring company that would rather sell power in the name of corporate profits than look after the population of the community that it built in the 1950's.

The truth of this sad misrepresentation is that at least a thousand high paying, long term and environmentally clean jobs will be the result of the proposed modernisation, ensuring the future of the town on this the second biggest valley on the west Coast. As part of the rebuild, power sales to the Northwest of BC, the reason Alcan came to the area originally in the 1950's, will now be largely restricted to supplying just the little town of Kitimat itself with the tiny surplus not able to be used at the smelter.

Yes, there will be around five hundred employees that will retire over the five or six year modernisation, but narry a person will lose their job in the name of progress, and shrinkage will merely being the result of demographics.

It needs to be understood that the Mayor of Kitimat's credibility and support has been built around both his longevity and falling property prices in this boom and bust area of the country. Unfortunately high wages in the town and much time off breeds indifference to local politics, and the Mayor reclaimed his seat on a number of occasions only through acclamation. At the last municipal election he retained his seat by just a hundred peoples' votes. That in a union town with an opposition that spent a mere month on the project suggests wilting support. Now that property prices have jumped with the announcement it is doubtful indeed that he and his council would any longer carry sway in an election, particularly as they seem completely incapable of moving forward and promoting Kitimat for all of it's multiple and enviable assets.

Using the municipal purse for publicity companies to promote their limited view is seen by many to be beyond the pail, and it needs to be seen by those with an interest in this unfolding saga to be the sign of the last days of a dying and desperate, Ludite regime.

Far from the impression garnered from your pages, the C$2 billion modernisation in this small town of ten thousand is seen by everyone in the Northwest as the best thing since sliced bread.

Yours, Dr.Howard Mills.