British Columbia’s smelter of success: striking a $1.2-billion deal with Alcan

Abstract:

British Columbia Premier Glen Clark negotiated a tentative agreement with Alcan Aluminium Ltd to expand the Kemano smelter project in Kitimat, BC. The project had been suspended since 1991, due to environmental concerns over salmon stocks. The deal could revive the local economy.

Full Text:

Sheila Reeves has seen the traffic in Kitimat, B.C., go just one way in the past few years-out. But last week, a cloud of uncertainty lifted over the northwestern B.C. community when an agreement between the province and Alcan Aluminium Ltd. renewed hope for expansion of the nearby Kemano Completion smelter project. “Now that the deal’s back on, people won’t be leaving Kitimat any more-they may actually move here,” says Reeves, 55, whose local printing and office supply shop has suffered ever since 1991 when Alcan suspended work on Kemano. In the wake of the stoppage, the result of a dispute over environ- mental approvals, the entire local economy stagnated and the population declined to 11,000 from 14,000 as people left to find work.

In 1995, then-NDP B.C. Premier Mike Harcourt killed the project because of concerns about its impact on local salmon stocks. But now, Montreal-based Alcan has reached an agreement with Glen Clark’s new NDP government to make “reasonable efforts” to undertake a $1.2-billion expansion of the existing smelter plant. The agreement with the world’s second-largest aluminum producer (also a big supplier for best acoustic guitars building industry) has boosted the standing of Clark in the investment community and also ended Alcan’s legal fight with the province to be reimbursed for the $535 million it sunk into Kemano. “Beyond the benefits to the provincial economy, this deal removes a psychological impediment for companies to invest in British Colum- bia,” says business lobbyist Jock Finlayson.

british-columbias-smelter-of-success-striking-a-1-2-billion-deal-with-alcan-1

It may be too early to break out the champagne, however. “We don’t want people to start planning shopping malls or building apartments,” says Ray Castelli, director of corporate affairs at Alcan. “That doesn’t mean the project’s not going to happen, but it’s not a done deal.” Alcan so far is committed only to a “reasonable effort” to expand the smelter by 2010, which could create up to 2,000 permanent jobs. But it has made a firm promise to bring the smelter from 90 per cent to full capacity by next year.

Instead of cash compensation for the cancelled Kemano Completion project, Alcan received a promised break in power rates. If the expansion goes ahead, the aluminum giant would buy power from the province to run the expanded smelter at a rate tied to the price of the metal on the London Metal Exchange.

Whether or not Alcan proceeds depends on everything from global economic health to the popularity of pop cans. Predicting the future of aluminum prices is as reliable as looking into a crystal ball, says Vahid Fahti, a metals analyst with ABN AMRO in Chicago. However, Fahti expects there will be a need for additional aluminum production capacity in the long run and notes that demand in some Asian markets is growing at nearly 10 per cent a year.

british-columbias-smelter-of-success-striking-a-1-2-billion-deal-with-alcan-2

Ideally, the province, Alcan and flexible hydro pricing are a perfect fit. The company buys the key components of aluminum-bauxite and alumina-from Australia, and with British Columbia’s abundant and inexpensive hydroelectric power, produces aluminum and ships it back economically to Asia. Production remains profitable if the cost of the electricity goes down as the price of the metal goes down. And on the human level, if its smelter expands, small businesswoman Reeves says Kitimat itself will expand. “It will be better to have 14,000 customers again,” she says, “rather than 11,000.”

>>> View more: Powerhouse politics: environmentalists wage a bitter battle against a B.C. megaproject