REALITY CHECK: Robert Sheppard
Aug. 21, 2006
Alcan's proposed $1.8-billion expansion to its sprawling smelter at Kitimat will ensure the 52-year-old facility remains a world-class aluminum producer well past the middle of the century. (CBC)
From any angle it has to be seen as one of the most impressive engineering projects of the 20th century.
To prepare for its new aluminum smelter in what would become Kitimat, B.C., Montreal-based Alcan dammed and reversed the flow of the Nechako River, bored 16 kilometres through a mountain to increase the water pressure on the way to the turbines and carved the Kemano power plant, to feed its mill, directly into the side of the mountain.
That was the early-1950s, when Kitimat and neighbouring Terrace were themselves just being hewed out of virgin rainforest on B.C.'s northwest coast. (Kitimat had the distinction of being designed by a New York planner and being among the first Canadian communities to be modelled on emerging suburbia.)
And the price of all this industry was, literally, a river, the Nechako. It's a price that's been haggled over ever since.
- LINK: From the Archives of CBC Radio: Powering an industry
Even last week, when Alcan announced its long-awaited plan to upgrade its Kitimat smelter — a $1.8-billion expansion that would preserve 1,000 jobs, boost aluminum production and use less energy in the process — the reaction was decidedly mixed.
The provincial government rejoiced. But instead of welcoming the news, municipal officials in Kitimat responded by saying they would be taking Alcan to court for not living up to its much earlier job promises (smelter jobs would actually decline by a third in the modernized mill). Also, for continuing to sell its surplus power needs to the province at a substantial mark up, full market price, something the critics argue is a violation of the original water deal.
How, exactly, Kitimat's elected intend to pursue a legal challenge remains to be seen. They've tried before and had the case dismissed twice, by the B.C. Supreme Court and the Court of Appeal, though largely, it should be noted, on the issue of whether the local district had standing.
If anything, though, their perseverance, even if it is only tied to B.C.'s indomitable union politics, underscores the fact that Alcan's Kemano power project is and always has been one of the most contentious political issues in the province — also one of the most litigated.
See you in court
Legal wrangling over the Kemano project began almost as soon as the dam was being built in the early 1950s. The federal government was concerned about the effect of the dam and water flows on the salmon in the Nechako, and it was also upset at being forced to pay for what it called "irregularities" in the resettling of a local native band.
But the real fights didn't take shape until the 1980s and sometimes you needed a program to tell who was siding with whom. At different times, Alcan has been both partners with and legal opponents of the B.C. government, Ottawa and B.C. Hydro, which it once threatened to sue for libel. It's not a company to be messed with.
The 1950 agreement with the province provided Alcan with water rights to the Nechaka and Nanika rivers in perpetuity. It also allowed Alcan to operate any hydroelectric facilities it could build on the site by 1999 (a key date), provided that the power was used "in the vicinity of the work" (a key clause).
The 1999 deadline encouraged Alcan to propose a second hydro project in 1984, which would bore new holes in the mountain and use up to 88 per cent of the Nechako River. Called Kemano II or the Kemano Completion Project (KPC), it provoked a strong response from Ottawa and environmental groups, which were starting to play a more active role.
By that point, Alcan was selling what it called excess power to B.C. Hydro at the rate of about $1 million a month, not an inconsiderable sum in those days.
At first, B.C. joined Alcan in challenging federal jurisdiction over water use. But when the political din grew too loud, the province turned around and brokered a settlement in 1987 among all three parties.
However, this didn't last. In 1993, the NDP government announced a review of the scaled-down KPC and killed it outright two years later, prompting a flurry of high-profile lawsuits. Alcan threatened both Victoria and Ottawa to recoup the $500 million it had invested in this second stage of Kemano development.
Two years after that, in 1997, the company and the province came to a deal. Alcan agreed to build a new, upgraded smelter by 2012 at the latest (last week's announcement) that was said at the time would provide 2,000 jobs. It also junked its plans to expand the Kemano hydro facility, but in return the province guaranteed the "replacement power" Alcan said it would lose by foregoing the KPC.
Cheap hydro power is, of course, the raison d'etre of energy-sucking aluminum plants; Kemano's output (it's an 800 megawatt plant) is among the cheapest in the world.
Some critics of this latest deal are suggesting that Alcan is really only going ahead with this upgrade (it's a big one, designed to feed the growing Asian market) because it can make a small killing selling cheap energy on the side.
However, this seems to overstate the case a bit. Though the modernized smelter should in a decade or so need much less power than what it is currently using (meaning probably more to be sold eventually to B.C. Hydro at market prices); as well, Alcan will benefit from a couple of big lump payments from B.C. Hydro, totalling more than $100 million, in lieu of the replacement power it had been promised in 1997 (and yet won't seem to need).
Still, this is not the argument advanced by the mayor of Kitimat. Richard Wozney says Alcan is not living up to its 1997 agreement to create a new plant with 2,000 jobs and argues that any selling of excess power (not "in the vicinity of ") amounts to exporting jobs from the area this public resource is meant to preserve.
Alcan's response to this is that power sales are only a minor factor in the upgrade, and that over the past several years they have amounted to less than 10 per cent of Kitimat's revenues, or about $25 million a year. It also argues that 89 per cent of the power from Kemano is used in the Kitimat-Terrace area, either by its smelter or other local entities, and that only about 11 per cent is passed along to other communities by B.C. Hydro.
This latest announcement, in effect an update of the 1997 deal, will see a modernized smelter increasing its production from about 245,000 tonnes today (much less than it's capable of) to 400,000 tonnes by 2012, while using less electricity and one-third or 500 fewer workers in the process.
Is this a fair tradeoff? By upgrading its 52-year-old facility, Alcan says at least it will be maintaining the remaining 1,000 or so jobs probably for another 50 years and being a little more green about it at the same time, which are not bad things. The investment probably also helps underpin some other big investments in the area such as a proposed liquefied natural gas terminal and two pipeline projects.
But it is unlikely to slow the antipathy towards Alcan, in some circles at least, nor change the political folklore that has enveloped Kemano virtually from day one. Bottom line: B.C. gave away a river in 1950 and it's an awfully tricky thing to get back.