The Harper government is slapping a for-sale sign on a coal-shipping terminal in northwestern British Columbia – the first major public asset that Ottawa has decided to unload after a lengthy review of what Crown properties should go on the block.
The Conservatives announced on Thursday they are looking for buyers for Ridley Terminals Inc., built in Prince Rupert with taxpayers’ money three decades ago to ship coal around the world from northern B.C. and Alberta.
The Crown Corporation is a vital piece of the infrastructure that makes up Canada’s trade gateway to Asia, an increasingly important destination for this country’s natural resources.
The ice-free deep-water port is the closest in North America to Asia by two or three days’ shipping time.
The Harper government began looking for public assets to sell in 2009, in part as a means of improving Ottawa’s deficit-soaked bottom line.
Sources say it is expected that different consortia of bidders will make offers for Ridley Terminals – proposals that would be at least partly financed by pension-fund cash. Pension funds are hungry for infrastructure investments in an era of low interest rates.
People familiar with Ridley suggest it could fetch more than $1-billion. In 2011, the terminal reported a net operating profit of $34-million on revenue of $74-million.
It has benefited from healthier coal prices in recent years and managed to pare back its debt and break shipping, revenue and profit records.
Selling the terminal would rid Ottawa of ownership and responsibility for a major industrial asset, and aligns with the Conservative government’s belief that business is best left to the private sector.
The sale of Ridley had been considered for more than a decade, but the decision to sell now suggests the government believes the long-struggling operation has righted itself enough to attract a fair price from bidders.
Ted Menzies, the Federal Minister of State for Finance, talked up Ridley on Thursday, saying it is a very different operation today.
“It’s a viable business and it’s a business that should be run by the private sector,” he said in an interview.
The operations and management of Ridley were overhauled in 2007 and 2008 to end the practice of subsidies for some customers that included interest-free loans and contracts set below market rates. That, along with rising coal prices, greatly improved the terminal’s profit and performance.
Mr. Menzies said Ottawa is attaching a non-negotiable clause to the sale that stipulates the terminal must remain an “open access” facility that can be used by anyone. “We need to make sure a group or an individual won’t be able to buy this and use it just for the export of their product.”
The government did not elaborate on its reasons for this, but the proviso would prevent one entity – whether it was a state-owned enterprise from China or an aggressive mining interest – from using the terminal to influence the supply of coal destined for market.
Ridley was built in the 1980s at a cost of $250-million. It was part of an ambitious plan to ship B.C. coal to global markets and spur economic development in the northeast part of the province. Hoped-for coal prices did not materialize.
The terminal struggled over its history and relied upon millions of dollars in government support before the recent turnaround.
This is the second time Ridley has been marked for sale in less than a decade.
In 2005, Paul Martin’s Liberal government decided to sell the troubled asset to an Ontario-based coal-mining company for a mere $3-million.
Stephen Harper’s Conservatives cancelled the sale after they took power in 2006, citing the lack of an open-access guarantee.
“It was basically an undervalued asset because it wasn’t functioning very well,” Mr. Menzies said of Ridley before the Tories took power.
The list of potential buyers is long. Those that might want to bid include transportation firms such as CN Rail, terminal operators such as Kanawha River Terminals or mining and energy firms including Teck Resources and Kinder Morgan. Potential infrastructure investors and private equity players that might be attracted include Brookfield Asset Management, Jim Pattison Group, Ontario Teachers’ Pension Plan and the Blackstone Group.
The price for metallurgical coal has weakened recently after a strong five-year run spurred by rising demand from Asia, and particularly China. Metallurgical coal, also known as coking coal, is a key component in steel making.
“Ridley Terminals Inc. has always been an asset. One serious problem has been that it was a horribly mismanaged one for decades,” said Daniel Veniez, who oversaw a major restructuring of the facility as Ridley’s chairman between 2007 and 2009.
During his tenure, Mr. Veniez ended long-standing subsidies for customers and imposed other reforms in new contracts. He said the value of Ridley is “not in the brick and mortar, but lies directly in the new contracts.”
Ridley is the first proposed Crown property sell-off to emerge from Ottawa’s review of Crown assets begun in 2009. Ottawa sold Atomic Energy Limited’s commercial division in 2011, but that deal did not arise from this process.
Mr. Menzies said it is time Ottawa got out of the coal-shipping business.
“This is the only large marine terminal that the government of Canada owns,” he said.
The Canada Development Investment Corporation is handling the sale of Ridley.