Kitimat, British Columbia--As the helicopter takes us upward, over the Coast Mountains that surround the Douglas Channel, and carries us inland through prime avalanche territory, over glaciers and the odd mountain lion, there is but one question on my mind: How could anyone have been so daft as to take a job eight decades ago surveying this damp and densely forested terrain, where everything, from the rocks and trees to the fish and bears, is supersized? And do it not with the benefit of today's global positioning systems, but with a theodolite, a canoe, a pup tent, a rifle and--fingers crossed--grudging co-operation from the grizzlies.
I think of these dauntless men because, were it not for their work, I would not be here now. It's because of them that the British Columbia government twigged to the massive hydroelectric potential of what is now known as the Nechako watershed, a 14,000-square-kilometre territory of lakes and rivers almost three times the size of Prince Edward Island. It wasn't until 1950 that the government recruited Alcan Inc. to undertake the biggest private investment in Canada up to that time--the $500-million (that's about $3.3-billion in today's money) construction of a massive hydro project, known as Kemano, and an aluminum smelter at Kitimat. It is this project, which has churned out as much controversy as it has metal over the years, that has brought me here.
I wish I had come just for the scenery. Instead, I've come to learn about one of the most bitter company-town revolts ever seen in Canada--which says a lot in a country full of spurned company towns. This, though, is a story about much more. It's about how governments manage public resources. And how corporations, no matter how benevolently they try to portray themselves, must surrender to the self-interest of shareholders. And how the greatest asset any business can possess is trust. Once that's lost, well, read on.
In 1950, British Columbia's government gave Alcan the right to reverse the flow of the Nechako River, flood 125,000 acres of land and displace about 200 members of the Cheslatta nation so that the company could build the 900-megawatt Kemano station. The electricity was meant to supply Alcan's Kitimat aluminum smelter, located some 80 kilometres away and boasting an annual capacity of 277,000 tonnes
It was a generous, albeit not risk-free, deal for Alcan. But the government had its reasons: It wanted to populate the North and to foster industry in a still-fledgling province that had barely a million inhabitants.
The exchange worked to everyone's advantage--save the Cheslatta, of course--for about three decades. Indeed, the Korean War broke out almost as soon as construction on the smelter began, foreshadowing a long, heady ride for aluminum producers. Things were still humming in the late 1980s, when Alcan won the approval of B.C.'s Social Credit government to build a $1.3-billion addition to Kemano--increasing power capacity by more than half--on the understanding the company would eventually build a much larger smelter to use the electricity and create hundreds of jobs in Kitimat.
Sadly, this is where promises began to be broken and Kitimat's once-bright future--it was designed for 50,000 people but is home to fewer than 10,000--began to dim. The smelter was never built. And the hydro rights given to Alcan in 1950 to make aluminum were increasingly used to produce electricity that the company sold on a newly open North American power market. The switch was wildly profitable for Alcan. For Kitimat, not so much. And thus began the standoff between the town and the company that built it. Kitimat's mayor since 1988, Rick Wozney, has outlasted five Alcan CEOs. Each has promised a new smelter. None has delivered. So Wozney, re-elected a year ago on a pledge to fight Alcan, has taken the company and the province to court. It may have had to come to this. Can you really ask any corporation to choose people over profit?
Few corporations strive as relentlessly as Montreal-based Alcan, the world's second-biggest aluminum maker, to portray itself as a model of corporate citizenship. To take its countless public pronouncements on the matter literally, Alcan is as interested in social virtue as in making money.
In putting out this message, it is a thoroughly modern company, devoting massive resources to polishing its progressive image. As CEO of Alcan from 2001 until earlier this year, Travis Engen became chairman of the World Business Council for Sustainable Development, a group of high-powered chief executive officers who, notwithstanding the name of their organization, run some of the biggest polluters on the planet. "Our ambition as we go forward is no less than to be the best at everything we do. . .the best company to invest in, to work for, to buy from and sell to, to have as a corporate citizen in your community," Engen said in a 2004 speech. "We cannot realize this ambition without our actions being a demonstration of corporate social responsibility."
The examples Engen used to show Alcan's commitment may not always have been the easiest for the common man to grasp. Last year, for example, he boasted that "using aluminum in the Jaguar XJ translates into a saving of about 1,500 litres of gasoline" over the lifetime of the car. There is no denying Engen set the bar extraordinarily high for both himself and his successors. Still, there's a disconnect. You don't strip mine bauxite and melt it into aluminum--a process that requires zapping alumina with as much electricity (often from coal- or gas-fired power stations) as it takes to light up a major city--without causing considerable environmental degradation.
Indeed, Alcan currently has its hands full defending its involvement in two particularly controversial projects.
In India, Alcan is a 45% partner in the Utkal Alumina International joint venture that wants to develop a new bauxite mine and alumina refinery in the country's eastern state of Orissa. Human rights groups say local police repression of opponents to the project has engendered a "climate of fear" among tribal villagers who would be deprived of land they consider sacred.
Meanwhile, in Cameroon, an impoverished African country, Alcan has signed a letter of intent with the goverment to more than double the size of its 47%-owned Alucam smelter. The project will require construction of a massive dam to supply electricity to the smelter, a move that will displace rural villagers and flood protected forests. Alcan already benefits from substantially lower electricity rates than the general Cameroon population. Only a tiny minority, the wealthy, can afford power. But chances are you've not heard about all of this.
"Their PR is incredible," says Richard Girard, of the Ottawa-based Polaris Institute, and author of a 2005 report on Alcan's social and environmental record. "They have totally rebranded themselves as a green company, but they're in one of the dirtiest industries there is."
In Kitimat, the controversy does not, at least not now, revolve around the environment. But the question remains the same: Slick PR aside, to what extent must profit take precedence over local welfare?
To Alcan's credit, it treats its workforce of 65,000 very well. The 750 workers at the Cameroon smelter benefit from free HIV/AIDS education and treatment. Workers at the Kitimat smelter earn a gross salary, including overtime, that can reach $90,000 annually.
And Alcan's environmental record proves it pays more than lip service to the issue. It has reduced its greenhouse gas emissions from smelting aluminum by a quarter since 1990, despite increasing overall metal production by a third. Skeptics argue this is the fortuitous byproduct of modern smelting technology--which is more energy- and cost-efficient--rather than reflecting a commitment on Alcan's part to be socially responsible.
But here the two goals are not mutually exclusive. Alcan has made it clear that it believes there is a solid business case for being environmentally proactive. "Our success in continued greenhouse gas reductions will have significant positive impacts on Alcan's long-term business growth and the broad acceptability of our operations and products," Alcan senior vice-president Dan Gagnier wrote recently. The bottom line is that being environmentally conscientious is good for the bottom line. It is a means to an end, and not, in the eyes of a profit-driven corporation, an end in itself.
"The important thing to remember is that corporate social responsibility--if it's actually genuine--is effectively illegal," says Joel Bakan, a University of British Columbia law professor and author of The Corporation: The Pathological Pursuit of Profit and Power.
"The officers and directors of corporations have an obligation to act in the best interests of the corporation. They can't say, 'We're forgoing profitable opportunities to pursue a social or community objective.' You can't deny that Alcan and some companies have done some good. Likewise you can't deny that many individuals within the company are committed to corporate social responsibility initiatives. But my greatest fear is that the CSR initiatives will lead the public to believe that companies are benevolent and governments no longer need to regulate them."
It's hard to imagine that in 1949 there could have been any other company more interested in developing Kemano than Alcan. The aluminum industry was still a relatively young one; the biggest obstacle to its development had been (and, indeed, remains) access to abundant electricity. That is what brought the Pittsburgh Reduction Co. to Shawinigan, in Quebec, at the turn of the 20th century. That is what led its successor company, the Aluminum Co. of America, or Alcoa, to build an entire town in Quebec's remote Saguenay region in the 1920s, creating the world's biggest aluminum complex and dedicated hydro facility. The town was named Arvida, in honour of Alcoa president Arthur Vining Davis. Around the same time, Alcoa's Canadian assets were spun off into the company that became the Aluminum Co. of Canada, now Alcan, and Davis's younger brother, Edward, was named as its president. In 1947, Edward's son Nathanael Davis became chief executive officer of Alcan, holding the post for 32 years, until 1979.
On his retirement, Davis enumerated the two key ingredients of aluminum smelting: "The combination of hydroelectric power and good logistics on deep water. To produce aluminum, you have to bring in a tremendous lot of raw materials to the power. Power in the middle of Canada would have been far less attractive than power on deep water; and the Saguenay was a deep-water port." So was Kitimat--or rather, the foggy, almost uninhabited patch of the Pacific coast 800 kilometres north of Vancouver that would become Kitimat.
"Let us not forget that the company is gaining a tremendously valuable waterpower concession," the Sun reminded readers in 1951. It could not have foreseen just how valuable it would become. There was no continental market for power then, nor could one even have been contemplated. Still, as early as 1949, the leader of the provincial CCF (forerunner of the NDP) warned against ceding permanent ownership of Kemano to Alcan. "Should development proceed, it [should]be on the understanding that over a period of time, based upon the quantity of metal produced, the ownership of the power plants would revert to the Crown on an honest compensation basis," Harold Winch told the B.C. legislature in March that year. "In this way only will the province be guaranteed the directive power in the development of its resources for the establishment of new industries and maintenance, under public control, of our greatest non-depleting resource--that is, water power."
The final agreement, signed in 1950, contemplated no such reversion of Kemano to provincial ownership. But the document did stipulate that Alcan "is party to this Agreement solely with the expectation that it will have the continuing use of a large quantity of low-cost electric energy to be employed according to its needs for the production of aluminum." Alcan could sell surplus power--although none was contemplated--but only to attract other industries "in the vicinity" of Kitimat.
Even half a century later, Kemano remains the mother of all B.C. mega-projects. Water from the Nechako reservoir flows through a 16-kilometre, six-storey-high tunnel drilled through the base of Mount DuBose. Once it reaches the powerhouse, located inside the mountain, it plunges almost a kilometre to one of eight 112-MW generators. Electricity is carried along transmission lines over 82 kilometres of 2,000-metre peaks and endlessly deep valleys to the smelter at Kitimat. "The remoteness factor had been completely misjudged," Nathanael Davis recalled in 1979. "At the time, it put a terrible strain on the company. It ran overbudget very significantly, and for many years was fairly unproductive. Of course, it's a good investment now."
So good that, by the time Davis handed the CEO reins to David Culver in 1979, Alcan was publicly talking about doubling Kemano's capacity to 1,900 MW and tripling aluminum production at the smelter. In 1988, Alcan began work on the $1.3-billion Kemano Completion Project (KCP) to add 520 MW of capacity, with the backing of the then-Social Credit provincial government and the Tory regime in Ottawa. But the project further polarized debate in a province known for its politics of extremes, not least because the Tories waived an environmental review.
Still, Alcan plowed on with the KCP. Under the 1950 agreement, it held exclusive rights over the development of the Nechako reservoir only until 1999. With that deadline closing in, Alcan was facing a use-it-or-lose-it decision.
But this wasn't the '50s any more. Citizen activism was now a force to be reckoned with. Ottawa's waiving of its environmental review inspired earth advocates and natives to redouble their efforts to block the project. Alcan was halfway done building a new tunnel through the mountain when, in 1991, the federal court ordered a full environmental review. Alcan stopped work immediately. The same activist forces, part of the New Democrat power base, led Mike Harcourt's NDP government to cancel the KCP in 1995.
Having already spent more than $500 million on the project, Alcan sued. For another two years, the company fought the government bitterly in a battle that made headlines internationally. B.C.'s reputation as a good place for global companies to do business was more or less destroyed.
Jacques Bougie, who became Alcan CEO in 1993, may have been hopeful, but the new $1.2-billion smelter he pledged for Kitimat--the one that would double aluminum output and add 400 jobs--never materialized. Bougie had promised the new facility as part of a settlement of its KCP suit with the NDP government, which was now led by Glen Clark. Alcan got no cash compensation, but it did secure its Nechako water rights until kingdom come, and obtained a binding undertaking that BC Hydro would supply it with below-cost electricity--less than $10 per megawatt/hour if Alcan built a new, much bigger smelter and needed additional electricity to run it. The settlement also allowed Alcan to sell surplus electricity from Kemano, at a large markup, to the government-owned utility, British Columbia Hydro and Power Authority. The electricity sales were only supposed to last until Alcan built the new, bigger smelter.
Something quite different ensued. Over the past nine years, Alcan has increasingly sold power from Kemano and cut aluminum production at Kitimat. The watershed moment came in 2000, when Alcan, facing low water levels in the Nechako reservoirs, chopped aluminum production by more than a third at Kitimat, but continued to sell power to BC Hydro. Around the same time, the company also established a U.S.-based power trading affiliate. The choice to sell electricity rather than make aluminum was confirmed when Engen took over as CEO in 2001, and ultimately drove a wedge between the company and the town it built.
Employment at the smelter has been reduced by 350 workers, to 1,550--leading to a decline in Kitimat's population from about 11,000 to 9,500. By 2002, when Mayor Wozney and his town manager, Trafford Hall, got wind of a report prepared for Engen by Chicago-based Marakon Associates, recommending increased power sales from Kemano as the most profitable route for Alcan, the two men had lost most of the scant faith they had in the company's promise of a new smelter. Alcan acknowledges the existence of the document but has refused to make it public. It purportedly warned the company that "communities should be expected to resist. They must be managed."
And when Wozney and Hall obtained, through a Freedom of Information request, a 2001 Alcan submission to a provincial energy task force, they lost their last shreds of faith. In the brief, the company said it was "interested in leveraging its financial strength and utility operating expertise to participate in new market opportunities" created by North American electricity deregulation. It expressed a desire to "supply energy to competitive electricity markets in B.C. and other interconnected jurisdictions."
Wozney and Hall concluded that the company's ultimate objective is to make the smelter as small as possible and just make money off its power windfall. It takes fewer than 100 people to run the hydro plant; the math certainly seems to indicate that selling power, not aluminum, would make the most sense for Alcan's shareholders.
With the Wozney/Hall critique in hand, the District of Kitimat took Alcan to court in 2004, arguing that the company was violating the terms of the original 1950 agreement that gave it the water rights to produce aluminum--period. The British Columbia Supreme Court threw out the case on the grounds that Kitimat couldn't sue because it wasn't a party to the 1950 deal. So, Kitimat returned to court in October, this time suing the province for failing to force Alcan to live up to the terms of the agreement. As of early November, a judgment was pending. Whatever the verdict, it is merely the first step in what promises to be a long, long legal battle.
"My actions are a matter of public record and they speak for themselves," Engen says now, declining a request for an interview. The climate of mistrust that took hold during his tenure, however, has made life more challenging for his successor. "I would have been more sensitive to the [public reaction]risks of greater power sales during that period," says Richard Evans, who took over as CEO in March of this year. "I'm not second-guessing a past decision here. But I can tell you what my view is."
That view is reflected in Evans's plan for repairing relations with the town. It amounts, for now, to another promise. In August, Alcan announced it will build a new $1.8-billion (U.S.) smelter in Kitimat. With an annual output of up to 400,000 tonnes, it will use Kemano power and the latest in efficient, environmentally friendly technology. It will, it's true, also use 550 fewer workers than the current facility. But it's the biggest smelter Alcan can build, says Evans, given Kemano's capacity.
So why not force BC Hydro to cough up the cheap additional power the government promised in 1997 and build the 550,000-tonne smelter that was promised then? "BC Hydro was in no position to supply this power had we called it," says Evans. "They would have had to build new hydro facilities at much higher costs. . . .We thought that was a politically unstable situation to be caught up in, particularly having been in a situation before where the rules were changed [when the KCP was cancelled] so we saw it as a substantial risk to build a bigger smelter based on power that wasn't physically available."
Wozney, not surprisingly, disagrees. The 1997 agreement was a contractual obligation on everyone's part, including Alcan's. So, who's changing the rules now?
If the project Evans is now promising is completed in 2011, Alcan would sell 115 MW of surplus power to BC Hydro, down from the recent average of 225 MW. But even if the project falls far short of the bright future for Kitimat Alcan promised in 1997, there is no formal or binding undertaking on the company's part to proceed. Finally, if Alcan becomes the subject of a takeover in coming months, as many investment analysts believe it will, all bets are likely off the table.
Evans adds that three conditions must be met before he takes the Kitimat project to Alcan's board for final approval: It must obtain an environmental clearance; the British Columbia Utilities Commission must approve an amended power sales contract between Alcan and BC Hydro; and the union at Kitimat must agree to a no-strike clause during the construction phase.
In August, Alcan said it hoped to satisfy all three conditions before year-end; by early November, the deadline had been pushed to mid-2007. Kitimat's suit won't help matters, Evans says. "The strategy of suing us to force us to build a bigger smelter has zero upside for the community of Kitimat and considerable downside. The downside is that they hold the thing up and create enough uncertainty that we go to Coega or Iceland first." Coega is the proposed $2.5-billion (U.S.) smelter in South Africa in which Alcan would own a 30% stake; the Iceland option is the wholly owned ISAL smelter Alcan wants to expand by a third. A similar-sized expansion is being contemplated for Alcan's Alma, Quebec, smelter.
Evans warns that all three projects could overtake the Kitimat expansion as priorities should the legal fight drag on. How convenient, counters Wozney. He sees a bluff. Besides, he adds, it would be too expensive to start the new Kitimat smelter before the 2010 Winter Olympics, since the building boom leading up to that event has created a serious labour shortage, which would blow project costs sky-high.
Alcan, it must be said, has been generous to the residents of the area, which counts some 1,500 members of the Haisla nation in town and on the nearby Kitimaat Village reserve. But Wozney sees Alcan's largesse as its way of silencing opponents. "The CEO may have changed, but the culture below has not," says Wozney. "The promises made in the past have not been kept. Over time, they have not proven themselves to be reliable and trustworthy."
"Slight paranoia," ripostes Evans, when told of this remark. "If your question is, as I've heard rumoured, are you going to start the project, then stop and sell all the power? Absolutely ludicrous. . . .Think of the repercussions in the community. It would be crazy!" Yet he doesn't answer this question: Why fight Kitimat in court (Alcan has intervenor status in the town's case against the government), pressing your legal right to sell as much power as you want, if that is not what you intend to do?
"Alcan is owner of Kemano Power," Alcan's lawyers told B.C. Supreme Court Chief Justice Donald Brenner in October. "The common law of property gives Alcan the right to sell Kemano power as an incident of ownership. . . .[The 1950 agreement]neither confers nor restricts Alcan's right to sell power."
Wozney's battle against the government is not a partisan one. He actually ran as a Liberal under current premier Gordon Campbell in the 1996 provincial election won by the New Democrats. But the soft-spoken lawyer with patrician looks feels Campbell has since caved in to Alcan.
His proof: The way B.C. sided with Alcan in defending itself against Kitimat's suit. "Electricity is property. It is a fundamental attribute of property that its owner can sell or dispose of property in any way he/she pleases," government lawyers argued before Judge Brenner in October. "Hence, Alcan needs no authorization from the province in order to be able to sell the electricity it produces." Laments Wozney: "It just doesn't make any sense to me why we would allow such a sell-off of B.C. resources to a multinational with no benefit to B.C taxpayers."
Wozney gets little sympathy from the provincial government. "It is not possible for the province to write an agreement that makes Alcan 100% obligated to proceed with a new smelter," says Colin Hansen, the province's Minister of Economic Development. "We've gone as far as we can to making sure [of that] Far more could be accomplished vis-à-vis economic certainty if there was more co-operation [from Kitimat]"
Although Wozney is thoroughly offside with Victoria, the idea of surrendering water rights in perpetuity to Alcan would be anathema in Quebec, which remains the cradle of aluminum production in North America, with 10 times B.C.'s output, and where Alcan produces 2,700 MW of hydro power under long-term leases granted by the provincial government. The leases last came up for renewal in 1983, when the then-Parti Québécois government secured binding commitments from Alcan to add smelting capacity and jobs. It helped that, at the time, the provincial pension fund--the powerful Caisse de dépôt et placement du Québec--was Alcan's biggest shareholder and used its influence accordingly. Contemporary Quebec politicians have never hesitated to warn Alcan that its continued enjoyment of its water rights is always subject to review. In coming years, Alcan will be shutting down a couple of its older smelters in Quebec, having already closed part of its historic Arvida facility in 2004. But were Alcan to suggest it could sell the electricity thus freed up back to taxpayers, at market-based prices via Hydro-Québec--that, in other words, it could do what it has been doing in B.C.--it would face certain public crucifixion and invite political reprisal.
Evans knows this. "My view is that we should use our power availability in Quebec to produce aluminum. That's the reason it was given to us and that was the understanding at the time," Evans says, over a lean lunch in what was once Lord Atholstan's salon, now part of the stately Maison Alcan on Montreal's Sherbrooke Street. The Oregon-born Evans, a former high-school football captain with an elegant demeanour and wry sense of humour, appears sincere in his intention to invest in a new smelter in Kitimat and curtail power sales there. "We feel we make more money by using that resource to produce aluminum, the maximum aluminum we can produce, than we would by selling power at market prices. This is a pretty important point, right?"
It is. But, far from backing it up by taking on the burden of building a new smelter--the debt, the fixed and operating costs--Alcan has not put even a shovel in the ground. What it has done is continue to assert its legal right to sell as much Kemano power as it wants. In the past few years, that's been up to 300 MW--about the maximum possible, given current transmission line capacity and interconnections. Alcan has never publicly disclosed its profits from power sales; they're lumped in with those of its primary metal operations--a fact that in itself has led to the inevitable question of whether the company is using massive returns on energy sales to obscure a less-than-stellar performance from its aluminum smelting business. "I don't want to make a bigger deal out of the power sales profits than needs to be," says Evans. "I guess we are somewhat sensitive to our relationship with BC Hydro and our obligation to the parties not to disclose things that they do not want to disclose."
Here's about as much as can be known: In 2004, the Kitimat smelter produced 254,000 tonnes of aluminum ingot, below capacity of 277,000 tonnes. That output was worth about $492 million (U.S.), based on an average aluminum price that year of $1,937 (U.S.) a tonne. (Aluminum prices peaked at $3,300 [U.S.]a tonne in May of this year, and it currently trades on the London Metal Exchange at around $2,500 [U.S.]) In the same year, 2004, Kemano was running at about 724 MW, reflecting lower-than-normal water levels in the Nechako reservoirs. Even so, that was enough to run the smelter--albeit below capacity--and sell 20% of Kemano's power to BC Hydro under a long-term electricity purchase agreement (LTEPA) originally signed in 1990, and another 4% to Powerex, the utility's export arm.
Alcan has not publicly disclosed the prices set out in the LTEPA, which was amended in 1997. But industry publications, such as Megawatt Daily, have reported that the average price has been $46 per megawatt-hour. Meanwhile, the cost of producing power at Kemano is about $5 per MWh. Alcan has never disputed those figures. Additional energy sold to Powerex usually fetches a much higher rate, since it's auctioned during demand peaks. Hence, Alcan's electricity sales from Kemano are estimated at around $70 million in 2004, while the cost of producing the power was less than a tenth of that. Alcan does pay about $12 million a year to the government in water royalties, but that sum covers electricity used to make aluminum as well as that sold to BC Hydro.
The LTEPA was amended again in August. Alcan will henceforth sell a minimum of 170 MW of power to BC Hydro at a much higher rate of $71 per MWh until 2011, when a new smelter, according to the latest promise, should be running.
When the helicopter lands at Kemano, we hop in a pickup and drive deep into the hollows of the mountain. Inside the powerhouse, technician Larry Wilyman leads us further underground, through a series of locked doors into what appears to be nothing but a cold, damp cave. "Welcome to the $600-million hole," muses Wilyman, referring to the cavernous unfinished tunnel--all that's left of the Kemano Completion Project. "They left in such a hurry that the blueprints were still on the table."
(The KCP fiasco isn't the whole story. In 1997, Alcan sold part of its contract for supplying BC Hydro's Powerex with power to a subsidiary of Enron Corp. Yes, that Enron. What looked like a smart move then--allowing Alcan to bank an upfront payment--came back to haunt the aluminum company-cum-energy trader when Enron went bankrupt in late 2001. Powerex sued Alcan, leading to a $110-million [U.S.]payment to BC Hydro by Alcan under a 2004 settlement.)
Inside the powerhouse, it's easy to forget the twisted past. The scale of the place is mesmerizing. The power plant is as clean as a sanitarium. It is also eerily empty of people. Computerization means it takes only a handful of people to run the generators--and they're not based here but in Kitimat. In the beginning, it took such a big crew to run Kemano that Alcan built a village here, housing 300. By the beginning of this decade, it was a ghost town, literally reduced to ashes in controlled burns used to train firefighters.
The technological strides at the smelter in Kitimat have not been quite as impressive. The 52-year-old facility looks--and smells--its age. It's an example of what's known as VS Soderberg construction. The "pots" that produce molten aluminum at temperatures surpassing 900 C spew out three times as much in greenhouse gas equivalents per tonne of metal as the AP "prebake" smelter Alcan is promising to build. After barely five minutes inside, my notepad is saturated in soot. I grieve for my lungs; thankfully, twin respirator air masks are mandatory issue for workers.
The alumina zapped in the seething pots has been brought in on 43,000-tonne tankers from Australia; one of them is in dock now, and it will take a week to vacuum out its contents. The aluminum ingots and billets that are cast in a hangar-like adjacent building will be shipped back across the Pacific, mostly to customers in Japan and South Korea, such as Nippon Light Metal Co. Ltd. and Furukawa-Sky Aluminum Corp. Eventually, they may end up in your Honda or Hyundai. The to-and-fro across the ocean shows the lengths producers of aluminum will go to get cheap and plentiful electricity. Still, without modernization, the aged Kitimat smelter has barely a decade to live.
"To get to modernize, it's unbelievable," says Paul Henning, the smelter's director of operations. "You probably only get one chance in life to do this, so you better get it right." But Henning's last assignment at Alcan involved shutting down an old smelter in Scotland. Wozney and Hall figure that's the mandate the company has also handed him in Kitimat.
"It's a good story, but it's not true," replies Henning, an affable Geordie from Newcastle with the exaggerated features of a Spitting Image puppet. What he did do, Henning says, was close a small, century-old smelter in Kinlochleven and transfer its production to a neighbouring facility in Lochaber. The latter's Soderberg pots were replaced by the same sort of technology Alcan's promising for Kitimat--allowing the company to produce more aluminum with the same amount of electricity. Employment was cut, however, from 650 to 175. Explains Henning: "The story of what we're [planning]here is pretty much the same as Lochaber."
Marylin Davies, for one, believes him. "If somebody came to Terrace with $2 billion, I would hope they would be treated with more trust," says Davies, a councillor in the community of 12,000, the only other town in the region. "Why would you ask the question: 'Do you have faith in Alcan?' We have faith that smelter will be built. Why shouldn't we be positive and work with people?"
At a meeting of business types from the region, it's clear where the crowd stands. This group of entrepreneurs, engineers and accountants from Kitimat and Terrace, many of whom depend on Alcan for work, see no logic in biting the hand that has fed the region for half a century. "Just go to the brochure rack and see how many events are sponsored by Alcan," says one. "Alcan gave the Hirsch Creek Golf Club land to put in their second nine for a dollar," adds another. There are unkind comments directed at Wozney and Hall. The latter has been depicted locally as a Cardinal Richelieu figure to the mayor's Louis XIII. "Trafford is the leader; the mayor is a follower," opines Howard Mills, a Kitimat doctor who runs Minette Bay Lodge, an upscale inn that often counts Alcan's senior managers, including Evans, as guests.
Alcan is such a polarizing force in the region that social circles rarely include those on opposite sides of the power-sales issue. Adds Mills: "I think it's very sad, all this battling in a tiny little community. I mean, when people won't look at each other." Still, Wozney was re-elected--albeit by a slim 222 votes--a year ago on what almost everyone agrees was a referendum on Alcan. And the Skeena riding that encompasses the region voted solidly for the New Democrats--who've sided with Kitimat in the Alcan battle--in last year's provincial election and the January, 2006, federal vote.
In the battle for public opinion and political influence, the playing field is never as unlevel as when tackling a $20-billion (U.S.) multinational corporation. Alcan has spent millions fighting for the hearts and minds in British Columbia, as it has in Quebec. In both places, the company began a television advertising campaign this fall, touting its superlative corporate citizenship. It hired one of Quebec's most esteemed feature filmmakers, the Genie-winning Francis Leclerc, to direct the spots that show a series of Alcan employees holding hands. "Whatever we do for ourselves, we also do for you. Because everything is linked." It's a seductive message. But slick advertising alone doesn't open doors in Victoria. It also takes the right people. Alcan's B.C. message man is Patrick Kinsella, the chairman of Progressive Group, a Vancouver government relations consultancy. He's been called a lobbyist by opposition politicians, but Alcan will only say that he has a mandate to provide the company with "strategic communications advice."
He also happens to be the most powerful backroom boy in B.C. politics. He was principal secretary to Social Credit Premier Bill Bennett in the 1980s, and has been a staple of most federal Tory campaigns in B.C. since then. The Liberals having replaced Social Credit as B.C.'s free-enterprise party, Kinsella ran Gordon Campbell's successful election campaigns in 2001 and 2005. He was also Campbell's chief fundraiser. Opposing Alcan's multimillion-dollar lobbying campaign is the $1.5 million the District of Kitimat has spent on the cause, much of it eaten up by legal fees. No fancy TV ads; it counts on volunteers to get the message out.
There's another ad running on TV in B.C. this fall--this one from BC Hydro. It warns that the province is running short of electricity and has been increasingly importing it from the U.S. and Alberta. The campaign aims to smooth the way for the government's new policy of meeting additional electricity needs by purchasing power from the private sector. It's a controversial tack; critics warn it could lead to privatization of public resources and, in some cases, environmental fallout. In August, BC Hydro awarded 38 contracts to private power producers to supply 1,400 MW of new electricity. The group includes the first coal-fired generating stations in a province that has traditionally boasted of its "clean" power. (More than 90% of the province's juice currently comes from hydro sources.)
Electricity everywhere in North America is in increasingly short supply--and getting ever pricier. So, simple numbers dictate that BC Hydro and its political masters would happily buy power from Alcan--even if it means alienating Kitimat. It's only one remote riding, after all, compared to the mass of B.C. electricity users and consumers in the Lower Mainland. "We're happy to get a long-term resource from clean power," BC Hydro CEO Bob Elton told Megawatt Daily in August, after the most recent power sales deal with Alcan was struck. "We won't have to build a new power plant."
The power generated at Kemano is only going to get more valuable with time. In October, the North American Electric Reliability Council projected a shortfall of 81,000 MW in the United States by 2015. It's a sure bet: Electricity prices are going up. You cannot say the same thing about aluminum. Its price fluctuates dramatically. The industry itself is in flux with the proposed merger of Russian giants Rusal and Sual, which will create the world's biggest producer. Production in China, Africa, the Middle East and Iceland is ramping up. Unlike electricity, where markets are defined by their transmission grids and hence geographically constrained, the aluminum market is global. Between the sure bet of electricity profits and the risky gamble of putting $1.8 billion (U.S.) into a new smelter, which one should Alcan's shareholders take?
If the 1950 exchange between Alcan and the B.C. government really was one of power for jobs, then Alcan would produce aluminum in Kitimat--period. And if the current B.C. government wanted to enforce its domain over a public resource, instead of making taxpayers buy it back at a premium, it almost certainly could. Period. But life, politics and business are complicated. Mistakes are sometimes hard to undo. Trust, once lost, hard to regain. Alcan is not a bad company; by most standards, it's a fine one. But there's a lot that stands between the rhetoric of corporate social responsibility and the reality of capitalism. This is now Dick Evans's circle to square. Alcan's ad is right: Everything is linked. Just not always neatly.
To us, a responsible company is one that cares as much about the environment and the communities in which it operates as it does about its own growth. . . .Whatever we do for ourselves, we also do for you. Because everything is linked. Alcan is linked to British Columbia. Alcan is linked to the planet. --Alcan commercial running on B.C. television
Let us not forget...that other governments in the past have alienated valuable natural resources on terms which history has shown to be less than prudent. . . .The present government will be expected to do everything in its power to avoid unpleasant afterthoughts in its zeal to obtain an aluminum industry. --Vancouver Sun editorial, Jan. 3, 1951
We hit a rough patch for a while. We're putting past misunder-standings behind us and going forward with hope. --Alcan CEO Jacques Bougie, Aug. 4, 1997
This is more than just an investment. It's a major vote of confidence in the people of Kitimat, the future of the northwest and recognition of the strength of B.C.'s investment climate. --Premier Gordon Campbell on Alcan's Aug. 14, 2006, announcement that it will build a new smelter in Kitimat
I don't know why the Liberals are being such candy asses towards Alcan. And that's exactly what they are--candy asses
I think Alcan has direct access to the Liberal government and can have that access with great speed--whereas others can't, including the District of Kitimat. --former NDP leader Joy MacPhail, in a video prepared by the "Don't Sell Us Out" Coalition that is fighting Alcan
A prudent ruler cannot keep his word, nor should he, when such fidelity would damage him, and when the reasons that made him promise are no longer relevant. --Niccolò Machiavelli, The Prince
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