Regulator puts Alcan’s Kitimat smelter plan in limbo

Vancouver – Alcan (AL-T, AL-N) says a planned $1.8 billion upgrade of its Kitimat smelter is in limbo following a regulator’s decision to reject a power sales agreement between the aluminum giant and Crown-owned British Columbia Hydro and Power Authority.

However, the Montreal company stopped short of saying that that the decision by the British Columbia Utilities Commission means its plan to modernize the 50-year-old smelter facilty will not proceed.

“We are disappointed with the BCUC decision and will be studying it closely to better understand the Commission’s rationale and determine the potential impact on the feasibility and timing of the Kitimat modernization project,” said Michel Jacques, Chief Executive Officer of Alcan Primary Metal Group.

“We understand that this period of uncertainty will be difficult for the region affected by the BCUC decision.”

The comments come after the BCUC said on Dec. 29 that it would not approve a long-term power supply agreement between Alcan and B.C. Hydro that would have seen Alcan sell surplus electricity to the province.

Critics said the deal was unfair because it would have required B.C. Hydro to pay an average of $71 a megawatt hour for surplus power that Alcan’s Kemano hydroelectric dam can produce for around $5..

However, as Alcan was waiting for the power sales deal to be approved, the BCUC decision appears to throw in limbo a modernization plan that would have potentially increased the capacity of the Kitimat aluminum smelter to 400,000 tonnes annually from the existing 245,000 tonnes.

“We are basically in a hold mode,” said Colleen Nyce, a Kitimat-based spokeswoman for Alan.

Had the upgrade gone ahead, it would have increased Alcan’s global aluminum production by over 4%, she said.

In an interview with Canadian Press, BC Hydro spokeswoman Elisha Moreno said it is too soon to speculate on whether or not the deal will be re-negotiated because the utility is waiting for a written copy of the BCUC decision.

“When we set up the agreement with Alcan, we were very happy with it,” she said. “It had a very good price. It had good reliable electricity. It was made in B.C. There was no reason to think that there was anything wrong with that agreement.”

However, having long argued that excess electricity should be used to boost economic development and jobs in the Kitimat region, Kitimat mayor Richard Wozney took a different view.

“The Commission saw through the smoke and mirrors in terms of what the [power sales agreement] is offering the citizens of B.C.,” he said. “They said this is a bad deal for B.C. rate payers.”

Community leaders in the region believe Alcan is more interested in lucrative power sales from the nearby Nechako River system than in using that low- cost power to expand aluminum production.

Mr. Wozney said the municipality is now waiting to see whether or not the Montreal company will exercise its rights under a 1997 deal that would have required it to expand the capacity of Kitimat smelter to 500,000 tonnes.

Under that agreement, Alcan would have gained the right to receive electricity it could not produce from its Kemano hydroelectricity facilities for $20 per megawatt hour. Mr. Wozney believes Alcan had until Dec. 31 to serve notice to the B.C. government that it intended to exercise its rights under the 1997 agreement.

That fact that the company has not made any announcement, he said, is likely a sign that an upgrade to 500,000 tonnes is now off the table.

In an interview, Ms. Nyce said the decision not to proceed with a much larger expansion was taken some time ago because it was deemed to be not in the best interests of the company.

Meanwhile, Mr. Wozney expects that Alcan will soon sit down with the B.C. government to negotiate a new power sales agreement.

“We just hope that they will keep us in the loop.”