The Ridley Island coal terminal near Prince Rupert must remain a not-for-profit facility now that it has been re-claimed as a Crown operation, says its largest user.

"We're really positive about the cancellation," says Gary Livingstone, president and CEO of Vancouver-based Western Canadian Coal Corp. (WCCC).

Prime Minister Stephen Harper's decision to scrap a reported $20-million contract has ended a deal that would have allowed London, Ont.-based coal producer Fortune Minerals Ltd. to take over the facility and operate it as part of a joint venture with Woodstock, Ont.-based Federal White Cement Ltd.

"We think it's not only good news for our company, but it's great for other producers and anybody else who wants to use that port," adds Livingstone.

Photo courtesy of Ridley Terminals Inc.
The Conservative government has reclaimed the Ridley Island coal terminal as Crown property.

The former Liberal government had sought to unload Ridley when coal prices were low.

But global coal demand is now surging and closed mines in B.C. are reopening while new mining projects are emerging.

Producers view the terminal as a strategic point because Prince Rupert, an ice-free deepwater port, is North America's closest geographical link to Asia.

WCCC was part of a coalition that bid to operate Ridley, but lost out to Fortune's group. The coalition included Teck Cominco and Northern Energy and Mining Corp., among other companies.

WCCC already ships coal to Asia through Ridley under an existing contact, and expects to boost its throughput to 3.5 million tonnes per year in July after its new Wolverine mine near Tumbler Ridge in the province's northeastern corner commences production.

If Fortune had operated the terminal, says Livingstone, it would have held a for-profit monopoly and been able to have "a toll gate at the end of the line."

WCCC's only option would have been to pay additional rail and port charges to ship through Vancouver, but it would not have been able to remain competitive with other coal producers.

Livingstone says it's essential to operate Ridley on a not-for-profit basis in order to keep it competitive with a shipper-operated Australian port that charges as low as $1.50 to $2.50 per tonne.

According to media reports, the former Liberal government - at the behest of former transportation minster Jean Lapierre - approved a secret deal calling for Fortune's group to pay $3 million up front and $500,000 per year for a total cost of $20 million - on a facility that cost taxpayers $250 million to build in the 1980s.

Harper nixed the deal after consulting newly appointed International Trade Minister David Emerson, the former Liberal industry minister who defected after the Tories took office Jan. 23.

Emerson had strongly opposed the contract and publicly clashed with Lapierre over the issue.

As a result of the cancellation, the Prince Rupert coal terminal remains under the ownership of Ridley Island Terminals Inc., a federal Crown corporation, pending Ottawa's decision on how to operate the facility.

"It was a good first step for the government to maintain it and then look for options," says Livingstone.

He says his firm would accept Ottawa continuing to operate Ridley or turning it over to a coalition, as long as it remains a not-for-profit facility.

"Anything (received) above the (operating) cost would flow through to shippers because ... it would bring down their rates," says Livingstone.

Ottawa's original aim in building Ridley was to enable producers to cheaply ship coal and develop more mines in northeastern B.C.

But Julian Kemp, Fortune's vice-president and chief financial operator, says Ottawa's decision means Ridley will be a money-loser and burden to taxpayers for years to come.

"We were surprised and displeased with the action that had been taken," says Kemp.

Kemp says the cancellation indicates Ottawa wants to operate Ridley at below-market rates, while his company would have invested more in the facility and allowed for additional goods to be shipped.

He contends his company would have paid more than the $3 million up front and $500,000 per year to operate Ridley but, citing the confidentiality rules of the bidding process, he declined to divulge the total amount of the contract. "The bid is higher than what is (reported) in the media," says Kemp.

Fortune maintains it was awarded the contract under a fair and open bidding process that began three years ago, and the deal was approved by both the federal and provincial governments.

The B.C. government had concerns about customer access to the terminal, but its concerns were alleviated after meeting with Fortune officials, says Kemp.

Fortune still hopes to operate the port and would like to meet with federal officials.

Critics of the cancelled contract contend the deal would have allowed Fortune to ship its coal at a cheap rate while gouging competitors. But Kemp says it "makes no economic sense" to gouge other coal companies.

"Other terminals in B.C. are profitable and charge market prices," says Kemp.

Kemp notes Fortune was only a partner in the terminal, which would have been operated by Federal White Cement in a newly created company known as Northwest Bulk Terminals Inc. Vancouver businessman George Doumet, president of Federal White, has a minority interest in both companies.

"Federal White is not going to subsidize Fortune Coal's shipping," says Kemp. "They're a company that is investing in a business opportunity. They're not going to subsidize Fortune Coal at the benefit of Fortune Coal and the loss of Federal White Cement."

Fortune is developing the Mount Klappan coalfields in northwestern B.C. Mt. Klappan has proven and probable reserves of 60 million tonnes of clean coal, based on reporting guidelines, and has a projected lifespan of 20 years, although the area's total resource is 2.8 billion tonnes.

Starting in 2008, the proposed mine is slated to produce 20 million tonnes of metallurgical coal for use in steel-making, but the property is part of a territorial dispute with the Iskut, Telegraph Tahltan and Tl'abanot'in First Nations.

With its $3-range stock price not reflecting the company's true value, says Kemp, Fortune is exploring "alternative financing" through a joint venture with a major producer to generate the proposed mine's $300-$500 million capital cost.

Fortune may not even ship its coal through Ridley. Pending the construction of a haul road from the mine site to Highway 37 and a railway line, the company could ship through Stewart, B.C., says Kemp.

He says Fortune only attempted to acquire Ridley because it recognized coal prices would rise along with the China and other Asian markets.

"We've been identified as a company from Ontario, but our biggest asset is in B.C.," says Kemp, adding it's "not appropriate" to characterize the dispute over Ridley as an east-west issue.

He contends WCCC and other companies have criticized the cancelled contract because their bids failed. But WCCC's Livingstone dismisses Kemp's claim that Fortune would charge rivals competitive rates.

He says Fortune could still boost its rates and remain competitive with other markets, but B.C. shippers could not afford them. Nor does he believe that Ridley will lose money in future years.

He notes 3.5 million tonnes of throughput is the break-even point, and his company will ship almost that much by itself, while companies such as Vancouver-based Pine Valley Mining Corp., which operates the Willow Creek project 45 kilometres northwest of Chetwynd, will also pass its products through Rupert. The WCCC boss says Fortune was invited to join the producers' coalition, but Fortune declined.

"(Operating Ridley at the lowest possible cost to producers) was the main thing all along," says Livingstone. "All of this other fluff that's floating around is just that, (fluff.)" Prince Rupert Port Authority president and CEO Don Krusel has called for his group to receive control of Ridley on a not-for-profit basis. The port authority would not make an up-front payment, but would pay Ottawa 30 cents per tonne for all coal shipped through Ridley.

If the terminal achieves its expected throughput of six million tonnes per year, Ottawa would receive $1.8 million annually. The federal take would jump to $4.8 million per year if Ridley reaches its potential of 16 million tonnes every 12 months.

Revenue would be invested in port infrastructure. But Greg Slocombe, president and chief operating officer of Ridley Terminals, has expressed concern that Krusel would divert coal-terminal funds into Prince Rupert's container-terminal expansion project.

Construction began in late January on Rupert's $160-million container-terminal expansion project.

The upgraded dock, which will have a capacity of 500,000 twenty-foot-equivalent units per year, is expected help reduce bottlenecks experienced at Vancouver's congested port facilities.

(Monte Stewart can be reached at monte@businessedge.ca)