Alcan says power pact refusal may affect Kitimat

MONTREAL - Alcan Inc. said on Tuesday that a British Columbia regulator's rejection of a power-sale agreement could affect plans for a $1.8 billion (C$2 billion) expansion of its aluminum smelter at Kitimat. Alcan, the world's second-largest maker of primary aluminum, said the British Columbia Utilities Commission rejected a proposed long-term energy agreement that would see the company sell electricity from its Kitimat-area power plant to provincially owned utility BC Hydro.

"We are disappointed with the BCUC decision and will be studying it closely to better understand the commission's rationale and to determine the potential impact on the feasibility and timing of the Kitimat modernization project," Michel Jacques, president and chief executive of Alcan Primary Metal Group, said in a statement.

Approval of the power contract was one of three conditions Alcan set for the modernization of Kitimat, in northwestern British Columbia. The plans would expand the smelter's annual production capacity by more than 60 percent to about 400,000 tonnes from 245,000 tonnes.

The other two conditions to be met were environmental permits and a labor agreement with the Canadian Auto Workers union, which represents Kitimat workers.

In a letter on Friday, the commission said the power pact should not be accepted, in part because of prices BC Hydro would have to pay for excess energy supplied by Alcan's Kemano hydro-electric plant near the Kitimat site.

The commission said it would release the reasons for its decision at a later date.

In arguments at the commission, BC Hydro had said the power agreement with Alcan would help the utility meets its goal of energy self-sufficiency.

But others told the commission that Alcan should use all the power generated at Kemano to produce aluminum at Kitimat rather than divert it for sale through the province's power grid.

When Alcan unveiled the Kitimat project in mid-August, the company said the smelter expansion would increase its global aluminum output by more than 4 percent.

Using an upgraded version of the AP smelting technology it acquired when it bought France's Pechiney in 2004, the first part of the new capacity was slated to come on stream in 2009.

Alcan shares were off 8 Canadian cents at C$56.70 on the Toronto Stock Exchange on Tuesday morning.

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