Thursday, August 2, 2007

Canada Sells Off Its Economic Jewels

by Rodrigue Tremblay

Translated by Wendy Forrest

"One cannot separate property and power; one can simply have them change hands."

John Randolph (1773-1833)

"The situation becomes serious when the company is nothing any more but one bubble of air in the speculative swirl."

John M. Keynes (1883-1946)

"The interest of the dealers, however, in any particular branch of trade or manufactures, is always in some respects different from, and even opposite to that of the public. To widen the market and to narrow the competition, is always the interest of the dealers. To widen the market may frequently be agreeable enough to the interest of the public; but to narrow the competition must always be against it, and can serve only to enable the dealers, by raising their profits above what they naturally would be, to levy, for their own benefit, an absurd tax upon the rest of their fellow-citizens." 

Adam Smith (1723-1790)

Québec is a giant in hydroelectricity, with an average annual production of some 37 000 megawatts. Over half of hydroelectric energy in Canada is produced in Québec. This is why the sale of Alcan to foreign interests is of particular concern. Alcan is the most important industrial producer of electricity in Québec. It has a net market worth of approximately $40 billion Canadian dollars and employs 105,000 people, of whom 8,000 are in Québec. More importantly, however, is the fact that Alcan owes its enviable strategic position to hydroelectric concessions obtained from the Québec government. Indeed, these yearly subsidies, in the form of private hydroelectric licences that are renewed annually, allow Alcan to produce electricity at very low costs.

On July 12, a "white knight", the anglo-Australian consortium Rio Tinto, announced its intention to take control of the Canadian company Alcan, with the unanimous blessing of its board of directors. Alcan is the third largest global producer of aluminum products and the second largest world producer of primary aluminum. Its current registered head office, with 800 employees, is located in Montréal, Québec. In 2003, Alcan bought out the French aluminum producer Pechiney, and the management of its Packaging division is located in Paris.

This offer to purchase the Canadian aluminum giant thus helps Alcan escape a hostile takeover bid by the American company Alcoa, whose unsolicited offer of May 7th was rejected as being too low, besides being unwelcomed. There must have been an air of importance surrounding the anticipated transaction as the Canadian dollar gained .5 cent US on the foreign exchange markets immediately following the announcement, an indication of the increased demand for the Canadian currency that such a purchase would entail. Indeed, if they accept the buy out offer of approximately $40 billion Cdn, the current shareholders of Alcan (Canadian as well as foreign) will sell their shares at a high price. However, Canadian producers in the agricultural, forestry or import competing manufacturing industries will suffer the consequences of an increasing Canadian dollar. Canadian consumers and the net debtors in foreign currencies will be pleased.

The Canadian dollar is already strengthened with the record high price for Alberta's oil exports and the high price of raw materials and primary products. If the fire sale of the largest Canadian companies to foreign interests continues, it will turn Canada into a branch plant economy. It will push the Canadian dollar closer to parity with the American dollar much faster than expected or more quickly than many would have wished.

But why are foreign companies like Alcoa and Rio Tinto so anxious to acquire Alcan? First, such a take-over offers an opportunity to cartelize the world aluminium market by making Rio Tinto the largest aluminum producer in the world (ahead of Russian CPU Rusal, the anglo-Australian BHP Billiton and the Brazilian CVRD, etc). Second, the absorption of Alcan by Rio Tinto also makes it possible for the latter to acquire the substantial hydroelectric concessions that Alcan has obtained from the Government of Québec throughout the 20th century.


Indeed, Alcan is the most important independent producer and the largest industrial user of hydroelectricity in Québec. It is an aluminum manufacturer which produces its own low-cost electric power, thanks to hydroelectric dams and power stations which it owns in the area of the Saguenay-Lac St-Jean. In the 1920's, the Taschereau government and successive governments of Québec conceded some 74,000 square km of hydraulic resources to Alcan for its own exclusive use, in exchange for the construction of aluminum refining factories (Alcan imports its bauxite from abroad.) Between 1926 and the end of 1950, Alcan built twenty-seven dams and other water controlling works, and six hydroelectric power stations in Québec, including three as a tenant of the Péribonka River (lease terms effective to the end of 2033, and renewable until 2058). This is what makes it possible for Alcan to produce more than two billion kWh (2,000 megawatts) of electricity in Québec alone annually!

Alcan is able to satisfy 90 percent of its energy needs for its aluminum smelters in Québec (the other 10 percent is bought from Hydro-Québec through long term energy contracts; one of them was signed in 1998 and extends until 2023). When it has an energy surplus, Alcan sells it to Hydro-Québec, which in turn exports part of it to the United States. Alcan is thus a kind of private Hydro-Québec, a state within a state if you will. Therefore when Alcan is sold to foreign interests, a part of Québec is also sold off to foreign interests. This is the reason we must pay close attention to this takeover of Alcan by a foreign company like Rio Tinto. I do not doubt that Rio Tinto will respect the terms of its agreements with the Government of Québec in exchange for the lucrative past and future concessions it has received. However the legitimate concern is with future actions to be taken regarding, for instance, the real importance of its head office in Montréal as a new subsidiary of Rio Tinto-Alcan, and its future expansion projects.

At the outset, let us say that Rio Tinto is not immune to pressures for centralizing its world operations. Last year, it closed the head office of its Québec division Rio Tinto Iron & Titanium (RTIT) of Montréal and moved it to the United Kingdom. This time it promises that Alcan's head office as a new subsidiary called Rio Tinto-Alcan will remain in Montréal. Undoubtedly this will be the case for five or ten years. But the same experience observed with the Royal Bank's Montréal head office can repeat itself: Its head office is still technically located in Montréal, but most of its vital divisions have been transferred to Toronto, leaving behind an empty shell. Similarly, one can fear that little by little, some management operations will be moved to London in order to meet the high profitability criteria of Rio Tinto. Such is the prerogative of an owner.

This prompts me to reveal the following: In 1979, as Québec Minister of Trade & Industry, I somewhat foresaw what is occurring today—that sooner or later a foreign company would see with the potential of Alcan and put a stranglehold on this industrial jewel in order to become the world's most competitive aluminum manufacturer. In order to preserve the common good of all the citizens of Québec, I met with the heads of the three largest financial institutions in the province: National Bank (then directed by Germain Perreault); Desjardins Movement (then directed by Alfred Rouleau), and the Caisse de Dépôt et Placement (then directed by Marcel Casavant) to set up, in collaboration with the Government of Québec, a Québec investment Bank, whose first task would have been to finance the largest, most strategic and profitable companies in Québec in order to protect the province's future economic development. Then Prime Minister Rene Lévesque agreed, and it was formally announced in his inaugural speech on March 6, 1979.

"The Government of Québec intends to soon implement new financing mechanisms for Québec industrial and commercial investment projects."

In my book "Québec in Crisis" (pp 216-217), I refer to this episode in Québec's history. When opposition to the creation of a Québec Investment Bank came from within the government, the project was shelved. I had no alternative but to leave government.

Québec to this day is still very vulnerable, and, as with Canada as a whole, is in danger of losing control of its most important economic levers, especially in the area of its natural resources. In a few years even banking and other nevralgic sectors will be at risk. The one-time slogan of  "Masters in our own House", as promoted by Prime Minister Jean Lesage at the beginning of the "Quiet Revolution" seems very remote these days. Perhaps it would be more appropriate to speak about a "Quiet Resignation".




Regarding the foreign take-over of Alcan, even though such a sale is bound to enrich a few individuals and many international speculators, it surely appears to be contrary to Canada's best interests. It represents an abusive transfer of the economic rent on Canadian natural resources to foreigners. Consequently, the federal Minister of Industry should apply the rules contained in the Investment Canada Act relative to foreign take-overs and ascertain whether such a purchase generates a "net benefit" to Canada, according to the six identified criteria for such an evaluation. On at least five of the six criteria, it is doubful that the loss of Canadian control of Alcan is to the net advantage of Canada. —It is even less advantageous to the Province of Québec, whose hydroelectric resources are directly involved.


Rodrigue Tremblay lives in Montreal and can be reached at

Visit his blog site at:

Author's Website:

Check Dr. Tremblay's coming book "The Code for Global Ethics" at:

Posted, Thursday August 2, 2007, at 5:30 am


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© 2007. All rights reserved.This article is published by permission of Big Picture World Syndicate, Inc.