Thursday,
August 2, 2007
Canada Sells Off Its Economic Jewels
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".
Conclusion
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 rodrigue.tremblay@yahoo.com
Visit his blog site at: www.thenewamericanempire.com/blog.
Author's Website: www.thenewamericanempire.com/
Check
Dr. Tremblay's coming book "The Code for Global Ethics"
at: www.TheCodeForGlobalEthics.com/_______________________________
Posted,
Thursday August 2, 2007, at 5:30 am
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