Plant closure will leave void

Agrium shutdown means loss of substantial property taxes, full-time jobs

Posted: Wednesday, January 05, 2005

Her voice choked with emotion and fighting back tears, Agrium spokesperson Lisa Parker told a packed house at Tuesday's Soldotna Chamber of Commerce luncheon that despite the best efforts of corporate officials to find a way to avoid it, Agrium will close its Nikiski fertilizer plant Nov. 1 as announced last month.

The closure will have immediate impacts, including the loss of 230 full-time, high-paying jobs, and a substantial reduction in property tax revenue to municipal and service area coffers.

Before beginning her prepared remarks, Parker thanked the community, the cities of Soldotna and Kenai and the Kenai Peninsula Borough for their support.

"As we have addressed some of the challenges of the past few years, the community and its leaders have never wavered in its support for keeping Agrium alive and whole," she said.

Securing a viable, low-cost gas supply proved too high a hurdle for the company, which purchased the plant from Unocal in 2000. Almost from the beginning, the two companies were at odds over contractual obligations that included delivery of gas by Unocal to Agrium at a price that would permit Agrium to make a profit. Unocal's failure to deliver sufficient gas led to arbitration over some issues, and court suits over others — eventually resulting in a settlement announced late last year.

Under that settlement, however, Unocal guaranteed gas for only one more year, and Agrium has found no new source of cheap gas.

Responding to public inquiries about what Agrium had done to try and keep the plant open, Parker outlined efforts made since September 2000.

With the help of peninsula lawmakers, Agrium saw state law changed so companies selling gas to Agrium would know up front their royalty exposure at the time of the sale instead of after the fact, she said. Agrium also worked to open the existing natural gas pipeline system "to ensure open access common-carrier status on most lines at reasonable rates," Parker said.

Agrium did purchase "spot gas," she added, but that gas was made available on what she called a "fully interruptible basis."

The company, meanwhile, continued attempting to purchase gas from other producers at competitive rates. Agrium also attempted to purchase gas from new entrants in the Cook Inlet natural gas game and went so far as to explore acquiring developed gas supplies from current producers. All those efforts failed to secure the needed supply, Parker said.

Agrium approached the state of Alaska about purchasing royalty gas, an effort backed up by support from the borough.

"In the end, DNR (Department of Natural Resources) determined that it was not in the state's best interest to proceed with the sale of royalty gas," Parker said, adding later that she had never seen in writing a justification for that decision.

"Agrium has talked with every producer, every lease holder in Cook Inlet — and there are in excess of 50 — in efforts to work out a mechanism to develop gas prospects for the Kenai facility," she said.

"Despite the development of a rigorous geophysical model of Cook Inlet and the review of over 50 prospects, we have been unsuccessful in identifying reasonable exploratory prospects and reaching terms that offered a reasonable balance of risk and return."

As for its employees and their futures, Agrium already has allowed workers to reset contributions to health and dependent care reimbursement accounts, Parker said. Over the next 10 months, she said the company will take steps to ease the transition, including determining severance packages, helping workers find new jobs and meeting with union representatives to discuss effects of the shut down.

Agrium, she added, had met with state Department of Labor officials and is planning to host a job fair.

The Nikiski complex is operating at 50-percent capacity today and will through March. At that time, the gas supply is expected to increase, allowing the company to operate the complex's second ammonia plant through the summer.

"And then sometime in September, we will take that ammonia plant down and operate one ammonia plant and one urea plant through Oct. 31," she said. "We at Agrium have been asked many times if there is anything you can do to keep the plant operating. The answer is no."

Audience members asked if Agrium had investigated selling the plant, either to another company, or possibly its employees. Jim Senn, Agrium business support manager, said the company was looking at options following shutdown, but he was noncommittal.

"Most of our focus right now is how do we get to that point," he said. "We will be open to all kinds of commercial opportunities for the plant as they come up, and we will evaluate them one at a time."

The gas delivered by Unocal comes at a fixed low price. Asked what price gas Agrium would need to remain in production beyond next year, Senn said the answer depended on the world market price of its own commodities.

Currently, its own market prices are relatively high and it could manage to operate even paying today's high gas prices. When its own prices are low, however, Agrium would need gas down around $2 per thousand cubic feet, Senn said. That's well below the market price currently demanded by local producers.

Last month, Gov. Frank Murkowski announced he would create a task force to look for alternative supplies of gas that might forestall or prevent an Agrium plant closure. Parker said the company would still work with such a group, but a task force has yet to be named.

Borough Assembly President Gary Superman asked if Agrium would approach the borough this year for a property tax devaluation based on an idled plant. He said he primarily was concerned with what that would mean in Nikiski, where service areas depend on the property tax revenue from the plant, currently assessed at $235 million.

Senn said Agrium would meet with the borough next week to begin talks about future property taxes, looking at how you put a value on an asset that has no life.

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