Alaska native corporations create opportunities: investments provide new capital, direct and indirect benefits.
Randy Zimin has spent most of his life in the Bristol Bay area. Growing up in South Naknek, he and his classmates would get up, go to the airport, and hop on a plane every morning for the three-mile commute across the Naknek River to school.
"Back then we had about 250 people in our little village," he says. "Now we're down to about 35."
Both the economy and village population in the Bristol Bay region have been shrinking drastically, he says. His son worked in the salmon fishery for a while, but is now studying dentistry in Arizona. "There's a great talent pool out in the region, but a lot of the kids are growing up and graduating and leaving and not coming back because there's not enough opportunities in the Bush."
Zimin is a general contractor who owns a small fleet of boats that provide transportation and cargo service in the region. ADESCO LLC has been in operation since 2005, starting as a sole proprietorship with a subcontract to paint outhouses for the National Park Service in Katmai National Park. Over the years, Zimin has expanded, completing projects across the Lower 48 and Central America but focusing on western Alaska, hiring local workers whenever possible.
New Capital Program
In 2014, Zimin was looking to buy an eighty-foot shallow draft landing craft, the Miss Rebecca, to use as a fish tender, when he heard of a capital investment program getting underway through the Bristol Bay Native Corporation (BBNC).
The Bristol Bay Development Fund (BBDF) was launched in 2014 with the aim of funding startups and small businesses in the Bristol Bay region, says fund manager Cameron Poindexter. It has $5 million to invest over four years. Zimin's company was its first investment.
"Our capital provided them the ability to approach traditional financing--a bank--and complete the purchase," Poindexter says. "That helped grow their marine fleet."
"I think I was probably like the guinea pig of the program," Zimin says. "They invested in my company, which helped me to purchase a vessel and the gear to make it a tender for the 2015 salmon season."
Zimin says this year he was able to buy a marina from Trident Seafood and is looking at additional expansion.
"We've actually grown quite a bit in the past two years," he says. "In fact, we just bought two barges that kind of came along with the marina, so we're expanding fairly quickly, and BBDF has been there to help us along. We hope that continues. We're really glad to see they're reaching out to smaller companies that could use a foot up. It's been really good for us, too."
That result is exactly what BBNC was looking for when it set up the fund, Poindexter says. The corporation, one of twelve Alaska-based regional corporations created under the 1971 ANCSA (Alaska Native Claims Settlement Act), is one of the largest Alaska-owned companies with $1.7 billion in total revenue in fiscal year 2014. Most of its revenues are generated through its investment portfolio, natural resources, and a host of subsidiaries.
Under ANCSA, the corporation has dual mandates: to make a profit and to invest in the social, educational, and cultural wellbeing of its shareholders. One way BBNC is looking to fulfill the second part of the mandate is by acquiring or investing in Alaska or regional businesses to create opportunities for its ten thousand shareholders, most of whom are under the age of forty.
A 'Nurture' Fund
In 2011, the corporation announced plans to invest 10 percent of its assets directly within the Bristol Bay region, Poindexter says. BBNC bought the Mission Lodge, a fly-out fishing retreat, but further efforts stalled.
The executive team met again and came up with the development fund.
Poindexter is the fund manager and John Wanamaker is the venture partner. The fund offers both financial and nonfinancial capital and is considered a "nurture" capital fund.
Over the years, many people had approached BBNC with business ideas, but the corporation didn't have a mechanism in place to help them, Poindexter says. One problem for potential businesses in rural Alaska is a lack of traditional banking institutions.
"Unless you have a solid operating history, it's highly unlikely you're going to be able to get a loan to get your business started," he says. "In places like Anchorage, there's sometimes help available from family or friends. That doesn't exist as much in Bristol Bay. We saw a gap in funding needs out there."
Poindexter notes the development fund not only helps finance businesses but also aids with planning, coaching, advice, and industry connections.
To date, the fund has made investments in three businesses, including another company looking to add fish tender capabilities to a vessel, but has several other opportunities in the pipeline.
'Brand New Industry'
The most recent investment is going to Belleque Family Farm. Kyle and Johanna Belleque have been farming in the Dillingham area for three years, successfully growing potatoes, broccoli, peas, brussels sprouts, and cabbage, but only during the region's abbreviated summer season. The aid from BBDF will allow the Belleques to grow vegetables in a forty-foot shipping container using hydroponics, says Kyle Belleque.
"Dillingham is blessed with excellent soils, and we have a number of very successful gardeners in the region and some small-scale farms," Belleque says. "We do have some fresh produce for a few months of the year. What we don't have is fresh produce year-round."
Most produce in Alaska is shipped from California and Mexico. Many of the vegetables are picked before full maturity so they can withstand the long journey, but much of it spoils before reaching stores. Belleque says his container garden will allow him to cut delivery times and provide higher-quality products.
The garden is being constructed by Vertical Harvest Hydroponics in Anchorage and will be shipped to Dillingham this spring on the first barge. Belleque hopes to harvest his first crops by June.
"It's a brand new type of industry for the region," Poindexter says. "We're hoping that it proves successful for the region and it has great growth potential."
Businesses seeking help from BBDF don't have to be shareholders of BBNC. Poindexter says he's open to any investment as long as it benefits BBNC shareholders, whether it's direct ownership, provides jobs, improves the lifestyles of people in the region, or provides a financial return for shareholders.
"There's lots of different ways we believe investments can be beneficial," he says. "If we're unable to make an investment, people are still able to access myself and our network of resources to be able to plan their business or to get coaching or connections that would be valuable to them."
Direct and Indirect Benefits
In addition to the investment fund, BBNC has been pursuing other acquisitions in the region that will directly benefit its more than ten thousand shareholders.
In July, the corporation completed its acquisition of a fuels network based in Dillingham. Bristol Alliance Fuels operates a 2.95-million-gallon tank farm and marine fueling facility, as well as a retail gas station and convenience store. The business provides regular and diesel fuel, aviation and jet fuel, and propane to commercial and retail customers in the region.
It also provides docking, storage, and barge haul-out services. Bristol Alliance Fuels employs twenty people.
"This acquisition aligns with our in-region investment strategy, and the business fits into BBNC's existing petroleum distribution line of business," says BBNC President and CEO Jason Metrokin in a news release. "We look forward to the opportunities this investment will bring to Bristol Bay and BBNC shareholders."
Other Alaska Native corporations are also investing in Alaska-based businesses to provide direct and indirect benefits for shareholders. The Arctic Slope Regional Corporation's (ASRC) investment in a major Arctic subsea fiber-optic project, Bering Straits Native Corporation's (BSNC) acquisition of Alaska Industrial Hardware (AIH), and Chugach Alaska Corporation's partnership with All American Oilfield Associates are just some examples of how the regional corporations are investing in their home state.
ASRC's investment gives the corporation a minority interest in Anchorage-based Quintillion Holdings LLC, which is building a high-speed telecommunications network on the North Slope, the Quintillion Subsea Cable Project. It is a subset of Canada-based Arctic Fibre, which seeks to link Europe and Asia via a nine-thousand-mile-long, high-speed fiber-optic subsea cable via the Northwest Passage. The cable would be shorter and provide faster data delivery than current routes that cross the Lower 48.
Quintillion plans to construct spurs to Prudhoe Bay, Barrow, Wainwright, Kotzebue, and Nome that will bring high-speed Internet access to northern and western Alaska for the first time, as well as branching off with a high-speed connection between Deadhorse and Fairbanks. "It has enormous potential," says ASRC spokesman Ty Hardt.
Bringing high-speed Internet to the North Slope will provide many opportunities North Slope residents.
"The Quintillion Subsea Cable Project will set the stage for an economic future that will attract and retain residents, generate new businesses, provide distance learning and telemedicine opportunities, develop support industries for oil and gas exploration and development, and provide for a telecommunications infrastructure tying Alaska's North Slope into the global marketplace," according to ASRC.
For example, Barrow's Ilisagvik College, the only tribal community college in the state, can't use many of the distance-learning apps on the Internet because it lacks a high-speed connection.
The new line is also expected to reduce the cost of Internet access. The region is currently served by antiquated and expensive satellite and microwave systems.
According to ASRC, "a recent study of the latest satellite technology determined the capital cost per 1 Gbps [gigabits per second] of capacity is $1.5 million, while the capital cost of 1 Gbps to Arctic Alaska on fiber-optic cable is $10,000."
In Barrow, residents currently pay $35.84 per megabyte for a 6 Mbps (megabits per second) connection. In Kansas City, Missouri, residents pay 7 cents per megabyte for a 1,000 Mbps connection. The Quintillion project will help bring North Slope residents more in line with Lower 48 norms for Internet access.
BSNC's 2015 acquisition of AIH isn't likely to have as large an impact on shareholders, but it's a solid investment in line with the corporation's goals, BSNC President and CEO Gail Schubert says in a news release.
"Over the past year we evaluated the possibilities and benefits presented by this acquisition," she says. "We determined that AIH is a solid company that fits well with the growing Bering Straits portfolio of companies and will continue to thrive."
AIH was started in 1959 in Anchorage and operates three stores in that city, as well as locations in Eagle River, Fairbanks, Juneau, Kenai, and Wasilla. It sells high-quality equipment, tools, industrial materials, maintenance supplies, and safety products geared to all aspects of Alaska industry.
The purchase helps diversify BSNC's source of revenues and profits, which are weighted heavily toward government service contracts. That is part of the company's strategic plan, says spokeswoman Miriam Aarons.
"Our board established a strategic plan to diversify its holdings with more operating companies than contracting," she says.
"Additionally, the acquisition is complementary to BSNC's other lines of work in government contracting," Aarons adds in an email. "Base Operations Support Services is one of BSNC's primary business lines. By combining efforts with a hardware and materials supplier, BSNC can offer the best possible pricing on both commercial and federal contracts."
BSNC isn't planning any major changes, noting AIH's executive management team already performs well and it has a loyal, long-standing employee base. In the future, however, if a location is identified with a good customer base and volume that could support a profitable store, the corporation would consider building a new store.
"We do have a discount for shareholders, which is the lowest available price for anyone," Aarons says.
Backing and Resources
Early in 2015, Chugach Alaska acquired a substantial portion of All American Oilfield Associates LLC and subsidiary All American Oilfield Equipment. The company is headquartered in Kenai and provides oil and gas services in Cook Inlet and other Alaska locations.
"All American possesses an expertise in the oil and gas industry and already has a solid business model and customer base-all of which will strengthen Chugach's position in the dynamic Alaska oil and gas market," says Chugach CEO Gabriel Kompkoff.
Chugach Alaska uses a "great owner" approach to company ownership, allowing All American to operate as it has in the past, but with the backing and resources of the larger corporation to support operations.
All American was created in 2010 by Pete and Tanya Dickinson. In a statement, Pete Dickinson notes the backing of Chugach Alaska's "significant corporate resources and support" will allow the company to grow and strengthen its core businesses in the state.
Back in Naknek, Randy Zimin is already making plans to expand his vessel and marina operations. Reached by telephone in early January, Zimin was in Florida looking at another boat that might fit into his operations. This one would be able to work year-round and employ another four to six people.
The development fund's investment, which allowed him to add tender equipment to the Miss Rebecca, freed up the money for Zimin to buy the marina. Tire Miss Rebecca is a utility-type vessel that can also tow barges and carry freight to regional villages when the salmon aren't running. Zimin was able to hire an additional eight to ten local workers for marina operations "which is huge," he says.
His business was recently certified by the Small Business Administration under its 8(a) rules for minority and disadvantaged businesses, which Zimin hopes will bring more opportunities his way. Zimin offers general contracting, marine transportation, marina and storage services, fish tending, and security services.
"We're an all-around company,' he says. "Eve gone all over with the company. We don't have that big of an economy in Bristol Bay to actually stay in place and do one thing. I think with the marina and the boats and construction and whatnot, we'll stay really busy."
He's hoping to be able to create jobs that will keep people who want to stay in the region and help grow the village. "It's not year-round jobs, but it will definitely help keep the economy of that little village alive," he says.
BBFD's initial investment has snowballed. The initial investment into the fish tender operations allowed Zimin to buy the marina and expand into marine repair and logistics and to expand his fleet. That provides more opportunities.
"It opens up the door for other entrepreneurs who want to do maintenance on vessels to come on down and work," he says. "It opens the doors for a lot more business to come in to our region."
Julie Strieker is a journalist living near Fairbanks.
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|Title Annotation:||ALASKA NATIVE BUSINESS|
|Comment:||Alaska native corporations create opportunities: investments provide new capital, direct and indirect benefits.(ALASKA NATIVE BUSINESS)|
|Publication:||Alaska Business Monthly|
|Date:||Mar 1, 2016|
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