Alaskan Arctic Summit on shipping and ports.
Anyone who hasn't been paying attention may not know that Alaska is in the early days of Arctic Fever. Those who have been paying attention know this snowball has left the summit and is gathering speed and size as it avalanches down the North Slope to the Arctic Sea. This year the United States takes a turn at chairing the global Arctic Council, an intergovernmental forum of the eight Arctic nations: Canada, Denmark, Finland, Iceland, Norway, Russia, Sweden, and the United States. As President of Iceland, Olafur Ragnar Grimsson quipped, "Washington is now coming to Alaska!"
This is the fifth summit organized by Alice Rogoff, publisher of the Alaska Dispatch News and Mead Treadwell, president of Pt Capital and former Alaska Lieutenant Governor and former Chair of the Arctic Research Commission, to promote discussions on the changing Arctic. Joined by government officials, resource developers, coastal community leaders, maritime interests, and global financiers, these summits represent Alaska dreams and aspirations of a sustainably developed Arctic region. Event sponsors included home grown business interests such as Pt Capital, the Port of Nome, and the University of Alaska Fairbanks along with global companies Edison Chouest Offshore, Royal Dutch Shell, and Great Lakes Dredge and Dock Company. But the sponsor who stole the show turned out to be Grimsson. The two day event was held at the Hotel Captain Cook August 23-25.
While the topics of what Arctic development means to the people of the Arctic and the state of Alaska are not new--deep water ports, vessel transit routes, icebreakers, food security, subsistence hunting, oil spill response, environmental concerns, search and rescue capacity, and local input--the conversations crystallized around a surprising number of proactive strategies already on a fast track to fruition.
Speaking of the monumental tasks of building the wherewithal for successful development in the harsh Arctic region, Walker said, "We don't have problems, we have opportunities." Two of those seemingly insurmountable opportunities he presented were the cost of energy and the development of infrastructure to move the resources out of Arctic Alaska into the world market. He cited the highly successful private/public partnership that created the Red Dog Mine. The state took on the costs of developing and building the road from the mine area to the tideland and the Native regional corporation NANA in partnership with Teck Resources Limited, a diversified mining and metals company headquartered in Vancouver, British Columbia, Canada, developing NANA's mineral resource into the largest zinc mine in the world.
Many of the names and faces were familiar on the Arctic horizon of the past five years. But the summit was characterized by collaboration of talking and listening, at any one time, those who expounded on the stage were likely to have been sitting in the audience the previous session. It seemed more an organized sharing of ideas, strategies, and information than the traditional lecture with a question and answer period following.
Maritime Shipping Issues
As the polar ice pack melts at an increasing rate, new channels of passage appear across the Arctic region far in advance of scientific modeling. Fluctuating levels of sea ice have allowed for increasing amounts of vessels in Alaska's Arctic waters during the short summer season. These are primarily due to oil and gas related exploration such as drill rigs, supply vessels, tugs, and icebreakers. Significant numbers of research vessels from many different countries cruise these waters along with ships on official government business such as the US Coast Guard and NOAA survey vessels. Tankers, cargo container ships, and tourist cruises also steam through the narrow Bering Strait from one of two polar passages: the Northern Sea Route across the top of Russia and the Northwest Passage across the top of Canada and the United States.
All this activity has been largely unregulated or even tracked until recent years when the volume of sailings pointed out the lack of basic protections for approximately thirty thousand Arctic Alaskan residents, many of whom are local subsistence hunters concerned with safeguarding their environment and the marine animals they depend on. "We who live in this part of the state, we are naked," testified the mayor of the Northwest Arctic Borough and former state legislator Reggie Joule.
The same is true for mariners who need services like search and rescue, ports of safe refuge, accurate nautical charts, defined vessel transit routes, and fuel bunkers. Many working groups have emerged over the past decade in an effort to create a safer, more secure Arctic, one that allows for the international safe passage through Alaska waters, protects resources, and encourages responsible economic development that will provide opportunities for jobs and for growth.
One example is the North Slope Borough which passed an ordinance creating a regional Port Authority that will allow them to provide a vehicle for planning and financing transportation projects. These projects address much needed infrastructure to support successful intermodal systems that will bring down the costs of living in Arctic regions and see that the residents benefit from the resulting economic growth. Another regional organization that aims at public/private partnership solutions to Arctic issues is the Arctic Caucus of the Pacific Northwest Economic Region, a partnership among Alaska, the Yukon, and the Northwest Territories. The caucus includes private businesses located in these regions in addition to local leaders.
Representatives of Arctic Slope Regional Corporation, NANA Regional Corporation, and Bering Straits Native Corporation recently announced the establishment of the Inuit Arctic Business Alliance. Collectively they intend to provide a unified voice for doing business in the region. President and CEO of Bering Straits Gail Schubert said of the group, "Global interests continue to focus on the Arctic, and we, Inuit, have always worked together to ensure our collective destiny remains in the hands our people."
"We are finally getting to brick and mortar solutions," said Unalaska Mayor Shirley Marquardt. She was one of at least fifteen mayors and Native Corporation CEOs attending the summit. "Instead of saying Ready, Fire, Aim!"
Chair of the Arctic Economic Council, Tara Sweeney of Arctic Slope Regional Corporation, agreed. "Maritime infrastructure is part of our purview. We are looking for ways that Alaskans can invest in Alaskan Arctic projects," she said. "We support responsible economic growth for Arctic business development."
On a statewide level the Alaska Arctic Policy Commission of the Alaska Legislature--established in 2012--issued its final report in January of this year. The implementation plan features a "people first" approach that has a vision of "healthy resilient communities across the state built from economic and resource development." Arctic residents don't want the "business as usual" model where the bottom line profit margin is the only measure of success. Instead, they are defining themselves as willing drivers of sustainable development, with local benefits, in partnership with industry. That approach was echoed throughout the summit, surprisingly even from one of the oldest and wealthiest global investment firms.
Financing Coastal Communities' Aspirations
The bow meets the wave when it comes to financing the massive infrastructure needs of Alaska Arctic development. The seminal topic of the summit covered two primary approaches to capitalizing shore-based infrastructure costs presented by two investment companies plus an innovative view of a federal government procurement plan to build an icebreaker (maybe two or three). Treadwell moderated this closely followed session.
For several years now, although Alaska's Congressional Delegation has urged appropriations to the US Coast Guard for building icebreakers, it has not yet become "an economic imperative" according to Sean O'Keefe. Formerly the comptroller for the US Department of Defense and a deputy director of the Office of Management and Budget, O'Keefe understands the government procurement process. So well, in fact, that he believes the process should be thrown overboard as unworkable. Now a Syracuse University professor, he conducted a study at the Center for Strategic and International Studies on alternative ways that the United States can meet its responsibilities and obligations in the Arctic with an adequate fleet of icebreakers.
Russia operates at least thirty-seven icebreakers in the polar seas with another twelve under construction and planning; Sweden and Finland each have seven with more under way; Canada has six. The United States--according to the US Coast Guard 2013 Review of Major Icebreakers of the World--has two. Well, three if you count the research medium class icebreaker vessel Healy. (The Aiviq can't be counted as a US asset since it is privately owned and operated by Edison Chouest Offshore as an icebreaking anchor handling tug supply vessel.) Even China is investing in a second icebreaker: the Snow Dragon is expected to enter service by 2016.
The US Coast Guard does plan to buy a new icebreaker. However, the current procurement process bumps up the cost about $1 billion to develop, build, and begin operations for a single vessel. Yet, O'Keefe insists, "More icebreakers for Arctic missions are a critical national security and economic priority." Yet, the US Coast Guard's entire 2016 budget request for acquisition is just $1.01 billion, which includes many replacement vessels for interdicting drug running in the Caribbean in addition to search and rescue in many other parts of the country. Then there is the time involved: it's been estimated to take as long as ten years, eight on a fast track.
O'Keefe pointed out other procurement alternatives that would allow the United States to regain a maritime position of authority in the Arctic. One included retrofitting other US Coast Guard vessels for Arctic operations. Admittedly, given the newest technologies in propulsion, this would still amount to an expensive route. A very doable solution, which many countries have done, is to lease privately built and owned vessels which feature the latest technology and a longer operative life. The Finnish shipbuilder Wartsila has built more than 70 percent of the world's icebreakers, operated under numerous flags. Like leasing a car, the investment is less than building new, offers state-of-the-art construction and operation, and has a finite budget impact. Another option is to outright purchase a vessel developed for Arctic operation but built for another client, like an older Canadian Coast Guard vessel, still considered a good deal. Finally, O'Keefe dared to cross turf lines by suggesting that it might be more economically feasible for the government to consider the interoperability of a commonly invested vessel. A multi-tasked vessel with icebreaker capacity equally financed by NOAA, the US Navy, the US Coast Guard, and the National Science Foundation, for example, might be a workable solution.
Acting on the recommendations made by the legislative Arctic Policy Commission in 2014, the Alaska Legislature passed an Arctic infrastructure development program and fund within the Alaska Industrial Development and Export Authority. Disappointingly, the proactive policy move was not backed by a budget appropriation to fund it. Essentially, this threw the money ball back in the private sector court. One Alaska Native businessman caught that ball and is kicking it past the goalie.
Hugh Short of Pt Capital--a locally grown private equity firm focused on investment opportunities in the Arctic--formerly served as the CEO of Alaska Growth Capital BIDCO, a subsidiary of Arctic Slope Regional Corporation. He chaired the Alaska Industrial Development and Export Authority from 2011 through 2013 where he directed more than $530 million in capital, including the first investments in offshore drilling rigs. Born and raised in Bethel, he served that community as mayor from 2002 to 2004. Short's stellar Alaska credits (he also graduated from the University of Alaska Anchorage with a degree in political science) are way more than good show. Short has a plan to raise public/private capital through an asset recycling fund. Briefly, the plan--based on a successful Australian model he researched--involves the state selling off currently underperforming assets. The resulting funds would be leveraged with a minimal debt ratio that he says could raise as much as $9 billion for an infrastructure fund dedicated to Arctic development. "All without appropriating even one dollar from the [state] general operating fund," Short said with a broad, engaging smile. He cited several similarities between the largely rural and undercapitalized economy of Australia with Alaska. Short concluded that if they could build roads and power plants while employing hundreds of Aussies, Alaska could do it, too.
A Protocol to Guide Them
Hands down, Scott Minerd proffered the Holy Grail of investment: a code of conduct for investors that would be sustainable, measurable, and hold them accountable. (Think oil spill containment, toxic chemical recapture, insurance coverage, and most importantly, Alaskan stakeholder direction.) Minerd is the global chief investment officer of one of the most powerful financial firms in the world, Guggenheim Partners: modestly described as "a global investment and advisory financial services firm that engages in investment banking, capital markets services, investment management, investment advisory, and insurance services." Minerd described both the need for infrastructure construction and the opportunity to derive profits from same as "massive." "This is new investment at a vast scale," he said. By 2050, at the current rate, he predicted that 5 percent of all trade would go through the Arctic representing $6 trillion and 44 million jobs. "The private sector cannot do this alone," he said.
This is not the first foray of the premier investment company into Alaska enterprises. Operating as the Alaska Syndicate, financiers the Guggenheim brothers and J.P. Morgan helped to build other massive projects in Alaska like the Kennecott Mine, railroads, coal fields, and salmon canneries in the early 1900s. This time around the modern company advocates a capital investment protocol for development that addresses economic development in Alaska's Arctic in cooperation with the stakeholders. The voluntary code proposes investors consider environmental and societal local impacts, respect science and traditional knowledge of residents of the Arctic, and adhere to global cooperation goals voiced by the Arctic forums and best business practices. The lofty goals of building resilient societies, raising incomes, and improving the lifestyles of Arctic residents definitely resonated with summit attendees. Further, Minerd said the firm is creating a complete inventory of all planned and discussed infrastructure projects for potential investors that represent trillions of dollars in investment opportunities. Finally, Minerd said he hoped, with further stakeholder input, to evolve this concept into a "permanent investment vehicle" similar to a private equity fund which would leverage both public and private capital. The firm plans to unveil the polished protocol early next year.
RELATED ARTICLE: Island president makes diplomatic history.
By J. Pennelope Goforth
"What is our homeland, has become global territory,"
--Olafur Ragnar Grimsson, President of Iceland
Iceland and Alaska have many geographic and political similarities: both are Arctic residents, both are democracies, both rely on fishing and energy development for economic growth. Due to these and many other commonalities, it is not surprising that Alaska has perhaps a closer relationship to Iceland than to many states in the Lower 48. When the president of Iceland was invited to participate in the Arctic Summit he not only readily agreed, he spoke to and with all Alaskans attending the summit throughout the entire event. He made diplomatic history twice: first, when he rocked the world with his volatile advice at the summit; and second, when he became the first head of state to address a sitting committee of the Alaska State Legislature.
First elected president of Iceland in 1996, Olafur Ragnar Grimsson has been re-elected for four consecutive terms. Holding a doctorate in political science from the University of Manchester in the UK, he has been influential in developing Iceland's modern governmental policies. The recipient of international peace awards and author of numerous academic articles on the science of politics, Grimsson is nonetheless a very approachable and down to earth person with a sense of humor.
He stunned everyone with a bold statement during a comment period on the topic of the authority of local communities, state regulatory agencies, and private/public partnerships: "I must admit after listening to this discussion I am confused about who governs Alaska." Into the unexpected silence that followed, he said, "Who will stop you?
Who is going to stop you if you have financial and international partners?"
As a precedent setting example for Alaska, he cited a recently concluded major trade agreement, struck by the Prime Minister of the Faroe Islands, nominally within the Danish state, and the Prime Minister of Turkey. "This is a fascinating new playing field," he later told a joint Senate Special Committee on the Arctic and House Economic Development, Tourism, and Arctic Policy hearing. "If we think it is in our interest, we simply do it."
Grimsson spoke of his friendship with former Alaska Governor Wally Hickel and US Senator Ted Stevens. When he and Hickel discussed the potential political as well as environmental changes to come in the Arctic region, he said that they thought in terms of decades. Now, he says, that has accelerated, "The pace of change is monumental [in the Arctic]. What we thought would take ten years is now happening within one year."
He urged legislators to broaden their perspective when planning Alaska Arctic strategies; "We have a narrow vision of the Arctic through the view of nation states. What is our homeland has become global territory. A big part of the planet is subject to the cooperation of all nations. We have never faced such a political challenge, an extraordinary economic opportunity. If Alaska is not there [at the forefront of Arctic development] then the United States will not be there."
Alaskan author J. Pennelope Goforth is home ported in Anchorage.
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|Comment:||Alaskan Arctic Summit on shipping and ports.(ARCTIC)|
|Author:||Goforth, J. Pennelope|
|Publication:||Alaska Business Monthly|
|Date:||Oct 1, 2015|
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