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Southcentral ports polish expansion plans.

Other regional competitors regard Fire Island port development as cause for concern.

Gov. Walter Hickel's plan to turn Anchorage's Fire Island into a megaport -- from which Alaska's vast deposits of coal, timber, fish, gravel, petrochemicals and other products would find a fast track to world markets -- has thrown several neighboring Southcentral communities with port plans of their own into a race to develop the state's next major seaport. Which city ultimately wins depends on how much each port costs, the needs of industry and the dictates of nature.

A supporter of huge capital projects, Hickel has long dreamed of turning Fire Island into a world-class seaport. Such a port, according to Paul Fuhs, senior legislative liaison and formerly the state's director of economic development, would open up Alaska resources and create thousands of new jobs.

In November, Hickel administration officials announced they had reached an agreement with Cook Inlet Region Inc. (CIRI), the Native regional corporation that owns Fire Island, to buy 200 acres of real estate on the island's west side for $1 million. The sale is contingent on the outcome of a state feasibility study of the site. Should the location prove acceptable, the state would have the option to buy up to 1,200 acres of additional CIRI land holdings on the island.

But rather than widespread support, Fire Island has sparked mostly fireworks. Critics say upper Cook Inlet is a nightmare for ship navigation, and the cost, estimated at between $500 million and $1.8 billion, is too steep. Most vocal have been a host of Alaska communities that say pouring so much state money into a new port project would disrupt their own port expansion plans, plans that each view as far more practical.

Wishbone Wishing. Northeast of Palmer lie the untapped, high-quality bituminous coal deposits of Wishbone Hill. Largely owned by the Japanese resource-development company Idemitsu-Kosan, Wishbone Hill could produce some 1.5 million tons of coal each year -- if only developers could find an inexpensive way to get the coal to markets.

Gary Daily, port director for the Matanuska-Susitna Borough, thinks he has the answer. "Alaska's minerals are source competitive, but not transportation competitive," Daily says. "The idea is to get the coal to the closest deepwater port, dump the coal into ships and come back for more. Our Point MacKenzie is the closest deepwater port."

Located about three and one-half miles northwest of Anchorage on the north shore of Knik Arm, Point MacKenzie would be the hub for Wishbone Hill coal, Daily says. Point MacKenzie also would ship resources extracted from along the Railbelt, such as Interior coal from Usibelli Coal Mine in Healy and timber harvested from forests around Fairbanks and Nenana. Last year, some 1 million board feet of Interior timber were brought south on the Alaska Railroad. Gravel and limestone might also have market potential through Point MacKenzie.

The Mat-Su borough would be hard-pressed to find a better spokesperson for its port dreams. Daily soothes his skeptics with a sales pitch woven with a deep, charismatic voice finely tuned from a career in radio. It's convincing, polished. Adding heft to his remarks is Daily's long association with harbor development.

Daily first served as Homer's harbor master and later as port director, a job he held for 10 years. In 1987, Daily became Dutch Harbor's port director and oversaw more than $100 million worth of new development in the form of bottomfish processing plants and expanded docking facilities. These days, Daily touts the advantages of Point MacKenzie as the state's next major port.

"Point MacKenzie has 5,000 acres of land to work with," Daily says. "Dredging isn't required, according to our engineers, and the preliminary dock engineering studies have been done. The road to MacKenzie is in. It's gravel, but it is in."

Port development is halted by uncertainty surrounding a final settlement of Mental Health Trust land claims near the proposed mine site. More important, the borough needs a railroad link to the proposed port. About 30 miles of rail from the port to the Alaska Railroad main line near Houston would cost $50 million, according to Alaska Railroad officials.

Where the money would come from to build the rail spur is a question that has yet to be answered. Chances are, the state would be asked to help. "If the state is going to be behind the export of Alaska resources, then we need the state to be an active participant," Daily says.

As far as financing the port itself, one option being considered is for the Mat-Su borough to issue revenue bonds, with repayment guaranteed by industry. "We think it may be something like what we did in Dutch Harbor, where we worked with industry to secure funding, but did not put the burden on the taxpayer," Daily explains.

So far, Mat-Su has spent about $750,000 on the project, mostly for feasibility studies and permits. Final cost of the Point MacKenzie port is expected to be at least $20 million.

Seward's Nightmare. Point MacKenzie's dream of shipping Wishbone Hill and Usibelli coal have caused nothing but nightmares for Seward's port marketing director, Chris Gates. "If they are successful, there will be no more coal shipped through Seward, and we will lose everything we have spent so much time and money to build," Gates says. He adds that past state investments and commitments to Seward's port development would be jeopardized by a new port.

None too happy about the prospect of losing Usibelli's business to Point MacKenzie and eager to cash in on as much of Alaska's resource export trade as possible, Gates has launched his own campaign to promote Seward's underused port facilities and the city's potential for growth. And a good salesman he is. Articulate and experienced, Gates boasts training in transportation and logistics from the University of Tennessee. He took over the marketing and development reins at the Port of Anchorage in 1978.

With Gates' help, Anchorage in the early 1980s convinced Korean importers that coal could be shipped from Alaska year-round. To prove it, the Port of Anchorage in 1983 loaded 20,000 tons of coal into an ore ship in the dead of winter and sent it to Korea. Gates made his point. Ironically, Gates suggested in a 1981 Anchorage port development master plan that Fire Island would be a good site for a port.

In 1986, Gates became Seward's port marketing director and set out to transform the fishing- and recreation-based community of 5,000 into the state's only coal port. Helped by Korea's Suneel Alaska Corp.'s 10-year contract with Usibelli Coal Mine, Seward now ships 700,000 to 800,000 tons of subbituminous coal, worth some $30 million, to Korea each year. Seward was chosen over Anchorage because its ice-free, deepwater port is more dependable throughout the year and can handle even the largest ships, Gates says.

But the deal hasn't brought economic nirvana to Seward or Suneel, he explains. In fact, Suneel only has been able to pay its port operation expenses and has yet to make payments on the $25 million in revenue bonds issued to pay for port improvements and coal-loading equipment.

To make port operations profitable, Suneel and Gates are counting on Wishbone Hill coal and increases in Usibelli production. "The plan has always been for Wishbone Hill to use Seward," Gates says. "We have tremendous excess capacity here. If we had Wishbone, we could turn a profit and be competitive."

Gates takes issue with Point MacKenzie's claims that it is the best place to ship coal, even if it is 132 miles closer to Wishbone Hill than Seward. "To think that Southcentral Alaska needs another duplicative, expensive port built on the wrong side of a growing underwater mountain of silt -- and usable only nine months of the year -- is ridiculous," Gates says. "We believe there is not enough bulk commodity to support both ports and that it would be unwise for the state to spend money on a new port when it has one set up already."

Fire Island Plan. While Seward and Point MacKenzie brawl over the merits of their ports, the creme de le creme in the race to be the first with a megaport is Hickel-backed Fire Island. A 4,200-acre hunk of real estate, most Alaskans see Fire Island during take-offs and landings at Anchorage International Airport. No one lives on the spruce-covered island; it's used mostly during the summer by commercial and subsistence setnet fishermen.

The idea of turning Fire Island into a megaport has been kicking around since the 1940s. It's now an idea whose time has come, according to the Hickel administration's Fuhs.

"Anchorage has a 9 percent unemployment rate," Fuhs says. "We have problems with our fishing industry and timber industry. I don't know where the revenue is going to come from to replace Prudhoe Bay. The problem for Anchorage is what are we going to do if Fire Island is not accessed."

Fuhs says Fire Island is needed to replace Anchorage's present port near Ship Creek. The port's 130 acres are stretched to the limit. With nowhere else to go, the Anchorage Port Authority supports the Hickel Fire Island plan, albeit reluctantly, according to insiders who wish to remain anonymous.

And what a plan. Hickel administration officials portray Fire Island as a one-stop shopping center for Pacific Rim nations seeking Alaska resources. Fish, coal, timber, gravel and copper from a still-on-the-drawing-board mine near Lake Iliamna would find their way to overseas markets through Fire Island.

Federal law currently prohibits the export of unprocessed North Slope crude oil. But to get around the ban, refineries envisioned on the island would turn the crude into gasoline, jet fuel and other petro-products. Cook Inlet crude, which is not subject to the ban, also would be refined at Fire Island.

Hickel's dream for Fire Island is not limited to just Alaska exports. His plan includes setting up huge warehouses to serve as temporary storage for Alaska imports and pass-through container freight bound for the European and the emerging Soviet markets. Fuhs' own dream of opening a northern shipping route through the polar ice edge to Europe would use Fire Island as a staging area.

"We've had interest expressed from companies to build icebreakers, oil modules, prefab concrete and value-added fish-processing plants," Fuhs says. "Some of these companies are interested in the proximity of the island to the airport, in that they can bring goods in by sea and ship them out by air."

If built, a Fire Island port would serve as the Hickel administration centerpiece for revitalizing the Alaska economy as North Slope oil production declines, state officials say. But its budget-busting cost, estimated at $500 million to $1.8 billion in a recent feasibility study done for the Alaska Industrial Development and Export Authority (AIDEA), may deter its development.

Tommy Heinrich, AIDEA project manager for Fire Island, says the study considers prospects for its development to be "marginal at this point." Heinrich adds, "But that's not my decision to make. The decision rests with the AIDEA's board of directors, not me."

Upper Cook Inlet. Although ships routinely ply the upper Cook Inlet waterway, the area isn't exactly an easy sail. The factors that may make or break port development in upper Cook Inlet have little to do with economics.

"Cook Inlet is a nightmare for ships," says Thomas Royer, oceanographer and sea-current specialist at the University of Alaska Fairbanks, School of Fisheries and Ocean Sciences. "The currents in upper Cook Inlet reach six knots, and ice the size of small ships comes barreling down upper Cook Inlet. Six-knot currents in a port are horrendous. You've also got silting. The place is fraught with problems."

Indeed, upper Cook Inlet's broad tidal flats are a haven for mud and ducks, not for ships and freight. The unstable goo also may cause problems for engineers attempting to span a causeway between Fire Island and west Anchorage. On the deepwater side of the island, the bottom is covered by shifting silt.

"Absolutely, silting is going to be a problem," says Tyler Jones, a former Anchorage port director. "There's a deep channel on the west side of Fire Island because the water goes through there real fast. Structures, like docks, placed there are going to accumulate silt. It's a big problem that the feasibility studies will have to address."

For Point MacKenzie, the problem may not be mud so much as ice. Each winter, upper Cook Inlet is choked with ice. Ship navigation becomes treacherous. Point MacKenzie could be shut down, just when their Asian clients need the coal most.

"We are looking at the possibility of operating the port only nine months a year," says Point MacKenzie's Daily. "We don't think ice will be a problem if we can stockpile the coal and get it shipped out before the water freezes."

Resolution. Probably neither Hickel's political will nor Daily's charmed radio voice will determine where the next major port will go. Rather, the stark realities of commerce are likely to set the course, according to Tom Dowd, professor of port and marine transportation management at the University of Washington and Alaska's Sea Grant Marine Advisory Program specialist on the nation's port industry.

Unimpressed by Hickel's plans to develop Fire Island, he believes the project is far too expensive when other locations show more promise and make better sense. "You don't want to haul heavy, low-value bulk resources any farther than you have to," Dowd says. "And it seems to me you don't want to haul noisy rail cars through the middle of Anchorage. To me, it makes ultimate sense to make Point MacKenzie the port for bulk exports and the Port of Anchorage the receiving port for containerized imports."

The prospects for development of each port are expected to be discussed in the state's $165,000 feasibility study of Southcentral ports, due out in summer 1992. In the meantime, each community says it will continue with development plans.

Seward, with millions already spent on a new port, is confident of a favorable outcome. "I believe if the numbers aren't cooked, the studies will find no justification for any new Southcentral Alaska ports," Gates says.

Douglas Schneider is a science writer with the Alaska Sea Grant College Program, School of Fisheries and Ocean Sciences, University of Alaska Fairbanks.

Kenai: Banking On Beluga Coal

Almost unnoticed in the commotion stirred up by Fire Island and Point MacKenzie has been a Cook Inlet port being encouraged by the Kenai Peninsula Borough. With land on both sides of the inlet, the Kenai borough is ideally positioned to ship coal extracted from the Beluga fields, the state's largest coal deposit, located on Cook Inlet's west shore. And planners expect to construct a port without one cent of state money.

In 1985, Kenai Peninsula voters approved $250 million in bonding authority that would allow developers of the Beluga fields to construct a port on the west side of Cook Inlet. A likely location would be 1,000 acres of Kenai Peninsula Borough property near Ladd Landing, a former trading post and fishing camp at the mouth of the Chuitna River. Developers of the coal fields would repay the costs of the bond with coal revenues.

Diamond Alaska Coal Co. and Placer Amex Co. are two resource development firms eyeing the state-owned Beluga fields. Diamond Alaska holds an option to lease Kenai borough lands on Cook Inlet's west side for use as a port site. The firm already has spent millions on feasibility studies, and the final Environmental Impact Statement has been published. Diamond's 30-year, initial-phase development plans call for annual export of 10 million tons of coal and the creation of 500 permanent jobs.

Lease options on Kenai borough lands expire in March 1992. Negotiations to extend the leases for five years are under way.

"We have the authority to issue the bonds when and if the time is right," says Richard Troeger, Kenai Peninsula Borough planning director. "We want to be in a position to help develop the Beluga fields when the market makes it feasible."
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Title Annotation:includes related article on Kenai Peninsula; Fire Island port development
Author:Schneider, Douglas
Publication:Alaska Business Monthly
Date:Feb 1, 1992
Previous Article:Sizing up oxyfuels.
Next Article:Coal: abundant, but not easily converted to cash.

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