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Bulk Water Exports: Alaska City Wants to Sell the World a Drink


June 2, 2010 As demand for freshwater increases globally, a few companies and water-rich countries envision water shipped in large tankers designed for oil as the next big supply-side solution. Sitka's Blue Lake receives water from snowpack and glacial melting in the surrounding u-shaped valley. True Alaska Bottling holds the rights to export 2.9 billion gallons annually, at a penny a gallon, from the lake reservoir.

By Brett Walton
Circle of Blue

Two American companies and a small Alaska city are drawing closer to an export agreement that ships fresh water from North America to a bulk bottling plant in India in order to supply the thirsty Middle East, according to Terry Trapp, the chief executive of True Alaska Bottling, one of the companies in the partnership.

Trapp's company holds the rights, at a penny a gallon, to export 2.9 billion gallons (10.9 billion liters) per year from the Blue Lake reservoir owned by the city of Sitka, Alaska. Meanwhile the company's partner in the venture, San Antonio-based S2C Global Systems, is negotiating with developers in India to build facilities at a deepwater port south of Mumbai.

Sitka and Alaska Resource Management LLC, the partnership formed by the two companies, are seeking to be the first to introduce bulk supplies of freshwater, transported in huge tanker ships, as a new commodity in global trade. The concept is straightforward. Where local supplies cannot meet demand, a small group of wildcatter companies and water-rich countries are positioning themselves to provide large shipments of water via 80-million-gallon capacity tanker ships and floating polythene bags-bulk water, in the industry parlance.

"The concept we have with our partner is constructing a water depot in India or the Middle East where water is unloaded and stored with an adjacent bottling tank." "The concept we have with our partner is constructing a water depot in India or the Middle East where water is unloaded and stored with an adjacent bottling tank," Trapp told Circle of Blue. "The water would then be distributed to countries in two-and-a-half liter or five liter containers."

The consequences of bulk water exports are not nearly as clear cut. Proposals to export water supplies out of their natural basins have sparked fierce political resistance in some parts of the globe. The Great Lakes region of the U.S. Midwest established laws and regulations over the last decade that sought to ban the practice. Moreover, reliance on imports could perpetuate water-wasting practices in dry regions. And the capacity of wealthier regions to afford their water in five-liter containers could widen the economic and quality of life gulf between rich and poor countries.

Bulk Water's Past and Present

Bulk water transfers are not new. Diversions out of river basins both within and between countries have occurred for decades: Singapore imports water from neighboring Malaysia; Lesotho sends water to South Africa via the Highlands Project; Southern California exists as we know it today because of water channeled from the Sierra Nevada hundreds of miles to the north. Historically, engineers have moved water through pipelines, canals or rivers under government control and oversight.

Sitka, Alaska to sell bulk water exports to India.
Graphic by Aubrey Paker Click on image above to see the full infographic.

Sitka, Alaska, to sell bulk water exports to India. Water is also exported by bottling companies. But the volumes sold from a single source are much smaller than the volumes available in bulk. Danone, the world's second largest bottled water producer, sold 18 billion liters (4.8 billion gallons) in 2009 from all its bottling plants combined, a sales volume that is roughly half of the water available from Sitka.

What is new is the idea of shipping water in tankers across oceans. It differs in scale and the notion that big commercial advantages exist when a scarce commodity is supplied to eager communities willing to pay the price. Accompanying the shift in supply also is a shift in perspective, said George Paterson, chief executive of Aquazeal, a New Zealand company with water rights for export.

"Long-term I see that municipalities will import pure water for human consumption and use desalinated water for lesser uses." "Long-term I see that municipalities will import pure water for human consumption and use desalinated water for lesser uses (e.g. irrigation)," Paterson wrote in an email. "I think what will happen is that there will be a recognition that all water is not the same and that pure water should be reserved for human consumption."

The Export Plan

In its bid to pioneer the global bulk water trade Alaska Resource Management LLC is focused on sales to water-stressed areas of the Middle East, northern China, southern India and parts of Africa as potential export markets, several sources told Circle of Blue. Though Sitka has made public infrastructure investments to make it easier to load water tankers in Alaska, Alaska Resources Management, LLC has not yet found a place to unload. A potential deal to secure off-loading facilities in Fujairah, United Arab Emirates fell through earlier this year because the company could not get the real estate next to a bottling plant.

Currently, S2C Global is discussing a site near Mumbai, according to Trapp. Those discussions will go on for several more weeks, Trapp told Circle of Blue. Representatives from S2C Global did not return phone calls or email messages for this article.

The site in India would be used as a regional hub to supply the Indian market and as a supply depot for the Middle East, Trapp said. Water could be offloaded to smaller vessels for the final leg to the Middle East, or it could be transported in bottles.

"What's missing is infrastructure on the receiving side," Trapp said.

Once negotiations in India are concluded, ARM plans to focus attention on loading facilities in Sitka and lease contracts for tanker ships, he added.

If ARM breaks through the impediments, it could set off a run on Sitka's 6.2 billion gallons per year of unallocated water rights. Two companies in the last six months have sent letters of inquiry about the city's water supply for export to the Sitka Economic Development Association - American Water Company and Aqueous International, a subsidiary of a Luxemburg-based company.

Although no significant volumes of bulk water have been sold, A phrase on Aqueous International's stationary perhaps captures best the prevailing mood in an industry that sees big profits in moving water by tanker. "Not a dream - inevitable!"

Sitka's mayor, Scott McAdams, has similar sentiments. "I think the idea of selling bulk water to a thirsty planet has merit but its time has not yet arrived," McAdams said. "Watersheds around the planet are under assault. The value of a commodity like water is only going to go up over time."

Brett Walton is a Seattle-based reporter for Circle of Blue, and can be reached at brett@circleofblue.org. Read more about Sitka's bulk water sales on Circle of Blue.

Reprinted with permission of Circle of Blue, please visit their website at www.circleofblue.org.

Two related stories follow.

Public Opinion on Bulk Water Sales Ranges From 'Makes Sense' to 'Hell No!' June 2, 2010

Bulk water sales have been attempted, banned and succeeded around the world. As Sitka, Alaska adds another sales pitch to the pile, Circle of Blue looks at how deals have been done or done away with.

Pipeline in Sitka, AlaskaPhoto courtesy of the Sitka Economic Development Association
Alaska Resource Management LLC plans to ship bulk water bought from the city of Sitka across the Pacific Ocean to eventually be sold in the Middle East. The above 42-inch-diameter pipeline links Blue Lake to Sitka's deepwater harbor to load water onto tanker ships.

Some governments, responding to public concerns, have instituted bulk water bans. After several export attempts in the 1990s (see timeline), Canada's federal and provincial governments crafted laws to control the flow of water out of the country. Many Canadians are worried that selling any water to the U.S. will force the country to open the resource to American companies under North American Fair Trade Agreement (NAFTA) provisions.

When writing laws, Canadian legislators have been careful to use the phrase bulk water removal to frame the debate as an environmental protection issue. Outright bans on exports could run afoul of existing international trade treaties and invite more legal challenges like the 1998 notice filed against the Canadian government by Sun Belt Water, an American company, for losses caused by the denial of water permits.

Though Sun Belt never filed a formal claim, a government is entitled to restrict access to water if it pertains to environmental protection, according to trade experts.

"World Trade Organization rules concerning trade in goods include general exceptions to allow a country to adopt measures relating to the conservation of exhaustible resources," said Marcos Orellana from the Center for International Environmental Law. "NAFTA incorporates the same WTO exception."

While Canada's government is concentrating on prohibition, others are looking for profit. Alaska, Greenland, Iceland and New Zealand are granting bulk water rights to companies in the new commodity trade.

The trade in bulk water exports has not yet commenced. S2C Global did not earn any revenue in 2009, according to Securities and Exchange Commission filings. And aside from a few inter-island agreements in Greece, Cyprus and the Bahamas, no significant volumes have been exported via tanker anywhere in the world.

"We have prepared legislation to be ready if somebody wants to export," Tina Jensen of Greenland's Ministry of Industry and Labor told Circle of Blue. "But so far the interest has been going in the direction of bottled drinking water for exclusive markets."

George Paterson, chief executive of New Zealand's Aquazeal, said the biggest obstacles for establishing a global market are the lack of offloading infrastructure at ports in potential importing countries and high shipping costs.

The most cost-effective way to do business, Paterson wrote in an email to Circle of Blue, is to use container ships or 80-million-gallon VLCCs-very large crude carriers-to move water from its source to market. Bottling would take place in the market in which the water would be sold to cut down on transporting the weight of the bottles and to take advantage of cheaper labor and construction costs.

Current shipping methods make exports for premium water feasible, but for bulk water to compete with desalinated water for municipal use, the industry needs a breakthrough in plastic polythene bag technology, Paterson said.

The current cost for shipping water via tanker from New Zealand to the Middle East is $US20 per cubic meter compared to local, desalinated water available for less than $US1 per cubic meter. But polythene bags pulled by a tugboat could cut that cost 100-fold, Paterson said.

Meanwhile cost estimates for desalinated water are often difficult to assess, according to Peter Gleick, president of the Pacific Institute. The stated costs are often supported by subsidized energy, low-interest loans and cheap land, he said. Some water exporters hope that environmental concerns and higher energy costs will push up the price of desalinated water in the future.

Beyond technical and economic tangles, some people pursuing bulk exports have found social and political barriers.

"There appears to be a cultural reluctance to import and be dependent on a foreign source," said Eugene Corrigan, chairman of FLOW Inc., about his efforts to export to the Middle East.

Singapore is a recent example of these anxieties. Earlier this month, political concerns prompted the Southeast Asia republic to cut its reliance on water imports from Malaysia.

Bulk Water Timeline on Dipity.

Brett Walton is a Seattle-based reporter for Circle of Blue, and can be reached at brett@circleofblue.org. Read more about Sitka's bulk water sales on Circle of Blue.

Reprinted with permission of Circle of Blue, please visit their website at www.circleofblue.org.

Sitka's Resource Piggy Bank is Water June 2, 2010

While the Alaskan town has unsuccessfully tried for more than a decade to make bulk water sales, Alaska Resources Management LLC hopes to sell 50 million gallons by 2011.

Blue River Dam in Sitka, Alaska
Photo courtesy of the Sitka Economic Development Association
The Blue Lake Dam increases the lake's surface area from 490 to 1225 acres, while providing hydroelectric power to Sitka County. Home to nearly 9,000 people, Sitka is Alaska's fourth-largest city. The small town, located on Baranof Island off the rainy southeast Alaska coast, is an outdoorsman's dream. It faces the Gulf of Alaska, contains the dormant volcano, Mount Edgecumbe, and has extensive hiking trails. In the mid-19th century Sitka was one of the busiest seaports along the American west coast. In 2005, the latest year for accurate figures, Sitka's exports were valued at $US474,000, according to the American Association of Port Authorities.

Sitka also has a decade-old reputation for trying to market its abundance of freshwater for export. In 1999 the city acquired an industrial site owned by a closed pulp mill. Included in the transfer were rights to a portion of the water in the mill's Blue Lake Reservoir.

The Alaska Department of Natural Resources granted Sitka a certificate without an expiration to appropriate eight percent of the lake's outflow for export. Since that time, the ADNR has changed its permitting rules to limit the time period in which water can be exported, according to Gary Prokosch, the head of the ADNR water resources section.

Two agreements in the last decade between Sitka and water companies expired without any water sold because the companies could not make the deal work financially or manage the logistics of moving huge amounts of heavy water. The city built a pipeline a few years ago from Blue Lake to its deepwater harbor, making it the only bulk water source in the world to have such facilities. However, a ship-to-shore component still needs to be constructed, an investment Sitka is forcing an exporting company to make.

"The industry is currently speculative," said Garry White, the executive director of the Sitka Economic Development Association, the body charged with marketing the city's water. "Folks are trying to tie up rights for when it does become feasible, so we've shortened our contracts. We'll give a contract but it requires you to move a certain amount of water. If you don't move any, the contract is canceled."

True Alaska Bottling signed such a contract with Sitka in 2006, and was required to move 20 million gallons by 2008. TAB did not meet that deadline and received a one-year extension from Sitka's city assembly. The second deadline was also unmet, and TAB received another extension last January with the stipulation that it move 50 million gallons within 12 months.

"The extension was to try to keep us in the business," said Sitka assembly member Jack Ozment.

Meanwhile Mayor Scott McAdams says the business of exporting water has the community's approval.

"It's been something we've talked about quite a bit in the community," McAdams told Circle of Blue. "There's not a lot of opposition to it. In this borough we have 8,600 people, but we have a renewable resource of water that could meet the needs of a metropolitan area. We do have excess water. Where there has been skepticism in the community is in the viability of this business. It's intriguing, it makes for interesting story, but the city has not seen any income in a bulk water sale."

Sitka is offering the water to Alaska Resources Management, LLC for a penny per gallon, a price based on inputs from SEDA but largely determined "like throwing darts at the wall," according to Ozment, who was on the assembly at the time.

"I thought the price was too low," Ozment said, "but we found that the price around the world was much lower."

Even at the current selling price, Sitka stands to make a large profit if exports ever do take place. The city would earn roughly $US26 million per year if ARM exports its entire allocation, and more than $US90 million per year if the city can export its maximum water right. Sitka's fiscal year 2010 budget is $US54 million.

While Sitka's bulk water earnings would be substantial, the state of Alaska would see relatively little financial benefit. The state levies an application fee of $US900 plus $US50 per each overtime hour used to evaluate the application, as well as an annual $US50 administration fee and a conservation fee that increases with the number of acre-feet sold. The latter fee ranges from $US3 per acre-foot for diversions less than 5,000 acre-feet to $US30 per acre-foot for more than one million acre-feet. Given this rate, True Alaska Bottling's contract for 8,960 acre-feet would be charged $US6 per unit.

Under Alaska state law any individual or company, regardless of the state or country in which its based, is allowed to apply for a water permit. The two main conditions for granting a permit ensure that the river's hydrologic needs are met and that flows are high enough to protect fish, said Prokosch of the DNR. The applicant has to do the research to show that those conditions will be met.

Prokosch said Sitka is the only entity with a permit, but he has been in discussions with the Aleut Corporation, an Alaskan-based business that focuses on water from Adak Island, and two individuals, one of whom is from Canada.

Brett Walton is a Seattle-based reporter for Circle of Blue, and can be reached at brett@circleofblue.org. Read more about Sitka's bulk water sales on Circle of Blue.

Reprinted with permission of Circle of Blue, please visit their website at www.circleofblue.org.

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