Winnipeg Free Press

Winnipeg Free Press (Newspaper) - April 23, 1981, Winnipeg, Manitoba 10 Winnipeg free press thursday april Hydro Deal would save Alcan expert says by Cecil Rosner mean aluminium Ltd s proposal for minority ownership of a Manitoba Hydro Plant would give the company substantial tax advantages it could not receive As a regular Power customer economists interviewed yesterday said. By becoming part owner of a generating station which would Power its proposed smelter the company would be Able to claim its portion of the Plant As an asset and deduct depreciation charges said prof. Norman Cameron of the University of Manitoba. Defer tax payments the move could open new avenues for the firm to defer payment of income taxes producing Short term savings which could be used for immediate reinvestment he said. Tax deferral is the name of the City game As far As Many Large corporations Are concerned he said. If ways can be found of speeding up the rate of depreciation charges the savings can translate into he said. The aluminium company has signed a letter of intent with the provincial government which would allow it to acquire part ownership of a Hydro station if agreement is reached to build a smelter. The letter also proposes to Grant Alcan water rights for 35 years with an additional 15-year renewal option. Alcan president and chief executive officer Patrick Rich said the joint ownership proposal was a pre condition for the company which it required before further consideration could be Given to the smelter plan. Rich acknowledged the arrangement would give Alcan the ability to write off its investment which would be unavailable to it As a regular Hydro Cus Tomer. Cameron said the company will Likely try to attain As great a rate of depreciation As possible on its generating station assets. Prof. John Mccallum of the University of Manitoba said the balancing fac Tor in mean s proposal is the Large initial investment it must make to pay for its share of the station which could total More than million. But he said the ownership arrangement is important for a company which feels it needs a Long term Power commit ment. Mccallum said a Maxim which is generally followed by corporations in this regard is if possible be the Hydro plants in Quebec Alcan owns six major Hydro installations which Power its smelters and associated operations in Quebec. It also owns outright a Hydro Complex to Power its smelter in Kitimat . In All the company owns generating facilities with a total installed capacity of megawatts of which about megawatts Are firm Power capacity. Its Hydro holdings almost equal the total capacity of the entire Manitoba Hydro system. Financial notes accompanying Mani Toba Hydro s annual report show the Utility calculates depreciation of its hydroelectric generating stations using an estimated service life of 67 years. But for its own accounting purposes Alcan writes off a Power Plant in As Little As 20 years while even faster depreciation timetables Are available for tax purposes. Mean s latest annual report shows that it claimed depreciation costs of million which was deducted from its income before taxes in its world wide operations. The company s total pre tax income last year was million its total corporate income taxes were assessed at million based on a 51-per-cent tax rate. But the company reduced its taxes by million As a result of investment and depletion and deferred payment of another million to end up paying million in taxes. In 1979 and 1978, the company deferred More taxes in Canada than it paid. Economics professor Greg Mason said the government and Alcan could have negotiated a Long term contract guaranteeing stable prices but the political flak Over that would have been much Inco agreement the provincial government signed a Long term agreement with Inco Ltd. In 1961, guaranteeing the mining company a Frozen Power rate for 20 years in return for a Low interest loan to build the Kelsey generating station. In recent years the Price Inco has paid for Power has been far below Hydro s actual average Cost of production. Mason said another potential advantage for the company in negotiating an ownership agreement is that if conditions change and the government wants to alter terms of the contract the joint ownership package is a much More difficult agreement to break in Law. Get into the great outdoors get into a Curtis von conversion for your summer fun travelling Stock 51s4-o 4 bbl 350 Auto. Aux. Fuel tank. cruise body Glass windows . 12v Rel. Chem. Toilet. 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