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Adak bets $2 million to keep private sector economy alive

Jim PaulinDutch Harbor Fisherman
With announcement in April that Icicle Seafoods was pulling out of town, Adak's city manager had to make a gut call: buy the seafood processor's equipment to resell to another fishing business, or risk losing the village's only real industry. Creative Commons photo via Flickr

While $2 million is a lot of money for a small local government to cough up, Adak city manager Layton Lockett said he did what he had to do to save the community when seafood processing equipment was auctioned off in Anchorage last week.

“It would be like what would happen if Unisea pulled out of Unalaska, and a month later they pulled out all the equipment,” Lockett said.

Layton said he hopes to find a company to buy the equipment, so taxpayers don’t end up stuck with the bill. The city’s purchase was prompted by fears that the equipment might leave the island, and with it Adak’s private sector economy.

The crisis started in April when Icicle Seafoods announced its permanent closure of the plant that employed around 100 workers and was a major source of local revenues. Icicle operated in a huge military surplus waterfront building called the Blue Shed, owned by the regional Native corporation, The Aleut Corp., with equipment leased from a Rhode Island bank that had taken possession from a bankrupt former owner.

Aleut Corp. lobbyist and former state senator Clem Tillion said Lockett made the right move in saving Adak from “cannibals” who would buy and relocate the machinery, sinking Adak’s economy. “He chose to save Adak,” Tillion said.

“Things are brighter.  A little complicated, but brighter,” said Tillion from his home in Halibut Cove near Homer.

Tillion said Adak hoped Trident Seafoods would play the role of the white knight, when it bid $1.6 million, but a higher offer of $1.7 million from another bidder backed the city into a corner. Tillion said that the equipment cost the city even more than its $1.8 million bid,  due to the 16 percent fee to the auction company.  Lockett said the auctioneer was Hilco Industrial, and the total bill with the fee came to $2,088,000.

Tillion said a top Trident official, executive vice president Joe Bundrant, had promised him that the company would keep the plant open in Adak, in a hotel lobby conversation in Juneau while the North Pacific Fishery Management Council was meeting earlier this month. Tillion added that Trident’s attorney, Joe Pleisha was also present during their chat.

“The city made a good buy, if they can make a deal” with a seafood processing company, Tillion said. A deal has not yet been made, Lockett said Monday, though he said he’s talking to several potential processors.

Tillion said Adak’s big attraction to seafood companies is the prospect of a pollock fishery next year. While The Aleut Corporation owns millions of tons of pollock quota, it’s never been able to harvest the groundfish because of rules aimed at protecting the endangered Steller sea lion. But now it appears federal regulators may relax those rules and allow pollock fishing on the Aleutian Islands quota. Half the quota is reserved for small boats with a maximum length of 60 feet, he said. 

“There’s no doubt it will be open by January,” Tillion said. And it could even re-open later this year, he said. When Icicle owned the plant, the major species processed was Pacific cod. Tillion expects Trident will end up there, though he predicted it will “drive a hard bargain.”

Tillion said the Aleutian Islands pollock quota came with the condition that The Aleut Corp. spend the profits developing Adak, instead of exporting the funds to Anchorage. He recommended upgrading aging docks left behind when the Navy pulled out around 15 years ago, though he added that a fuel barge is another potential development project.

The unusual allocation of pollock to a single entity,  The Aleut Corp., caught fish council officials in Anchorage by surprise, when it suddenly appeared in a larger piece of legislation at the urging of the late Sen. Ted Stevens, R, Alaska, around 10 years ago.

Tillion said the equipment is worth $12 million, including freezer plates that were never installed, which he said were very attractive to  buyers who could use them in fishing vessels. The equipment’s former owner had paid off $6 million, leaving Independence Bank of Rhode Island stuck with an equal amount unpaid , he said.

Tillion called the bank a “Barney Frank bank” after the former  Massachusetts congressman who sponsored legislation providing loans for agriculture and commercial fishing.

Lockett said he attended the auction in Anchorage, at the Hilton Garden Inn in midtown near the Golden Corral restaurant.  Tillion said some bids were submitted by telephone, creating confusion since participants at the event didn’t necessarily know who was representing who since the affiliations of voices on the other line weren’t always  clear.

The majority of the $2 million came from the city, with a smaller portion loaned by the Aleut Community Development Corporation, Lockett said, and that’s  money  that  the city could otherwise spend on other needs. Ultimately, the city manager said, his goal is for the purchase to cost the community “zero” in the end.

“We literally pulled it out of our reserves,” Lockett said.  “It has budgetary impacts, obviously.”

Tillion said the Icicle plant’s closure was dictated by the culture of Wall Street with greater expertise in finance than fisheries, referring to the private equity firm that owns what he said was once a “fishermen’s company” founded by fishermen in Petersburg in response to a processing plant closure in the Southeast Alaska community.

“Then it became a Seattle company, then it belonged to a holding company that has no home,”  Tillion said, noting that the Adak shutdown was part of a larger corporate shakeup that came around the same time as the sudden sacking of the company’s former president.

Icicle, headquartered in Seattle,  is  owned by the private equity firm Paine and Partners, with offices in New York, Washington, D.C., and San Francisco, and specializes in buying major corporations. Icicle remains active in the seafood processing business in Bristol Bay and Unalaska and elsewhere  in the state.

Icicle decided to close its operation in Adak, citing concerns about the short- and long-term health of the region’s Pacific cod resource and increased regulatory uncertainty, the company’ new  top official Amy Humphreys said in a press release in April.

The decision meant a major loss in city revenues, according to the February edition of the Eagle’s Call, Adak’s monthly city-published newsletter, available online at the city’s Facebook page.

The Adak City Council first received word  of  a closure at a January meeting when plant manager Melody Jordan delivered the news in what the newsletter called a “stunning move.”

“Icicle’s early closing not only means half the revenues to the city for the three months they are open,” the newsletter reported. “It means zero revenues from Icicle for the rest of the calendar year.” Icicle officials initially said they were considering reopening the plant later in the year, but later announced a permanent closure.

The seafood company  cited the high cost of electricity as a contributing factor.

“During a normal processing year, the plant  would stay open until the end of B season, mid-November,” according to the newsletter.

“The city purchased all of the assets for $2.088 million utilizing reserve funds as well as $385,000 from the Adak Community Development Corporation. In bidding, the sole intent of the City was, and remains, to keep the assets in place as a turnkey operation in order to facilitate the expedited reopening of the plant,” Lockett said in a press release this week.

Lockett said the successful operation of the processing facility significantly contributes to the city through a variety of methods including but not limited to a local raw seafood sales tax, fishery business and landing taxes paid to the state of Alaska, utilization of local services such as fuel and electricity, as well as contributing to the availability and utilization of regular transportation of goods and persons to the island.

The city is currently working with Aleut Enterprise, the owner of the building, to find an operator for the fish plant in time for the next cod “A” season. The City is interested in working with processors that have an interest in operating the plant to the maximum benefit for all parties involved. Operators interested in the local processing plant should concurrently contact the City and Aleut Enterprise, Lockett said.

This article was originally published in the Bristol Bay Times-Dutch Harbor Fisherman and is republished here with permission. Jim Paulin can be reached at paulinjim(at)yahoo.com