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Despite low sale price, City and WatCo say Watson Island deal is a good one

The price for Watson Island won't cover the taxes owed on it, but both the City and WatCo says the new tax money and jobs will be worth it.
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Watson Island in Prince Rupert.

The $5.5-million deal for the sale of Watson Island is being heralded as a fair and mutually beneficial one by both the City of Prince Rupert and the Watson Island Development Corporation, who represented the buyers in the negotiation of the deal.

While both sides may be satisfied, it is clear that the City has been forced to sell the property for much lower than it was expected to be worth when they acquired the property in a tax sale in 2009.

Back then, the property was estimated to be valued at about $13-million but after revelations about just how badly contaminated over 80 years of heavy industrial use has left Watson Island, it was clear that no one was going to pay that kind of money for it when it might cost $100-million just to bring it back up to a usable standard.

“By the time this island is redeveloped into a sea terminal it will be a very large amount of money will have been spent . . . the $5.5-million to acquire the properties from the District and the City is just a small part of what will be required to bring it back into active production,” says Tanner Elton, WatCo’s chief operating officer.

In fact, the $5-million that Prince Rupert would receive from the sale is about $1.5-million less than the unpaid taxes on the property that the City was trying to recover by seizing it from Sun Wave Forest Products in the first place.  If the deal goes through, the City will simply have to take that unrecovered one-and–a-half million dollars as a loss.

“There were other considerations such as the cost of cleaning up the site . . . and due to these considerations it did lower the attainable sale price,” says Prince Rupert’s mayor, Jack Mussallem.

But Mussallem doesn’t see the situation as the City losing money on the deal though.

“What Sun Wave owed and what we would get for it by selling it are two vastly different things. Under legislation once you take property over you get the property, not the outstanding taxes. So that figure that Sun Wave has is gone.”

The issue of Watson Island’s environmental contamination was such a sticking–point that an environmental remediation agreement from the province was made one conditions that must be satisfied before the sale can go ahead.

“Right now the site is contaminated and it has to be remediated to a standard which is set out in legislation to allow for a new use. So we need a remediation strategy and an agreement with the Ministry of the Environment and the provincial government more generally,” says Elton.

According to the City’s finance department, the $5-million will have no impact on amount of spendable cash the City will have on hand. The money from the sale has already been accounted for in the City’s budgeting, and the funds will simply disappear into the hole they were expected to fill in their finances, with nothing being left over to go into surplus. No extra million or two for a new emergency building for instance.

But despite the disappointing sale price and lack of new surplus funds, both buyer and seller say that the mere fact that Watson Island could be sold back into private ownership in the near future is something to look forward to, and will mean big benefits for everyone involved.

From the City’s perspective, the deal represents an opportunity to place Watson Island back on the list of taxable properties. Not only that, but with a long-term heavy industrial projects on it.

As long as Watson Island was owned by the City and sitting mostly idle, it wasn’t providing tax funds to the badly cash-strapped City. If all goes to plan, it would be worth hundreds of thousands of dollars of tax money to the City for the foreseeable future.

“I and Prince Rupert city council are optimistic that this is a good arrangement and a good fit for Watson Island. What it does is that it put Watson Island back on the tax role and it creates jobs from the point of acquisition and on into the future,” says Mussallem.

That is other obvious advantage for the community: jobs, new long-term, well-paid jobs.

Since Metlakatla and Lax Kw’alaams would be the owners of Watson Island they will be making agreements with their business partners inside WatCo (who will be leasing the island from them) to make sure their people get a portion of the jobs and construction contracts. The exact details of this deal would be negotiated if the sale goes ahead.

But WatCo says there will be plenty of jobs and contracts for non-Tsimshian people and businesses as well.

“The benefits to the community and employment opportunities will be very substantial. This is something that will be good for all the communities, including the First Nations,” says Elton.

Both First Nations have plenty more to gain from a project that would establish a bulk commodity terminal for mid-size ships on Watson Island. There’s a 99-year lease with WatCo which could mean a century of reliable rental income, plus they’ll be getting a royalty from every ton of goods that is moved through the operation, which means the busier it gets, the more money they can make.

“That’ll be long-term ongoing benefit to the First Nations. And we think an underlying asset will be that the property itself will be locally owned for a long time,” says Elton.

But the deal hasn’t gone through yet, and aside from the required remediation plan and numerous other regulatory processes that need to be done, the big potential project-killers are the lawsuits currently underway over the island.

Any one of these litigations could cause big problems for the projects. If, for instance, Sun Wave wins its case arguing that the City’s acquisition of Watson Island was illegal, the project would be dead right then and there. WatCo says it wouldn’t begin negotiating a purchase of the site from Sun Wave.

But nothing has been decided yet, but until it has the purchase deal is in limbo. Just how long it will take to get all of the lawsuits dealt with is an open question, one that can only be definitively answered by the judges involved.

Mayor Mussallem is hopeful that the cases can be resolved in the next few months, and WatCo says it has come up with some kind of legal strategy, but wouldn’t say what it was.