New complications emerge in ferry deal

PALMER — The borough assembly voted 4-2 Wednesday to have the M/V Susitna towed to Seattle later this week — without knowing for sure what will happen to it once it arrives.

Opponents of the relocation (assemblymen Steve Colligan and George McKee voted against it) decried the situation, saying the borough should have a concrete plan for the troubled vessel before it departs.

Assembly members who voted for the measure said the ferry will be better positioned in Seattle for either long-planned repairs to water-damaged engines, a quick sale to other interested parties, or the scrap yard. The boat is currently moored in a private harbor in the Southeast community of Ward Cove, near Ketchikan. The cost for the tow, which will happen once the insurance company approves the conditions, will be about $100,000, according to testimony delivered Wednesday night.

The meeting revealed a raft of new developments in the multi-year saga for the ferry, originally designed as a prototype ice-breaking landing craft for the Department of Defense. Borough officials obtained the vessel in 2010 for use as a ferry between Port Mackenzie and Anchorage, but Anchorage officials rejected a proposed landing site. Borough officials had been trying for years unload the craft for numerous potential uses, and came close to a sale in 2013. A rainstorm in January 2015 damaged the boat’s unique German-manufactured engines.

In September 2015, the Philippine Red Cross emerged as a buyer, and paid $250,000 toward a down payment on the eventual $1.75 million sale. Borough officials appropriated $850,000 toward repairing the engines, which combined with the down payment was expected to cover the cost of engine repairs until the insurance company reimbursed the borough for them.

The borough’s maritime insurance provider, Lloyd’s of London, asked a senior adjustor to re-evaluate the extent of needed repairs. The insurance company representative determined engines would need to be completely removed from the vessel and reconstructed, rather than fixed aboard the craft.

Legislation distributed at Wednesday’s meeting and slated for a Feb. 23 public hearing now put the cost of those repairs at roughly $3.1 million, according to borough manager John Moosey.

The more complicated repairs may put the ferry’s availability for delivery to the Red Cross beyond a previously established March 31 contract deadline. Borough officials said they would first have to negotiate a contract extension with the Red Cross, which they’re hopeful will be granted in order to gain more value for the property, according to borough manager John Moosey.

“This is a better deal from them, because instead of getting repaired engines that work, they’re getting rebuilt engines that are certified,” he said.

If the extension of the deadline is approved, borough officials would proceed with repairs in Washington, receive repayment from Lloyd’s of London for the damages they’re paying to fix, then ship the ferry to the Phillipine Red Cross — though port director Marc Van Dongen testified that the lowest-bidding contractor, Associated Maritime Providers, Inc., could guarantee neither a total cost to the repairs, nor a completion date for them.

Borough assembly member Dan Mayfield, who previously worked in the insurance industry, has taken the lead on reviewing the insurance component of the potential sale for the assembly.

“Primarily I was looking at it from, just, insurance eyes, with 33 years worth of experience in dealing with this kind of thing and trying to figure out what was covered and trying to maximize our public benefits to the borough,” he said.

In a best-case scenario, the borough could net as much as $1.2 million from the sale, Mayfield said. Since delivery, and without including the cost of repairs, the ferry has cost the borough about $2 million so far.

The move to the Seattle area would demonstrate to the insurance company that the borough is taking all necessary steps to fix the engines, rather than letting them sustain more damage.

“We have two contracts in place currently,” he said. “One is by an insurance company to provide coverage for the vessel, and we have another contract to sell the vessel. We have to show good faith in both cases. So, demonstration of good faith is not just the letter of the law as far as following the contract. It’s also the spirit. And so long as you are being proactive in acting, you’re showing good faith, so long as you’re not doing something that’s against the contract. It’s when we fail to act that we don’t show good faith.”

Assembly members also have a responsibility to the voters, Colligan said.

“We have a responsibility to some other people as well — before the insurance companies — and that’s the taxpayers,” he said. “If this thing falls through, it doesn’t happen, there’s a different issue.”

Assembly members also learned that borough attorney Nick Spiropoulos had not been involved in negotiations over the fate of the ferry. Borough officials had instead retained a separate attorney with a specialty in maritime law to handle the situation. Assembly members unanimously passed a resolution by Randall Kowalke directing Spiropolous to take the lead role in negotiations.

During closing comments, Colligan reiterated his objection to towing the ferry to Seattle.

“I guess I have to sit here in disbelief that ship is moving without the key document and agreement in place between the potential buyer and the borough,” he said. “I firmly believe business-wise that that contract is the key to this thing moving or not moving, and there are other options, and I can’t believe that we’re sending the magic bus out to sea without a written contract.”

The complexity of the situation even inspired some gallows humor for at least one assembly member.

“I think we’re all going to sail off on the M/V Susitna at the end of our terms,” McKee quipped at one point.

Contact reporter Brian O’Connor at 352-2270, brian.oconnor@frontiersman.com, or on Twitter @reporterbriano.