Big Ticket

The Alberta to Alaska railway may become a reality in 2022 if Sean McCoshen of A2A Railway has his way. He would like to see the project started by the Spring of 2019. The first part of the project is to build out the remaining 32-mile rail extension to Port MacKenzie. A2A is in negotiations with the Mat-Su Borough to complete the rail buildout and calculate what the return on investment from A2A would look like.

The 51-year-old McCoshen appeared before the Borough Assembly during a special session on Nov. 27th. The plan was to have the first part of an agreement to present to the assembly at the Dec. 18th assembly meeting. McCoshen landed at the Palmer Airport earlier in the day on Nov. 27th via private jet and left that evening after the special session. “I’m divorced with a seven-year-old. I promised him a trip to Disneyland so I won’t be able to attend the December meeting,”  McChosen said before his presentation.  “Here I am to meet you. I wasn’t really prepared to speak. I even had to borrow a tie from John (Moosey).”

The A2A Railway is a railway development company that would like to design, permit, build and manage a railway from northern Alberta to Alaska. In 2013, G7G Railway Corp and AECOM approached Alberta Energy with a funding request to investigate the feasibility of building a railway from Alberta to the Port of Valdez in Alaska. The project was inspired by a 2006 study by the State of Alaska and Yukon Government to connect the rail at Delta Junction to Fort Nelson, British Columbia. The Port of Valdez was selected as the terminus based of its 40 plus years of experience in oil export according to the study conducted by the Van Horne Institute of Calgary. The study was conducted in 2015 as part of an investigation for the feasibility of building a railway capable of carrying bitumen and petroleum products from Northern Alberta to the Port of Valdez.

John Falcetta, who is now the President of A2A Railway was a Vice President at AECOM. G7G, a rival group to A2A, who along with AECOM secured funding from Alberta Energy for the VHI study. G7G proposes that the railway would be at a capital cost of just under $30 billion by shipping bitumen and oil via rail to Delta Junction then ship through the Trans-Alaska Pipeline System. The bitumen would be diluted to transport through TAPS, then shipped from the Port of Valdez to Asian markets. Glennallen was another destination but It would take a few billion dollars to upgrade the refinery there. There would also be the added costs of upgrading the pipeline to carry the product. The product would be diluted then another process would happen to return the bitumen back to its original form but the composition would not quite be the same.

A2A Railway proposes that the product can be shipped via rail to Port Mackenzie in its solid form then shipped to the same markets at a capital cost of $15 billion. Bitumen has been described as having a composition of a light asphalt. The A2A group’s philosophy is that if they are going to invest in upgrades it would be best to invest in railway upgrades. One other fact about delivering into Port Mackenzie is that the last couple of miles is downhill. The heat from braking would actually warm up the bitumen and make it easier to pour into the tanks.

The first permit A2A needs would be the Presidential permit to cross the border from Canada to Alaska, which the project is in the process of attaining. Negotiations with the Alaska Railroad for an agreement are underway. Support from Canadian First Nations as partners in the project is also being secured. McCoshen, as President and CEO of The Usland Group, has a history of creating financial partnerships with First Nation organizations. A portion of A2A’s vision statement states that its vision is an Indigenous-owned and operated railway that improves connectivity, stimulates economic development and provides a reliable supply chain between North America and the World. It would appear that only one  of the rail expansion companies, A2A or G7G will survive. McCoshen assured the assembly that his group has the support of the First Nations in writing. Attaining permits and design work would be another year or two away. A2A is estimating project operation sometime in 2022 but the Port Mackenzie extension would start construction in the Spring of 2019, if McCoshen has his way.

McCoshen also has experience in various infrastructure buildouts, including building ports. “We looked at the project and thought it had legs because I’ve done this sort of thing before,” McCoshen said at the assembly meeting. “We decided to invest an initial $20 million. Now that was a private investment that I made because I believed in the project. The individuals that worked with AECOM branched off and AECOM stuck with our group. We began engineering work with AECOM and HDR. We began negotiations with the Alaska Railroad and that is going quite well. About a year and half ago an engineer on the project mentioned Port Mackenzie and came to make a case for Port Mackenzie.”

The borough had filed and been rejected for grant money for the $125 million cost to expand the rail to the port.

“If we can get that grant, great but we are prepared to move forward without the grant,” McCoshen said. “The $125 million couldn’t be raised as John Moosey alluded too. It has to come from private funds. It has to come from myself. I say that so you can get a lot of confidence because I am putting my own money on the line to get this project built.”

The borough and A2A have not completed negotiations and McCoshen pointed out that there is a lot of ‘tough stuff’ to come in order to reach an agreement.

“This is not a done deal, but we are approaching it very positively,” he said. “There are two parts to the agreement and we are hoping to get the first part done and to you by the 18th of December.”

The earthquake on November 30th prevented that from happening and, according to Borough Manager John Moosey, the hope is to have the first part of the agreement before the assembly by late January or early February.

Once the negotiations are complete, McCoshen sees the Mat-Su Borough and A2A as team members. “There is a lot of things that have to align to get this done but they are aligning up. I believe in the economics and we’ve spent $25 million dollars, so far, researching this and I think this is going to go. Hopefully this is the ticket that gets the rail spur built and the port developed and brings a lot of jobs. This is big ticket. It’s going to take a long time to pay this off. We’re talking 15 or 20 years to pay back and that’s OK.” McCoshen stated.

Some might ask, why not instead export through British Columbia since it is closer?

“There are a lot of environmental regulations some are good and some are bad. Just because I’m an industrialist doesn’t mean that I don’t like any regulations,” McCoshen explained. “There is no more room to export bitumen by rail in Canada. I think there is a misconception that we are a Canadian company. A2A Rail is a U.S. company. I think the proximity of the Port of Anchorage and the Mat-Su Borough is much closer to the customer, so you shave a lot of time; the willingness of the customer to come to the table. I’m no different than any other infrastructure player; I went to the customer first. I’ve maintained that whoever decided to build this port had a great idea but he was a little bit a head of his time.”

The term sheet that was before the assembly at the special session seemed to confuse certain assembly members because it was not the agreement negotiated to its current state. Assembly member George McKee told McCoshen that if it didn’t cause a liability to the taxpayers, he would just give the port to his group.

“It costs the taxpayers a million dollars a year to mothball the port.” McKee said, adding that he didn’t like the agreement as it was written.

 McCoshen replied, “In any negotiation, obviously, you have to put your best foot forward and we have to come to a commercially viable deal. I have the $125 million to spend on this but I don’t have the $6 or $7 billion that it’s going to cost to build but I do have investors lined up that will invest that.”

Assembly member Dan Mayfield disagreed with McKee on the value of the Port, but asked McCoshen about opposition from the indigenous people in Canada, particularly in the Yukon. Mayfield had heard rumors of these issues on a recent trip to Washington, he said.

“That’s not the case at all,” McCoshen replied. “We’ve been endorsed by the Premier of the Yukon. We’ve had meetings with indigenous folks up there and we have signed endorsements from them. The problem in the Yukon is the caribou run and not to upset that. The office of the premier has done a number of studies on that. They have given us their support.”

Mayfield then asked whether there is a clear road in Alaska and Canada for the project’s completion. “There are certain choke points on the line from Fort McMurray up to the connection in Alaska. In Canada there are some major bands that have significant oil interests and those are the bands that have signed on and when those sign on the rest will follow.” McCoshen said, adding that he has spent some $20 million dollars on exclusive agreements with these bands and that former Governor Bill Walker was in receipt of several endorsement letters from those communities. “There is competition from another company which is basically a one-man show,” McCoshen said. “They’ve been rejected by AECOM and some of the tribes. They persist but that’s life.”

Mayfield also asked that if any of the choke lines became insurmountable, would that mean the rail extension wouldn’t be built? “A number of things have to happen before I go and spend money and some of them involve the Alaska Railroad and some of them involve customers.” McCoshen responded. He spoke about issues with the Canadian government and lawsuits brought on by environmental groups not wanting Canada to expand infrastructure, but he is confident he will work around those lawsuits. The Alaska Railroad and closing agreements with potential customers seem to be the biggest obstacles and of course an agreement with the Mat-Su Borough looms large as well.

One prominent local business leader and former port commission board member said that the borough needs to do one of two things with the port: Either sell it outright, or find a salesperson who knows what they are doing and let them lead the way.

McCoshen believes he fits the bill as the latter.

McCoshen says he is willing to spend his own money to get the rail extension done in exchange for a deal in which he can get his money back and make a profit. On the back end, he wants a 99-year lease and essentially operate the port, with, it appears, a revenue sharing plan with the borough.

The stars have to align to get the Alberta to Alaska rail done. One star that should jump into place is the Mat-Su Borough. Once Moosey and his team come to an agreement with McCoshen and his team the assembly members need to put their blessing on it. Let the experts run the port and let the taxpayers reap the rewards.

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