Money-leaking NEAS losing sea-lift deal to co-op-backed firm

MONTREAL — Only one shipping company will be the lucky winner of a high-stakes contract to meet the Nunavut government’s annual sealift needs — and it looks as if won’t be the highly-touted Nunavut Eastern Arctic Shipping company.

Now that the Canadian Coast Guard is no longer the principal shipping agent for Nunavut, a Nunavut government contract to ship more than 11,000 tonnes of supplies a year to Baffin is up for grabs.

The Coast Guard devolved responsibility for the sealift to the government of Nunavut in December, 2000.

The GN’s Department of Public Works is now responsible for the eastern Arctic sealift in Nunavut. Last year, the GN issued a request for proposals in a search for a company able to provide the government with sealift services.

This two-year deal is worth a cool $6 million, and whoever wins it will get to pick up lots of additional business, especially in the Baffin region.

But even though the GN has yet to make an official announcement, it looks as if NEAS will miss out on this golden opportunity.

Inside sources say the Nunavut government is leaning heavily towards a consortium called the “N3 Alliance.” N3’s partners include the Inuit- and Inuvialuit-owned Northern Transportation Company Limited, Arctic Co-ops Ltd., and Transport Désgagnes of Montreal.

“It’s certainly a disappointment to us,” said Matthew Spence, head of venture development for the Qikiqtaaluk Corporation, a major NEAS partner.

The Baffin region’s Inuit development corporation has heavily invested in NEAS, which is a joint venture between Nunavut Umiaq Corporation and Transport Nanuk Inc., whose partners are the North West Company and Logistec Corp.

N3 has cheaper prices

The Umiaq Corp. is made up of three regional Inuit development corporations: Makivik, Qikiqtaaluk and Sakku.

In a letter dated Dec. 21, Nunavut’s public works department told NEAS that its proposal didn’t “give the same value” as a main competing proposal from a consortium called the N3 Alliance.

NEAS and N3 had made it onto a short-list after proposals from two other proponents were rejected.

The N3 Alliance’s partners, naturally, are welcoming the news that they are the leading contender for the contract.

“It’s very positive,” said Daniel Degagnés, who was in Iqaluit this week to discuss the N3 Alliance’s proposal with Nunavut public works officials.

Management at Arctic Coops Ltd, another N3 partner, are also pleased with the impending deal, which is likely to create new business for them and strengthen the co-ops’ position against their main retail competitor in Nunavut, the North West Company.

Ross Mrazek, Nunavut’s deputy minister of public works, says his department’s evaluation committee ranked the N3 Alliance and NEAS according to their reliability, experience, and flexibility.

Mzarek said conformity to Article 24 of the Nunavut land claim was only “one of the concerns.”

Price comprised 40 per cent of the proposals’ grading system. Mzarek said the NEAS’s proposal was “substantially” more costly than that of N3 Alliance.

“Basically what we’re looking at is making this as economic as possible,” Mzarek said.

“Never say die”

The NEAS partners aren’t giving up yet, however. They plan to meet with territorial officials to see how far their proposal fell short, and plead their case at the minister’s office, if necessary.

“We’re not sure that’s the end of it,” Spence said. “Never say die.”

Because price isn’t the sole factor that the GN uses to decide contracts handed out through the “request for proposal” method, NEAS’s proposal may still have some life in it.

Spence pointed out NEAS has a ship partly owned by Inuit in Nunavut that it has to pay off, and that it’s also committed to training Inuit to work on board.

“It begs the question of the Nunavut government’s commitment to northern, Inuit-owned companies,” Spence said.

Only last summer NEAS was riding high and making plans for the future. The company had taken over the lucrative Quebec government’s sealift contract to Nunavik, and unveiled a new container ship, the Umiavut, which increased its fleet to three high-capacity vessels.

But with a $12.5 million boat to pay off Spence admitted the possible loss of the GN contract will be a hard blow.

NEAS losing money

That’s because NEAS is already losing money for its partners.

A North West Company report to investors filed with the Toronto Stock Exhange says that in the company’s third quarter last year there was a “$600,000 reduction in earnings from a joint venture investment in eastern Arctic shipping caused by a drop in tonnage and excess vessel capacity.”

According to NEAS’s corporate structure, Transport Nanuk’s two non-Inuit partners receive 70 per cent of the profit, while Inuit-owned Nunavut Umiaq gets 30 per cent of the profit.

If losses are split in the same way as the profits, Transport Nanuk Inc. has already lost $1.2 million, and the Umiaq Corp. is out at least $500,000 — and this doesn’t even take into account the millions of dollars already invested in the MV Umiavut’s purchase.

Agressive rate-cutting to attract new customers and drive out competition may be responsible for some of these losses.

Speculation was rife last summer in Kuujjuaq that NEAS was dramatically lowering its rates to wrestle business away from Transport Degagnés, its major competitor for Nunavik’s sealift business.

Under the terms of its contract with NEAS, the Quebec government fell from $369 to $198 per tonne.

Announcement in February

Mzarek said the announcement on who wins the territorial sealift contract will be made official by early February. He said the contract is for a limited period of two years, because the Nunavut government is still developing a transportation plan.

This plan will also include the Kivalliq and Kitikmeot regions, which are already served by NTCL’s barges.

Proposals for Nunavut’s government sealift were also received from Coast Guard employees Heather Villaudy and John Perro ino, and Nunavut Ocean Transport, a joint venture between A. Crosbie Shipping of Montreal and the registered Inuit-owned Auyuittuq Investment Corporation, but the GN rejected those proposals on the grounds that they didn’t meet the necessary criteria.