Caught Between the Devil and the Deep Blue Sea
February 1, 2012 By Pulp & Paper Canada
n a classic industry versus government, union, utility and anyone-else-in-sight faceoff, the Bowater Mersey paper mill in Bridgewater, N.S., has cut its employees by half, struck a deal for $50-million worth of loans, training and sale of…
n a classic industry versus government, union, utility and anyone-else-in-sight faceoff, the Bowater Mersey paper mill in Bridgewater, N.S., has cut its employees by half, struck a deal for $50-million worth of loans, training and sale of 10,000 hectares to the province. Threats of closure also got Bowater Mersey a property tax cut, and a lower electricity rate.
For Mersey owner Resolute Forest Products (formerly AbitibiBowater) it was a question of whether to cut loose an unprofitable mill. For the province, it was about protecting the backbone of its forestry industry, which accounts for about 3.6% of its employment and GDP. Unfortunately, Nova Scotia’s game of hardball with Richard Garneau of Resolute segues into a slam dance with Ronald Stern, president of Vancouver-based Stern Partners. Stern is also president and CEO of Alberta Newsprint Company and the man behind Pacific West Commercial Corp., which is the sole bidder for the NewPage paper mill in Port Hawkesbury, insolvent and idle since last September.
It can be regarded as a good thing that Stern wants to keep the mill running – if only the supercalendered machine — rather than hauling it away, piece by piece. But Stern is reported to be a fierce negotiator and the provincial government’s cards are all lying face up on the negotiating table. Expect a final deal to be sealed with blood drawn from concessions on power, taxes, pulpwood rates, access to fibre on crown land, staffing levels, and wages.
Pulp and paper mills in Nova Scotia have been staggering under the blows of high fibre costs, a high Canadian dollar, distant markets, and punishing power rates. During a hearing last fall, the Nova Scotia Utility and Review Board heard that a one-cent change in the value of the Canadian dollar translated into $1.5 to $2 million a year for Bowater and $3.335 million in profits for NewPage. Both mill owners testified that “Nova Scotia is the most expensive jurisdiction in which they operate in North America with respect to electricity.”
The Board later granted Bowater Mersey a “load retention rate”, allowing the company cheaper access to power beginning in 2012.
Minas Basin Pulp & Power, a manufacturer of recycled paperboard in Hantsport, N.S., has avoided the wholesale slaughter, but it has had to make adjustments to survive these pressures. It permanently cut 13 salaried positions last fall and cut some union positions in early January. “We have to downsize, redistribute duties and reduce overhead,” says Terry Gerhardt, the company’s vice-president, operations. “For all of 2011 the cost of our fibre supply stayed high and never came down. Our supply of raw materials is very high and it is hard to compete.”
Minas Basin has not asked for power rate concessions; rather, it has worked hard for years to reduce energy consumption. Elsewhere in the mill, Gerhardt says, “We are looking at solutions that will let us manufacture the same products, with more efficiency and lower costs.”
The NewPage Port Hawkesbury closure caused a full-out collapse of the pulpwood market in the eastern region, but the wreckage scattered the length of the province. “NewPage was buying wood as far west as Digby. A lot of contractors that had been feeding into that supply turned to Bowater and flooded that market. We are in a bad spot,” concludes Mike Hutchinson, projects coordinator, Federation of Nova Scotia Woodland Owners.
Steve Talbot, executive director, Forest Products Association of Nova Scotia, concurs. “Some of our members are out of business. Some [operators] have shut down. Some have gone to Alberta. When the mills start back up they might not be able to supply chips and round wood to the mills.”
The shakeout and the shakedown are far from over. Bowater Mersey has set the tone. “The employee cuts at Mersey were an ultimatum,” says Don MacKenzie, national representative for the Communications, Energy and Paperworkers Union of Canada in the Atlantic Region.
How the plant will run on half-staff is an open question. As for what Stern will demand of CEP, MacKenzie could only state the obvious, “We await contact from the new owner [of NewPage] to negotiate a new agreement.”
It is hard to envision Stern not insisting on a power rate concession, among other things, as a necessary condition for sealing the NewPage purchase, but will the mill qualify? The decision rests with the Nova Scotia Utility and Review Board.
Both NewPage and Bowater Mersey were paying 6.22 cents per kilowatt hour as a general rate and, without the load retention rate, were facing an 11.9% hike for 2012. The new rate approved for Bowater brings the cost down to 6.02 cents in 2012, rising to 6.78 cents in 2014.
Resolute’s Richard Garneau has said the concessions from industry and government should ensure the future of Bowater Mersey for five years. For NewPage Port Hawkesbury, the future is still on the bargaining table.
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