Pulp and Paper Canada

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Community rallies to save Eurocan mill


August 1, 2010
By Pulp & Paper Canada

When West Fraser Timber Co. Ltd. announced on October 28, 2009, that it would permanently close its Kitimat paper mill, the last pulp and paper mill on British Columbia’s north coast and the town’s se…

When West Fraser Timber Co. Ltd. announced on October 28, 2009, that it would permanently close its Kitimat paper mill, the last pulp and paper mill on British Columbia’s north coast and the town’s second-largest employer at more than 500 men and women, it was like driving a steel-toed boot into a bee hive.

Within days Local 298 of the Communications, Energy and Paperworkers Union (CEP), the national CEP representative, the District of Kitimat and the community began strategizing about how Eurocan Pulp & Paper Co. could somehow be kept open. For Local 298 though, this was unexplored territory. “We didn’t know where to go,” recalls Mary Murphy, its president.

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Somehow, Local 298 found, then sought, early counsel from the Calgary-based Canadian Worker Co-operative Federation (CWCF) which describes itself, in part, as a “grassroots membership organization of and for worker cooperatives”. An essential part of its mandate is to provide information to worker groups on the many aspects of starting worker co-ops, such as preparing feasibility stud- ies and business plans, and obtaining government assistance. As a first step in trying to figure out what was even possible, Local 298 looked at the possibility of employee buy-in at the mill.

Employee buy-out considered

The CWCF and worker groups in trou-ble learn about each other partly from monthly conference calls among members of the Western Labour/Worker Co-op Council, which includes unions. Although CWCF has been around since 1991, it has a zero-for-two track record with mill worker groups. It should be noted that the successful Ohio Employee Ownership Center, which does similar work in various industries in that US state, finds that one of six attempted buy-outs proceeds.

To improve the chances of success in Western Canada, the Western Labour/ Worker Co-op Council, which began having formal meetings in 2006 and incorporated last fall, specializes in this area. “The Council is what is helping employees keep mills open,” says CWCF executive director Hazel Corcoran. “It was created in large part to provide a closer relationship between the worker co-op movement and the unions. At the moment one of the Council’s goals is to get a first successful buyout, and so far the demand has been coming from the pulp and paper industry.” CWCF is a member of the Council.

As for who pays for the help and advice of CWCF and the Council, Corcoran explains, “At this stage, the Council’s resources are coming from a federal government program called the Co-operative Development Initiative (CDI). We have sent in co-operative developers paid for by the CDI.”

While Local 298 was picking up some speed from the Co-op Council, Kitimat’s municipal government, the District of Kitimat, also hooked its peavey into the issue. “Given the jobs and tax base that was at stake, the municipal government decided it had to spend some time looking at saving Eurocan,” says municipal manager Trafford Hall.

Throughout November, meetings were held to enlist support. A team formed and called itself the Eurocan Industrial Viability Group (EIVG). It had its first formal meeting on November 28. “EIVG started being formed almost immediately after the mill closure was announced. The union, the District, the Chamber of Commerce were naturals for being on it,” Hall says.

EIVG originally had six members, including Envision Financial Kitimat. Then the District sought funding assistance from the provincial government; it also joined EIVG. However, Hall stresses, the initiative is not being spearheaded by the government; it is being spearheaded by the local EIVG members.

There was some reluctance to have the provincial government sit on EIVG, as some local members where unsure where its allegiances lay. With the employees? With West Fraser? “We don’t always know who our allies are. You can sometimes find that a member has a conflicting objectives,” Hall explains, while stressing, “The mission of EIVG is to make the mill viable.”

Despite his invaluable business exper-tise in this ongoing saga, Hall plays down his own importance in the effort to reopen the mill, which shut its doors at the end of this January. “I can’t take credit as a civil servant. Mary has been a key leader here; she has energy and integrity. Other than that we have to share the leadership amongst the members of our group.”

Drawing from the community

Murphy explains how Local 298 got buy-in from the town: “We requested support from individual citizens, community groups, town businesses and the Chamber of Commerce. We met with the mayor and council of the District of Kitimat, the mayor of [nearby] Terrace and several Terrace councillors. We made presentations to the Canadian Labour Council and received support from the president of the Canadian Auto Workers and other unions. We met with local First Nations, with provincial government officials and the Northwest British Columbia Forest Coalition representatives.”

Buy-in has meant support, manpower and resources, including $60,000 from the provincial government to help fund a $175,000 study on alternative business models to make the mill viable. “We were learning to put one foot in front of the other. We decided we needed a professional review of the mill. So we hired Pyry, a global consulting and engineering firm,” Murphy says. “West Fraser was totally on board because they have the utmost respect for Pyry.”

Hall underlines the importance of this move. “It’s rather arrogant to assume that we could succeed where West Fraser could not.” After all, in the October 28, 2009, press release announcing the mill’s imminent closure West Fraser CEO Hank Ketchum stated, “Unfortunately, even with the most optimistic projections the business fundamentals of the operation have deteriorated to the point where permanent closure is the only reasonable alternative.”

Before and after Pyry issued its Eurocan Mill Viability Assessment, Summary Report on March 31, Local 298 and EIVG jumped hurdle after hurdle. “In the beginning I had no idea what to do,” Murphy recalls. “West Fraser claimed that the mill was not viable and that they would simply close it. But after putting a lot of pressure on them, they agreed to [the proposal] of letting a buyer buy the mill.

“To date CEP 298 has put $65,000 into trying to find a buyer. CEP national has contributed. It has been a huge expense to everyone, including personal money Local 298 vice-president Randy Dobson and I have spent. The commitment consumes you full time. We are all working very hard, but I have a life.”

Boiling down the 21-page Pyry summary report to a nugget, the mill might be viable if it closes one line and runs only the single sack kraft line. However, it would have to secure 600,000-700,000 cubic metres of pulp wood at a price that deferred some of the cost to regional coharvested logs.

In a stark example of “know thy region”, EIVG approached the Northwest British Columbia Forest Coalition, which has too many decadent trees (those with rotten cores) in and among its perfect trees. “The good trees must bear the whole cost of the logging operation. This has driven the cost very high, to more than $100 per cubic metre,” Hall explains. In fact, the Coalition has what amounts to an advertisement on its website: “2,700,000 cubic meters of annual fibre available for wood processing investors.”

EIVG approached the Coalition, asked whether it could supply 700,000 cubic metres of pulp wood at $40-$45 a cubic metre. The Coalition said it could, according to Hall. As for the skill required to conduct such impromptu negotiations, Hall explains, “We think it is pretty straightforward to determine the broad (average) price we can pay and ask the supplier if they can supply. But any investor will have specific negotiations with the several individual members of the Coalition which will no doubt be more complex.”

As of late June, workers and the town of Kitimat were still far from being out of the woods. West Fraser has been redistri
buting equipment from the mill, although, says Murphy, “West Fraser notified us of each removal and assured us these assets would be returned if we found a buyer.” Still, Murphy has concerns about these removals. “If they bring the assets back, who will pay to reinstall them?”

Hall notes, “We got West Fraser’s co-operation because we haven’t derailed its plans to sell individual components. West Fraser said, ‘Fine, look for buyers, because our process of removing machinery will take time.’ They are giving us time.”

The Viability Group has been trying to stir up investors, and by June had entertained four potential buyers, according to Murphy. Too, she says, “We are working with the government to see if there is government funding for a union buyout. I am going through the CWCF venture to develop a business plan. If we have people come to the table we might be able to put down a deposit and keep the assets. This is a full-time job, looking for investors.”

West Fraser gave EIVG till the end of the June, but if a serious potential investor comes forward, they are willing to extend that deadline.

Although individuals like Murphy and Hall can make all the difference, at some point big guns must be brought on deck. Hall reports, “We are going to hire Poyry to look for a buyer. Hire some horsepower. Pyry can do this from eight to five. I can’t do it.”

PPC


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