Posted August 24, 2012
Announcements of economic development packages, whether for new employers or rescue missions, are inevitably accompanied by exaggerated claims about their impact. This week’s announcements concerning the supercalendered paper mill in Port Hawkesbury is a prime example.
There is no question that the mill is extremely important to the strait area, but Mayor Billy Joe MacLean was rather over the top in proclaiming that “The mill has been the economic engine for Eastern Nova Scotia and, in fact, Eastern Canada.” Likewise the premier’s announcement that this spending will protect 1,400 jobs for current and future generations is unlikely to prove correct.
Pacific West is paying $33 million for the mill. But $20 million of this comes from land sales so their net outlay is only $13 million. They then become eligible for loans (partly forgivable) of $66.5 million, which will not be guaranteed by Pacific West or Stern partners. So rather than paying $33 million the new owners are being given more than $50 million to take over the mill. Readers will remember that a similar arrangement at Bowater quickly ended in tears.
But it is appropriate to assume that the Stern’s intention is to reopen the mill. A further $3.8 million per year for 10 years in forestry subsidies, millions in power rate concessions that will be paid for by other customers, huge wage and benefit concessions by workers, and a further municipal tax break are apparently all required for the deal to be considered. Even this is not enough. In the absence of a favourable Canada Revenue Agency (CRA) ruling worth hundreds of millions of dollars more the mill will not reopen.
We are told that the mill represents the best technology and there is an experienced and knowledgeable workforce. What then are we to conclude about the viability of this business? If it still needs all those subsidies it must be an extraordinarily bad business to be in. And what will happen a few years from now when most of those subsidies are used up? Stern has shown that it is willing to walk away as it did with Saint Mary’s Paper in 2006. It has shown great skill in pointing the gun at political leaders to extract maximum concessions. That gun will be reloaded. Even our best and most viable manufacturing employers, such as Michelin, are regular recipients of government handouts to keep them competitive. Unless there is a surprising change in the paper business there will within a decade be further large demands to prop up the mill.
The hidden damage from this week`s announcement is the additional tax and power rate burden on families and other businesses. Some of the considerable time and effort dedicated to Newpage might have been better spent on more viable opportunities. The government should have been working on a backup plan for the strait area for the last 12 months. That plan will be needed immediately if the CRA ruling is adverse. If the CRA ruling is favourable that plan will be needed within the decade when subsidies start running out.