08/20/2012 04:00 EDT | Updated 10/19/2012 05:12 EDT

Nova Scotia announces $124.5 million in incentives for NewPage paper mill

HALIFAX - A Cape Breton paper mill that has sat idle for nearly a year moved a step closer to reopening with the announcement Monday of a $124.5-million funding package and the approval of a special power rate, despite concerns from some who wondered whether such deals serve the public interest.

Premier Darrell Dexter made the funding announcement Monday, saying he was certain the government assistance would help Pacific West Commercial Corp., the prospective buyer of the NewPage Port Hawkesbury mill, turn the facility's fortunes around.

"The province has done its due diligence, and we are confident that it is the right plan for the province," Dexter told a news conference in Port Hawkesbury.

"The mill has the most modern machine in North America and we are helping position it to take advantage of this and become a leader in producing supercalendered paper."

Under the deal, the provincial government is offering Pacific West Commercial financial incentives including $66.5 million in loans, $26.5 million of which could be forgiven if the Vancouver company meets certain criteria, including wage targets.

The government has also agreed to buy about 20,840 hectares of land from NewPage Port Hawkesbury for $20 million, a purchase Dexter says will help meet the province's commitment to increase Crown land share. That money would go to the mill's creditors, who accepted a settlement last week on what they're owed from the operation.

The deal would also give Pacific West Commercial $3.8 million annually for 10 years to support forest land management and sustainable harvesting.

Liberal Leader Stephen McNeil said the announcement leaves too many unanswered questions, including why millions are being spent to improve efficiency at an already modern mill.

"There seems to be a lot of money in these projects that we're wondering what exactly is it for," he said.

"There's an additional few millions dollars for retraining on a workforce that's going back to operating the same mill."

Progressive Conservative Leader Jamie Baillie said while he was still reviewing details of the announcement, he was concerned over whether it was a prudent use of public funds.

"I'm happy for the people of the Port Hawkesbury area, but this is a large amount of government money," he said.

"I think it's important that people know whether they learned a lesson from the Bowater deal where they didn't put in those kind of guarantees."

Last December, Dexter announced a five-year, $50-million deal aimed at saving the Bowater Mersey paper mill only to see the Brooklyn plant close some six months later.

Archie MacLachlan, a vice-president with the Communications, Energy and Paperworkers Union, said the funding package was necessary.

"I don't think the average person on the street realizes the amount that the pulp and paper industry supplies to the economy of Atlantic Canada," he said.

Pacific West Commercial, a subsidiary of Stern Partners Inc., has said it expects to inject $160 million into the local economy during its first year of operating the Point Tupper mill.

A spokesman for Pacific West Commercial said the government funding was a "critical" step toward restarting one of the mill's two papermaking machines, which it hopes to do next month.

"The package really allows us to get out of the starting gate with a strong start," Marc Dube said in an interview.

"Now we have to be certain that we implement all the aspects of our business plan so that the mill can be successful for a long, long time."

Dexter's announcement came moments after Nova Scotia's Utility and Review Board approved Pacific West Commercial's application for a special power rate deal with Nova Scotia Power.

Under the arrangement, the private utility company would receive tax-free divided payments for electricity instead of a regular tariff. The deal would last until the end of 2019.

The ruling still requires approval from the Canada Revenue Agency. It's not known when that decision will be made.

Consumer advocate John Merrick said Nova Scotia Power customers won't pay more under the deal as it stands. However, he warned that could change if the estimate of supplying power to the mill is wrong or if power customers end up footing the bill for a biomass plant at the site.

The plant is meant to supply the mill with steam for papermaking and provide renewable energy to the grid. But Nova Scotia Power has said it may not need to operate the facility much, if at all, to meet renewable electricity targets for at least another two years.

The board's written decision says customers can't be expected to cover the added expense of running the plant "unless and until, as a result of legislation or regulations imposed by the province, it becomes a 'must run' facility." The regulator says the provincial government appears committed to making those changes.

Merrick said the impact on the average customer's power bill would be minimal if the government were to follow that route. But he said he was mostly concerned that the government was pandering to Pacific West Commercial.

"If what we think may have happened is what happened, then the province very cavalierly struck the ratepayers with some of the costs of salvaging that mill."

Pacific West Commercial has said the power deal is crucial in its efforts to reopen the mill, which it is planning to buy for $33 million.

The mill shut down last September, laying off some 600 employees and affecting another 400 forestry contractors. It opened in 1962.

It's expected that about 300 workers will be asked to return to the mill, which has remained in a so-called hot idle mode because of a $12.3-million boost from the province.

Dexter conceded the forestry sector still faces challenges, but said he believed the NewPage Port Hawkesbury mill is well-positioned to compete and be successful.

"Stern (Partners) is not here simply to act as an operator and to receive subsidies from the province," he said.

"They're here to run a business, they're here to be part of the economy."

Dube said the company believes it has done everything possible in the past year to ensure the mill finds its rightful place in a competitive market. But for the people in the Port Hawkesbury area, Dube acknowledged that seeing will be believing.

"Words are cheap," he said. "Our actions and how we make this happen will certainly be followed by many. And we're confident we can do it."