A showdown brews in Canada

Pulp & Paper, Mar 2005 by Ferguson, Kelly

"Twenty years of mismanagement in forest planning and overexploitation of wood supply with sawmills in every northern community have placed pressure on the natural resources and has created problems that are now 'coming home to roost. And nobody's got the fortitude to say no. It's better to have one or two facilities that run efficiently than have 10 that go bankrupt.'"

-Tembec CEO Frank Dottori, from an article in the Sudbury (Ont.) Northern Life newspaper, Jan. 13, 2005

"The Montreal Gazette said three government ministers sent to the region Wednesday had warned they would make the company pay for negatively impacting more than 2,000 jobs in La Baie, a town of 20,000 people."

-Story from paperloop.com regarding the shutdown of Abitibi-Consolidated's Port Alfred mill, Jan. 27, 2005

"The problem in Canada is you have got these old, high-cost mills but they are in very remote locations and ... governments don't want to let those mills go because if they leave, there won't be jobs. Quebec has probably been the poster child for the government stepping in to try to prop up marginal mills. You can understand why they are doing it, but it doesn't really solve the problem and you wind up wasting a lot of taxpayers' money."

-Deutsche Bank analyst Mark Wilde in The Montreal Gazette, Feb. 5, 2005

"Frank Dottori, CEO of Tembec Inc., said he has to close two Quebec sawmill facilities by May 1. He said the province had warned him this would cost Tembec its cutting rights, but he said Tembec would just have to go ahead and see what happened. Calling for the bureaucracy that regulates the industry to be streamlined, Dottori said that as an example it took 13 permits just to 'stick a shovel into a pit' to get gravel to fix a road."

-Pulp & Paper Week news story, Feb. 17, 2005

"In the next decade, between 15 and 25 manufacturing sites in Canada would shut primary operations rangingfrom pulp line deactivations, paper machine closures, or shutting an entire mill, NorskeCanada CEO Russell Horner forecast. Horner noted that there were no 'Tier-Γ or even 'Tier-2' paper companies in Canada. To survive and compete in world markets, companies had to grow to a lot larger, he said, yet Canadian antitrust law prevents companies from consolidating...."

-Pulp & Paper Week news story, Feb. 17, 2005

The quotes on the left tell the story, and others could be added to fill the page. Sides are lining up quickly: major forest products corporations on one side and governments (national and provincial), unions, and communities on the other side.

It could be said that Canadian company results over the past year were a portent of the looming battle. But AbitibiConsolidated's announcement in late January to close its Port Alfred, Que., mill in the town of La Baie was the most public skirmish to date. Given the pronouncements by CEOs at a PaperWeek International forum in Montreal in early February, Port Alfred is only the first.

Reaction to the closure announcement was dramatic, based on news reports. Workers briefly occupied the mill as well as the offices of a Quebec cabinet minister. Reports from the Canadian Broadcasting Corp. (CBC) said "the provincial government would take back logging rights for the area that had been given to Abitibi, and Natural Resources Minister Sam Hamad said that the company will also have to pay more for water rights in the region over the next four years."

The CBC report goes on to say, "Saguenay Mayor Jean Tremblay says it's unlikely Abitibi-Consolidated will reopen the mill, and he wants the government to force the company to sell the mill 'as is.' 'We know the company won't reopen the mill, okay, they have the right to do that. But they must sell it, not let the mill close like that,' Tremblay insists."

A release on a Confederation des Syndicats Nationaux (the National Confederation of trade unions) website suggests that the government needs to find a way to force companies, especially large multi-national companies, to reinvest regularly in their facilities instead of distributing their profits to shareholders, to ensure the survival of the mills and jobs.

As it stands now, Canadian paper companies-which must share blame in the situation-will likely continue to lose their ability to operate profitably and flexibly in the short-term. Should such actions by the governments and unions continue, Canada is likely to lose in the long-term. Economic Darwinism isn't always a pretty thing, but the reshaping of the global paper industry (and in particular the Canadian industry) will not be stopped by blackmailing and hindering Canadian companies.

It would be a shame to lose Canada as a global paper powerhouse.

KELLY FERGUSON is V.P. Editorial, Pulp S Paper.