Daishowa in Trouble


Lubicon Lake Indian Nation
Little Buffalo Lake, AB
403-629-3945
FAX: 403-629-3939

Mailing address:
3536 - 106 Street
Edmonton, AB T6J 1A4
403-436-5652
FAX: 403-437-0719



September 20, 1991



Good news!



Reliable reports from Japan indicate that Japanese forestry giant Daishowa has recklessly over-expanded its production facilities, is in deep financial trouble and consequently plans to sell its Peace River bleached kraft pulp mill. Hopefully nobody will be dopey enough to buy this billion dollar monument to outmoded technology and it will have to shuttered.



Obviously caught off-guard by news of Daishowa's plans to sell its Peace River bleached kraft pulp mill, representatives of the Alberta Provincial Government scrambled to reassure Alberta voters that this multi-million dollar misadventure with the taxpayers' money isn't headed for economic disaster. Facing an equal 19-19-19 split in the latest polls between Alberta's three main political parties, the last thing in the world the Provincial Government needs is collapse of its much heralded initiative to diversify Alberta's largely petroleum-based economy by selling off the Province's trees as well as its oil.



The news of Daishowa's serious financial difficulties followed wave after wave of less spectacular but no less significant bad news for Daishowa, for Daishowa's Peace River bleached kraft pulp mill and for the Alberta Provincial Government. At least partly due to Daishowa's heady over-expansion of production facilities, the market is awash with pulp, the price of pulp has plummeted from $800 to $500 per metric ton and pulp companies are stuck with record pulp inventories. In addition a leaked Canadian Government study recently confirmed that the bleached kraft process used by Daishowa's Peace River pulp mill produces deadly toxins which threaten human health, environmentalists are pressing for a total ban of bleached kraft pulp and the U.S. Government has proposed to outlaw the sale of un-recycled paper -- all on top of a very real question of whether Daishowa properly owns the rights to the Lubicon trees upon which its very existence is premised.



Thus contrary to the nervous public assurances of obviously off-balance Provincial Government representatives, Albertans do indeed have cause for concern over the loss of millions of dollars in taxpayers' money. In fact it's hard to imagine who, except perhaps a desperate Alberta Provincial Government for purely political reasons, would want to take over Daishowa's loss-leading Peace River white elephant. From all indications doing so would be tantamount to going into large-scale buggy whip production after invention of the horseless carriage -- to say nothing about the problem of expressed Lubicon intentions to block the cutting of Lubicon trees by any means necessary until there's a settlement of long outstanding Lubicon land rights and a tree harvesting agreement taking into account Lubicon wildlife and environmental concerns.



Bad news for Daishowa, for Daishowa's Peace River bleached kraft pulp mill and for the Alberta Government unfortunately doesn't automatically translate into less pressure on Daishowa and/or the Provincial Government to clear-cut Lubicon trees this fall. Rather both Daishowa and the Alberta Government will be frantically trying to create the illusion that Daishowa's Peace River bleached kraft pulp mill is still economically viable in spite of everything -- an illusion which clearly depends to no small extent upon somehow keeping the mill in operation. And keeping the mill in operation at anything like its 1,000 metric tons of pulp per day capacity will almost certainly require trees from the unceded Lubicon territory.



Proliferating problems for Daishowa and the Alberta Government consequently should not be seen as victory allowing for relaxation of effort but as opportunity calling for renewed effort to be fully realized. As always, but even more so under the current circumstances, the biggest threat to companies like Daishowa and governments like the Getty Provincial Government is public information and education, through whatever means available -- including demonstrations, writing letters to the editors of newspapers, phoning talk shows, raising the issue with friends and associates and joining the growing international boycott of Daishowa paper products. Each of these things, thoughtfully done, will serve to sharpen the public debate and clarify the involved issues.



Daishowa's Peace River $580 million bleached kraft pulp mill is advertised as the largest hardwood bleached kraft pulp mill in Canada and is reportedly the largest hardwood bleached kraft pulp mill in the world. Only time will tell whether it will be possible to shut it down. However a number of potent factors now operating in combination make shutting it down at least conceivable. And shutting it down would not only remove a major threat to the embattled Lubicon people, and give the Lubicon people some badly needed political leverage, it would contribute greatly to the phasing out of the environmentally disastrous bleached kraft process in Alberta and Canada.


Attachment #1: THE EDMONTON JOURNAL, Thursday, July 18, 1991





PULP MILL EFFLUENT IS TOXIC -- STUDY

Organochlorides a potential threat to humans, scientists say





Dennis Bueckert

The Canadian Press

Ottawa



Effluent from pulp mills that use bleaching is toxic even if dioxins are removed, a two-year assessment by scientists at the Environment Department has concluded.



The study says that compounds known as organochlorines, discharged as byproducts of bleaching, represent a potential threat to human health.



It is the first official federal confirmation of what environmentalists have been saying for about 10 years.



The study has been submitted to Environment Minister Jean Charest but not publicly released. It was summarized by a federal official involved in its preparation.



The assessment, carried out under the terms of the Canadian Environmental Assessment Act, recommends controls on organochlorines, but does not suggest precise standards.



"They (the scientists) recommend controls of one form or another, but they don't say in what form those controls will be," said the official, who declined to be named.



He said it's up to the minister to decide on an appropriate response, and costs to industry will have to be taken into account.

Ottawa is unlikely to take measures that would force mills to close, he added.



Industry officials have warned that tight controls on organochlorines could impose huge costs beyond the $4 billion to $5 billion they are already spending to virtually eliminate dioxins and furans.



A spokesman for the Canadian Pulp and Paper Association declined to comment on the report, saying she had not seen it.



Under the environmental assessment act, a toxicity assessment is the first step toward new regulations. But Ottawa may choose to rely on voluntary efforts by industry rather than using regulations.



The official noted that industry has already made progress in reducing chlorine use, partly due to market pressures. More consumers are demanding unbleached paper products.



The average amount of organochlorines released from bleaching mills across Canada is about three kilograms per tonne of pulp, less than half the level of about five years ago, he said.



Pulp mills use bleaching to produce white paper products.


Attachment #2: THE EDMONTON JOURNAL, Tuesday, September 3, 1991



U.S. RECYCLING WORRIES PULP INDUSTRY



Dennis Bueckert

OTTAWA



The Canadian pulp and paper industry is deeply worried about moves in the U.S. Congress to introduce legislation requiring the use of recycled fibre in newsprint.



Numerous proposals to promote use of recycled fibre are being considered in both houses of Congress and some of them could seriously threaten the Canadian industry, says Brian McClay of the Canadian Pulp and Paper Association.



The fear is that Congress might decide to go with countrywide standards similar to those pioneered by California, which McClay described as radical.



"Every sheet of paper that goes into California has to have 40 per cent recycled content," said McClay. "If you don't recycle, you don't sell into that market."



He said the majority of Canadian producers would be adversely affected if such a standard were adopted nationally by the United States.



"Clearly there are many companies in Canada that are just not going to be in a position to recycle economically," he said. California-type standards "would effectively keep them out of the market."



Lat year, Canada exported about $5 billion worth of newsprint to the United States. The push for recycling is being driven by soaring landfill costs in many areas, combined with general sensitivity to environmental issues.



The Canadian industry is scrambling to increase recycling capacity, and will invest $1.2 billion over the next few years for that purpose.



But the industry faces a big disadvantage because there is not enough waste paper in Canada to meet demand. Large quantities of waste paper are already being imported from the United States.



Geoffrey Elliot, vice-president of Noranda Forest, said the minimum-content recycling standards in the United States could further erode the Canadian industry's position in its biggest export market.



"If the United States were to match at the national level some of the regulations that have been taken at the state level we would have a very difficult time in maintaining our market share," he said.



The Canadian share of the U.S. market already has declined to between 50 and 60 per cent from 70 to 80 per cent in recent years, partly due to recycling requirements in many states and municipalities.



Ten states have introduced laws requiring the use of recycled fibre, and 11 have adopted voluntary programs.



Arizona and Florida have adopted the California approach, but the other states have taken softer measures, said McClay.



A number of states require publishers and commercial printers to use recycled fibre equal to 20 per cent of their paper consumption. This allows blending of paper from different sources.



The Canadian industry greatly prefers that approach to the California mode, said McClay.


Attachment #3: Transcript of Broadcast News Report, Wednesday, September 04, 1991

EDMONTON: The Alberta Government is looking into rumours that Daishowa Canada plans to sell its Peace River pulp mill.



Forestry Minister LeRoy Fjordbotten says a report in a Japanese newspaper says Daishowa may sell its 500-million-dollar mill because of money problems.



He says the company is under financial strain but hasn't said anything about unloading its Peace River operation.



The minister says he's aware that the company has some financial difficulties and is carrying too much debt load.



Fjordbotten says if the mill is put up for sale, Alberta will have a say in the deal because of the company's forest management agreement with the province.



If Daishowa doesn't live up to the agreement, he says the province could fine the company or restrict its timber supply.


Attachment #4: Transcript of CBC Radio News Broadcast (4:30 P.M.), Wednesday, September 4, 1991



Krysia Jarmicka, CBC News



A business newspaper in Tokyo says the Daishowa Paper Company is trying to sell its giant pulp mill in northern Alberta. The plant, near Peace River, cost more than 1/2 billion dollars and has only been open a year. According to this week's issue of the "Nikkei Weekly" Daishowa is in severe financial shape. The paper says Daishowa lost more than $120 million last year and is expected to lose another $80 million this year. Edmund Klamann, who works for the "Nikkei Weekly" says Daishowa wants to unload its plant in Peace River.



Edmund Klamann, Nikkei Weekly



Company sources were reported here as saying that one measure that the company was going to take to respond to its financial difficulties was to sell off or try to sell off the plant, as well as make reductions in its workforce and close some of its facilities here in Japan.

Jarmicka



The paper says that Daishowa has put a price tag of $1 billion on the Peace River plant. It says Daishowa's first choice is to sell off only half of the plant to a trading company that is partly owned by Daishowa. The Minister of Forestry says he's had no official word on the sale of Daishowa's Peace River mill. LeRoy Fjordbotten says he's heard rumors that the company's looking for a partner to take part in a joint venture, but again, he says he's had no official confirmation. But Fjordbotten says the Province would have to approve any sale of the mill.

LeRoy Fjordbotten, Alberta Minister of Forestry



If they were to sell the entire mill the Forest Management Agreement that is with Daishowa, and all the infrastructure and everything, the agreements are with Daishowa -- if they were to sell with those agreements in place they would have to get approval from the Province for the new purchaser. But if they are looking at bringing in a partner and they're still honoring the commitment that they've signed, then that's different.



Jarmicka



Fjordbotten says the Province put in $65 million for infrastructure for the mill. That includes roads and bridges and up-grading. But he says there were no loans or loan guarantees for Daishowa. A company representative in Peace River says he doesn't know anything about a possible sale. Daishowa's Canadian Vice-President in Vancouver is out of the country and couldn't be reached for comment.


Attachment #5: Transcript of CBC Radio News Broadcast (5:30 P.M.), Wednesday, September 4, 1991



Krysia Jarmicka, CBC News



A business paper in Japan says the Daishowa Pulp Mill near Peace River is for sale. The "Nikkei Weekly" says the proposed sale is part of a sweeping restructuring program to make up for Daishowa's huge losses and high debts. James Wark reports.



James Wark, CBC News



The article appeared last Friday in the "Nihoon Kai-Sei Shimbun" (spelled phonetically), Japan's version of the Wall Street Journal. It was reprinted in the paper's English outlet, "The Nikkei Weekly). The paper quotes sources in Daishowa as saying as well as selling the Peace River plant, the company plans to close mills in Japan and slash its debt almost in half. Edmund Klamann works for the "Nikkei Weekly". He says Daishowa has turned in a disastrous financial performance.

Edmund Klamann, Nikkei Weekly



They recorded a massive loss in their last fiscal year through March of 14.9 billion yen, and analysts here expect them to incur another 10 billion yen loss of so in the current fiscal year. So they're faced with some pretty serious financial difficulties, certainly the most hard-pressed of the paper companies here in Japan.

Wark



According to the paper, Daishowa is asking $1 billion for the plant in Peace River. It was only officially opened a year ago and employs about 600 people. The paper goes on to say that Daishowa's first option is to sell only half the plant to the Japanese trading company Marubeni. However, Marubeni officials are quoted as saying the price is too high. If that deal falls through, the paper says, it's not clear if Daishowa will sell the plant to any other company. James Wark, CBC News, Edmonton.



Linda Warford, CBC News



This is Linda Warford at the Alberta Legislature. Cabinet Ministers here say they don't know anything about the possible sale of the Peace River mill, but the Minister of Forestry, LeRoy Fjordbotten, says if Daishowa sells it has to have the approval of the Provincial Government because of the timber rights that have been given to the company.

LeRoy Fjordbotten, Alberta Minister of Forestry



They have signed legal documents that are so binding that if they were to bring in a joint venture partner they'd have to come to the Province and talk to us about it, officially notify us. But the documents are so secure that there are no risks to the mill or to Peace River or to our contractual arrangements by what they've done, or what they might do.



Warford



The Provincial and Federal Governments put $65 million into infrastructure for the mill, things like roads and bridges. The bulk of that money came from the Province. But Fjordbotten says there were no loans or loan guarantees to Daishowa. He says he's heard rumors about Daishowa restructuring and possibly looking for a partner. But he says he's heard nothing official. The Minister of Economic Development, Peter Elzinga, says he's heard about the story in the Japanese newspaper but he hasn't heard anything official either. He's asked his staff to look into it, but Elzinga doesn't see any big risk to the Province.

Peter Elzinga, Alberta Minister of Economic Development



I think very little risk. We were involved with some infrastructure costs but that was the limits of our involvement.



Warford



A company official in Peace River says he doesn't know anything about a possible sale. Daishowa's Canadian Vice-President in Vancouver is out of the country and couldn't be reached for comment. Linda Warford, CBC News, at the Alberta Legislature.


Attachment #6: Transcript of CBC TV News Broadcast (6:00 P.M.), Wednesday, September 4, 1991



Kathy Daley, CBC News



There is word tonight that a company which the Alberta Government spent millions of dollars to attract to the Province may be in big financial trouble. Daishowa built a pulp and paper mill in Peace River. And now a Japanese newspaper says the company is planning to sell it to get rid of some of its debt. Rick Boguski reports.

Rick Boguski, CBC News



It was just one year ago that the Alberta Government and Daishowa executives celebrated the mill's opening. The Alberta Government poured more than $60 million to the plant and leased the company 24,000 kilometres of forest. But now there are reports that Daishowa is in financial trouble -- big trouble. According to this week's issue of the "Nikkei Weekly", a Japanese publication, Daishowa lost more than $120 million last year and is expected to lose another $80 million next year. To reduce some of its debt, the paper says the pulp mill is now up for sale. The price tag -- $1 billion Canadian. A spokesman for Daishowa says if it's true, it's news to him.



Wayne Crouse, Spokesman for Daishowa, Peace River



I assume that if that were the case that we would know about it. It would be something that we would be aware of internally.

Boguski



It comes as a big surprise to the Alberta Government too. Economic Development and Trade Minister says this is the first he's heard of any possible sale.



Peter Elzinga, Alberta Minister of Economic Development



I've asked the departmental people to give me an update as to the legitimacy of the stories. Other than that, we don't have any comment. But we do feel very comfortable that things will proceed as they should and the mill will prove productive in itself.

Boguski



Right now there are problems throughout the whole lumber and pulp industry, and many companies, not just Daishowa, are financially pressed. Since it opened last year, the Daishowa plant hasn't been operating at full capacity. If in fact the company is up for sale, Forestry Minister LeRoy Fjordbotten says the Alberta Government would have to give its approval first; that's because the forestry leases are for Daishowa and Daishowa only. Any new players would have to strike a new deal with the Province. Rick Boguski, CBC News, Edmonton.


Attachment #7: THE EDMONTON JOURNAL, Thursday, September 5, 1991



DAISHOWA'S PEACE RIVER MILL REPORTEDLY UP FOR SALE



Jack Danylchuk

Journal Staff Writer

PEACE RIVER



Daishowa Canada's Peace River pulp mill is for sale, says a leading Japanese business publication.



The asking price is $1 billion for the mill -- valued at $550 million when it opened last September, Tokyo's NIKKEI WEEKLY reported in a story based on interviews with company executives who aren't identified.



"That's a bolt out of the blue," Wayne Crouse, a company spokesman in Peace River, said Wednesday when he was told about the story which appears in NIKKEI'S latest edition. Senior company officials in Vancouver did not respond to several telephone calls.



Alberta Forestry Minister LeRoy Fjordbotten said Wednesday that he was aware of financial problems in Daishowa's Japanese parent company, but stressed that "there won't be a sale without our involvement. Albertans won't lose any money in this."



Economic Development Minister Peter Elzinga said his staff are looking into the possible sale.



The province has invested $65.2 million in roads and bridges and the federal government spent $20 million on the first phase of the project which was to double in size by 1995 and cost $1.3 billion.



Alberta also granted Daishowa access to thousands of hectares of northern forests, and the company has gained rights to trees in Wood Buffalo National Park as a result of a deal with Canfor Ltd.



"The first thing I thought when I saw the story was that they were including those (harvesting rights) as assets, but that's not necessarily so," said Fjordbotten, who agreed that without the wood the mill is worthless.



Under the terms of its forest-management agreement, Daishowa is to double the size of the mill within five years and "unless it or a new owner meets those terms, it could have its forest-management area reduced," Fjordbotten said.



Jim Darwish, a spokesman for Friends of the North, an environmental group which remains vigorously opposed to the project, called the reported asking price "a fantastic gain on capital investment, considering they've only been operating the mill for a year."



New Democrat environment critic John McInnis, who was touring Peace River Wednesday, said local residents were stunned by the news.



"I've been meeting with a lot of shocked Peace River residents," he said, adding some were concerned for their jobs."



The NIKKEI story said the Peace River mill has been offered to Daishowa Marubeni, International, a joint venture between Daishowa Canada's Japanese parent and Marubeni, a major trading house.



NIKKEI sources suggest the price may be too rich for Marubeni, and the paper said it "is not clear whether Daishowa will go ahead with plans to sell the facility to any other company."



Japanese industry analysts said that an over-supply of paper forced Daishowa Paper Mfg. Co. to launch a sweeping restructuring program that will cuts its workforce in Japan by 40 per cent.


Attachment #8: THE EDMONTON SUN, Thursday, September 5, 1991



MILL SALE PONDERED

Daishowa looking at pulp 'options'



By Tim Seefeldt and David Bray

Staff Writers



Daishowa International is considering selling off some of its Canadian assets -- including the Peace River pulp mill, a company spokesman said yesterday from Tokyo.



"We are trying to reduce our costs to help profitability," Terao Makota, who works in the company's overseas division, told THE EDMONTON SUN in a telephone interview.



Sagging profits in pulp and paper are forcing Daishowa to look at options, but there are no firm plans yet, said Makoto.



"We may need help from another company," he said, adding that a partnership in some of its ventures was a possibility.



Makoto said it could take another three years before the Canadian pulp and paper industry "reaches some point of profitability."



But he wouldn't speculate on when a deal on its Canadian operations might be made.



Alberta Forestry Minister LeRoy Fjordbotten said Daishowa is trying to restructure operations in Japan in a bid to bring down a large debt load.



But he's had no notification of plans to sell the Peace River mill.



Fjordbotten said the government's forest management agreement with Daishowa prevents the company from getting rid of the mill without government agreement.



"They have signed legal documents that are so binding...there's no risk to the mill or to Peace River."



He said Daishowa could bring in a partner and live up to its commitment.



Economic Development Minister Peter Elzinga said a sale of the mill would have little impact.



New Democrat environment critic John McInnis said he was appalled the company would sell out less than a year after signing a deal giving it access to 40,000 sq. km. of Alberta forest.



"It's absolutely unacceptable. It's a gift to Daishowa Corp. of a few hundred million dollars from the taxpayers of Alberta," McInnis said from Peace River, after touring the company's forest lease area.



"The reaction of people in Peace River is one of absolute shock."



McInnis said he was concerned that Daishowa, which reportedly wants $1 billion for its $525-million plant, is poised to reap $500 million from its deal with the province.



The province has provided $100 million in infrastructure, including a 17-km rail spur and a bridge, he said.


Attachment #9: Transcript of CP News Broadcast, Thursday, September 05, 1991



EDMONTON:

A report in the Japanese media that Daishowa Canada's Peace River pulp mill is for sale is "speculative," the company's Edmonton general manager said Thursday.



"It's just one small option amongst a myriad of options that are being looked at," James Morrison said in an interview.



Nikkei Weekly of Tokyo reported that the year-old mill is on the block for $1 billion as part of a financial restructuring program being drafted by Daishowa Paper Mfg. Co.



"All of the companies in the forest industry are facing difficult times. We're no different than that," said Morrison.



"Everybody in the industry is looking at a pretty bad balance sheet because the market depression has been deeper and longer than all of us anticipated. So all of us are looking at different ways to survive.



"It's not a crisis. But we've made the provincial government aware of the dire straits that Daishowa's facing and that the company is looking at different restructuring options."



Forestry Minister LeRoy Fjordbotten said that if the mill is sold, a new owner would have to meet terms Daishowa agreed to or the government might cut back its timber supply.



The provincial and federal governments have invested $85.2 million in road and rail services for the mill which was valued at $550 million when it opened a year ago. Plans call for it to double in size by 1995.



The story in Nikkei said the mill had been offered to Daishowa Marubeni International, a joint venture between Daishowa canada's Japanese parent and Marubeni, a major trading house.



Ross HayRoe, an analyst with the Toronto-based Research Capital brokerage, said Daishowa has been running up debts on mill purchases.



He said Daishowa has over-extended itself with a series of North American acquisitions in recent years. Its assets include a paper mill in Washington, a newsprint mill near Quebec City and a pulp and paper operation at Quesnel River, B.C.


Attachment #10: Transcript of CP News Broadcast, Thursday, September 05, 1991



PEACE RIVER, Alta.



A year after it opened, Daishowa Canada's pulp mill in northern Alberta is up for sale, according to a Japanese business publication.



The asking price is $1 billion for the mill which was valued at $550 million when it opened last September, Tokyo's Nikkei Weekly reported in a story based on interviews with unnamed company executives.



"That's a bolt out of the blue," Wayne Crouse, a company spokesman in Peace River said Wednesday when told about the report.



Senior company officials in Vancouver did not respond to several telephone calls.



Alberta Forestry Minister LeRoy Fjordbotten said Wednesday that he was aware of financial problems in Daishowa's Japanese parent company but stressed that "there won't be a sale without our involvement. Albertans won't lose money in this."



The province has invested $65.2 million in roads and bridges and the federal government spent $20 million on the first phase of the project that is to cost $1.3 billion in total.



Alberta also granted Daishowa access to thousands of hectares of northern forests.



Under the terms of its forest-management agreement, Daishowa is to double the size of the mill within five years and "unless it or a new owner meets those terms, it could have its forest-management area reduced," Fjordbotten said.



The Nikkei story said the mill has been offered to Daishowa Marubeni International, a joint venture between Daishowa Canada's Japanese parent and Marubeni, a major trading house.



Nikkei sources suggest the price may be too rich for Marubeni, and the paper said it "is not clear whether Daishowa will go ahead with plans to sell the facility to any other company."



Japanese industry analysts said that an over-supply of paper forced Daishowa Paper Mfg. Co. to launch a sweeping restructuring program that will cut its workforce in Japan by 40 per cent.



"As a result of the market's overcapacity, leading paper makers such as Oji Paper Co. are operating at less than 80 per cent capacity for some key products," Nikkei reported.



"At Daishowa, the latest restructuring plan centres on the sale of a hardwood kraft pulp mill in Peace River." The mill is about 485 kilometres northwest of Edmonton.


Attachment #11: Transcript of CBC TV News Broadcast (6:00 P.M.), Thursday, September 5, 1991



Kathy Daley, CBC News



(Daishowa issued a statement today that news of the sale of Daishowa's Peace River pulp mill is "speculative"). Nobody knows for certain what that will mean for the plant, the workers, the town of Peace River, or Alberta taxpayers. Lynda Steele reports.

Lynda Steele, CBC News, Peace River



The Daishowa pulp mill in Peace River appeared to be operating at full steam today. Pulp was cut and bundled as usual. The workers went about their business despite the shocking news last night that the future of this multi-million dollar plant may be in jeopardy. As CBC News reported last night, a highly respected Japanese business magazine is quoting Daishowa's chairman as saying the company is in big financial trouble. It lost $120 million last year. It's expected to lose another $80 million in the next fiscal year. To offset some of that debt, the magazine says, Daishowa is thinking about selling off its brand new Peace River plant. The reported price tag -- $1 billion Canadian dollars.

Wayne Crouse, Daishowa Spokesman, Peace River



It's just speculation. It's simply an idea that the company's put forward, one of many ideas that they have, for easing their financial situation.



Steele



Should employees be worried?



Crouse



No.



Steele



Should the town of Peace River be worried?

Crouse



Certainly not.

Steele



What about the Provincial Government?

Crouse



No reason for anyone to worry.



Steele



Plant employees didn't seem to be taking the news too seriously.

Al Jacobs, Daishowa Millwright



I just laughed. I know all about it. I heard about the rumor yesterday. We pay no attention to it. It's just a rumor. Hey, if there's any fact to it it will come out in the wash.



Steele



In fact Daishowa sent a letter to all of its plant workers today promising they'll be the first to know if and when there are any developments concerning the ownership of the Peace River plant. And while rumors of a potential sale made for good gossip at the local pub, most towns folk here didn't seem too concerned about the potential impact on their community.



Bennie Briep, Peace River Resident



Do we want to see them sit here and go broke and shut down? No. If they sell it, the thing will continue to operate. I don't see it as any big thing at all.

Steele



But it is a big deal to New Democrat Environment critic John McInnis. He says the Province has already pumped more than $60 million into construction of the Japanese-owned plant, and given the pulp and paper giant access to more than 40,000 sq. km. of Alberta forest land. McInnis says he wants assurances Alberta taxpayers won't be forced to bail the company out.

John McInnis, Alberta New Democrat Environment Critic



I don't think people are very comfortable with LeRoy Fjordbotten, Don Getty and the forest service in the driver's seat. They're not confident that all the promises that have been made are going to be lived up to.



Steele



No one from the Provincial Government would comment today, but yesterday Economic Development Minister Peter Elzinga offered assurances that taxpayers' money would not be put at risk.

Peter Elzinga, Alberta Economic Development Minister



...But we do feel very comfortable that things will proceed as they should and the mill will prove productive in itself.



Steele



Daishowa is said to be trying to sell part of all of the Peace River plant to a Japanese trading company called Marubeni. The two firms are already joint owners of a pulp mill operation in Quesnel, B.C. Officials from Marubeni Company are reportedly not interested yet, but even so, Peace River plant officials are optimistic about the plant's future.

Crouse



I think there's a lot of confidence here among the employees that the company will do what's best for Peace River pulp and for Daishowa.



Steele



Lynda Steele, CBC News, Peace River.



Bob Chelmick, CBC



Daishowa's financial problems have raised questions about the future of pulp mills and forestry development in Alberta. The Getty Government has hundreds of millions of dollars invested in forestry projects, from saw mills to pulp mills to newsprint plants. Reporter Matt McClure has been talking to economists today about the future of forestry. He joins us now from our Edmonton news room. Matt, is the future looking that grim for pulp and paper?

Matt McClure, CBC



Bob, it is looking grim. But that's not unusual for this industry because it's a cyclical one with peaks and valleys. This is definitely a valley right now.



Chelmick



How long is this valley going to last?

McClure



Industry analysts say that generally this industry operates on a 15-year cycle. The only difference this time is that -- we're at the bottom right now, but the bottom seems to be taking longer and it's deeper than ever before. A year ago pulp and paper was selling on the spot market for $800 per metric ton. Right now it's fetching just a little over $500.



Chelmick



What are the other variables here, besides this general cycle?

McClure



A lot of people, especially environmentalists, point to our move toward recycling and conservation. For example, in the United States where 50% of our pulp and paper goes, there's a move -- there may be federal legislation that would require newspapers to use up to 40% of recycled newsprint. That would have an effect on sales here in Canada and world-wide.

Chelmick



Clearly the market is soft. Is competition getting stronger out there?



McClure



Competition is getting tougher. There's competition from Brazil, where it only takes 20 years to grow a tree where here in Alberta it takes 80 years. But ultimately the cost of production is low here in Alberta, many industry analysts say, because the companies like Daishowa cut a pretty good deal on the costs they have for their timber.

Chelmick



Clearly we're going to see some tougher times ahead as the mills try and hold on?

McClure



I think so. Companies like Daishowa find themselves, I think, in a unique situation among pulp and paper companies to the extent that they took on a lot of debt in order to build the plant and right now they're having problems with cash flow and are having to fight that.

Chelmick



Thank you, Matt.


Text of Daishowa letter to employees referred to in CBC News report:



ADVISORY



September 5, 1991



Like other companies in the forest products industry, Daishowa is considering alternatives to counteract adverse global economic factors and...depressed market condition.



Recent news reports on the possible sale of the Peace River pulp mill are speculative.



The media report originated with personal comments by Daishowa's Honorary Chairman to journalists in Japan. He indicated a number of options are being considered in an effort to improve the financial position of the company.



However, no decision has been made by the parent company to offer the mill for sale.



Any developments concerning ownership of the mill would be...



Mark Takehira

Vice President


Attachment #12: Transcript of CBC TV News Broadcast (11:00 P.M.), Thursday, September 05, 1991



Larry Langley, CBC



An official with Daishowa Canada says its pulp mill near Peace River isn't for sale, yet. James Morrison says Daishowa does have some financial problems and is considering what to do about them. He says the company has not decided to sell the $500 million mill. Morrison concedes that all of part of the operation could be on the block in the future, but for now he says it's business as usual. What could be affected are plans to double the mill's capacity. He says if pulp markets remain depressed, those plans could go on hold.


Attachment #13: THE EDMONTON JOURNAL, Friday, September 6, 1991

DAISHOWA SAYS SALE OF MILL 'SPECULATIVE

Potential buyer would be obliged to build a paper machine -- forestry minister



Jack Danylchuk and Brian Laghi

Journal Staff Writers

Edmonton



A story in a leading Japanese business journal about the possible sale of Daishowa Canada's Peace River pulp mill is "speculative," the company's Edmonton general manager said Thursday.



"It's just one small option amongst a myriad of options that are being looked at," James Morrison said in an interview.



NIKKEI WEEKLY of Tokyo reported that the year-old mill is on the block for $1 billion as part of financial restructuring by Daishowa Paper Mfg. Co.



"All of the companies in the forest industry are facing difficult times; we're no different than that," said Morrison.



"Everybody in the industry is looking at a pretty bad balance sheet because the market depression has been deeper and longer than all of us anticipated. So all of us are looking at different ways to survive.



"It's not a crisis. But we've made the provincial government aware of the dire straits that Daishowa's facing and that the company is looking at different restructuring options."



Forestry Minister LeRoy Fjordbotten said if the mill is sold, the new owner would have to meet terms Daishowa agreed to or the government might cut back its timber supply.



A company buying the mill will be obliged to build a paper machine or Alberta could kill the sale, he said.



Fjordbotten acknowledged that it's possible Daishowa wants to sell the mill and then buy back the pulp for its Japan paper-making operations. But he said Thursday it's not his intention to renegotiate the contract.



"That's hypothetical (but) my answer now is no."



The provincial and federal governments have invested $85.2 million in road and rail services for the mill, which was valued at $550 million when it opened last year. Plans call for it to double in size by 1995.



The story in NIKKEI said the mill had been offered to Daishowa Marubeni International, a joint venture between Daishowa Canada's Japanese parent and Marubeni, a major trading house.



The joint venture company has owned and operated a pulpmill at Quesnel, B.C. since 1972.



"It's no surprise that options like a sale or bringing in another partner are being considered," Morrison said.



"That kind of thinking and planning has been under way in Japan for some time and in those general terms we have been aware that they were looking at various things among the mix of pulp mills and paper mills."



NIKKEI attributed Daishowa's debt-reduction plan to Ryoei Saito, Daishowa's chairman emeritus who has made international headlines by paying record prices for van Gogh and Renoir paintings.



Currently, Daishowa's pulp is sold to companies outside Alberta.


Attachment #14: THE EDMONTON JOURNAL, Friday, September 6, 1991



PROFLIGATE PATRIARCH BURDENS DAISHOWA

Paid $160M for Renaissance works



Duncan Thorne

Journal Staff Writer

Edmonton



Daishowa is seeking a buyer for its Peace River pulp mill because of debts that may partly relate to grandiose spending habits of its retired chairman, forestry analysts said Thursday.



Japanese Daishowa Paper Manufacturing Co., which owns Daishowa Canada Co., reported pretax losses of $108 million US for the year ending March 31.



Its former chairman, the still-powerful Ryoei Saito, paid $160 million US last year for two van Gogh and Renoir paintings. In May he threatened to have them burned with him when he died -- abandoning the threat only after facing international outrage.



Saito, 75, has boasted he's Japan's biggest individual taxpayer. Published reports have also portrayed him as a profligate spender who spent his company's money as easily as his own.



The Sumitomo Bank once persuaded Saito to step aside briefly as chairman so it could sell assets -- including other paintings -- to cover debt.



A leading Japanese business journal, NIKKEI WEEKLY of Tokyo, has reported the year-old mill is on the block for $1 billion as part of a financial restructuring program being drafted by Daishowa.



A profile by THE WALL STREET JOURNAL likened him to a feudal lord who retains power through his personal financial stake in the company and through his son's and brother's control of the top positions.



Ross HayRoe, an analyst with the Toronto-based Research Capital brokerage, said Daishowa has been running up debts on mill purchases. And that's probably because spending is in character for Saito, HayRoe said.



He said Daishowa has over-extended itself with a series of North American acquisitions in recent years. Its assets include a paper mill in Washington State, a newsprint mill near Quebec City and a pulp and paper operation at Quesnell River, British Columbia.



Daishowa's plans have also included a recycled liner-board mill in California and an Oregon pulp mill.



Unlike HayRoe, most Canadian forestry analysts are with brokerages which don't want them commenting publicly.



But one analyst, asking not to be identified, said Daishowa recently offered its Peace River Mill to a related company because of massive debts, the result of a corporate spending spree. He said the related firm, the joint-venture Daishowa Marubeni International, turned it down because there's a world glut of pulp mills.



The Toronto analyst said Daishowa has been snapping up North American forestry assets, and Saito possibly considered the paintings simply another form of assets.


Attachment #15: THE EDMONTON SUN, Friday, September 6, 1991



UNEASY NEWS FOR TORIES



Don Wanagas



There are undoubtedly some very nervous Tories sitting around the Alberta cabinet table these days.



And with darned good reason, considering news coming out of Japan that Daishowa Canada's Peace River pulp mill is being shopped around for new owners.



As a straight business deal, the sale of the Japanese-owned Daishowa plant shouldn't mean the end of the world for the provincial government. But, symbolically, it has got the potential to be a pretty hard kick in the gut for Tory claims that Alberta's economy has been successfully diversified into the forestry sector.



After all, it was the Daishowa project that kicked off Premier Don Getty's diversification-through-forestry strategy when he first announced plans for the mill amidst much hoopla almost four years ago. Indeed, back in February 1988, the premier packed his executive council chamber with cabinet ministers, bureaucrats and Japanese forestry bigwigs -- not to mention the media throng -- to let the world know that Alberta was open for pulp-and-paper business. It was one of the biggest gatherings ever in Getty's cabinet room. And for good reason. Because the premier wanted to stress the importance of forestry development and the jobs it would create -- more than 600 in the Peace River area alone as a result of the Daishowa mill's construction.



From that moment on, pulp mills, sawmills and newsprint plants became the cornerstone of Alberta's new economic policy and the provincial Conservatives' political strategy. Throughout the 1989 election campaign, called one year after the Daishowa plant got the official go-ahead, Getty constantly referred to an arc of forestry-related projects that stretched across north-central Alberta. They were the proof he held out to support claims his government had diversified a provincial economy once almost solely dependent on oil and gas revenues.



That's why the uncertainty over the future of the Daishowa pulp mill's ownership should be more than a little bothersome to the Tories. And not just because the government sank more than $65 million of taxpayer funds into building roads, bridges and rail spurs to service the project and gave the paper company access to forests the size of a European country.



What's really got to worry the government is the very real possibility it diversified Alberta's economy into an industry that has already reached its peak and is now on a downward slide.



It shouldn't go unnoticed that Japanese industry analysts are saying an oversupply of paper is what's forcing Daishowa Paper Mfg. to do a major restructuring of its corporate investments.



Indications are that such a move will mean Daishowa cuts its Japanese workforce by 40 percent. Could the same sort of thing happen here?



"We are trying to reduce our costs to help profitability," a spokesman for Daishowa's overseas division told THE EDMONTON SUN Wednesday.



So, if the company can't find a buyer or an investment partner for its Peace River operation there's a good possibility it will have to do something else. Like lay off workers at the plant or perhaps just shut it down.



One would certainly hope this doesn't happen, but it's understandable that Peace River-area residents working at the pulp mill are concerned about their jobs.



There's also another aspect of the possible sale of the Daishowa mill to new owners. It's the one New Democrat environment critic John McInnis outlined after hearing reports Daishowa is asking $1 billion for a plant that cost an estimated $525 million to build.



That would see the company reap a $475-million profit on a project thanks, in no small part, to the largesse of the provincial taxpayers.



Such a windfall may not be possible if the paper over-supply problem is the reason Daishowa is trying to sell the plant. But if it does happen, you can be sure the government will take plenty of heat for helping a foreign investor make mammoth profits at the expense of the public purse.



So, any way you look at the situation, the Tories have good reason to be more than a little anxious right about now.


Attachment #16: Transcript of CBC Radio Broadcast (8:30 A.M.), Friday, September 6, 1991



Phil Henry, CBC



Daishowa Canada describes as "speculative" reports it wants to sell its pulp mill in Peace River. But an official with the company's office in Edmonton admits his company's parent firm in Japan is looking at every option, and he says that includes selling the mill in Peace River. Dave Cooper reports.

Dave Cooper, CBC



Daishowa issued a statement yesterday saying no official decision has been made to sell the company's pulp mill in Peace River. The statement was made after word that a Japanese paper reported the company was offering to sell the mill for $1 billion. But Jim Morrison with Daishowa's office in Edmonton admits the mill could be sold just like every other asset owned by the Japanese parent company. He says because of its poor financial situation the company is trying to decide what to do with all of its assets.

Jim Morrison, Daishowa Canada, Edmonton Office



Sale of any asset in the company, exactly. All of those things are alternatives. The addition of partners in one or several of the assets, the infusion or the sale of shares, the company trades on the Tokyo stock exchange, you know. So all of these things are options.

Cooper



Morrison says there's nothing wrong with the Peace River mill. He says Daishowa's problems are the same as those of any other forest products company.

Morrison



We're dealing with a deeper recession in our particular part of the economy and a much longer one than the industry had anticipated. So you're seeing not just Daishowa, but a lot of companies, looking at their balance sheet.

Cooper



Daishowa also issued a statement to its employees in Peace River yesterday telling them not to worry about the prospect of the mill being sold. Dave Cooper, CBC News, Edmonton.

Henry



The Lubicon Indians say they'll continue opposing Daishowa in spite of news the company may sell the Peace River mill. The Cree Indians are against plans by Daishowa to clear-cut forests on land claimed by the Band. Fred Lennarson, a Band advisor, says Chief Bernard Ominayak will go ahead with his trip to Japan next week. Ominayak plans to meet with officials from Daishowa. He wants to convince them not to cut down any trees in the disputed territory until his land claim is settled. Ominayak also hopes to meet with Japanese environmentalists, politicians and reporters. Lennarson says a planned European boycott of Daishowa paper products this fall is also going ahead. He says Daishowa deserves to fail.


Attachment #17: NIKKEI WEEKLY, September 7, 1991



DEBT-RIDDEN DAISHOWA RESTRUCTURES

No. 2 papermaker plans to shred work force, sell off recently built Canadian pulp plant



By Edmund Klamann

Staff Writer

Daishowa Paper Mfg. Co., Japan's debt-burdened, number-two paper manufacturer, has launched a sweeping restructuring program that includes plans to sell a recently completed pulp plant in Canada.



Daishowa also intends to shut some of its facilities in Japan and slash its work force by 40%, company sources said.



The move reflects the papermaker's difficulties in getting its house in order after recording a massive pretax loss of Y14.9 billion in the fiscal year through March, 1991.



Daishowa has accumulated heavy debts in recent years through aggressive expansion of production facilities, which analysts say has contributed to the industry's current overcapacity. The result of that overcapacity has been falling prices, record inventories and plunging profits for Japan's papermakers.



In the fiscal year through March 1992, analysts predict pretax profits will fall at seven of Japan's eight big paper producers, with Daishowa incurring another loss of about Y10 billion.



In the spring of this year, Daishowa adopted a long-term management plan designed to slash its massive debt from the current Y450 billion to Y250 billion within five years.



The plan called for freezing new investments, selling off assets, cutting inventories and issuing new equities.



But with the continuing recession in the paper industry and the poor climate for new equity financing, more drastic measures were required.



Enfant terrible

According to company sources, the latest plan was fashioned by Ryoei Saito, Daishowa's chairman emeritus and de facto leader. The eccentric tycoon grabbed international headlines last year by spending tens of millions of dollars purchasing Renoir and van Gogh paintings.



Analysts also claim the company is the enfant terrible of the paper industry, tending to pursue reckless expansion plans that other paper manufacturers follow to protect their market shares.



As a result of the market's overcapacity, leading papermakers such as Oji Paper Co. are operating at less than 80% capacity for some key products. The industry also anticipates a double-digit drop in capital investment this fiscal year, while most other major manufacturing industries continue to boost capital spending.



At Daishowa, the latest restructuring plan centers on the sale of a hardwood kraft pulp mill in Peace River, Canada. The plant, with a 340,000-ton annual production capacity, was completed just last year.



The company has put a price tag on the facility of 1 billion Canadian dollars, or about Y120 billion. Company sources said they hope that Daishowa Marubeni International, an equally owned joint venture between Daishowa and Marubeni Corp., a major trading house, will buy the mill.



Reluctant to buy

So far, though, Marubeni officials have scoffed at the idea.



"The Y60 billion investment that Marubeni is supposed to put up in the plan is too large for a trading company," said one executive. "There is little benefit for us in such an investment."



If Marubeni formally refuses to allow the joint venture to purchase the plant, it is not clear whether Daishowa will go ahead with plans to sell the facility to any other company.



On the domestic front, Daishowa plans over the next four years to close 70% of its plants in Fuji, in Shizuoka Prefecture, about 110 kilometres southwest of Tokyo.



The company's total labor force will also be cut to 3,000 from 5,000, through early retirements and transfers of employees to subsidiaries.



Daishowa also plans to lease idle land at its Fuji plant and to place some of the facilities at its plant in Yoshinaga, also in Shizuoka, under the management of a separate company.



There is no indication, though, that Saito intends to sell his paintings.


Attachment #18: THE GLOBE AND MAIL, Thursday, September 19, 1991



PULP PRICES SLIDE AS INVENTORY GROWS

Newsletter points to six-year high

The price of premium grade softwood pulp, which has been falling for more than a year, started sliding faster in recent weeks under pressure from the mountains of pulp that have been piling up in Canadian warehouses, a leading pulp and paper industry newsletter says.



An effort to build up pulp inventories in anticipation of a possible strike in British Columbia -- averted this month when B.C. pulp and paper workers agreed to extend their current contracts for 10 months -- pushed up industry-wide inventories to a six-year high, statistics collected in August show.



Pulp & Paper Week, a San Francisco-based newsletter that tracks events in the business, said the 1,745,000 tonnes of pulp sitting in producers' warehouses in North America and Scandinavia is the highest since March, 1985.



In response to this oversupply, the price for northern bleached softwood kraft pulp, the premier grade made from the long, strong fibres of the northern conifer, dropped to $520 (U.S.) a tonne from $540 in Europe last month, and has started selling for even less than that in the past two weeks, the newsletter reported.



The same pulp now sells for about $500 a tonne in U.S. markets. This is putting pressure on traditionally less expensive grades made from southern U.S. pine. Kraft (the term is used to describe pulp made by dissolving unwanted materials with strong chemicals) pulp made from southern pine is now selling for about $450 in the United States and between $450 and $480 in Europe.



Hardwood pulps, made from deciduous trees and eucalyptus, are lower priced (in the $400-$460 range) but more stable, Pulp & Paper Week said.



Industry analysts are calling for more downtime at northern mills. Canada's pulp mills ran at 89 per cent of their capacity in August and have averaged 86 per cent for 1991. North American and Nordic (Swedish, Finnish and Norwegian) producers have, as a group, run their pulp mills an average of 87 per cent of their full capacity this year, industry statistics show.



Canadian operating rates are expected to fall further in September as a number of plants close temporarily to do routine maintenance, install environmental clean-up equipment, or try to reduce inventories in order to bring their supply in better line with current demand.



B.C. members of the Canadian Paperworkers Union and the Pulp, Paper and Woodworkers of Canada and 14 companies have agreed to extend their existing labour agreements until April, 1992, at which time bargaining will start from scratch.