How Will Alberta Government Keep Daishowa Alive?

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

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

October 05, 1991

Enclosed for your information is a copy of a newspaper article on pulp mills in Canada. The article indicates the context in which Daishowa and the Alberta Provincial Government will be trying to keep Daishowa's Peace River bleached kraft pulp mill in operation.

The Globe and Mail, Saturday, October 5, 1991


Province sank $350-million into modern but uneconomic plants at Matane and Port Cartier

By Barrie McKenna

Quebec Bureau

MONTREAL -- The Quebec government is finding out first-hand the devastating fallout caused by a pulp and paper slump.

The industry is not only one of the top employers in the province, providing about 31,000 jobs for Quebeckers, the provincial government is also a major owner and financier.

Two of the government's prized investments -- modern pulp mills in Port Cartier and Matane -- recently shut their doors indefinitely because of a dearth of orders and tumbling prices.

Quebec taxpayers will wind up sharing the bill for the closings with shareholders of the companies affected. The twin closings on opposite sides of the St. Lawrence River have also put nearly 900 plant employees and loggers out of work.

Analysts estimate that Quebec is now on the hook for up to $230-million alone at an ultra-modern pulp mill in Matane, about 400 kilometres northeast of Quebec City.

"It's a white elephant on the St. Lawrence," said a Montreal-based forest products analyst. "Quebec does not want to write off $230-million so it is holding on to it for a couple of years and hoping the market turns around. They are totally avoiding the problem."

The $230-million represents Quebec's share of construction costs and loan guarantees.

The mill's owners, Quebec City-based DONOHUE INC. and a Quebec government agency , announced last week that the mill would be moth-balled for at least a year, and maybe more.

The $290-million mill, which started operations less than a year ago, had not even had its official opening. The mill makes bleached chemical thermo-mechanical pulp for the printing and tissue markets.

Donohue and its controlling shareholder, QUEBECOR INC. of Montreal, will also take a hit, one analyst said. Donohue will likely write down its investment in the mill by $20-million to $30-million, he said. Quebecor's share of that writedown would be $5-million to $6-million.

A company source said Donohue will probably take a writedown of $15-million to $20-million, likely in the fourth quarter ending Dec. 31. "The company is still hopeful that this investment can still be profitable," the source said.

Donohue and Rexfor, a Quebec government forestry agency, agreed last week to pay $10-million a year to preserve the plant's equipment. At the same time, the Societe de developpment industriellle du Quebec -- the government's lender of last resort -- assumed $116-million in bank debt.

"We must protect the asset," Quebec Industry Minister Gerald Tremblay said in a recent interview. "This is a plant at the cutting edge of technology."

Yesterday there was more bad news for Donohue. The company said it was shutting a 40,000-tonne-a-year newsprint machine at its Claremont, Que., mill until the end of 1992 or until markets pick up. The shutdown, slated for the end of the year, will mean the layoff of 100 full-and part-time workers.

A spokesman for the mill's unionized employees accused Donohue of shutting the machine to free up cash for the mothballing of the Matane mill. Donohue spokeswoman Cecile Sanscartier denied the allegation, saying the machine was old and underused.

At Port Cartier, on the north shore of the St. Lawrence, the Quebec government has nothing to show for $120-million it pumped into the plant, owned jointly by Rexfor and CASCADES INC. of Kingsley Falls, Que. The mill makes fluff pulp for the tissue market.

Analysts said both the Matane and Port Cartier pulp mills were uneconomic from the start and built solely to provide jobs in depressed regions.

But Mr. Tremblay said the recent shutdowns are just symptoms of a massive industry restructuring under way. He and Quebec Forestry Minister Albert Cote have called union leaders and the chief executives of all major paper companies operating in the province to a summit meeting later this month.

Mr. Tremblay said the aim of the meeting is to talk about the industry's woes and find solutions. Both Mr. Tremblay and Mr. Cote favour mergers.