© Star photo by Geraldine Brophy
Premier Tom Marshall, left, is applauded by members of the audience including natural resources minister Derrick Dalley.
CORNER BROOK The loan agreement between Corner Brook Pulp and Paper and the provincial government announced Thursday implies the paper mill will still be around for a long time to come.
According to the terms of the deal, the paper company will repay the $110 million in 59 quarterly payments of $1.85 million, with the first quarterly payment due March 31, 2019 and the final residual payment due Dec. 31, 2033.
Around $85 million of that money will be released at the beginning of the agreement to allow the company to refinance its existing debt and for working capital. The remaining $25 million will be provided as planned capital improvements are completed.
The company said the up-front money, plus the fact it doesn‚Äôt have to start repaying it for another five years, will give the mill more flexibility to finance capital investments. The company expects to invest about $70 million of its own money, along with the $25 million coming from government.
‚ÄúSo, there‚Äôs $95 million in capital expenditures,‚ÄĚ noted Premier Tom Marshall. ‚ÄúSo, there is investment going into the mill and the (Deer Lake) power plant and that augers well for this mill.‚ÄĚ
That‚Äôs a long way from two years ago when the paper company was negotiating labour agreements with its eight unions and seeking a five-year extension on covering its obligations to the unfunded liability portion of the company‚Äôs pension funds. At the time, the paper company was saying the operation was in jeopardy if it could not come to terms with its current and former employees on all those issues.
Reaching those agreements, which have all since happened, was also a condition of accessing the government loan announced Thursday.
Daniel Archambault is the executive vice-president of Kruger Inc.‚Äôs industrial products division and was in Corner Brook for the announcement on behalf of the mill‚Äôs parent company. He said the deal will help Corner Brook Pulp and Paper improve its cost structure and ensure the sustainability of its assets in both Corner Brook and Deer Lake.
‚ÄúThis mill has the potential to be one of the best mills, if not the best mill, in Canada when you talk about overall cost structure and quality of the product,‚ÄĚ Archambault said. ‚ÄúWe are moving there at a very good pace and we are convinced the place will be competitive. It is (competitive) today and we will continue to improve our competitivity.‚ÄĚ
The key requirements for Corner Brook Pulp and Paper are that it has to repay the loan, continue to operate the mill and make planned capital expenditures in the mill and power assets. The company is required to contribute to employee pension plans and is responsible for environmental liabilities.
The company must file quarterly and annual financial statements and sustainability/capital plan progress reports. The company must also file an annual operating budget and business plan, pension and actuarial reports, among other reports.
The loan is secured by a mortgage over company power assets and water rights, including the Deer Lake Power Plant and Watson‚Äôs Brook Power Plant. The provincial government will purchase the power assets, water rights, and all related rights to the power assets for the people of the province, but only if the mill closes.
Marshall noted the mill being operational is crucial to the province‚Äôs entire forest industry since many sawmills have a symbiotic relationship with the paper company when it comes to wood harvesting.
The premier added that the deal was only made possible by the company, its past and present employees and the government coming together with the common goal of ensuring the mill‚Äôs continued operation.
He hopes the paper mill will continue to drive the western Newfoundland economy long enough to celebrate its 100th anniversary in 2025 and beyond.
‚ÄúThere‚Äôs no guarantees, but I do know we have an owner who has made it clear he is committed to the mill, we have a government that is supportive, a workforce that has been making paper for years ‚ÄĒ they know what they are doing,‚ÄĚ said Marshall. ‚ÄúIf anybody can make a go of this, this operation can.‚ÄĚ
At a glance
The interest rate is four per cent for three years. After that, the interest rate will be the provincial government cost of borrowing plus 50 basis points (0.5 per cent). The default rate is the provincial government cost of borrowing plus 350 basis points (3.5 per cent).
The power assets and water rights purchase agreement
The power assets and water rights purchase agreement identifies the valuation methodology to be used in determining the purchase price as follows:
‚ÄĒ During the first three years of the loan, the value equals the outstanding loan advances.
‚ÄĒ After the first three years, but before the Maritime Link is in place, a fixed price that increases each year has been agreed upon.
‚ÄĒ Post-Maritime Link, the value is the greater of the export valuation methodology (which is an agreed methodology that determines the value of selling power over the Maritime Link into an export market) or $200 million.
Source: Government of Newfoundland and Labrador