In Brief: In this Commentary, AIMS Research Fellow and former Newfoundland NDP leader Peter Fenwick asks what role the government should take in propping up uneconomic paper mills. His conclusion suggests the future product of such mills may be power, not paper.
For a government that promised to do things differently the news that Newfoundland’s Williams government is willing to pump $150 million dollars into Abitibi’s Stephenville paper mill signals the end of any new approach.
This is not much different than the Nova Scotia government’s support for Cape Breton’s steel industry, the New Brunswick venture with Bricklin, or even the Smallwood government’s initial support for the Stephenville mill’s predecessor Labrador Linerboard. In virtually all cases, the treasury was pillaged and the jobs eventually disappeared.
But while it signals an interventionist turn that may prove extremely expensive, was it that bad an investment?
The Williams government argues that its $10 million a year investment protects 900 jobs, and a massive amount of spending in the Bay St. George region of the province. And by coupling the aid to a commitment to build a co-generation boiler, the province hopes that the mill will edge its way back to profitability and it, the government, will be able to get out from under its obligations.
There is some justification for that hope. Stephenville’s only real problem is its cost of electrical energy. As a mill it is of recent vintage, having been built in the 1970’s, at time when it was environmentally sound, and it has a large enough machine to produce as efficiently as any mill in the Abitibi system. True it was short of a good local wood supply, but it has been remarkably effective at buying wood from offshore in the Gulf of St. Lawrence. Wood has come by barge to the mill from Labrador, Anticosti and Prince Edward islands, and the company claims the costs are “competitive”.
But its recent vintage was a mixed blessing. It has no power plant of its own. Offsetting its labor productivity and the quality of its sheet is the high cost of electrical energy it buys from Newfoundland and Labrador Hydro, a crown corporation that has been bringing on more costly energy of late.
But that is not the only factor crippling the Stephenville mill. It was also saddled with three years of additional energy costs from Hydro to pay for the subsidized energy it and the rest of the province consumed when the regulator allowed the oil bill stabilization account to balloon out of control a decade ago. In essence much of Abitibi’s current high electrical bill is the result of poor government policy in the 1990’s when electricity cost were not fully covered. But that bump in rates is scheduled to end in 2008, which is why the first subsidy is of three years duration only.
Which is also why the Williams government is asking Hydro to help pay the subsidy. However, that may just result in the subsidy costs being passed on to Hydro’s customers, a rather novel means of having the Stephenville mill’s competitors pay for the subsidy. There are already rumblings at the other mills that this is not fair.
The lack of a captive electrical supply that was built in lower-cost days is the factor crippling the Stephenville mill. If it had power plants similar to the mills in Grand Falls and Corner Brook, there would be no talk of closing it down. Which raises an interesting question. If low cost legacy electrical dams are the only thing keeping many old mills running in Canada, is putting all that valuable electricity into making paper a good way to