Government outraged by Abitibi decisions

Premier Danny Williams and Ed Byrne, Minister of Natural Resources, expressed their shock and outrage in reacting to the decisions announced today by Abitibi Consolidated Inc. (ACI) that it was closing its mill in Stephenville and closing its Number 7 paper-making machine in Grand Falls-Windsor.

�We are shocked. Our government committed a significant amount of resources over the past year and a half to working with Abitibi in an effort to ensure it would have viable operations in Newfoundland and Labrador,� said Premier Williams. �The decisions the company have made today are going to have severe and tremendous impacts on two significant regions of our province.�

Premier Williams indicated that he was notified of the company�s decision by its president and chief executive officer, John Weaver, late yesterday evening.

�I indicated to Mr. Weaver that our government will not stand by and allow them to devastate these communities that depend on these mills for their survival,� said Premier Williams. �I sent a message loud and clear to Mr. Weaver that we would explore every possible option in terms of what legal authority government may have over the company�s water and chartered timber rights.

�I want to assure the people of Stephenville and Grand Falls-Windsor that our government is not walking away from the table,� said Premier Williams. �Despite the announcement by Abitibi this morning, government, led by Minister Byrne, will continue to have open dialogue with the company to see if an alternative situation can be achieved. We will work to the eleventh hour to see what can be done to have both of these mills remain in operation. However, I also want to be very clear that this government will not be held ransom by the company. While we have clearly demonstrated our willingness to assist the company with their power requirements, we will only do so in a way that is fair and reasonable to consumers and industrial users alike.�

With regards to the company�s intent to close its Number 7 paper machine in Grand Falls-Windsor, Premier Williams indicated it is quite clear what options are available to government if the machine closes prior to 2010.

�I have made it clear that if Number 7 machine closes prior to 2010, legislation under Bill 27 will immediately be invoked,� said Premier Williams. �This includes stripping the company of its timber licences covered by Bill 27.�

Minister Byrne stated that government and Newfoundland and Labrador Hydro had been holding intense negotiations and discussions with Abitibi in an effort to reach a potential power purchase agreement on the development of two hydro projects on the Exploits River � Red Indian Falls and Badger Chute.

�The objective of the agreement would be to assist Abitibi address its energy costs and to provide additional power to the provincial grid without causing serious detriment to Hydro�s other customers, including Newfoundland Power and other industrial users,� said Minister Byrne. �Unfortunately, the terms and conditions of an agreement as proposed by Abitibi would have put a heavy financial burden on every individual electricity ratepayer and, in particular, every other industrial customer.�

The details of the latest proposal from Abitibi include:

• Abitibi and Newfoundland and Labrador Hydro would enter into a partnership to develop two projects on the Exploits River � Red Indian Falls and Badger Chute, adding in excess of 60 MW of new power into the system;
• Newfoundland and Labrador Hydro, with the province�s backing, would raise all the capital � upwards of $300 million � and finance the projects;
• The Abitibi-Hydro partnership would enter into a 30-year power purchase agreement to sell all the electricity output to Newfoundland and Labrador Hydro, and hence Hydro�s customers;
• This �partnership� would have to provide upwards of $14 million annually to Abitibi, with no return to Hydro;
• Additionally, Abitibi requested $7 million a year for the five-year period leading up to the in-service of the two hydro developments;
• In total, a level of support of approximately $455 million;
• Furthermore, at the end of the 30-year agreement, Hydro would only own 25 per cent of the projects, while Abitibi would own 75 per cent, despite the fact that Hydro and its customers have covered the full cost of the development of the projects and the subsidies � in other words, Hydro and its customers paid for the projects and assumed all the risks;
• And, just as important, Abitibi would not give government any commitment on the impact a power purchase agreement would have on its future operations in Stephenville and Grand Falls-Windsor.

�That proposal was totally unacceptable to this government,� said Minister Byrne. �On top of any other increase required for normal operations, it could mean an increase of up to four per cent a year for industrial customers and up to two per cent for other customers. There was no way we could justify such an arrangement.

�Furthermore, we were not prepared to enter into any arrangement with Abitibi that would see the company reap significant profits from a power agreement without ensuring the future viability of the Stephenville and Grand Falls-Windsor mills,� added Minister Byrne.

In an effort to ensure that government and Abitibi had explored all options in reaching a power purchase agreement, Minister Byrne said government had agreed to a proposal by Abitibi that would see the company and Newfoundland and Labrador Hydro cost-share a $2-3 million study and evaluation of the technical, commercial and environmental viability of the two proposed projects. However, Abitibi indicated it would need between $7-14 million to support ongoing operations while the study was being completed which could have been upwards of 18 months.

�We were prepared to do what was reasonable to ensure the future of Abitibi�s operations in the province because we knew of the importance of this company having viable operations in this province,� said Minister Byrne. �However, we considered this level of support to be unreasonable and unfair to Hydro�s ratepayers.�

Premier Williams assured the people of Stephenville, Grand Falls-Windsor, their neighbouring communities, and, indeed the entire province, that this government is placing a high priority on this issue.

�We will not sit idly by and watch this company put the future of these communities at risk,� said Premier Williams. �We will not allow this company, or any other for that matter, to put government�s back against the wall and hold the future of its workers and their neighbours in jeopardy. We have an obligation to the people of Stephenville, Grand Falls-Windsor, the surrounding communities and the entire province to leave no stone unturned in our pursuit to see these mills continue to operate.�

Media contacts:
Elizabeth Matthews, Office of the Premier, (709) 729-3960, 690-5500, elizabethmatthews@gov.nl.ca
Carmel Turpin, Natural Resources, (709) 729-5282, 685-4624

2005 07 27                                            11:35 a.m.