The Guardian (Charlottetown)

N.S. aware $70m paid to parent: mill

Province had a representa­tive at board meetings, court documents say

- AARON BESWICK @chronicleh­erald

Northern Pulp general manager Bruce Chapman felt the need to correct the province’s claim that the mill was crying poor in 2018 while kicking millions back up to its parent company.

It wasn’t $60 million it shuttled off to Paper Excellence as the province claimed, it was $70 million.

And furthermor­e, claims Chapman in an affidavit filed with the British Columbia Supreme Court, the provincial government knew all about it because they were at the meetings when the decisions to make the payments were made.

“Representa­tives of the province were present at every meeting of the Board of Directors of Northern Pulp during the period in which the distributi­ons (to parent company Paper Excellence) were made,” reads the affidavit.

At the same time the province was allegedly not objecting to the mill sending capital west, it was paying Northern Pulp $6 million for the design of a replacemen­t effluent treatment plant, negotiatin­g how much of the constructi­on of the estimated over $100-million facility the taxpayer would cover and granting loan payment deferrals worth about $4 million. Those loan deferrals were continued in 2019.

The provincial government declined to comment on the allegation­s or state who its representa­tive was at the board meetings.

The province claims via an affidavit filed by Labour and Advanced Education deputy minister Duff Montgomeri­e that it only found out about the cash funnelled out of Northern Pulp this spring when it sent the company's books to a private auditor as part of deliberati­ons that resulted in the provision of a further $10 million by the taxpayer.

According to former premier John Hamm, that's not true.

"(The provincial government) had people at the meetings," Hamm said Thursday.

He was chairman of Northern Pulp's board of directors at the time.

In Chapman's affidavit, he claims the payments to Paper Excellence were "made as partial repayments of related party loans to Northern Pulp and were made during a particular­ly profitable period at Northern Pulp, for the purpose of redeployin­g capital to other operations of (Paper Excellence)."

He added that they didn't violate the terms of the $85 million in loans Northern Pulp and its associated company, Northern Timber, have with the province.

In 2018, the mill was working toward an environmen­tal assessment of the highly controvers­ial effluent treatment plant it was seeking to build as a replacemen­t for the Boat Harbour Effluent Treament Plant that was legislated to close in 2020.

Though the parent company was siphoning huge amounts of money out of Northern Pulp in 2018, Chapman states that they still expected to get environmen­tal approval based on the existence of similar facilities across Canada and the importance of the mill to the provincial economy.

"I believed that the mill provided an excellent support for the rural economy, the people that worked there and the people that supplied it," said Hamm.

"It was always my intention that a clean mill was the best solution for the people of Pictou County."

Asked about whether as chairman of the board of directors of Northern Pulp and a former premier, he'd had a say in sending the $70 million to Paper Excellence, Hamm said, "no, not at all."

He said Paper Excellence's board of directors, as owner of the mill, had control over the movement of the money.

"We had no control over the finances and movement of money," said Hamm.

"My concern was there would be money available to pay our suppliers and always money available to pay our employees."

While it was apparently flush in 2018, Northern Pulp is now saying that it will run out of cash within the next two weeks to pay its employees severance and pension contributi­ons, along with the costs to safely idle its kraft pulp mill.

On Friday it will ask the British Columbia Supreme Court to allow it to accept $50 million in loans from Paper Excellence (which it paid the $70 million two years ago) so that it can keep paying those bills and work toward an environmen­tal approval for a proposed effluent treatment plant.

The province is arguing against allowing the company to accept those loans because they would come before its security on the company’s only real asset – over 171,000 hectares of woodlands the province lent it the money to buy in 2010.

At $200 an acre, the province estimates their value at about $85 million.

That will be relevant if Northern Pulp goes bankrupt – something that could happen if it runs out of money in two weeks or in the coming years if it doesn’t get approval to build a replacemen­t effluent treatment facility.

The mill itself, according to both the company and the provincial government, is likely another environmen­tal liability that the taxpayer could get saddled with.

The provincial and federal government­s are already on the hook for cleaning up the mill’s historic pollution at Boat Harbour. Latest estimates peg the cost at over $250 million.

Montgomeri­e explained in his affidavit the effect of the British Columbia court approving the Paper Excellence loan would have on the province.

“In simple terms the entirety of the province’s loans and the collateral on the land used to secure these loans is rendered worthless to the detriment of the people of the province with no countervai­ling benefit,” wrote Montgomeri­e on behalf of the province.

As if all that shouldn’t be concerning enough to taxpayers, no matter what Justice Shelley Fitzpatric­k decides there is a good chance we’ll get sued.

The loan, if approved, is actually written up as an advance on the following milestones being reached by 2022:

- An environmen­tal approval to build a replacemen­t effluent treatment plant.

- An agreement with the province to help fund its design and constructi­on.

- A court decision or negotiated settlement with the province paying lost profits and damages associated with the idling of the kraft pulp mill.

If those milestones aren’t hit or the mill is forced into bankruptcy next month because the loan isn’t approved, Chapman warns the province to expect a “costly and lengthy” litigation for ending its contract to use the Boat Harbour Effluent Treatment Facility a decade early.

Boat Harbour was built by the province in 1967 as an incentive to the mill’s former owners.

The province operated it until 1995. At that point Kimberly Clarke, then owner of the mill, entered into a lease agreement and began operating it.

That lease agreement was extended until 2030 in 2002 by then premier John Hamm’s government. Hamm became chairman of Northern Pulp’s board of directors shortly after leaving power.

Montgomeri­e claims in his affidavit that the province is protected from being sued over cancelling its lease early by the Boat Harbout Act of 2015.

“No action lies against Her Majesty in right of the province or a member of the executive council in respect of the cessation of the use of the facility for the reception and treatment of effluent from the mill as a result of this act,” reads a clause in the act that mandated the January 2020 closure of the Boat Harbour Effluent Treatment Facility.

But the very next clause reads, “The enactment of this act is deemed not to be a repudiatio­n or anticipato­ry repudiatio­n by Her Majesty in right of the province of the lease agreement dated December 31, 1995, between Her Majesty in right of the province and Scott Maritimes Limited, as extended by a lease extension agreement dated October 22, 2002, between Her Majesty in right of the province and Kimberly-Clark Inc.”

In his response to Montgomeri­e’s affidavit claiming the province isn’t liable, Chapman quotes Premier Stephen MacNeil.

“We know we have an obligation,” MacNeil is quoted as having said in the Legislatur­e on Oct. 5, 2018.

“We’re closing Boat Harbour 10 years earlier. There’s a liability on our side.”

Northern Pulp claims that liability would be in the form of lost profits over the length of the cancelled term of the lease.

Quantifyin­g how big a number that liability would be is hard to do because both Northern Pulp and its parent, Paper Excellence, are privately owned by Jackson Widjaja, grandson of Asia Pulp and Paper founder Eka Tjipta Widjaja.

The only financials available are those filed as part of the current creditor protection court process in British Columbia, where Paper Excellence is headquarte­red.

Their relevance is limited because the vast majority of Northern Pulp’s product goes to mills in Asia.

According to court documents Northern Pulp sold $327 million worth of pulp in 2018 but turned a net loss of $14,697,000

That’s the year it found $70 million for its parent company.

In 2019 it sold $276 million worth of pulp and claimed a loss of $5.4 million.

John Hamm stepped down from Northern Pulp’s board of directors in January.

 ?? SALTWIRE NETWORK FILE PHOTO ?? This aerial shot shows the Northern Pulp mill in Nova Scotia.
SALTWIRE NETWORK FILE PHOTO This aerial shot shows the Northern Pulp mill in Nova Scotia.

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