Nova Scotia agreement to help restart a Cape Breton paper mill is under scrutiny

HALIFAX – A new agreement that the Nova Scotia government reached with a Vancouver company to reopen an idle paper mill in Cape Breton was described by the Canadian Taxpayers Federation as “tax trickery” on Sunday, but Premier Darrell Dexter says his government has reached a deal that secures jobs in an industry that has a future in the province.

Dexter announced the revised deal late Saturday with Pacific West Commercial Corp., which has offered $33 million for the 50-year-old facility in Port Hawkesbury, less than 24 hours after an original agreement to restart the former NewPage mill collapsed.

Dexter said the agreement means the money the provincial government has spent in an effort to restart the mill should be repaid in full in as little as 12 years. That includes a $124.5 million aid package announced last month and $36.8 million that the government has spent so far to keep the mill in a so-called hot idle state in order to quickly resume operations.

But Kevin Lacey, the federation’s Atlantic Canada director, said it remains an expensive deal and the province’s taxpayers are shouldering all the risk.

“What the government is claiming here is that this deal is better because they are now getting the money from tax revenue. But the money that we’re getting is money that (Canada Revenue Agency) has ruled that we were owed in the first place,” said Lacey in an interview.

“Rather than do this tax trickery, which the premier is trying to announce with moving these taxes around, he should call it what it is. … This is a bailout.”

On Saturday, Dexter defended the mill’s viability, calling it “one of the most high-tech mills anywhere in the world.”

“We were not prepared to support something that was backward-looking,” he said.

“The paper industry is going through change, but there’s always going to be a paper industry.”

The government first announced the $124.5 million funding package in August. At the time, it included $66.5 million in loans, $40 million of which would have been repayable. The other $26.5 million would be forgiven if certain criteria, such as wage targets, were met.

But the government said a week ago it would sweeten the fund after the Canada Revenue Agency rejected a tax arrangement sought by Pacific West.

On Saturday, the government said the previously repayable loan of $40 million to Pacific West Commercial would be forgiven if Nova Scotia Power paid the same amount in taxes as a result of energy purchases under a proposed new tariff.

“But all that does is give back the tax money that this company owes the province,” said Lacey.

Dexter said the government would not forgive more than what is paid to the province in taxes — to a cap of $40 million — over a maximum of 12 years.

Nova Scotia’s profit-sharing cap of $9 million will also be increased to $24 million under the new agreement.

Lacey said profit-sharing assumes that the mill will make money but he questioned whether that will happen in the short-term given the mill’s and the paper industry’s track record in the province.

“We have seen in this province these types of deals before. They cost taxpayers millions of dollars,” said Lacey, alluding to the government’s $50-million deal last December aimed at saving the Bowater Mersey paper mill in Brooklyn, only to see the plant close about six months later.

“One of the reasons why we pay the highest taxes and we have some of the highest debt in all of Canada is because we’ve made decisions like this in the past that have gone sour.”

The province’s NDP government has placed a premium on reopening the mill in Point Tupper, which was responsible for about 1,000 jobs. With a $25-billion federal shipbuilding contract secured for the largely urban Halifax region, Dexter has been eager to ensure some degree of economic success in rural Nova Scotia.

But critics continue to suggest that the government has gone too far with Pacific West Commercial, repeatedly pointing out that the government has set aside more than four times what the company is prepared to pay for the mill.

Those concerns were reiterated Sunday by Progressive Conservative Leader Jamie Baillie.

“The premier is talking about a 12-year payback, but we still don’t have any guarantee that there will be a mill for one year, never mind 12 or that those jobs will be in place for 12 years,” he said.

Baillie said the government failed to compare the “massive cost” of reopening the mill to investing in other facets of the Strait region’s economy in Cape Breton.

“Lower taxes, better education system, lower power rates — that would have allowed jobs to be created one, or two, or three at a time in a modern and dynamic economy instead of investing in the old economy,” said Baillie.

Under the deal, Pacific West Commercial will also be able to incorporate other mills and related assets into the mill, saving taxes in other provinces. Those tax savings will be split with Nova Scotia, with 32 per cent coming as direct cash payments and 18 per cent put back into the mill’s productivity in provincially approved investments.

The agreement still depends the Nova Scotia Utility and Review Board approving a new power rate.

Pacific West Commercial said in a statement Saturday that it plans to formally take ownership of the mill on Friday and begin producing paper in early October. The company has promised to rehire about 300 workers and operate one of the mill’s two paper machines.

The plant shut down last September, throwing about 600 people out of work and affecting another 400 forestry contractors. At the time, NewPage cited the high Canadian dollar and increased rates for shipping and electricity as the reasons for its closure.