Knock on wood

It had been a very bad week for Nova Scotia Premier Darrell Dexter. Two days earlier, on August 22, 2011, he had arrived at his downtown Halifax office at 9 a.m. to word federal NDP leader Jack Layton, a close friend of many years, had succumbed to cancer. Before he’d even digested that, Dexter was blindsided by news Ohio-based NewPage Corporation had decided to shut down its Port Hawkesbury paper mill indefinitely, putting close to 1,000 rural Nova Scotians out of work.

That had been a long day. On Wednesday, he’d spent the day in Port Hawkesbury, meeting with the workers.

And now—just two days later, on Friday August 26—Dexter’s 10 o’clock appointment was waiting in his boardroom. The meeting, a courtesy-cal l/state-of-the-business update was with Richard Garneau, the new president of Montreal-based multinational Resolute Forest Products. Resolute operated the venerable Bowater pulp and paper mill on Nova Scotia’s south shore. By the time the meeting was over, Dexter’s day—and week, and month, and year—would become much, much worse.

Dexter and his director of policy, Paul Black, sat in the premier’s darkened seventh-f loor boardroom while Garneau walked them through the economics in a PowerPoint presentation, detailing the dismal state of the North American pulp and paper industry and the even sorrier state of Resolute’s Nova Scotia operation.

According to one of Garneau’s slides, Bowater ranked in the “fourth quartile” among company mills in costs per tonne of paper produced. Garneau compared the Nova Scotia mill’s $650-700 per tonne cost to plants in the southern U.S., which were in the first quartile and turning out paper at a cost of just $470-500. The Bowater operation had lost more than $25 million in each of 2009 and 2010. To make matters worse, Bowater’s Asian and Latin American markets, which represented 90 per cent of the mill’s sales, were shrinking fast as cheaper local mills came on stream.

None of this came as new news to Dexter or Black. Soon after the NDP had come to power in 2009, the government set up a “mills committee” of senior civil servants to begin plotting how to transition the province’s aging paper mills—and the forestry industry with which their fate was inextricably intertwined—to a more economically sustainable model. They assumed they’d have a few years to develop alternatives. They were wrong.

On this morning, in fact, Black acknowledges today, they were expecting to hear Garneau complain about Nova Scotia power rates, which were higher than those in Quebec, and perhaps request financial assistance so the mill could acquire new, more efficient technology to improve its productivity.

But that wasn’t Garneau’s message at all. A new slide popped up on the screen.

“Permanent Closure,” it read.

Suddenly, it became clear that Garneau— an executive so notorious for his frugality he’d renounced his own annual incentive compensation of $1.7 million a year as part of his drive to cut costs and restructure the company—hadn’t come to ask the province what it could do to help the mill survive but to inform the premier he was walking away from it.

The slide, Dexter remembers ruefully, “reduced the situation from the abstract to the real pretty quickly.”

For Dexter, Garneau’s message was as personal as political. He’d grown up in Queen’s County where the mill was located, had worked there during university. “I knew those guys,” he says of the mill’s workers. “I went to school with them, I played hockey and baseball with them. My brother and sister still live there. I still spend time there…”

Dexter turned to Garneau.

Instead of a “drop-dead” public announcement the plant is closing, he asked, “will you at least give us some time to evaluate what you need and to see if we can help get you there?”

Although Garneau confided he didn’t believe Bowater could ever lower its price per tonne to competitive levels, he agreed to give Dexter a few months to prove him wrong.

And that’s how it began.

Nova Scotia is a small province— just 5.5 million hectares—but more than three-quarters of it is covered by forest. Forestry in all its forms—sawmills to silviculture to Christmas tree farming— has been a provincial economic mainstay for 400 years. But the development of new and more efficient ways of making pulp from wood, and paper from pulp—coupled with cheap power and a seemingly insatiable American demand for newsprint—had goosed an industry into existence at the beginning of the 20th century that, at its height, supported thousands of well-paying jobs in rural Nova Scotia.

In 1929, astute Nova Scotia industrialist Izaak Walton Killam had set up the Mersey Paper Company Ltd. in Liverpool to take advantage of the region’s abundant forests and easy access to U.S. markets. In 1956, the year after Killam died, American paper giant Bowater eagerly gobbled up his company. Seven years later, the Washington Post Company acquired 49 per cent of Bowater Mersey just to keep the presses rolling at its thenexponentially expanding newspaper and magazine empire. (Although the Post is still a “legacy” Bowater minority owner, Paul Black admits “it hasn’t bought paper from the mill for at least 10 years.”)

During the sixties, the then-provincial government—eager for rural industrial development—lured other multinationals like Sweden’s Stora Kopparberg and America’s Scott Paper Limited to invest in a pulp mill in Port Hawkesbury that would become—close to 50 years of myriad mergers and acquisitions later— the NewPage Port Hawkesbury mill that was also now about to close.

What might the permanent closure of the province’s two largest pulp and paper mills mean to rural Nova Scotia? To the long-term future of Darrell Dexter’s NDP government?

Dexter wasn’t ready to contemplate the answer to either question yet.

The civil servants’ mills committee, which had been going about its careful contemplation of how the future of the pulp and paper industry might unfold, was immediately transformed into a task force and handed some urgent tasks. It had to figure out not only whether to save the mills—and, if so, how—but also, and just as importantly, how to manage the transformation of the entire forest industry, of which the pulp and paper sector was an integral part, to make it viable on an ongoing basis.

“The premier made it clear from the beginning he wanted the best information available,” remembers Duff Montgomerie, a veteran civil servant who’d recently become deputy minister of natural resources and who now took on the job of co-chairing the committee with Black, the premier’s most trusted aide.

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