Knock on wood

What would eventually become an ever fluctuating group of 12-14 senior public servants—often including deputy ministers—set up semi-permanent shop in surplus government office space. For more than a year, its members would meet at 9 a.m. each day to plot strategy and dole out tasks. Most days, Black and Montgomerie would reconvene late in the afternoon to hear updates.

“It could get emotional,” Montgomerie allows. “You sometimes had middle managers, who’d had to become forestry experts in a hurry, calling out their senior bosses. ‘That’s bullshit…'” He chuckles. “It was a great growth experience for everyone.”

The issues they had to tackle were multi-pronged and mega-complicated.

What would it take to bring down costs at Bowater? Would the union make concessions? Would the municipalities grant tax relief? What about power rates? And, even if the mill could magically be made competitive, for how long? How many taxpayers’ dollars would it take to squeeze just five to 10 more years of life from the mill—and at what point did pouring more money in stop making economic sense?

The situation at Port Hawkesbury was different. While Bowater was rich in forest resources but burdened by an aging mill turning out low-quality paper the market increasingly wasn’t buying, NewPage’s Port Hawkesbury operation boasted a world-class, super-calendar paper-making facility turning out highquality magazine papers buyers still coveted. NewPage’s problem was debt.

Less than a month after announcing its indefinite shutdown, NewPage filed for bankruptcy protection, claiming “dire financial straits” after losing $50 million on the mill in the previous year.

With the mill up for sale, the courts would ultimately rule on who got its assets for how much, and the winner would then determine what to do with them.

While the civil servants waited for those legal and business dominoes to fall, they focused on Bowater.

By December, they’d carved out a complex $50-million deal under which the province agreed to provide a $25-million five-year forgivable loan to help upgrade the Bowater mill, buy 10,000 hectares of company forest land for $23.75 million and provide another $1.5 million for worker training. Meanwhile, union members agreed to cut 80 jobs and freeze wages, while the municipalities anted up a 10-year property tax freeze. There were electricity rate reductions and transportation sweeteners too.

Black and Montgomerie believed they’d bought five to eight years, long enough to plan for a more orderly transition.

“The plant reopened and everything was working,” Paul Black remembers. “By April they were meeting their [cost per tonne] targets.”

Which meant it was time to begin tackling longer-term issues at Bowater. Two days before Black and Montogomerie were to fly to Montreal to meet with Resolute officials to discuss those next steps, however, a company official called “out of respect.”

Even though the local community had pitched in to reduce costs to competitive levels, the mill’s future prospects had now been sandbagged by something out of anyone’s control. The euro had tanked, which meant European papermakers were suddenly able to undercut Bowater’s prices. Within a few months, Bowater had lost 25 per cent more of its international market.

When Black and Montgomerie met with company officials in Montreal that Friday, it was not to discuss how to best invest the province’s $25-million loan; it was to hear company officials explain they were recommending to the Resolute board it shutter its Bowater operations and put them up for sale in order to allow the company to concentrate on more promising investments elsewhere.

To complicate matters, Resolute said it already had an offer for its Bowater assets from outside North America. Was the province interested in making a counteroffer?

Should it be?

September 21, 2012. It had been yet another rollercoaster day. With his biological clock still ticking in a far-off time zone after a 10-day trade mission to China, Darrell Dexter had landed back in Nova Scotia and smack in the middle of final, final negotiations on the other paper mill file. Vancouver-based Pacific West Commercial Group had been the successful bidder for NewPage’s Port Hawkesbury assets, and was looking for provincial help to get the mill back in operation.

“I was still wide awake in the middle of the night,” Dexter jokes, “so the timing for negotiations was great for me.”

But the negotiations weren’t going well.

The month before, Dexter’s government had offered Pacific West what seemed like a sweet package: a $124.5-million grab bag of loans, grants, incentives, provincial agreements to purchase company lands. The company was keen. But it also wanted a favourable ruling on a complex tax break deal from the Canada Revenue Agency in order to make all its carefully constructed profit pieces fit.

The week before, the CRA had said no.

And now Pacific West was telling provincial negotiators it was walking away.

The Port Hawkesbury mill was dead.

Dexter wasn’t so sure. “Put it this way,” he says today, then pauses for a long moment. “I’ve been involved in negotiations for a lot of years. Negotiations work when the two sides have a common objective. I believed we had a common objective. We’d made the fairest offer we could, and I believed the company could work with it. Were they testing our resolve?”

Early that Friday evening, Pacific West issued a press release announcing it was walking away from the mill.

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