By: The Chronicle Herald
The U.S. Department of Commerce will decide by October whether to maintain or lift a 20 per cent countervailing duty imposed last week on paper imports from the controversial mill in Point Tupper and three other Canadian mills.
Officials are investigating whether the Nova Scotia government has subsidized the paper mill to the detriment of competitors in the United States.
Two American mills, Madison Paper Industries and Verso Corp., had complained about heavy subsidies that they alleged allowed Nova Scotia imports to undercut their sales.
Incidentally, Verso now owns NewPage Corp., which owned the Point Tupper mill from 2007 to 2012. It was then sold to Pacific West Commercial Corp., which at the time was the corporate face for the Vancouver investment firm Stern Partners Inc. The mill now operates as Port Hawkesbury Paper LP.
Regardless of how U.S. officials interpret the facts, the deal to sell the troubled mill was done on the backs of Nova Scotia taxpayers and ratepayers, who are still carrying a hefty financial burden for the mill’s owner.
After the former Stora Enso mill was sold to NewPage in 2007, it turned a profit briefly before losing money year after year. In 2011, a New York investment bank was hired to find a buyer for the mill, its timberland and pulping operation. In September that year, the mill’s parent company in the U.S. entered bankruptcy proceedings and the Canadian operation filed for protection from its creditors because its assets had been pledged against the debts of the parent company.
The mill was promptly put on “hot idle,” ending its production run but readying it for a quick restart in the event of a sale. The Nova Scotia government sank $36.8 million into keeping the mill in that state and operating a forestry fund to keep logging roads open and forestry contractors busy until a buyer could be secured.
To clinch the sale, the province agreed to invest $124.5 million to support the mill and its timberland operations.
But tax dollars have fuelled the mill’s operations since 2012 in another way.
One of the appealing features of the money-losing business for its new owner was the $1.1 billion in tax losses clocked up under NewPage management that could be carried forward and used against income in future years.
These losses represented a potential tax saving of upwards of $300 million in provincial and federal corporate income taxes. Such losses could pass to a new owner, so long as the business remained essentially the same.
The significance of these tax losses, which would have cost millions in lost corporate income tax, was a key factor in the year-long process to save the failed paper mill. These negotiations included the potential new owner, the power utility and the province.
An initial agreement between the mill and the utility to soak up these tax losses received the blessing of the province but was thankfully scuttled when it failed to pass the Canada Revenue Agency’s smell test for tax avoidance.
When that plan failed, the tax losses still formed a major part of the complex financial deal that clinched the sale and saved the mill.
Ratepayers, meanwhile, have been subsidizing the mill’s fair share of the fixed cost of generating electricity.
Port Hawkesbury Paper pays Nova Scotia Power Inc. for the incremental cost of the fuel used in generating power for the mill. But under a special tariff, other ratepayers pay the lion’s share of the fixed costs of electricity generation that would otherwise be billed to the mill. The Nova Scotia Utility and Review Board regularly reviews the mill’s earnings to see whether it can afford to pay more of its fair share.
One way or another, the investigation by U.S. officials