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Catalyst Towns Need New Tack |
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Catalyst Towns Need New Tack
by Arthur Caldicott
Millwatch March 2007
Watershed Sentinel
Since Norske Skog cast it loose, Catalyst has been like a freighter adrift on the corporate high seas, without a visible strategy that is more than Captain Horner yelling threats over the gunnels that we better get those municipal taxes out of the way or shipwreck is certain. Third Avenue Management has boarded the ship, and the ship is now heading … somewhere.
Catalyst Paper makes more pulp and paper than any other company in British Columbia. Its three mills on Vancouver Island, a fourth in Powell River, and its Vancouver paper recycling plant support employment for 3800 people. Its sales last year were $1.8 billion and its assets are $2.7 billion.
It stands today as the largest producer of phone book paper in the
world and one of North America’s largest producers of newsprint and
mechanical paper. It is one of the world’s few producers of
sawdust-based pulps, and owns the largest paper recycling facility in
Western Canada.
Originating with BC Forest Products in 1946, the company became
Fletcher Challenge Canada in 1987, Norske Skog Canada in 2000, and
NorskeCanada with the acquisition of Pacifica Papers in 2001.
And then the ship NorskeCanada hit perilous seas.
The bottom fell out of the pulp and paper markets. Pulp prices fell in
one year from about US$700 a ton to $400. Paper prices fell about 25%.
US newsprint demand has declined by 25% since 2000. The Canadian dollar
has risen more than 40% against the US dollar. By 2005, some three
dozen mills or machines were shut down across Canada, resulting in the
loss of 7,000 jobs.
How did NorskeCanada weather this chaos of uncontrollable events – commodity prices, exchange rates, product demand?
Industrial tax rates are crippling us, claimed CEO Russell Horner. He
began an all-out assault on the four communities in which his mills
were located: Powell River, Campbell River, Port Alberni and North
Cowichan.
In a campaign that vilified these greedy BC towns, Horner enlisted the
support of other large industrial corporations in BC and of the BC
government itself.
The Competition Council, the Premier’s own hand-picked industry
advisory group, said that municipalities need to reduce tax rates on
the pulp and paper industry, and if they don’t they need to be subject
to “an imposition by the Province.” “There are communities in British
Columbia that have dined out on the industrial complex of taxes for too
long,” warned Forests and Range Minister Rich Coleman.
Norske Skog, the corporate owner of NorskeCanada, was not happy with
its money-losing Canadian operation. And it was getting out of British
Columbia – something a lot easier to do with capital than with four
mills.
In 2005 the separation began when NorskeCanada assumed the name
Catalyst Paper. In early 2006 Norske Skog sold its interest in Catalyst
to a private US investment group called Third Avenue Management.
Third Avenue Management has a solid track record of acquisitions of
distressed companies which have ultimately proved profitable.
And not everything is a disaster with pulp and paper in BC. Wood fibre
prices – a primary cost to the industry - have declined steadily for
twenty years. Electricity costs for large industrial users in British
Columbia remain among the lowest in Canada and in the world. Pulp and
paper prices have recovered almost completely from the 2001-2002
debacle. And the shutdown splurge of a few years ago overshot the drop
in demand.
Third Avenue’s Amit Wadhwaney says, “Sometimes things get too cheap.”
We can expect Third Avenue to play hardball, particularly on the cost
side of the operation. More layoffs. Pressure to ease off environmental
protections. And municipal taxes, especially since the industry has the
support of government.
The four local governments have let themselves be picked on
individually and each has conceded some ground to Catalyst. Disunity
has not best served them. A better response, especially now with Third
Avenue at the helm, might be to form a Catalyst Communities Council to
deal with the company collectively. It is not too late.
Will Third Avenue shut down any mills? Catalyst’s only assets are its
mills, worth $2.7 billion. Shut down, any one of them becomes an
expensive non-producing liability. And very hard to sell. It’s not
likely.
Horner? With $4 million in his pocket and Catalyst off his back, he’s
bound to be a much happier man. The remaining crew on the ship Catalyst
may be happier as well.
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