Abitibi Consolidated announced on Tuesday that the company was closing lumber mills and laying off 700 workers in order to staunch the bleeding to its bottom line caused by slackening demand, a higher Canadian dollar and rising energy costs.
The cuts, to Abitibi's Quebec lumbering operations, will see four mills close. The American news organization Bloomberg attributes the Abitibi cuts to slowdowns in the American home construction and renovation market.
Last week, natural resources minister Kathy Dunderdale announced the provincial government would subsidize power rates to the major industrial power users on the island portion of the province. Dunderdale described the CDN$10 million subsidy as a payment representing the portion of the Rate Stabilization Plan owed by the now-defunct Abitibi mill at Stephenville.
Curiously, the amount of the annual subsidy is the same as the total amount Danny Williams previously offered to Abitibi in order to keep the Stephenville mill open. Bond Papers previously established that Williams' original subsidy represented up to $3.0 million more than the Stepehenville mill generated in tax revenue for the provincial government.
The current subsidy represents a complete loss to the treasury since the remaining mills have not increased output to replace the production at the Stephenville mill.
The new subsidy effectively reduces power costs to the two remaining paper mills, one at Grand Falls-Windsor and the other at Corner Brook. The province's news release did not clearly indicate the duration of the subsidy.
Kruger's Corner Brook Pulp and Paper employs 1300 people in its harvesting, papermaking and power generation facilities. Abitibi's Grand Falls-Windsor plant employs 490. The government subsidy amounts to $5, 586.60 per employee.
