22 October 2007

Update: Kruger machine closure and government subsidies

The official government news release came in the middle of Monday afternoon.

Turns out the provincial government has subsidized the newsprint industry to the tune of $30 million over just the past two years.

In the release, natural resources minister Kathy Dunderdale notes:

"We met with Kruger officials last week and told them very clearly that this was unacceptable. We reminded the company of the support it has received from this government. In the last two years, we have provided over $30 million in assistance to the pulp and paper industry in this province. The company has revisited its plans and moved ahead with today’s action that will see the shutdown of one machine. The impact of their business decision has been lessened because of the significant support this government has provided, and continues to provide, to this industry."


The last time issues like this came up, the provincial government wound up shelling out millions in subsidies. In 2006, it was an unspecified amount to deal with a cost problem with operations on the island. Later in 2006, it was a $10 million subsidy on power costs. A bit of simple math suggests that the earlier subsidy was upwards of $20 million but the actual figure was never made public; it could be there have been other subsidies that Dunderdale or her predecessor never announced publicly.

Subsidies to private industry are nothing new for the current administration. In a failed effort to salvage the Abitibi mill in Stephenville, the provincial government was prepared to offer the company upwards of $10-12 million annually to keep the mill open. Bond Papers concluded that subsidy actually worked out to more than the provincial government's tax take from Abitibi's Stephenville operation in certain circumstances.

No one should be surprised if there is a government decision between now and next spring, while the legislature is conveniently closed, to announce further subsidies for the pulp and paper industry in the province.