Like many things in local politics lately, the AbitibiBowater expropriation bill is one of those things in which it is hard to separate the history (and facts) from the political histrionics.
We are told the bill “repatriates” resources from a company which, by closing its paper mill, had broken the sacred trust under which it had received access to public resources. This is an end to the supposed resource “give aways”. It poses a struggle, in this case over resources, putting “us” against “them”, with “us” being led by the one leader of all leaders who can do no wrong and in whom all should repose great and unquestioning trust despite the many and evident questions about the move.
Before getting into other issues, let’s establish at the outset what the expropriation bill (Bill 75) does.
First, the bill cancels with immediate effect all licenses held by AbitibiBowater in its central Newfoundland operations. This includes the original 1905 charter lands granted to the Anglo-Newfoundland Development company as well as all other leases and licenses the company inherited (purchased) from its predecessors. [This is arguably an expropriation as well. See below]
Second, Bill 75 quashes an active court case in which Abitibi was suing the provincial government over the terms of Bill 27. In 2002, the Grimes administration revised a series of licenses to give them a common expiry date in 2010. At the same time, these licenses were tied to the operation of a specific machine at the Grand Falls mill such that if Abitibi shut it down before 2010, the cabinet could cancel the licenses by order in council before 2010.
Third, the bill expropriates all the company’s hydro-electric assets. This includes those involved directly in supplying power to the mill as well as Star Lake which was a venture entirely separate from the mill operations.
Those are the key elements of the bill.
With that done, let’s establish that Bill 75 was introduced with great haste. While there was some indication government was considering an expropriation, there was no warning of this measure until it appeared in the legislature. The premier himself conducted a hastily arranged briefing for the opposition. He obtained their consent to move the bill through all stages in a single afternoon with scarcely any substantive discussion in public.
We know that the move was hasty since both opposition party leaders discussed urgency. Liberal leader Yvonne Jones said “we certainly understand that there is no urgency here…” while evidently there was. Parties to the expropriation portion of the bill - including Fortis Generation, Enel and Sun Life – for example received notice only a handful of minutes before the bill was introduced in the legislature.
New Democratic Party leader Lorraine Michael said this:
I think we understand why the briefing had to be at such a last minute moment, to put it that way.
…
So, while there is urgency about what we have to do today, we also have to take those urgent steps with caution as well.
The Premier did make reference to urgency, although he was not keen to explain why the expropriation bill appeared when it did:
At that point, of course, we felt that this was certainly an urgent matter that should be dealt with forthwith.
Immediately prior to that he recounted that government issued a demand letter to AbitibiBowater on the preceding Friday for the transfer of “assets” to the Crown at no cost with a response demanded by mid-day on Monday. On Monday, the company replied he wished to discuss transfer of the assets as well as appropriate compensation.
This haste is important.
In the ordinary course, there was plenty of time to negotiate the closure of the mill and the disposal of its assets. Abitibi announced the closure for the first quarter of 2009 and this is generally understood to have meant the end of March 2009. Orderly, negotiated closure is what took place in 2005 with the closure of Abitibi’s Stephenville operation. In that move, government allowed the company to remove a relatively new paper machine from the province rather than move it to Grand Falls to replace a unit installed in 1926.
That was a moveable asset. The assets at Grand Falls are all fixed in place. The hydroelectric assets could have been integrated into the provincial power grid based on a negotiated deal of the type seen previously with both Kruger and Abitibi. From a public policy standpoint, it really doesn’t matter whether the hydro power comes from private sector or public sources as long as it comes. If Abitibi demanded an exorbitant price, the province’s hydro utility could simply refuse to purchase the power and in its monopoly position, Abitibi would be left with assets but no cash.
Likewise, the mineral rights associated with some of the licenses also have lasting value to both the license holder and to the provincial government. But who really cares if a mine grew on Charter lands, for example, run by Abitibi or under a license through Abitibi to a third party. After all, that’s what happened at Buchans.
As for timber, some have speculated that the wood might be exported to feed other paper mills. This misses the fairly obvious point that Abitibi is removing production – some 800,000 tons globally - from its system. As such, it isn’t likely to have wanted to remove the timber for use in other mills, especially when those mills are a considerable distance from Newfoundland.
Even if the company did want to export the wood, the provincial government has every legal right to establish licenses and taxes for exporting timber from the province. The resources couldn’t have gone cheaply, if at all, unless the provincial government consented.
The timber, though, had an evident value within the province. It could have gone – and may still go – to Kruger or to other commercial operations. Here again, from a public policy standpoint, it really doesn’t matter whether Abitibi used the licenses and made paper or furniture. The key public policy goal is to ensure that the resources are used to generate economic activity within the province. The legislature has all the power it needs to ensure that happens.
Ultimately, the legislature had the power to establish terms and conditions, new licensing regimes or even to expropriate if need be.
In its admitted haste, though, the legislature has effectively jumped the gun. The expropriation bill referred to an event – the closure of the mill – which has not yet occurred, even though in public statements politicians talked of it as though it had happened some time ago. The licenses and power generation are all crucial to the mill operations. Little surprise that the company ceased logging operations within a week of losing its licenses. For Abitibi to accept any temporary or conditional licenses for timber issued under Bill 75 would be to acknowledge the cancellation of the
Expropriation is usually a last resort. In this instance, it was - in effect - the first resort.
It may prove to be a weak measure.
As commentator Madelaine Drohan notes:
As for the legal case, Mr. Williams contends that the 1905 agreement clearly ties the rights to the operation of a mill in Grand Falls-Windsor. No mill, no rights. Yet the fact that the Premier felt compelled to pass legislation to this effect seems to indicate that there is room for a different interpretation.
That’s not the only weakness in the case. The provincial government has already conceded that Abitibi held more than a mere lease to the lands, timber and minerals. In the legislature, natural resources minister Kathy Dunderdale spoke explicitly of Abitibi and resource ownership:
The company also acquired ownership of land through allocation of Reid Lots. Reid Lots were parcels of land granted to the Newfoundland Railway between 1893 and 1909. Originally intended to be land bordering the railway, a provision was included that where such land was deemed unsuitable the railway had the option to select lands elsewhere. The AND Company [Anglo-Newfoundland Development] secured title to a number of Reid Lots as it proceeded to develop the Grand Falls mill. [Emphasis added]
Earlier in 2008, the provincial government engaged in negotiations with Abitibi to purchase the Charter lands from the company. Purchase carries with it the implicit assumption that something is owned. A landlord does not purchase a lease from a tenant. One purchases an asset from an owner. As the Telegram reported in October:
Following a meeting in St. John’s with representatives of CEP, Dunderdale said the province is close to a deal with AbitibiBowater on the repatriation of Charter lands, which will see the province pay the company millions of dollars to purchase many thousands of hectares of leased lands.
The AbitibiBowater case may well prove very costly for the provincial government if it gets to court. The provincial government doesn’t have a solid record for much other than going bare headed at public policy.
In the offshore ownership case, the provincial government had legal advice that its case was weak. It lost in both the Newfoundland supreme court and the Supreme Court of Canada on essentially the same grounds. A desperate gambit to shore up a weak position failed miserably. Similarly in the water rights reversion case, the provincial government threatened the financial interests of the companies that backstopped the Churchill Falls deal. People conveniently forget that it was the bondholders – not Hydro Quebec – that challenged the water rights reversion act in court and won.
By the same token, Danny Williams has usually been good at tough talk ending in a settlement for far less than he ever demanded. That was the pattern in the 2005 federal transfer deal with the federal government and in the Hebron negotiation. When things have gone to court – Henley v. Cable Atlantic and Ruelokke v. Government of Newfoundland and Labrador – the Premier has lost and lost badly.
There is still room for a negotiated settlement here and one which sees Abitibi and other other interest holders – Fortis, Enel, and Sun Life – rewarded handsomely based on the weaknesses of the government’s case. It wouldn’t be the first time Danny Williams bluffed at the front, lost big and then claimed victory anyway. In this case, the compensation payment would channel through the province’s energy corporation, the proud owners of the expropriated hydro assets.
The terms of the settlement deal? Well, those would be subject to a confidentiality agreement of course and the cash payments would be buried away behind the veil of secrecy dropped last spring over the energy corporation. No member of the public would ever know the real cost of the expropriation bill.
The cost to the public of bare-headed public policy sometimes isn’t clear until long after the fact and at the outset it is usually hidden with histrionics. That was the case in water rights, the offshore ownership and even with NALCO, the energy corporation’s namesake.
It’s likely going to be the case with Abitibi as well.
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Note: Drohan’s blog post refers readers to Bond Papers with a note that your humble e-scribbler provided the text to the 1905 pulp and paper act plus the AND charter. Here’s a hat tip for the traffic, but credit where credit is due: all we provided around here was a link to the Globe and Mail which provided it in pdf from the day the story broke.