The Abitibi Expropriation Fiasco: TARFU

The Government of Newfoundland and Labrador not only expropriated a paper mill it didn’t intend to seize, but two major houses and land rights over half the town of Grand Falls.

The size of the expropriation fiasco grew in leaps and bounds Tuesday as the House of Assembly started to dissect the budget estimates.  The morning’s revelations during committee meetings livened up Question Period in the afternoon.

Natural resources minister Kathy Dunderdale tried to bluster her way through the questions while her boss – the guy behind the mess – jetted off to Ottawa for what his office described as high level meetings. 

D’uh!.  Premiers don’t have other kinds of meetings.

Dunderdale denied accusations she and her colleagues had tried to hide the expropriation cock-up, claiming it had been revealed in a February 2010 news release.  But, that release tried to make it sound as if Abitibi had vacated the property.

What’s worse, the full scope of the mess wasn’t revealed until this past week in the House of Assembly.

What’s more, the provincial government knew of the expropriation blunder in May, 2009, five months after the expropriation. Not a single minister said a peep about the situation. The major league legal foul-up was discovered, incidentally, by a company retained to conduct title searches on the lands after the bill was rammed through the legislature.

According to Dunderdale in the House of Assembly Tuesday,  the provincial government originally intended to fix the problem by  - wait for it - bringing in a second piece of legislation which gave back the accidentally expropriated bits of land to Abitibi. 

You could not make this up if you tried.

Unfortunately for the hapless Williams administration, Abitibi’s bankruptcy made any amendment to expropriate the mill legally impossible.  That’s no small irony given that the expropriation was predicated in part on the potential that Abitibi would declare bankruptcy and sell off all it assets.  As Premier Danny Williams put it last week in the House of Assembly:

They would have sold them off to some other interest, and we would have been left high and dry and our workers and the environmental issues, none of those would have been resolved; or otherwise they would have gone bankrupt and they would have lost everything and we would not have had anything.

Interestingly, Dunderdale told reporters outside the legislature that the provincial government was “well into the fall” before they realised they wouldn’t be able to introduce the do-over legislation.  While Dunderdale didn’t say exactly when she and her colleagues figured out their legislative option was closed, her admission it might have been in November suggests there is some overlap between the realisation their legislative options were closed and a series of events in a Quebec courthouse.

The provincial government launched a legal application in October 2009 just days after a surprise announcement in Buchans about possible contamination of the community from a long abandoned mine. The legal action was an effort to gain access to Abitibi’s private financial information through a data sharing arrangement between Abitibi and its creditors.

The court dismissed the application and with it the Williams administration’s claim to creditor status, finding, in part, that “…[t]he Motion has merely referred to several press articles in support of an alleged claim against Abitibi for the contamination arising from a closed mine in the town of Buchans. [59] These vague and unsubstantiated allegations are, at this point in time, barely supported.” 

The court also dismissed the province’s claim to creditor standing through an arrangement with unions to pay severance and other payments to former Abitibi employees:

[54] On one hand, the Province alleges, without supporting evidence, that it has made payments to certain former employees of the Abitibi's Grand Falls mill.  Yet, no evidence to establish the nature of the payments made or any lawful assignment of the related claims has been put forward.

[55] Indeed, when one reads paragraphs 7, 8 and 9 of the Motion, it appears obvious that if Abitibi's former employees in the Province claims have been assigned to anyone, it is to an organisation created by the various unions involved, not to the Province.  Its role is simply to fund this organisation.

[56] In that regard, the Motion itself refers to claims that will ultimately be made in the restructuring by an "Assignee".  According to the Motion, this "Assignee" is certainly not the Province.

Within three days of the failure of that application, the provincial government issued a series of nine environmental orders to Abitibi.  They required, among other things, that Abitibi file environmental remediation plans with two months and complete all work within one year.  

Aside from the apparently coincidental timing of these actions, it is interesting to see in a decision on whether the environmental claims were barred by a previous decision of the court overseeing the Abitibi creditor arrangements, the court noted:

[60]  Although the Province publicly announced that the Abitibi Act did not include the Grand Falls mill then still in operation, a review of the Abitibi Act revealed that, whether deliberately or as a result of the haste in which the Act was drafted, the Grand Falls mill site was, in fact, included in the confiscated assets.

Of course that’s all just extra in a situation in which the provincial government’s strategy in seizing the assets went poof with that legal cock-up.  From the briefings given before the bill was unveiled in December 2008 to the Premier’s own public comments as recently as December 2009, Danny Williams intended to leave the company with the environmental liabilities while seizing all the choice assets.

In the end, any compensation for the seized assets would be balanced by the environmental liabilities.  The deal the provincial government hoped to strike would see no money change hands.  The provincial government might wind up paying for the clean-ups, but it would escape any NAFTA penalties and other payments.

As Williams put it on the day the seizure bill raced through the legislature:

If that [the cost of environmental clean-up] is quantified, then that would be offset against any responsibility for compensation. If there is an excess of value over liability, then that would be the amount that would be paid.

That isn’t the way things turned out.

The provincial government now owns the mill outright and will wind up covering the costs of any clean-up on its own. In addition, it will still have to pay compensation for the seized assets.  Even the Williams administration’s own expropriation legislation calls for it to pay compensation.  If the provincial government reneged on its statutory obligation, presumably Abitibi could and would sue.

Then there is the NAFTA claim. Abitibi is pursuing a lawsuit that seeks a minimum of $500 million for what it says was an illegal seizure of assets.

And if Kathy Dunderdale wonders where people are getting the numbers involved, she can just look around.  Her own colleagues have been putting costs on the environmental cost for the past year that come to around $200 to $300 million.

For the numerically challenged, or for those living in denial, that would wind up being $800 million:  $500 million for NAFTA and another $300 million for the environmental work.

At least.

That’s a pretty hefty cost taxpayer’s will have to bear to clean-up someone else’s mess.

TARFU.

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Is the Abitibi Fiasco on the agenda?

The Premier’s trip to Ottawa announced late Tuesday morning is only a surprise if you didn’t know about it in advance.

Regular readers of these scribblers had it yesterday:

When Danny heads off to Ottawa later this week for a round of meetings on a bunch of subjects, …

One item not mentioned on the agenda  - but surely to come up  - will be how the provincial government will repay the feds for the Abitibi expropriation fiasco the Premier will be leaving behind for his ministers to defend. Ministers are discovering the idea of collective responsibility, likely for the first time since the Tories took office in 2003. 

If the provincial government expropriated half the town of Grand Falls by mistake – you could not make up this kind of blunder - you can safely bet they don’t stand a snowball’s chance in hell of winning the claim for $500 million or more that Abitibi levelled against Canada under NAFTA.   The federal government may pay up front but, at some point they will likely come looking for reimbursement from the one who caused the mess in the first place.

What better time to discuss that than when Hisself is in town for meetings?

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The Abitibi Fiasco: a house divided

Premier Danny Williams  - House of Assembly, April 21, 2010 - on the costs associated with his disastrous expropriation bill:

What we are trying to do, and we have throughout this negotiation, is protect the interests of the people of Newfoundland and Labrador because Abitibi owes us anywhere from $200 million to $300 million in environmental liabilities for the mess that they left us, in addition to the severance for the workers that have paid, in addition to what we as a government have put into Grand Falls-Windsor and the Central Newfoundland region.

Provincial environment minister Charlene Johnson  - House of Assembly, April 22, 2010 - on the costs of Abitibi’s environmental liabilities:

Mr. Speaker, under the act the way that we - under the orders that we issued [November 2009]  we require Abitibi to submit to us a remediation plan. There were five orders: Botwood, Stephenville, Grand Falls-Windsor, Buchans and some logging camps. So, until they submit a remediation plan to us - and they had one year to submit this plan and they have done some work on it in the past. Until they submit that plan and until we are satisfied with the plan to ensure that the environmental liabilities will be dealt with, I cannot give you a firm, actual cost until that comes to us and we are satisfied with it.

 

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Dunderdale on Abitibi/Fortis/ENEL expropriation: Oops!

An obviously stressed natural resources minister Kathy Dunderdale admitted to the House of Assembly yesterday that there were problems with the provincial government’s hasty seizure of  assets belong to AbitibiBowater, Fortis and ENEL.

The paper mill itself – originally supposed to be left out of the deal – wound up being left in.  As a result, taxpayers are stuck with a potentially major environmental liability.

CBC puts the Premier’s reaction to the shag-up this way:

Outside the legislature, Premier Danny Williams told reporters he's embarrassed by the turn of events, but he can live with them.

"It was something I wasn't happy with when it happened, but it was an innocent mistake that was made by an official in the department," Williams said. "As simple as that."

That’s bad enough, except adding the mill when you explicitly wanted to leave it out isn’t the only shag up in the whole confiscation.

According to a court decision in Quebec where Abitibi is working through a bankruptcy protection proceeding with its creditors, the Williams administration also forgot to pick up a few of the Abitibi assets in the province that should have been seized as well in the Chavez-esque sweep.

The Legal Genius(es) behind the whole fiasco left out the port facilities at Botwood and the former mill site in Stephenville.

Abitibi closed the mill at Stephenville closed in 2005 after a prolonged battle with the provincial government that included threats by the Premier to expropriate Abitibi’s assets:

"If there's an interested party that can have that mill up and running, we'd be interested in talking to them," Williams said Monday.

"If that requires expropriation, then that's something we'd certainly consider."

In the end no other buyers emerged and the mill closed despite the Premier’s 2003 election commitment that the mill would not shut down on his watch.

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Epic Fail of The Week: prov gov loses to Abitibi… again

First, the provincial government’s Legal Genius(es) drafted the expropriation bill which seized - all, as it turned out -  AbitibiBowater assets in Newfoundland and Labrador.

They told the good burghers of Danny-ville that this meant only that the power plants and everything else belong to the people of Newfoundland and Labrador.

Everything, except that is for the mill itself, they said which would be used as leverage in negotiations over any compensation for the expropriation.

It would all be a wash, in the end.

Or so people were told publicly and in briefings before the expropriation bill turned up in public.

Then, people discovered that the same Legal Genius(es) didn’t actually exclude the mill as they’d originally claimed.

Nope.

They seized it all.

Big screw up.

Now, the people of Newfoundland and Labrador discover that trying to get some sort of court action forcing the former mill owners to foot the bill for environmental clean-up – as the legal genius(es) assured everyone – won’t work either.

Hands up anyone who is surprised at the latest failure by the provincial government?

Okay, well just stop and think for a minute: 

The Legal Genius(es) behind this latest string of expropriation epic fails would be exactly the same Legal Genius(es) who brought you the Ruelokke legal mess.

And they’d be the same Legal Genius(es) who are now betting massive chunks of the public purse on a law suit against Hydro-Quebec to try and settle a dispute over the 1969 contract.

Any bets on how good that one will turn out for taxpayers in the end?

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Medvale School for the Gifted Update:  Seems the Legal Genius(es) indeed have caught themselves in another bit of jurisprudential bother.  As Russell Wangersky astutely points out, the lovely Abitibi expropriation bill clearly gives no value to water rights and timber rights.  Yet, the scheme to funnel money to Corner Brook Pulp and Paper is based on timber rights having value.

The two things cannot live in the same space.

So either no cash will go to CBPP or, as your humble e-scribbler expects, the real legal geniuses who work for AbitibiBowater (they are 2-0 so far) will use the CBPP cash hand-over to put a much higher price on the expropriation now that they can legitimately claim cash for timber and water rights.

Not only that but AbitibiBowater can also claim – quite rightly – that the expropriation was unusual and punitive aimed specifically at one company and remains without any merit. Coupled with all the nasty words flicked by ministers toward Abitibi, they can likely show that the whole thing was prejudiced and that will only add to the poor beleaguered Newfoundland and Labrador Taxpayer’s legal misery in other places (NAFTA challenge anyone?)

Momentous Update:

Hypothetical Answer by Hard-done-by Citizen:  “Golly Gee Mr. Finance Minister, what will happen if they get more money?”

Not-so-hypothetical Answer by Finance Minister:  “The debt will go up.  We cannot stop the momentum.”

Epic Fail on seizure looms

Back when the provincial government managed to ram an unprecedented bill through the legislature seizing private assets and crushing active legislation without compensation, one argument used to justify the seizure was novel.

Apparently the environmental clean-up costs and the potential penalty under the free trade deal for the seizure would be so close that the whole thing would wind up being a wash after a negotiated settlement.  No money would wind up changing hands but ultimately the mill – carefully excluded from the initial seizure – would come to the provincial government and Abitibi would just walk away.

Officially, the Premier described the idea this way:

So, if, in fact, there is contamination which is located with operations in Botwood or around the mill in Grand Falls or the logging operations or any other rivers or whatever happens to be where they have constructed bridges or have had a presence in Newfoundland and Labrador, then there may be environmental fallout from that and that has to be quantified. If that is quantified, then that would be offset against any responsibility for compensation. If there is an excess of value over liability, then that would be the amount that would be paid.

And if there was any discrepancy, then they’d add in the amount the provincial government paid out voluntarily to settle issues with some of Abitibi’s former employees.

Nice, tidy and wonderfully convenient.

Things haven’t quite worked out that way.

First the provincial government wound up getting the mill unceremoniously dumped in their laps.

Then Ernst and Young valued the environmental remediation at around $50 million and maybe as much as $100 million.

Now Abitibi has filed its NAFTA claim seeking damages of at least $500 million, reputedly a record amount if it is awarded.

It’s also not far off another old record, the cost of the Come by Chance bankruptcy back in the 1970s which was up to that time the largest bankruptcy in Canadian history.

So now having paid out the workers cash and assumed full liability for the environmental clean-up, the provincial government is now facing a history-making lawsuit for damages.

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Dunderdate;  Some choice words from natural resources minister Kathy Dunderdale that reinforce the notion of the whole thing being a wash, at the end of the day on a go forward basis.  From the Telly, 25 Mar 09:

The company has publicly put the price tag for those assets at $300

million.

 

Dunderdale says the government's figure is lower than that, but would

not say just how far apart the two sides are.

 

She said the province has a clear idea of how much it thinks the

assets are worth and has determined a range of value it would be

willing to pay Abitibi.

But Dunderdale said the province wouldn't go beyond that range just to settle up with the company.

Taxpayers shafted

On February 2, Abitibi notified the provincial government that the company vacated the only properties the provincial government didn’t expropriate in December 2008.

As a result, the taxpayers of Newfoundland and Labrador are entirely responsible for cleaning up whatever environmental mess may be attached to the century old facility.

There is no word on how big the problems at the old paper mill are or how much it will cost taxpayers to clean it up.

The official government release on the development is a masterpiece of uncommunication from a department – natural resources – that has become legendary for its practice of the dark art of misinformation. 

There is even a complete contradiction in the claim at the front – namely that the provincial government is now responsible for the sit in every respect and a statement at the back that Abitibi is still liable.

This is the third financial shaft to be felt by taxpayers resulting from the 2008 expropriation.  The first is the yet-unresolved bill for the expropriation itself.  The second is the voluntary payment by the provincial government of money owed by the company.

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Economic Recovery: Not exactly as illustrated

By definition, anyone connected to “economic development” in any provincial government or quasi-government organization must be so positive and upbeat as to make a Pollyanna look like someone about to climb into a warm bath and open a major artery or six.

That pretty much sums up the view in central Newfoundland where the regions major private sector employer is gone and there is nothing on the go even remotely as big:

"(If it was contrary to what businesses are reporting) you would see it in job losses, you would see it in lack of inventory," [Amy Coady-Davis, chair of the Grand Falls-Windsor town economic development committee] said.

"The turnover is there - it is right in front of your face. You can't fudge those numbers. Sales are up, they have said they're up, you can see that they are up."

Well, not exactly, at least if you judge by some numbers included the same Telegram article and which came from no less an authority than the town’s own economic development agency:

According to the economic development office in Grand Falls-Windsor, housing starts are down 50 per cent from 2008 - there were 118 units built then as compared to 53 units in 2009.

There you have it.

And if that wasn’t enough, consider the view from the local chamber of commerce:

Gerald Thompson, president of the Chamber of Commerce - which represents 209 businesses in Grand Falls-Windsor - tends to agree with the town's positive outlook.

He said they are getting far more positive feedback from members than negative.

"... Although there's been a number of small businesses that have closed in the last year, we still know that the people that have done business here in this valley, their percentages over last year are up.”

Of course, they are up. 

Some of the people who used to patronize those businesses that have closed up have moved their custom to the ones remaining.

And those companies that went out of business? 

Well, they aren’t members of the chamber of commerce any more – most likely – so their voices wouldn’t heard when the chamber does a survey of members.

Just to add to the whole surreal atmosphere of the article, don’t forget that the president of the chamber of commerce cited as proof of the great things the positive view from the people who build new homes.

Oh yeah.

Things are so great in that business people are building only half as many homes as they did in that artificial bubble the year after the mill closed.  That would be the year of severance cheques and all that extra, short-term cash.

What happens from this point onward will be entirely the result of whatever economic activity there is left now that the Abitibi mill’s corpse has stopped twitching.  Those who are tempted to look at places like Stephenville need to think again.  All those paper mill workers found other jobs, mostly in Alberta.  Those sorts of options don’t exist for the crew from Grand Falls-Windsor.

Nor is there a chance that the province’s remaining paper mill – there were three in 2003, incidentally – will take up any slack.  It is struggling to survive.  The company that runs the mill is reportedly looking for a 10% wage roll back from workers.

The professional pollyannas can be as bright-eyed and optimistic as the want.

The reality may well prove to be not exactly as illustrated.

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How bad is it?

You just know things are pretty tense in Corner Brook.

You can tell because the provincial government has been pouring on the happy-talk while over at the city’s major employer, the company operating the paper mill is looking for a 10% wage roll-back from employees.

The latest happy-talk is a hope-drenched a study on the oil and gas potential for the west coast.

According to the official news release, the study was commissioned based on an election commitment from 2003. 

That’s okay. 

We can wait while you go and check your calendars again.

Yes, it was indeed seven years ago.

The work on this particular report, though, was only done in 2008.  Check the dates on some of the consultation sessions;  that’s the only way to figure out the timelines for sure since most of the document has been scrubbed of dates. You can hunt around and eventually find the news release that kicked it off, from December 2007. 

That would make it a bit more than two years for this study to see the light of day.

After all that time and all that work, the recommendations are stunning: 

Ensure a regulatory and administrative environment to maximize investment in onshore and offshore exploration and attract industry operators and businesses to the region;

Ensure the protection of key natural resource areas, including Gros Morne National Park, the Humber Valley and the Bay of Islands;

Establish a clear environmental regime between the provincial and federal governments;

Continue to improve infrastructure in the region through investments in education, health-care facilities, transportation and commercial land availability;

Encourage the planning, regeneration and use of existing infrastructure, including that in Port aux Basques, Stephenville, Corner Brook, Deer Lake, Port Saunders and St. Anthony, to ensure it continues to support existing economic sectors;

Maintain and upgrade infrastructure specific to the needs of potential hydrocarbon projects, including wharves and air facilities at Corner Brook and Stephenville;

Facilitate the training of local residents to help them meet the demand for skills in this emerging sector;

Continue to invest in public education, health care, cultural and recreational opportunities to serves the needs of the region; and,

Continue to promote the western region as a place of opportunity for business investment and families.

In a nutshell:  fix the roads, spend money on things like education and health care, protect the ecologically sensitive and important bits (like Gros Morne)  and “promote” the potential in the area.

They are about as surprising as the recommendations made by the task force that spent 18 months trying to figure out how to keep more young people from leaving the province.  Its major conclusion:  create work for them so they can find jobs and stay here.

All standard. 

All patently obvious.

Nothing concrete and measurable.

Like explaining what is meant by “[e]nsure a regulatory and administrative environment to maximize investment in onshore and offshore exploration and attract industry operators and businesses to the region.” 

Maybe there is a tax issue here or problems with issuing permits. You won’t find anything in the report to explain what this means.

And the stuff that appears to be specific  - like the suggestion to “twin” selected portions of the Trans-Canada between Port aux Basques and St. John’s as needed – is actually just a confirmation of what has been government policy since 1988.  Under the roads for rails agreement, the provincial government used federal cash to do exactly that.  And yes, for those who need reminding that would be from the last time the Conservatives formed the provincial government.

So what are these study guys talking about 20 years later?

Not a heckuva lot, apparently, given that any administration at any time can claim:

• to have either already done that or,
• to be doing exactly what was recommended as it carries out the existing maintenance of the existing road.

Look in vain and you will not find a single thing in this 71 pages of pure bumpf is tied to  drilling more holes, finding oil and getting it into production.

Things seem to be pretty tense in Corner Brook these days.  That’s just as they have been in other towns in this province since 2003 when the major employer found itself in hard financial straits.

What’s most interesting since 2003, though, has not been the problems themselves but how the provincial government has reacted to each development.

The oil and gas study released on Monday seems to be very much par for the course, very much a sign of the times.

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Fortis/ENEL Expropriation, one year later

Outside the legislature on Wednesday, Premier Danny Williams had this to say about the legal and financial problems that are still hanging around after last December’s seizure of assets by the government under a hastily compiled expropriation bill.

The expropriation will come with a purchase price, but Williams said he now plans to deduct the cost of severance and environmental cleanup from the final amount.

"So, if the possible environmental exposure and, or, the severance were X amount, and the amount that the assets were valued at were substantially less, well, then obviously there would be no payments of cash from the government," Williams said.

One of the great unreported facts of this expropriation – unreported by the conventional media, that is – is that the expropriation didn’t just affect AbitibiBowater.

Nope.

Included in the seizure were assets of Newfoundland and Labrador-based Fortis Inc and an Italian company called ENEL. 

The former was involved in a hydro project that supplied power to the former Abitibi mill at Grand Falls-Windsor and sold the rest to the provincial energy corporation.

The latter was involved in a hydro project at Star Lake that had absolutely nothing to do with supplying anything to the mill.  The Star Lake generating plant was built in response to a call for proposals by the province’s energy corporation about a decade ago. The plant supplied power to the grid to reduce emissions from the diesel plant at Holyrood.

Now if you take the Premier’s comments at face value you get a truly amazing thing and one that is unlikely to be swallowed that easily by the companies involved.

If there are any environmental liabilities related to the Abitibi mill, it would be quite a stretch to suggest that ENEL and Fortis somehow have any responsibility for them given that their operations were not for running the mill.  ENEL has got a real case in this respect, one would suppose.

By the Premier’s construction a company like ENEL could undertake legitimate business activities based on a government contract entered into in good faith by all parties only to find itself, in less than a decade, not only without the assets it paid for but without any compensation whatsoever for the government seizure.

And the excuse for stiffing them is that they somehow gained a liability for something they had no responsibility for in the first place.

This is one of those moments where you’d wonder if the Premier would be quite so calm about it all if someone were trying to pull the same stunt on him.

Meanwhile, one wonders if the rapprochement between the provincial Conservatives and their federal cousins might possibly have something to do with trying to get Ottawa to protect the Newfoundland and Labrador treasury from the fall-out of last year’s seizure.  The federal government has to deal with the international repercussions – like the NAFTA challenge Abitibi filed – but there doesn’t seem to be anything stopping the feds from recovering their costs once the international bits are settled.

Of course, all of this really makes a mockery of recent efforts by the provincial government to win sympathy for its case against Hydro-Quebec.

If the Americans really started to care about it all anyway, might those same New York financiers who supposedly listened sympathetically to the luncheon speech a couple of weeks ago feel quite so favourably disposed to the Premier’s cause if they got the full story on how Fortis and ENEL got screwed over by the Premier’s seizure?

This expropriation business is a long way from settled and the bills are a long way from being paid.  Something says some of the bills won’t be settled in cash, either. 

Payback will be a mother.

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The story that won’t go away, banner version

Some smart bunny or bunnies is buying advertising in the Grand Falls-Windsor weekly to remind locals how much money is being made from hydro assets the provincial government seized last December.

Run bi-weekly in the local Grand Falls-Windsor Advertiser under a banner that reads "Expropriation by the Numbers," the sparsely worded ads suggest the province has so far earned $28 million from the hydro facilities.

The ads say that's $1,100 for every citizen in the Exploits Valley, and question why more of that money isn't being spent in the region.

There’s a move afoot in central Newfoundland to get the money from the hydro assets to offset the loss of the Abitibi paper mill.

Thus far, the requests have fallen on deaf ears.

But the expropriation story just won’t stop bleeding all over the political landscape.  Not only are the crowd in central looking for cash but there’s a good chance the provincial government will wind up paying big time for the expropriation itself. 

This central story has got to be causing some hard political damage to the careers of people like Susan Sullivan, one of the local members of the provincial legislature.  Even a quickie elevation to cabinet hasn’t silenced the cries for government cash.

Then again, it’s not like the provincial government doesn’t have bags and bags of cash it doesn’t want to talk about, either. 

Odd then that they are resisting any kind of substantive move in central Newfoundland to deal with the ongoing political damage done by the hasty and evidently ill considered seizure back in December. The way this whole mess is unfolding, you’d almost think the whole expropriation was done at the spur of the moment without even a hint of a plan, let alone a second thought for any of the consequences.

N’ah.  Couldn’t be.

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Chamber concerned seized central hydro assets gain for provincial government, loss for region

The Exploits Regional Chamber of Commerce is very concerned about the benefits from seized hydroelectric assets going somewhere other than the region of the province in which they are located, according to the Grand Falls-Windsor Advertiser.

The chamber estimates that based on electricity used by AbitibiBowater (54 megawatts), savings to Newfoundland and Labrador Hydro in excess of $70 million annually are being realized.

The chamber wrote the CEO of Nalcor in May to try and meet to discuss how the Exploits region could benefit from being adjacent to the source of the power. While the letter was copied to local MHAs and members of the provincial Ministerial Task Force set up to deal with the closure of the mill, Nalcor has not responded.

NALCOR is the provincial government energy company which took control of the assets earlier this year.  They were seized by the government from three companies:  AbitibiBowater, ENEL and St. John’s-based Fortis.

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One of these things…

is not like the others.

1. Hydro-electric generating plants belonging to three private sector companies.
2. Former employees of a defunct paper making operation in central Newfoundland.
3. Fish plant workers.
4. Fish plant operators and fish harvesters.

1.   Hydro-electric generating plants get seized and turned over to the government’s own energy company free of charge, regardless of the NAFTA implications, in one fell swoop and through a bill rammed through the legislature in a day.  The bill also gave government the power to set any compensation, quashed an outstanding lawsuit and decreed that no legal action could result from the expropriation.

2.  Former employees of the defunct paper plant get a shrug initially but then get $35 million.

When the cash is announced, government claims it was their intention all along to pony up.  Odd, then, that people who questioned government publicly on its intentions were savagely attacked.

Odder too that the provincial government called for the federal government to cough up the dough.  There was even one of those eerie coincidence things with the union involved.

3.  Fish plant workers in the province  - upwards of 10,000 people or more staring at no work and no income - are told they’ll get something if necessary, but it is going to take months to figure out what the whole thing will look like, if it becomes necessary.  Think make work and then employment insurance and you’ll probably be pretty much on the mark.

4.  Fish plant operators and fish harvesters  - looking at financial ruin in some cases  - are basically told to sod off given that any cash to them would be a subsidy and well, “international trade agreements”  - like NAFTA - would be affected.

Williams said the province can't get involved in price negotiations, because it could result in trade retaliation from the United States…

 

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Government follows through on promised AbitibiBowater corporate subsidy

Premier Danny Williams and a gaggle of cabinet ministers took the trip to central Newfoundland on Tuesday to announce that the provincial government will pay former AbitibiBowater workers money owed to them by the company.

That’s pretty much the logical result of government’s announced intention in late April to subsidize AbitibiBowater:

2.  If that’s the case, why doesn’t the government just cough up the cash and then sort it out with AB later on, rather than leave the workers hanging?

The announcement comes as discontent grows in central Newfoundland.

Meanwhile in totally, completely unrelated news, the provincial government’s pollster is currently in the field collecting the quarterly poll goose and the nurses are about to go on strike. 

In other totally, unrelated and completely coincidental events, the provincial government is threatening to legislate the nurses back to work in the event they take strike action.  Government has committed to paying the nurses according to the template agreement which would be considerably less than had been negotiated. Government is also insisting on two clauses which the union has said are deal-breakers.  The nurses have suggested sending the two disputed clauses to binding arbitration.  The provincial government has refused.

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Expropriation has financial impacts on NL-based Fortis

From Fortis Inc’s first quarter financial statements, issued Thursday comes an indication of the wider impact Bill 75 has had.

Bear in mind the bill expropriated the assets of several companies besides Abitibi, including the Exploits Partnership which was owned 51% by Fortis Properties.

From the Critical Accounting Estimates section:

Exploits Partnership

Following the announcement by Abitibi of its intention to close its Grand Falls-Windsor newsprint mill on March 31, 2009, the Government of Newfoundland and Labrador expropriated most of the Newfoundland-based assets of Abitibi. The expropriated assets included the hydroelectric generating facility assets of the Exploits Partnership. The Exploits Partnership is owned 51 per cent by Fortis Properties and 49 per cent by Abitibi.

The Exploits Partnership had previously incurred a term loan from several lenders to finance its assets. As at December 31, 2008, approximately $61 million remained outstanding under this term loan. The term loan is withoutrecourse to Fortis or Abitibi, as partners of the Exploits Partnership, and is secured by both the hydroelectric generating assets and related agreements regarding rights to operate and sell power to Newfoundland Hydro during the term of the loan. Although the expropriation has caused the Exploits Partnership to default on the term loan, to date the lenders have not demanded accelerated repayment of the term loan. The Exploits Partnership made the scheduled term loan payment for the quarter ended March 31, 2009. As at March 31, 2009, the balance outstanding under the term loan was approximately $60 million. [bold added]

The generation and sale of electricity by the Exploits Partnership continued in the normal course until the newsprint mill closed on February 12, 2009, up to which point Newfoundland Hydro paid the Exploits Partnership for the energy produced on the same basis as the pre-expropriation power purchase agreement. Payment for all energy delivered since February 13, 2009 is currently outstanding from the Government of Newfoundland and Labrador pending resolution of expropriation matters. The day-to-day operations of the hydroelectric generating facilities have been assumed by Nalcor Energy, a crown corporation, as the agent for the Government of Newfoundland and Labrador with respect to this matter.

On March 24, 2009, the Government of Newfoundland and Labrador announced that Abitibi had discontinued discussions with Nalcor Energy regarding compensation for the expropriated assets. Abitibi, which was incorporated in the US, has also indicated that it intends to challenge the expropriation of its assets and seek compensation through the North American Free Trade Agreement.

Historically, the financial statements of the Exploits Partnership were consolidated in the financial statements of Fortis. Pending resolution of the above matters, deferred financing costs of $2 million and utility capital assets of $61 million related to the Exploits Partnership were reclassified to other assets and the $61 million term loan was reclassified as current on the consolidated balance sheet of Fortis as at December 31, 2008.

During the quarter, the combination of uncertainty created by the expropriation and the loss of control over cash flows of the Exploits Partnership has required Fortis to commence reporting its investment in theExploits Partnership using the equity method of accounting, effective February 13, 2009. Consequently, the assets and liabilities of the Exploits Partnership are no longer consolidated in the accounts of Fortis. Equity earnings recognized during the first quarter of 2009 were equivalent to the amount that would have been recognized in the absence of the expropriation. This approach is consistent with the public statement of the Government of Newfoundland and Labrador that it is not its intention to adversely affect the business interests of lenders or independent partners of Abitibi.

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Williams offers to subsidize AbitibiBowater

No matter how you slice this, any severance pay going to former AbitibiBowater employees in Newfoundland and Labrador will come out of taxpayers’ pockets.

"Any cheque that is going to be passed over to Abitibi in compensation for the assets that basically have been expropriated through legislation will have to take into consideration severance…”

Williams said it could mean the government cutting a big cheque to AbitibiBowater, and the company uses that money to pay the severance, or the government could deduct the value of the severance payments from the compensation and then send that money directly to the employees.

Two questions:

1.  Why are taxpayers going to be on the hook for something the company would or should have been paying anyway?

2.  If that’s the case, why doesn’t the government just cough up the cash and then sort it out with AB later on, rather than leave the workers hanging?

BTW, the CBC story that extract comes from got its headline all wrong.  There’s no ultimatum involved at all. 

AbitibiBowater chief executive David Paterson is likely rubbing his hands together in glee since now he won’t have to worry about paying out severance to the local workers.  Danny’s gonna pick up the tab for him.

At the same time, the government’s energy monopoly gets the assets at a cut rate with none of the power being earmarked for industry in central Newfoundland.

AB wins.

Nalco wins.

Who loses?

Just think about it for a second.

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AbitibiBowater launches NAFTA challenge

The following was released today by AbitibiBowater (paragraphing changed for legibility):

US$
ABWTQ (OTC)
ABH (TSX)

MONTREAL, April 23 /CNW Telbec/ - AbitibiBowater today filed a Notice of Intent to Submit a Claim to Arbitration under the North American Free Trade Agreement ("NAFTA") with regards to the expropriation of its assets and rights in Newfoundland and Labrador, Canada. It is the Company's position that the passing of Bill 75, which expropriates the Company's provincial assets and contractual rights to natural resources, by the provincial government was arbitrary, discriminatory and illegal. AbitibiBowater is seeking in excess of CDN$300 million in direct compensation for the fair market value of the expropriated rights and assets, plus additional costs and further relief as the Arbitral Tribunal may deem just and appropriate.

In early December 2008, AbitibiBowater announced various capacity-reduction measures, including the permanent closure of its Grand Falls mill, as a result of the economic downturn and decline in product demand. In retaliation, the province hastily passed Bill 75, without any attempt to consult with the Company and without holding any public hearings.

The Company has asserted in the Notice of Intent that Bill 75 unquestionably breaches Canada's NAFTA obligations on a number of grounds, including among others:

- Basis of Expropriation: NAFTA explicitly details the grounds under which government expropriation can occur. The criteria for expropriation are not met in Bill 75.

- Fair Compensation: AbitibiBowater is entitled to immediate, full and fair compensation. Bill 75 does not ensure payment for the fair market value of the expropriated rights and assets.

- Denial of Justice: Bill 75 purports to strip AbitibiBowater of any rights to access the courts, which is independently a violation of NAFTA.

- Discrimination: AbitibiBowater should be afforded the same rights and privileges as all other domestic and foreign investors. Bill 75 is retaliatory in nature and discriminates against the Company.

"AbitibiBowater has been operating in Newfoundland and Labrador for more than a century, contributing significantly to the region's economic, social and sustainable development," stated David J. Paterson, President and Chief Executive Officer.

"The nationalization of our assets was unexpected and an unnecessary course of action. It came despite our proactive outreach to form a joint working group to address and resolve all issues related to our rights and assets in the province. The Company remains open to seeking a collaborative resolution with the federal and provincial governments."

The expropriation relates to a broad range of AbitibiBowater's rights in Newfoundland and Labrador, including land rights, timber rights, water use rights and various other related rights and business partnerships, and these rights can be traced back in part to grants by the provincial government and its predecessors, as well as to other third-party transactions. In addition to the substantial sums it expended to acquire these rights, the Company has invested hundreds of millions of dollars in the province over the last century, ranging from capital investments in mill operations to road projects that have helped build rural Newfoundland.

Since the Company is incorporated in the state of Delaware and carries out business activities in the United States, the expropriation of rights and assets represents a breach of Canada's obligations to a U.S. investor under Chapter Eleven of NAFTA.

The Company has filed this notice as part of the dispute resolution mechanism available under NAFTA and will submit the claim to arbitration in three months, pursuant to the relevant NAFTA provisions, should this matter not be resolved by that date.

"It is our obligation to defend the interests of our shareholders and ensure we receive compensation for the fair market value of the expropriated assets, plus additional damages. With this notice, we have taken the first step in pursuing legal actions," added David Paterson.

Media should take note that copies of the Notice of Intent under Chapter Eleven of NAFTA are available upon request. The following paragraphs may be of interest:

NAFTA Provisions Breached: Paragraphs 6-7
Underlying Facts: Paragraphs 8-11
About AbitibiBowater: Paragraphs 12-17
AbitibiBowater's History and Rights in the Province: Paragraphs 18-29
Additional Investments: Paragraphs 30-33
The Hydro Assets: Paragraphs 34-41
The Grand Falls Mill Closure Plan: Paragraphs 42-51
The Province's Ultimatum: Paragraphs 52-54
The Province's "Justifications": Paragraphs 55-58
Expropriation: Paragraphs 59-67
Denial of Justice: Paragraphs 68-69
Lack of Compensation: Paragraphs 70-71
NAFTA Violations: Paragraphs 72-86
Relief Sought: Paragraph 87

AbitibiBowater produces a wide range of newsprint, commercial printing papers, market pulp and wood products. It is the eighth largest publicly traded pulp and paper manufacturer in the world.

AbitibiBowater owns or operates 23 pulp and paper facilities and 30 wood products facilities located in the United States, Canada, the United Kingdom and South Korea.

Marketing its products in more than 90 countries, the Company is also among the world's largest recyclers of old newspapers and magazines, and has third-party certified 100% of its managed woodlands to sustainable forest management standards. AbitibiBowater's shares trade over-the-counter on the Pink Sheets under the stock symbol ABWTQ.

For further information: Investors: Duane Owens, Vice President, Finance, (864) 282-9488; Media and Others: Seth Kursman, Vice President, Communications and Government Affairs, (514) 394-2398, seth.kursman@abitibibowater.com

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AbitibiBowater seeks creditor protection

The following was issued today by AbitibiBowater:

US$ ABH (NYSE, TSX)

MONTREAL, April 16 /CNW Telbec/ - AbitibiBowater Inc. ("AbitibiBowater" or the "Company") today announced that it and certain of its U.S. and Canadian subsidiaries have filed voluntary petitions in the United States under Chapter 11 of the United States Bankruptcy Code ("Chapter 11").

As well, AbitibiBowater and certain of its Canadian subsidiaries will seek creditor protection under the Companies' Creditors Arrangement Act ("CCAA") in Canada. The Company intends to file in Canada on April 17, 2009.

AbitibiBowater's subsidiaries located outside the United States and Canada have not commenced Chapter 11, CCAA or similar proceedings. The Company has concluded that there are no viable alternatives to its previously announced proposed refinancing of its Bowater and Abitibi-Consolidated subsidiaries, and as a result has determined that the best course of action is to pursue its overall restructuring under Court supervision in the United States and Canada.

Concurrently with its CCAA filing, the Abitibi-Consolidated subsidiary will request the termination of its previously announced recapitalization transaction under the Canada Business Corporations Act. AbitibiBowater plans to use this process to deal decisively with its debt burden for the benefit of all stakeholders.

The Company's normal day-to-day operations will continue during the restructuring process.

AbitibiBowater's Board of Directors has, after careful deliberation, consultation with its advisors and extensive consideration of all other alternatives, resolved that the Company take this action in the long-term interests of AbitibiBowater, its employees, customers and other stakeholders.

The Company has also announced that it has entered into a financing commitment with Fairfax Financial Holdings Limited and Avenue Management LLC for debtor-in-possession (DIP) financing totaling approximately $200 million for certain of its Bowater subsidiaries. In addition, its Abitibi-Consolidated subsidiary has entered into an amendment providing for the continuation of its existing securitization program for its accounts receivable, in the approximate amount of $210 million.

These arrangements are subject to approval of the Courts in both the United States and Canada and will allow the Company to meet current operating needs, including wages, benefits and other operating expenses. Additional financing options are currently under consideration.

"Today's announced decisions ensure business continuity for AbitibiBowater and were made only after all other viable options to recapitalize our long-term debt were exhausted," stated David J. Paterson, President and Chief Executive Officer.

The steps we are taking today and the vote of confidence given to us by our restructuring financial partners will enable us to protect the value of the business for our many loyal employees, customers, suppliers and other stakeholders."

"Over many months, we undertook an exhaustive examination of the Company's recapitalization options," said Dick Evans, Chairman of the Board of Directors. "The Board and management believe the actions initiated today will allow the Company to make the necessary changes to ensure the long-term viability of the Company within a process that ensures fair and equitable treatment for all stakeholders, while allowing it to continue to meet the needs of its customers."

The Company's financial advisors are Blackstone Advisory Services LP and BMO Capital Markets and its legal advisors are Paul, Weiss, Rifkind, Wharton & Rice LLP, Stikeman Elliott LLP and Troutman Sanders LLP.

More information about AbitibiBowater's restructuring process can be found at www.abitibibowater.com or by calling toll-free 888-266-9280. International callers should dial 503-597-7698.

AbitibiBowater produces a wide range of newsprint, commercial printing papers, market pulp and wood products. It is the eighth largest publicly traded pulp and paper manufacturer in the world. AbitibiBowater owns or operates 23 pulp and paper facilities and 30 wood products facilities located in the United States, Canada, the United Kingdom and South Korea. Marketing its products in more than 90 countries, the Company is also among the world's largest recyclers of old newspapers and magazines, and has third-party certified 100% of its managed woodlands to sustainable forest management standards. AbitibiBowater's shares trade under the stock symbol ABH on both the New York Stock Exchange and the Toronto Stock Exchange.

Forward-Looking Statements

Statements in this press release that are not reported financial results or other historical information are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. They include, for example, statements about the long term interest of the Company, business continuity and long-term viability, the protection of the value of the business, the proposed financing commitment as well as our overall restructuring plans.

Forward-looking statements may be identified by the use of forward-looking terminology such as the words "expect," "ensure", "believe", "will," and other terms with similar meaning indicating possible future events or potential impact on the business or other stakeholders of AbitibiBowater and its subsidiaries. The reader is cautioned not to place undue reliance on these forward-looking statements, which are not guarantees of future performance.

These statements are based on management's current assumptions, beliefs and expectations, all of which involve a number of business risks and uncertainties that could cause actual results to differ materially.

These risks and uncertainties include, but are not limited to, the ability to negotiate definitive agreements for the proposed financing arrangements, the ability to obtain additional financing, the ability to obtain court approval for the financing, the ability to continue to meet the needs of our customers, the ability to meet all current operating needs, including wages, benefits and other operating expenses, the ability to ensure business continuity, the ability to protect the value of the business, the ability to make the necessary changes to ensure the long-term viability and the condition of the U.S. credit and capital markets generally.

Additional factors are detailed from time to time in AbitibiBowater's and Abitibi-Consolidated's filings with the Securities and Exchange Commission (SEC), including those factors contained in AbitibiBowater's Current Report on Form 8-K filed on February 9, 2009.

All forward-looking statements in this news release are expressly qualified by information contained in AbitibiBowater's and Abitibi-Consolidated's filings with the SEC. AbitibiBowater disclaims any obligation to update or revise any forward-looking information except as required by law.

For further information:

Investors: Duane Owens, Vice President, Finance, (864) 282-9488;

Media and Others: Seth Kursman, Vice President, Communications and Government Affairs, (514) 394-2398, seth.kursman@abitibibowater.com

 

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AbitibiBowater gives default status report

Issued by AbitibiBowater (paragraphing changed to improve legibility):

ABH (NYSE, TSX) AXB (TSX)

MONTREAL, April 14 /CNW Telbec/ - AbitibiBowater Inc. and AbitibiBowater Canada Inc. (collectively, the "Companies") provide this bi-weekly Default Status Report in accordance with National Policy 12-203 - Cease Trade Order for Continuous Disclosure Defaults ("NP 12-203"). On March 31, 2009, the Companies announced that they were not able to timely file their annual financial statements, accompanying management's discussion and analysis and related CEO and CFO certifications (collectively, the "2008 Annual Financial Statements") for the financial year ended December 31, 2008.

In accordance with NP 12-203, and as previously announced, the Companies applied to the applicable securities commissions and regulators for Management Cease Trade Orders related to the shares of the common stock of AbitibiBowater Inc. and AbitibiBowater Canada Inc.'s exchangeable shares to be imposed against certain of the Companies' executive officers (and at the discretion of the applicable securities commissions, some or all of the persons who have been directors, officers or insiders of the Companies) instead of a general Cease Trade Order being imposed against all securities of the Companies.

On April 2, 2009, the Quebec Autorité des marchés financiers issued a temporary Management Cease Trade Order expiring on April 20, 2009, related to the Companies' securities against certain directors and officers of the Companies for so long as annual financial statements, certifications and related MD&A are not filed.

On April 6, 2009, the Ontario Securities Commission rendered a similar Management Cease Trade Order related to certain Ontario-resident directors of AbitibiBowater Inc. The issuance of such Management Cease Trade Orders does not generally affect the ability of persons who have not been directors, officers or insiders of the Companies to trade the securities of the Companies.

A general Cease Trade Order may be imposed by the applicable securities commissions if the Companies fail to satisfy the provisions of the Alternative Information Guidelines required pursuant to NP 12-203 (the "Alternative Information Guidelines").

The Companies are working with their auditors to complete the audit of the 2008 Annual Financial Statements as soon as possible. Until the 2008 Annual Financial Statements are filed, the Companies intend to satisfy the Alternative Information Guidelines by issuing bi-weekly Default Status Reports, each of which will be issued in the form of a press release. If the 2008 Annual Financial Statements are not filed beforehand, the Companies intend to issue their next Default Status Report on April 28, 2009.

The Companies report that since their original announcement on March 31,2009, (the "Notice") in respect of the delay in filing their 2008 Annual Financial Statements, there have not been any material changes to the information provided in the Notice other than as described herein nor any failure by the Companies in fulfilling their stated intentions with respect to satisfying the Alternative Information Guidelines.

In addition, there has not been any other specified default by the Companies under NP 12-203, nor are any anticipated and there is no other material information concerning the affairs of the Companies that has not been generally disclosed.

AbitibiBowater produces a wide range of newsprint, commercial printing papers, market pulp and wood products. It is the eighth largest publicly traded pulp and paper manufacturer in the world. AbitibiBowater owns or operates 23 pulp and paper facilities and 30 wood products facilities located in the United States, Canada, the United Kingdom and South Korea. Marketing its products in more than 90 countries, the Company is also among the world's largest recyclers of old newspapers and magazines, and has third-party certified 100% of its managed woodlands to sustainable forest management standards.

AbitibiBowater's shares trade under the stock symbol ABH on both the New York Stock Exchange and the Toronto Stock Exchange and AbitibiBowater Canada's exchangeable shares trade on the Toronto Stock Exchange under the stock symbol AXB.

Forward-Looking Statements

--------------------------

Statements in this news release that are not reported financial results or other historical information are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. They include, for example, statements about the timing of the filing of the Annual Financial Statements, and our strategies for achieving our goals generally.

Forward-looking statements may be identified by the use of forward-looking terminology such as the words "will", "would" and "intends" and other terms with similar meaning indicating possible future events or potential impact on the business or stockholders of AbitibiBowater.

The reader is cautioned not to place undue reliance on these forward-looking statements, which are not guarantees of future performance.

These statements are based on management's current assumptions, beliefs and expectations, all of which involve a number of business risks and uncertainties that could cause actual results to differ materially. These risks and uncertainties include, but are not limited to, the Companies' ability to remain in compliance with continued listing standards of the NYSE and the TSX, the ability to obtain a Management Cease Trade Order from the applicable Canadian securities regulatory authorities and the Companies' ability to satisfy the provisions of National Policy 12-203.

Additional factors are detailed from time to time in AbitibiBowater's filings with the Securities and Exchange Commission (SEC), including those factors contained in AbitibiBowater's Current Report on Form 8-K filed on February 9, 2009.

All forward-looking statements in this news release are expressly qualified by information contained in the AbitibiBowater's filings with the SEC and the Canadian securities regulatory authorities. AbitibiBowater disclaims any obligation to update or revise any forward-looking information.

For further information:

Investors: Duane Owens, Vice President, Finance, (864) 282-9488

Media and Others: Seth Kursman, Vice President, Communications and Government Affairs, (514) 394-2398, seth.kursman@abitibibowater.com

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Coincidence: Abitibi union version

Communications, Energy and Paperworkers union leaders met with Danny Williams in St. John’s in early April.

As a Canadian Press story put it on April 2, 2009:

"It really does create a lot of uncertainty ... and our members and retired members are uneasy about what's taking place," he [CEP president Dave Coles] said from Halifax, as he was returning from a meeting with Newfoundland and Labrador Premier Danny Williams.

A day after returning from the meeting, the union decided that the federal government needed to step in an bail out the company.  From cbc.ca on April 3, 2009:

Communications, Energy and Paperworkers union president Dave Coles says Stephen Harper must intervene.

"Our demand of the government is that it take care of the Canadian workers.… I want the prime minister to get off his duff and do something for Canadian workers," said Coles.

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