Abitibi spin offs power.

With eight hydro-electric dams connected to their paper mill assets in Kenora, Fort Frances and Iroquois Falls, Abitibi Consolidated Inc.'s July announcement to spin off its hydro-electric assets into an income fund has since caught the ear of a number of people across the North, from union members to community leaders.

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As more people lend their voice to the chorus, Abitibi is quick to point out that it would be a majority shareholder in the fund, which is expected to clear regulatory hurdles by the end of this fall. The company's intentions are not to cannibalize its current economic generators, but rather to enhance them, according to a spokesman.

"Our main objective for the company is to get back to profitability," says Denis Leclerc, director of public affairs. "One way to do that is to create this fund, which will serve as a growth vehicle for energy generation."

In order to accomplish this, Leclerc says that Abitibi is looking to the proposed income fund in order to obtain sufficient capital to move forward with plans to invest in various projects, including the improvement of their existing mills as well as various undefined energy generation projects.

"We have a lot on the table," says Leclerc. "Each site and each mill is always trying to find ways to be more competitive or productive, so each one has projects. This hydro fund, as soon as it is created, will be looking to such projects to increase generation."

Abitibi has no plans to divest itself of any hydro-electric assets or generated power, Leclerc says, adding there is no desire to commit any actions that would jeopardize the viability of the mills, which are not energy self-sufficient and require all the energy Abitibi can provide. More importantly, he says, 81 per cent of the company's annual revenue stems from the paper industry.

Leclerc says despite rumors to the contrary, the new income trust will not be devising new agreements to sell power to the paper mills to which they were previously connected, and that current arrangements will remain in place.

"Those power generation facilities will continue to provide power to our paper mills as-is," he says.

However, representatives from the Communications, Energy and Paperworkers Union of Canada (CEP) say this isn't their understanding of the situation.

"They told us that there is an impact on the mill's operating costs, but they claim that it's offset by not having the mill operations capitalize the hydro assets," says Cecil Makowski, vice-president, Ontario division. "For years, they've told us that those mill operations' advantage was having their own hydro-electric capacity, and it's somewhat disconcerting that they can speak out of both sides of their mouth now telling us that it won't be a disadvantage when the dams are separated."

Not only is CEP concerned about the potential for the income fund to reduce the viability of Abitibi mills, but Makowski says a move to split the dams from the paper mills will complicate the communities' ability to recover should Abitibi ever choose to shut down any given set of paper operations.

"We're concerned that if they ever divest themselves of the mill operations, they would have the right to maintain the right to the hydro assets, which would make it very difficult for a new operator as a result of the cost," says Makowski.

Communities featuring the Abitibi dams are being left in the dark as they are left to wonder if the company's plans could potentially jeopardize their local economy.

In Kenora, an area that has seen both Abitibi and Devlin Timber close down their mills within the last year, officials are carefully neutral about the move, given the lack of information.

"It's kind of up in the air, and I don't know if anybody really knows how to react," says David Canfield, mayor. "If the mill was still going in my community, I don't know if I'd be wanting to stop something that would raise capital to keep it running. But of course these are unknowns, and looking at it from the outside, that's the way it appears."

This isn't to say that Canfield isn't without some hesitation regarding the income fund; with another company reliant on the Abitibi dam, he is adamant that at least some of the power will stay within the community.

By NICK STEWART

Northern Ontario Business