Dottori hails federal support package.

Tembec Inc.'s president Frank Dottori is trumpeting the federal government's support package for the ailing forestry sector, saying it could not have come at a more crucial time.

The five-year, $1.5-billion Forest Industry Competitiveness Strategy will help companies and communities transition into a more diversified economy by providing $581 million to explore new markets for wood products and develop innovative technologies. Canada's November 2005 Economic and Fiscal Update proposes accelerating capital costs allowance for forest bio-energy, which translates into $110 million in tax savings.

The plan also earmarks up to $800 million in loan insurance and provides $100 million for repayable contribution programs for firms affected by the softwood dispute with the United States.

Tembec executive vice-president, forest products, James Lopez says he would have liked to have seen a higher percentage of duty deposits, but for now he realizes this as a positive step. In the coming months Tembec will approach the federal government asking for more support.

The combined effects of the high Canadian dollar, energy costs and market conditions have created a serious cash flow crisis for many companies, particularly in Ontario, says Dottori.

The situation has been aggravated by the countervailing and anti-dumping duties on softwood lumber collected by the United States government on Canadian exports.

Rumours circulating through the forestry sector have Tembec on the verge of bankruptcy in six months, but Lopez is setting the record straight.

"No ... that's silly," he says. "There is a lot of difference between not making any profit and going down the tubes."

Granted, Tembec's financial results have not been favourable and if the company does not turn those numbers around in the next couple of years, trouble could be afoot. Poor share value is based on the fact that the company is not making any profit, he says, but the company has plenty of liquidity to get by.

Other forestry plants do not have anymore cash to play with.

Cascades Fine Paper Group Inc. announced the closure of their Thunder Bay plant after encountering continuous monthly losses. The specialized paper manufacturer attributes the shutdown to fibre supply, a downturn in sale prices for fine paper, the high Canadian dollar and energy prices.

The federal government's new strategy does not include much relief for escalating energy costs, says Hubert Bolduc, Cascades' vice-president of communication.

Loan guarantees are great when there is money to invest, he says, but the industry as a whole is not providing any cash flow. The new package is being hailed by some lumber companies as a positive step, however Bolduc says Cascades will "not to be able to turn the (375-employee) mill around."

"We are not in the wood business whatsoever."

Cascades is a paper company whose content is 70 per cent recycled. The federal strategy focuses on lumber manufacturers. He would have liked to see energy initiatives within the package, but "unfortunately, it is not there."

Federal Department of Foreign Affairs and International Trade spokesperson Andre Lemay says if government supports industry it may be construed as a form of guarantee or subsidy, which would not be legal under NAFTA or the World Trade Organization.

As a retaliatory action, the United States could invoke unfair practices and begin to collect other types of duties on Canadian goods.

Canada's first phase of sanctions listed more than 100 imported items from the U.S. Ottawa has acted upon a majority of those imports, says Lemay.

In the second phase there is talk that energy may be a leveraging tool.

"We are a big player," Lemay says. "We are the main energy supplier to the United States and that includes oil, natural gas and electricity."

The new round of sanctions will have to be approved by the World Trade Organization.

www.tembec.com

www.dfait-maeci.gc.ca

By KELLY LOUISEIZE

Northern Ontario Business