Papermaker gets power rebate.

Insolvent St. Marys Paper received some energy relief from Queen's Park last month with a rebate program aimed at helping Ontario pulp and paper producers.

The Northern Pulp and Paper Electricity Program will deliver quarterly electricity price rebates to pulp and paper mills that purchase a minimum of 50,000 megawatt hours annually and commit to increased energy efficiency.

For the Sault Ste. Marie-based supercalendar papermaker,. the rebate will mean $10 million over three years to offset about 15 per cent of their electricity costs.

St. Marys' External affairs manager, Marc Dube says the rebate program combined with the province's Demand Response Program, an initiative to reduce peak power demand in Ontario, should alleviate some of their energy costs.

"This is part of the solution we need to move forward in our plan for a larger overall energy solution," says Dube.

St. Marys consumes about 360,000 megawatt hours of power annually, roughly half of that goes toward their groundwood pulping process which converts wood to pulp.

"All of the mills involved, certainly pulp and paper mills, use a significant amount of energy. Groundwood or a TMP (thermomechanical pulping) process use more than others.

"The government realized that energy prices really put us on a competitive disadvantage and they're trying to mitigate that."

The rebate is a stop-gap measure to help the company transition into a proposed co-generation project.

St. Marys is considering a partnership with Algoma Steel on their proposed $135-million off-gas facility or building one of its own.

The paper company already burns 500 tonnes per day of mill and community wood waste as hog fuel for their boilers.

St. Marys is applying for loans and grants for Ontario's Forest Sector Prosperity Fund to build the co-gen plant.

Sault MPP David Orazietti promised government support to assist St. Marys with capital dollars and loan guarantees to construct a co-gen plant as well as secure a power purchase agreement with the Ontario Power Authority for the company to sell electricity into the Ontario grid to recoup their investment.

Only five years ago, a more prosperous company was handing out employee bonus cheques for as much as $36,000.

But in October, St. Marys was running for protection under the Companies' Creditors Arrangement Act (CCAA).

CCAA is a commonly used statue by large businesses to restructure their finances or operations in a court-supervised environment.

The company blames upwardly spiraling energy and transportation costs, a high Canadian dollar and an inability to meet its pension obligations.

Dube said the unfavourable exchange rate has impacted their business over the last four years by an average of $40 million per year.

Most of their annual production of 240,000 tonnes of glossy supercalender paper is exported to U.S. corporate customers and retailers for use in magazines, advertising inserts and catalogues.

"Lots has changed," says Dube. "We're doing many things right, unfortunately the recipe for a business today in Ontario doesn't lead to success.

The company isn't ruling out a sale transaction as an alternative to their restructuring plan.

Deloitte & Touche Inc. is the court-appointed monitor to oversee the three-month restructuring expected to last until last January, which includes a process to solicit offers for St. Marys' assets and operations.

Dube says St. Marys will continue to look at sales opportunities because of the "fast track" process under the CCAA time frame. "We've sent out an information package and have a data room to go through the process in a very thorough way looking at every option.

"Any and all opportunities will be looked at."

No layoffs are planned for the workforce of 380.

"What makes this so difficult for our employees is that the mill has never produced more paper and a better quality at a better price," says Dube. "We're hitting the goals we've set for ourselves."

The supercalender paper market remains healthy with current prices equal to the ten-year average of about $700 US per tonne.

The company has also invested $180 million in capital upgrades into the mill over the last 12 years and their order book is full going into 2007.

St. Marys recently secured a new customer, Shopco, a U.S. interior store fixture supplier.

Dube says the mill is also a highly energy efficient that consistently ranks in the top 10 per cent of comparable Canadian' operations.

But uncontrollable economic factors has spelled bad news for the 110-year-old mill.

Dube says any restructuring plan will have to deal with the pension fund issue. But as of late November, the company had not yet opened any talks with the Communications,. Energy and Paperworkers Union.

Prior to the Nov. 20 announcement, MPP Orazietti pledged the government "will do whatever we can" to help St. Marys with their pension fund obligations, citing the Ontario government's $150-million loan to bankrupt steelmaker Stelco last year.

By IAN ROSS 

Northern Ontario Business