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Town's future threatened after $55M project dies: province claims lack of legal authority to reallocate wood.

Smooth Rock Falls is mourning the death of a $55-million value-added project that would have stabilized the town's economic future, the victim of a forestry system where the province's hands are legally tied and big business has little incentive to cooperate.

Denied by the province and Tembec for a wood allocation to be used in a project two years in the making, residents and town officials alike feel the Ontario government has not only let them down but doomed them to ruin.

On Sept. 28, Mayor Kevin Somer was forced to explain to hundreds of the town's 1,700 residents that their revitalization project was officially dead in the water, sparking community-wide outrage and sadness.

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"One girl that works at the Resource Centre, which helps people find jobs, broke down and started crying as she was talking about this because it hits home pretty hard," says Daniel Alie, chair of Smooth Rock Falls Community Development Corporation. "As she's talking, I'm looking around the room, and you see grown men with tears coming down their eyes. It's kinda hard to see that."

As the province moves forward in its plans to overhaul how it allocates cutting rights, small one-industry mill towns like Smooth Rock Falls fall to the wayside, awash in red tape amidst a sea of financial ruin.

The complex issue surrounding wood tenure and its impending changes offers many questions and few answers for the community and its partners as they feel the collective loss of their central economic hope.

After the local Tembec pulp mill shut its doors in late 2006, Smooth Rock Falls officials devised a cooperative business model to be based in the site. Consisting of Quebec-based Hardy Cedar Lumber and other unnamed partners, the move would have introduced value-added manufacturing as well as a co-generation and pellet plant.

Proponents say it also would have created 300 direct and indirect jobs.

However, the fate of the $55-million project sat largely on the acquisition of a fibre allocation of 335,000 cubic metres of round wood and 200,000 cubic metres of forest slash. The province had already approved a 50,000 cubic-metre cedar allocation for Hardy in 2008.

Somer says, he was given multiple assurances by Minister of Natural Resources (MNR) Donna Cansfield as recently as the spring, when she told him at a conference for the Federation of Northern Ontario Municipalities in Sudbury that fibre "would not be an issue."

However, in a meeting with ministry staff on Sept. 10, Somer and other members of the project were informed that the province does not have the legal authority to reclaim fibre allocations from existing sustainable forest license (SFL) holders.

The surprise twist scuttled the project, and the investors, tired of waiting for a wood allocation that never came, took their potential $30-million and moved on.

"We can only now wait to see what might happen to a good number of families that were hanging in there for that reason," says Somer. "That 11th hour, or 12th hour, has been looming over us for an extremely long period of time."

With similarly precarious forestry towns like Red Rock, Nipigon and Greenstone in his own riding of Thunder Bay-Superior North, Minister of Northern Development, Mines and Forestry Michael Gravelle says he is sympathetic to and very conscious of the reality faced by Smooth Rock Falls. The real problem, he says, are the inflexible provincial policies which all but lock out any new value-added projects.

"We need to be able to find a balance where we can continue to support the major companies who have been there for many years, and provided significant employment and economic benefit to the communities, with the very clear need to open up opportunities for new value-added operations such as this one," says Gravelle.

Some of these answers, he hopes, will arrive once the province moves forward with the results of the public consultation towards concrete changes to the tenure system. The timing of those "big changes" remain undefined, though the next announcements will arrive with the second phase of the province's call for interest in biomass-related allocation "in the near future."

Others, such as Timmins-James Bay MPP Gilles Bisson, argue that the Crown Forest Sustainability Act already gives the province the legal authority to do what it claims it currently cannot. Bisson says he should know, having been one of the original authors of the document when the NDP ruled Queen's Park in 1993.

Provincial officials have instead insisted that business-to-business arrangements must be made with existing SFL holders. This option is all but impossible, says Alie, as companies under bankruptcy protection like Grant Forest Products and AbitibiBowater neither have the ability nor the desire to negotiate new allocation agreements.

Tembec officials assert that negotiating wood allocation is not their responsibility, but that of the province. What's more, no detailed business plan was ever presented to the company amidst the many discussions between Smooth Rock Falls and Tembec, according to John Valley, executive vice-president, business development and corporate affairs with Tembec.

Though they disagree, town officials bear little ill will to the corporate giant, saying they understand the company is merely protecting its business interests.

The real frustration is being aimed at the province and its policies, which also fail to keep fibre from being driven out of Northern Ontario and into Quebec by the likes of Tembec.

It's these very same policies, and not provincial staff, that killed the proposal, says Robert Manseau, a senior consultant with the Timmins-based Commerce Management Group.

Manseau, who worked with the community and its business partners on the failed proposal, says the policies also complicate the financing of value-added projects.

Much of the $55-million was predicated on a due diligence review, including the $25-million promised through the province's own Forest Sector Prosperity Fund.

However, the province demands money in hand before even considering wood allocation, and investors will often only provide funding once that allocation is received, creating a chicken-egg scenario.

"It's a due diligence nightmare," says Manseau.

www.townofsmoothrockfalls.ca

www.tembec.com

www.mndm.gov.on.ca

By NICK STEWART

Northern Ontario Business
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Author:Stewart, Nick
Publication:Northern Ontario Business
Date:Nov 1, 2009
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