Industry Committee on Sept. 10th, 2010

[Mike Wallace, Conservative, Burlington, ON]

Thank you, Mr. Chairman.

Thank you for joining us this morning.

I have a couple of overriding questions. I don't know much, to be honest with you, about AbitibiBowater. Can you tell me how many plants you have in Canada, in North America? We're discussing two that are closing in Quebec. I'd like to know a bit about how big a footprint you actually have, and then I have some questions to follow that up.

[David Paterson]

Okay. Well, let me try to hit some highlights, and if you would like to ask a follow-up, that's great.

Our emergence plan says we have 11,000 employees, 8,000 of whom will be in Canada. Of those 8,000 employees, roughly a little over 5,000 will be in the province of Quebec. We will have a total of 19 pulp and paper facilities, and of those, I believe 12 will be in Canada. I'm going to do a quick count here: five will be in Quebec.

Quebec will remain our largest asset resource and our largest number of employees, and finally, in terms of retirees, our retiree base is largely in Quebec as well.

[Mike Wallace, Conservative, Burlington, ON]

Assuming your plan is approved, part of the plan is the closing of these two facilities. Are there other facilities within North America or around the world that are closing also?

[David Paterson]

Well, since the merger of Abitibi and Bowater, to our emergence plan, unfortunately we've had to close 3.3 million tonnes of capacity in both United States and Canada, as well as Great Britain. These are the final two in a series of closures that were required.

[Mike Wallace, Conservative, Burlington, ON]

I have another more broad question. I know the issue is newsprint and that type of paper, but I was just at my physician's this past week, and it's completely paperless in that area. A lot of my reading is now done electronically.

There are issues facing the industry, significant issues. What's the plan to keep you, this organization and this industry, sustainable if this is the trend that's happening? Convince the committee that you are going to be a sustainable industry over the long term.

[David Paterson]

Well, you're fundamentally asking the question that the people we're going to ask for money to finance the exit are asking. The goal, or the real answer, is that we have to be a low-cost manufacturer of those products that we choose to make, and we have to deal with the reality of declining demand.

You're absolutely correct that it's not just newsprint but also the general printing and writing sector. Our objective and our business plan says we are going to invest to move away from printing and writing grades to other grades that have better structural demand features. We're going to do that on the platform of a very low-cost manufacturing structure that allows us to survive the cyclical nature of our business. The cyclicality of the business will continue; that will not go away.

[Mike Wallace, Conservative, Burlington, ON]

You can correct me if I'm wrong, but it's my understanding that next week, or soon, there will be some decisions made through voting on your plan. Has that plan been shared with the workers, the employees of the organization? Are they supportive of the plan, or do you have any sense of how they feel about the future? Or is it something you're not able to share with them?

[David Paterson]

Well, no, it's a public document in both Canada and the U.S. The systems are slightly different, but in Canada we have a court-appointed monitor who issues reports, and those are available.

Most of our employees are creditors in one fashion or another, either through.... The people who unfortunately have been let go have severance claims. Others may have other forms of claims. As creditors of the company, they have all that information if they choose to access it.

We talk about the emergence plans quite openly with various groups. I think it's a fairly open process.

[Mike Wallace, Conservative, Burlington, ON]

Does the plan envision other plant closures in the future?

[David Paterson]

The plan identifies those facilities that we intend to run during the next five years. Like all business plans, the caveat is “depending on market demand”.

I want to make it clear that our assumption is that we'll continue to have demand destruction in our primary products, but our business plan deals with that: rather than closing assets, it is investing and converting away from these printing and writing grades at a rate that makes sense and in segments that we believe will provide higher revenues for the company.

[Mike Wallace, Conservative, Burlington, ON]

Right.

One of the responses to the Bloc question from Monsieur Bouchard gave an indication that there's more to the decision-making than just simply.... In terms of Gatineau, there are other business-related issues in terms of energy opportunities, in terms of being able to provide new energy at a reasonable cost and so on. Fairly complex decision-making has gone into deciding which plants are on the block, I guess you would say.

My concern, then, is this. You don't have to tell me this, because it would be competitive information, but have you identified what marketplaces might be coming available in the future that you're moving your manufacturing to for sustainability?

[David Paterson]

We've identified market segments. We have an investment strategy going forward, and we have a level of investment that's embedded in our business plan.

Specific to Canada, as part of the agreements that we're going to enter into with the provincial governments, there will be investment commitments on a provincial level in that. Thanks to the government, we also have the green energy initiatives under way. We're going to take advantage of those. We have the black liquor credit money that we earned, and we're going to invest that in energy projects in Canada, both in Quebec and Ontario.

So we have an active strategy of investment going forward once we emerge.

[Mike Wallace, Conservative, Burlington, ON]

Thank you very much.

[The Chair, Conservative, Michael Chong]

Thank you, Mr. Wallace and Mr. Paterson.

Madame Hughes.

[Carol Hughes, NDP, Algoma—Manitoulin—Kapuskasing, ON]

Thank you very much.

I would like to start with this question: the situation facing your company today is not that much different from what happened with Nortel: the workers are the ones who ultimately pay the price. As things now stand, it is quite clear that the workers will be paying for the emergence plan, while your senior managers are pocketing $6 million in bonuses to the detriment of employees. What is the rationale for these bonuses? As I said, this is really detrimental to the workers and their families. It is like a slap in the face.

I wonder if you could elaborate on the fact that you are providing large bonuses to senior managers, while your employees are being laid off.

[David Paterson]

Let me try to answer the question, and please ask another question if you so desire.

First, I'm not really familiar with Nortel, but I will make the difference based on what I know. One of our objectives here, from day one, is to protect the pension interests of our retirees and active employees. You'll see, once we announce our pension resolution, that it is quite significantly different from many other restructurings in Canada, and in fact protects workers rights to a degree that I don't think is common in the CCAA process.

Second, specifically to the management team of the company, we are participating in the cost reduction initiative, first through significant reduction in total management of the company in terms of head count. As I mentioned, we've reduced it by some 50%. The management team has received no wage increase for the last four years. The management team volunteered not to take any incentive payments during the restructuring process. To compare that with what Nortel's management actually did, they paid themselves incentives while in restructuring, and we have not done that. In 2008, under the terms of the agreement the management team had earned a synergy bonus, and the management team refused to accept the synergy bonus and did not take that payment. Finally, the management team at the senior level has agreed to a 15% wage reduction as part of this restructuring plan, as approved by the creditors.

I would point out that the incentive you mentioned has not been paid. It is an incentive that will be paid at the discretion of the new board of directors, subject to successful emergence from CCAA and chapter 11 in the U.S. and Canada.

A final comment is that one of the principles of the incentive plan was that we are spending $12 million a month in fees to lawyers, accountants, advisers, bankers—a whole list of people—so it seemed reasonable, from our creditors' point of view, to incent management to get this process over with merely on the fact that we're spending some $12 million per month, every month we're in this process. It seemed to be a reasonable business proposition to get the process over with and get out, and our creditors have supported that.

[Carol Hughes, NDP, Algoma—Manitoulin—Kapuskasing, ON]

I have another question. Will the outcome be positive, in terms of severance for these workers?

[David Paterson]

In both the U.S. and Canada, while you are in restructuring you're legally not allowed to pay severance. It becomes a claim to the court, and the courts in Canada and the U.S. will determine the level of severance payment for those employees who lost their positions during this process. The courts will decide that.

[Carol Hughes, NDP, Algoma—Manitoulin—Kapuskasing, ON]

Before I ask my next question, I would like to back up a bit. You negotiated a collective agreement that provided for severance pay and pensions. Not long afterwards, you wasted no time declaring bankruptcy. I am wondering whether you are acting in good faith or not.

[David Paterson]

I believe the agreement you're referring to was negotiated after our filing for chapter 11 in CCAA. We entered into negotiations while we were in restructuring, and in Canada and the U.S. those have been successfully completed. They have not been implemented as of yet because all the conditions have not been met. Primarily in Canada, it is the successful resolution to the pension question. Once that is resolved then the new contract is implemented, and when Canada has implemented, the management salary reductions and other benefits are also implemented.

[Carol Hughes, NDP, Algoma—Manitoulin—Kapuskasing, ON]

Of the 330 or 570 employees, do you know how many are still jobless? If I am not mistaken, 330 employees are located in the Gatineau region.

[David Paterson]

It's my understanding, having discussed and asked that question recently, that we've had, I believe, 47 employees relocate within the company. According to the latest numbers I have been told, 70% have found other employment, but I'd have to verify that number. We have provided counselling and outplacement services.

[Carol Hughes, NDP, Algoma—Manitoulin—Kapuskasing, ON]

In 2008, the Conservatives promised to hold a summit on the forest industry as an opportunity to discuss the situation in greater detail and try to identify solutions. But we are still waiting for that summit to be held. Do you think it would benefit forestry companies? Is it too late for such a summit?

[David Paterson]

I think developing a national plan in Canada is always a good thing. I think there's a natural conflict in these summits, because people on my side of the table, the manufacturers, don't all agree, and certainly there's a natural conflict between governments at the federal and provincial levels in terms of their objectives. But I think the objective of having a national conference is great.

To me it would be key, and it would really raise my interest level, if it were about a vision of the future and where we want to take investment, where we want to take the industry. If it were about--and this may sound harsh--how we protect jobs and industries that are dying, that would be a very difficult discussion. When your consumption of your products is declining more than 20% a year, it's very difficult to protect every job in Canada.

[The Chair, Conservative, Michael Chong]

Thank you very much, Mr. Paterson.

Merci, madame Hughes.

I just want to remind members of the committee that while we've invited these officials to appear in front of us today, notwithstanding that there's a court proceeding ongoing, and while we, in my view as chair, did not need to seek the approval of the court to ask them to appear--they were obliged to appear, which they've kindly done on very short notice--there is the sub judice convention of Parliament, which means that members are to refrain from commenting directly on the court proceedings, on the wisdom of the court, and on its decision.

I don't think anybody has crossed that line yet, but I'd just remind you that I'll rule out of order, based on that convention, anything that gets too particular about the court proceedings and about the decisions of the court, so just keep that in mind as we question the witnesses for the remaining time.

Go ahead, Mr. Scarpaleggia.