Industry Committee on Sept. 10th, 2010

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

Is there anything new about the need to be more innovative and up-to-date? I represent an urban riding. For two years now, the manufacturing sector has seen a decline, but other industries are starting to develop. There is nothing new in that.

Plants are now environmental. Ways have been found to re-use biomass. As I said, the workers are already trained. What is all this about needing more time to innovate?

[Yves Lachapelle]

The speed at which markets changed surprised us a little. Since this morning, we have been talking a great deal about newsprint production. In the 1990s, that production could easily have represented almost 60% of overall paper production in Quebec. Afterwards, some diversification occurred in terms of paper product production. In Quebec, newsprint represented at the time almost one third of our production. In the last three years—between 2007 and 2009—there was a 35% decline in the North American newsprint market. In spite of the adjustments that were made, that sudden change in newsprint consumption did not allow us to adapt to the extent that we would have liked.

In my presentation, I emphasized innovation. We are very aware and are moving forward to restructure the industry. We need innovation and demonstration. One example would be our research centres. For one thing, we no longer have the money we need to invest in research and development as we were doing before. We are starting to see the consequences of that. There is some great research being done. Products are being developed. Technologies are—

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

That is easy to solve. We could simply take a portion of the money allocated for research and development and make it refundable. The government can help you in that area. In fact, the Liberal Party proposed such a measure a long time ago. I don't know why the Conservative Party never implemented it.

My speaking time is limited and I would like to hear from Mr. Boivin.

[Jean-Pierre Boivin]

Is asset consolidation possible, as Mr. Lachapelle mentioned, but smart consolidation? In our region, we have the necessary supply. In our opinion, it's ridiculous to process our wood chips 400 kilometres away from our region. It's like having a spring but being unable to drink from it.

In the late 1990s, I met with Mr. Weaver. We asked him if we could implement secondary and tertiary processing. At that point, we were talking about black spruce fibre from Quebec, which is exceptional. For Mr. Weaver, the calculation was as follows: one black spruce equals one 2 X 4, and the rest goes into paper, in the form of wood chips. We make money and everyone is happy. Our shareholders are satisfied, and we leave it at that. For plywood and anything else, we go to Brazil or India, because it's cheaper. That was his vision. And, for implementing a vision of that kind, he was paid $17 million, I believe. The people who succeeded him continued to think the same way.

On the other hand, we believe that with the trees—in other words, the fibre—that we have, we are able to do the processing right where we are. Of course, things will never be the same as they were with newsprint, but—

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

There isn't only newsprint. A number of products can be manufactured from wood.

[The Chair, Conservative, Michael Chong]

Thank you, Mr. Boivin and Mr. Pacetti.

Mr. Bouchard, please.

[Robert Bouchard, Bloc, Chicoutimi—Le Fjord, QC]

Thank you, Mr. Chairman.

I would also like to thank our witnesses for being with us today.

I'm sure you'll understand that I would like to begin by addressing some questions to Mr. Boivin.

Thank you for your presentation. You briefly outlined the concept of an integrated forestry complex. You also talked about repositioning the lumber and forest industry in Dolbeau-Mistassini. Of course, that implies partnerships and investors.

In the last year, have you approached any potential investors? If so, what came of that? Why is the situation still so difficult? A paper mill shut down and the workers have been without work since being laid off.

[Jean-Pierre Boivin]

We didn't have to approach investors, because some of them contacted us. But it's important to understand AbitibiBowater's current circumstances. Prior to September 14, whatever discussions were underway, it was as though we were playing cards, except that we didn't have any cards in our hand. The players can simply be told that they have to play with AbitibiBowater. That company controls supply and has imposed non-competition clauses. So, we have no choice but to wait until after September 14 to see what's going to happen.

These investors are interested in being partners in an integrated forestry complex, but there is one question the have to ask the people at AbitibiBowater. A door was opened this morning. As recently as yesterday afternoon I was with developers in Quebec City who were talking about new energy and processing, but we have to wait. Will AbitibiBowater open the door to them? Will it supply them? These potential developers or investors are asking us if we're going to provide them with the biomass, if they can have wood chips, and at what price. If it's $10, AbitibiBowater is not interested in supplying them. If the market price is $20 and AbitibiBowater asks for $30, these new companies are saying that, at that price, they cannot afford to set up operations there.

[Robert Bouchard, Bloc, Chicoutimi—Le Fjord, QC]

Yes, I completely understand.

Mr. Boivin, after hearing the witnesses and the comments made thus far, it seems clear that we are now in a full-blown forestry crisis. It is apparent that management focused on the short term and that planning was shortsighted. In your opinion, was there a lack of vision at AbitibiBowater or among the people involved in the forest industry?

[Jean-Pierre Boivin]

That's exactly what I was saying earlier. It was the case for Mr. Weaver and for those who succeeded him.

In Dolbeau-Mistassini, we wanted to produce book paper and circular paper. Today we're told that is no longer possible, and yet they're taking our resource and sending it somewhere else. Why did they wait until 2010 to tell us there was a need for innovation? We have known that for a long time. Someone with vision could have slowly but surely steered the industry towards new technologies.

In my opinion, it is clear that the industry lacked vision. People are in place now. I'm sure you noticed that the people who solved the problem were not here this morning. The President was sent up to bat. While he played his violin in Dolbeau-Mistassini, they were talking about removing equipment. On the one hand, we were being told that they were interested in staying open, that they might be interested in partnering with Boralex to have an energy supply and reopen one or two paper machine in Dolbeau. But while that was going on, as we found out a little earlier by phone, people want to take away the equipment. So, what kind of game are they playing?

[Robert Bouchard, Bloc, Chicoutimi—Le Fjord, QC]

Mr. Boivin, I'd like to know how AbitibiBowater has been conducting itself since the restructuring began. Has it taken an active part in the restructuring process at the Dolbeau-Mistassini plant?

[Jean-Pierre Boivin]

No. In late May, I met with Mr. Rougeau and we agreed on a certain number of things. We were supposed to bring forward potential solutions. They are right in that respect. However, as I was saying, it was impossible to prepare a business plan with people who didn't know whether or not they would have control over supply. We were not subsidized by AbitibiBowater. That was done with RCM funds. It was paid out of Dolbeau-Mistassini's own revenues, in order to move things forward.

This morning, we talked about cooperation. For example, we asked for a meeting with Mr. Paterson. We never received a response. At some point, we have to talk to one another. I was happy to see his openness this morning. In fact, as soon as we get back home, he will be receiving a letter asking for a meeting.

[Robert Bouchard, Bloc, Chicoutimi—Le Fjord, QC]

We saw with Mr. Paterson that the solution is that Boralex produce the steam; however, the problem is that it's too expensive. What are your expectations of AbitibiBowater with respect to this restructuring—the integrated forestry complex?

[Jean-Pierre Boivin]

In terms of fibre maximization, we believe we have everything we need for that to be realized in Dolbeau-Mistassini. With respect to financial integration, AbitibiBowater is not expecting to operate this kind of complex. We would like AbitibiBowater to be a partner with the other players and share the stock ownership of these companies which are interested in operating, for example, a power generating station, a cogeneration plant, pellet plant, ethanol plant—anything and everything. If there is a partnership between the main fibre users in our area, we think they'll be forced to talk to one another and optimize financial performance. If they don't want to do that, then they should tell us how much it's worth and other buyers will do it instead.

[Robert Bouchard, Bloc, Chicoutimi—Le Fjord, QC]

My last question is for Mr. Lachapelle.

Mr. Lachapelle, we believe the overall problems in the forest industry, and in the pulp and paper sector in particular, could have been avoided had the federal government introduced an aggressive plan to allow the forest industry to modernize and diversify its activities. We would have liked it to make the same kind of financial effort for the forest industry that it did for the auto sector. Do you share that opinion?

[The Chair, Conservative, Michael Chong]

Thank you, Mr. Bouchard.

Mr. Lachapelle, please.

[Yves Lachapelle]

Thank you, Mr. Bouchard.

Mr. Chairman, when you look at the Canadian forest industry as a whole, it is clear that operations are located in villages scattered here and there. These are isolated populations. I think we're talking about 800,000 jobs in Canada. It is one of the main industries in Canada that needs to be protected. In that respect, you are absolutely right. The federal government did the right thing when it supported the auto industry, but it should have provided the same support to the forest industry.

There are constraints; there is no doubt about that. Earlier we were talking about NAFTA, but there are ways to support our industry. As I said before, access to credit and refinancing was one avenue we were in favour of. In a few weeks or months from now, we will know the outcome of the Softwood Lumber Agreement arbitration where all these issues will be debated, and at that point, things will be clear for us.

If you don't mind, I would like to add something to the previous discussion. I would just like to point out that there are business models in Quebec. In newsprint, there are three companies: AbitibiBowater, White Birch Papers and Kruger. The first two—the two largest—placed themselves under the Companies' Creditors Arrangement Act and the last one terminated its operations. This is a very significant problem and not a simple one to resolve, because were that the case, there would also be solutions. As things now stand, it's complicated.

[The Chair, Conservative, Michael Chong]

Thank you, Mr. Lachapelle and Mr. Bouchard.

Mr. Gourde, please.

[Jacques Gourde, Conservative, Lotbinière—Chutes-de-la-Chaudière, QC]

Thank you, Mr. Chairman.

I'd like to thank the witnesses for being here.

My first question is for Mr. Boivin, but our other guests are also free to comment.

You outlined your vision of the forest in your region. You discussed this with me this morning. I would like you to provide more details. Based on what others have said, is this vision that they want to implement in the Dolbeau-Mistassini region acceptable? There must have been some issues with NAFTA. So, please tell me more about your vision and ask your partners how we can get involved.

[Jean-Pierre Boivin]

First of all, this vision is not based on a dream. It is based on a reality: the Government of Quebec wants to maximize fibre and reduce impacts.

This morning, we talked about green energy and the environment. Imagine that a log leaves Montreal bound for Ottawa. It has to be completely processed here, because of the cost. In our area, a log goes through the barking machine and then to the sawmill. The bark, called biomass, is stored. It's used to power a cogeneration plant. The log is processed into lumber and then all the small pieces can be reprocessed in a bladed-glued beam plant, and the wood can also be planed on site. As well, the chips that remain after these different stages of processing are sent across the river to the pulp plant. The bark is then shipped to the cogeneration plant and the chips are processed into pulp. Once that is done, the residue can also be processed into biofuel, ethanol or another form of energy; it can be used to produce electricity and even turned into pellets, which are in very high demand around the world. That is what is known as fibre maximization.

In our region, that complex is already almost completely in place. We feel that if we could do that, companies like AbitibiBowater would definitely find it worth their while. A case in point is black spruce fibre: the pulp can be used to enrich other types of pulp to produce a better quality paper than in China or in India. We believe we have everything we need to accomplish that here. If all the operations are carried out in the same place, transportation costs will be lower, there will be less pollution, and we will be using green energy.

At the present time, on a bole that's about 50 feet long, a company like AbitibiBowater will stop cutting at about 10 centimetres, or 4 inches, from the end and will leave whatever remains on the forest floor. It falls to the ground and isn't used. We say that biomass can be recovered and processed at this forestry complex. So, everything is in place.

As I said a little earlier, will AbitibiBowater do this? Are there developers interested in operating sections of this complex?

We were really expecting to receive a response from AbitibiBowater on September 14. Mr. Paterson partly answered this morning, and I believe we will be getting additional answers in the coming days.

[Jacques Gourde, Conservative, Lotbinière—Chutes-de-la-Chaudière, QC]

Mr. Lachapelle, do you wish to comment?

[Yves Lachapelle]

At the present time, the CIFQ, in partnership with the Government of Quebec, is developing a vision of how our industry can be transformed. It deals with restructuring and the direction we need to move in. Mr. Boivin's comments are very much in keeping with that. So, there is a need.

In your presentation, I liked the fact that you talked about the right wood in the right plant. What probably hurt our industry the most was that we processed all the wood in the plants, even though certain types were not suitable for sawing. So, there have to be market opportunities and integration starts with the customers. The starting point has to be the customers and the different processes. In that regard, I also believe that this is the way to go.

On the other hand, I was talking about newsprint producers in Quebec earlier. Some companies are highly integrated, while others operate entirely on the basis of agreements with suppliers. Both have placed themselves under protection.

[Jacques Gourde, Conservative, Lotbinière—Chutes-de-la-Chaudière, QC]

Mr. Stevenson, would you say that is consistent with our regulations?

[Don Stephenson]

[Inaudible—Editor] … there is nothing in the Softwood Lumber Agreement that would prevent it, as long as there is no direct or indirect subsidy to producers and softwood exporters which would lower the burden of the export measures laid out in the agreement.

[The Chair, Conservative, Michael Chong]

Ms. Hughes, please.