Industry Committee on Sept. 10th, 2010

[Richard Nadeau, Bloc, Gatineau, QC]

You are saying that today, but the honest thing to do would have been to say it when you announced the plant closure on August 24.

Having said that, how do you explain the fact that, since 1993—a period of 17 years—$1 billion has been invested in upgrades at the Gatineau plant? Yet now, you are simply throwing it away. Why throw it away after investing so much money in a plant which has state-of-the-art technology now? And why this double talk with your workers?

[David Paterson]

Despite the investment you've referred to, Gatineau was not a low-cost facility within the AbitibiBowater family of facilities. We do not have enough orders to operate all our facilities, and we have used the same criteria with regard to all the decisions we've made on all the other mills that were closed concerning--

[Richard Nadeau, Bloc, Gatineau, QC]

Mr. Paterson, can you tell me whether you have looked at the restructuring plan? The idea is to move away from newsprint in favour of something else. But have you looked at all the options for the Gatineau plant which, according to Mr. Michel Girard, your Vice-President in Canada responsible for newsprint, has enormous potential? Mr. Pierre Rougeau, your Canadian Vice-President, said that recent investments in the plant, including $3.3 million in November and December 2009 and January 2010, demonstrated the plant's potential to move into other types of production.

Have you looked at the plan? Do you intend to look at it? Will you maintain this plant which is capable of producing something other than newsprint?

[David Paterson]

As you have rightfully pointed out, we continue to invest in Gatineau. I feel we tried extremely hard to make Gatineau successful for all the reasons you pointed out. We have huge historical investment there. It is a good site as far as its geography and location go. It has some very good equipment, and it has some excellent employees. But we do not have sufficient orders to run all the facilities, and Gatineau has not demonstrated that it is a low-cost facility despite all that investment.

So if there is another owner who wants to step forward and own that facility, we will cooperate with them and with the community to find that owner.

[The Chair, Conservative, Michael Chong]

Thank you very much, Mr. Paterson.

Thank you, Mr. Nadeau.

Mr. Braid.

[Peter Braid, Conservative, Kitchener—Waterloo, ON]

Thank you very much, Mr. Chair.

Thank you, Mr. Paterson, for being here this morning.

Quickly to begin and to help set the context, in terms of describing your sector, is it fair to say your sector has been adversely impacted by about a decade of dramatically declining demand and that situation was exacerbated by the global economic downturn? Is that a fair statement?

[David Paterson]

That's a very accurate description, yes.

[Peter Braid, Conservative, Kitchener—Waterloo, ON]

Moving forward from that, I'm curious to know who your main competitors are in the world and in which countries they are based.

[David Paterson]

Specifically with the newsprint, in North America our main competitor is White Birch, which is also in the CCAA process in Canada.

On a global basis, our leading competitor is Norske Skog, in Norway. It's a Norwegian company, which is rumoured to be very close to filing for court protection in Europe.

[Peter Braid, Conservative, Kitchener—Waterloo, ON]

With respect to those jurisdictions then--Canada, the U.S., Norway--I'm curious to know what our productivity is like in Canada versus those other sectors. Can you comment on that at all?

[David Paterson]

As a company in the newsprint sector, on a productivity per man-hour or unit of investment basis, Canada is very comparable. It's a very flat curve, in that sense.

[Peter Braid, Conservative, Kitchener—Waterloo, ON]

In terms of your plan and your goal to become a low-cost manufacturer, are there plans to improve productivity as part of that?

[David Paterson]

In all our businesses, all our facilities, there's always a drive to increase efficiency across the board.

I think it may help in the context to say what are our biggest cost inputs to operating a paper mill. Number one is always fibre, either recycled or virgin fibre. Then you have energy, the labour--the cost of the people--and then you have the logistics, the cost of transporting product, because we sell our product on a delivered cost basis.

[Peter Braid, Conservative, Kitchener—Waterloo, ON]

Very good.

If I could move on from there, there were a couple of statements in your presentation that I found quite interesting and that I want to ask if you could elaborate a little bit on.

You mentioned that you're in the process of raising capital. Could you describe where and how you're raising that capital? Again, I'm only asking for publicly available information.

[David Paterson]

Sure, I'll talk in broad strokes. We go to the usual markets. We'll in effect be doing a road show and selling the story of the new AbitibiBowater to funds and investment managers, in the U.S. and Canada primarily, who are looking for higher-return investments. We will be what's called a high-yield investment. We're going to pay a significant interest rate to get that funding, vis-à-vis safe Canadian or U.S. Treasury notes, which are essentially zero today.

The investment community is looking for high-yield pieces of paper, and we hope that given our business plan and the steps we've taken, we'll be able to raise that funding quite rapidly.

[Peter Braid, Conservative, Kitchener—Waterloo, ON]

Very good. I wish you much luck and success through that process.

Finally, of course, going through the sort of process you have been going through, I'm sure one of the most complex, most sensitive aspects of this is dealing with wage and benefit issues. Could you elaborate a little about how you managed that process, how you involved and communicated with employees, and what some of those solutions are looking like?

[David Paterson]

Specifically in Canada, we have a unionized environment. We have two primary unions, and their representatives will comment to the committee today. We had extensive discussions with those unions and their leadership, at both the local and national levels, and we were able to reach a new agreement, which as I mentioned earlier is contingent on certain things being done primarily around the pension matters.

We are very close to all those details being worked out. As another member asked, we've asked for a significant wage concession as well as benefits concession, but I think given the facts that we're facing and the dialogue we undertook with our unions, we have reached an agreement.

[Peter Braid, Conservative, Kitchener—Waterloo, ON]

Very good.

I have one final question. Could you describe to us what AbitibiBowater in Canada will look like in five years?

[David Paterson]

If we execute the plan and we don't experience another market meltdown like in 2009—I'll put those two caveats in there—we should be less news, more green-energy-driven, through investment. In eastern Canada, we would be primarily export-oriented on our assets that are in close proximity to the St. Lawrence Seaway, and in Ontario we'd be in a North American marketplace. We need to make less news, we need to generate lower-cost energy, and we need to find alternative business models such as selling green energy to the power grid or to the consumer marketplace. All those things are in the works.

[The Chair, Conservative, Michael Chong]

Thank you very much, Mr. Braid and Mr. Paterson.

Madame Hughes.

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

Good morning.

To begin with, I would like you to explain how it is possible for your profit projections for the period from 2011 to 2014 to amount to $1.5 billion. That is what we read in the newspapers. If the industry is dying, how is it that you are predicting that level of profit?

[David Paterson]

Well, the question is whether our pricing and demand assumptions are correct in our business model. Those are in the plan. Again, we do not assume that newsprint demand recovers. We'd assume a continued decline in newsprint consumption going forward and that we will make investments both in the U.S. and Canada that lower our costs but also move us away from newsprint as our main product over that five-year plan. In our industry it's supply and demand, so when supply and demand are 92% or higher you have some pricing power. Our plan contemplates that we will not allow ourselves to get in the position where newsprint prices collapse again, because that destroyed the company. That is the fundamental basis of your question about how you get to $1.5 billion.

I think it's in the best interests of current and retired employees that we make $1.5 billion, because that means we're meeting our obligations.

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

Does that include the $130 million you will be receiving from the government under the NAFTA agreement? The reason I raise this is that an increasing number of companies are now deciding to fail. When that happens, the communities no longer have access to the resource. Once you have declared bankruptcy, you waste no time making a claim under NAFTA or filing for protection under the Bankruptcy and Insolvency Act. It seems the communities don't have the necessary resources to ensure their survival once you have declared bankruptcy.

[David Paterson]

I think there are several points you made there, so let me try to touch on them.

First, the NAFTA claim really didn't have anything to do with the filing. It had to do with the actions of a province of Canada related to a mill closure. Time-wise, we did that before we filed. So it was before we filed for creditor protection, and it was related to the destruction of market demand and the cost position of that asset.

To answer the second part of the question about NAFTA, the funds of the NAFTA settlement are not in the $1.5 billion; they are in the exit financing. We will use those funds to lower the amount of debt we have to put on the company going forward, which is a very positive thing for our employees and our investors. So the less debt we put on this company, the more viable we are to deal with all the market forces we've been describing.

What was the other part of your question?

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

There were a few of them. There was the $130-million out-of-court settlement, and the other part was the survival of the communities.