YOUR BEAUTIFUL BOREAL FORESTS HAVE BEEN SOLD DOWN THE RIVER – DETAILS INSIDE
Al-Pac Index
Easy Money: The Most Heavily Subsidized Mill in History
Editorial: Suppose someone asked you to help one of the world's largest corporations establish a pulp mill in Alberta. All you have to do is pay $125 cash up front for each member of your family. After that you pay an annual fee of $28 per person. Your children or grandchildren will carry on the payments for the next 100 years. Would you do it? Guess what? You already did!
Many people are still wondering why Mitsubishi corporation won the right to the largest Forest Management Agreement (FMA) in Alberta history. Competing bids were ignored by the Alberta government as it awarded the single most lucrative forest resource available in the province. So upset was then Chief Provincial Forester Fred McDougall, that he left the government over the issue. McDougall is now the Alberta manager of Weyerhauser.
$7 Billion Timber Subsidy!
Al-Pac's FMA covers 73,426 square kilometers, with a productive forest land base of 38,916 square kilometers. The phase three forest inventory pegs the timber volume at 650 million cubic meters. The market or replacement value of this timber is a staggering $8.2 billion based on the formula used to compensate Al-Pac if timber is destroyed by another forest user.
Al-Pac paid not one penny for the right to exploit this massive forest resource. They pay a small fraction of the market value of timber, and nominal annual fees for ground rent and fire protection. Why is the timber subsidy so great? The answer is clearly that Al-Pac's stumpage or royalty rate is ridiculously low. The stumpage rate for hardwood timber is 40 cents per cubic meter and $2.09 per cubic meter for softwoods. The average cost of wood fibre to Al-Pac is 74 cents per cubic meter.
Mitsubishi is accustomed to paying much more for its timber. The fund raising prospectus for the Al-Pac mill showed that Mitsubishi pays $6.48 for a cubic meter of wood fibre at its Crestbrook mill in B.C. No wonder Al-Pac, with a new mill, is able to produce some of the cheapest pulp on the planet. But the subsidy does not end there.
Mitsubishi Gets Huge Grants!
Mitsubishi corporation is experienced at dealing with local governments. They somehow talked the Alberta government into helping to finance the feasibility study for the mill. The government anted up $750,000.00 before the parties even went to the bargaining table.
Some negotiations! The government agreed to pay the full cost of all of the mill's infrastructure. All road access, rail access, utility access (electricity and natural gas, water etc.) was paid for 100% by the taxpayers. This is not a loan; it is a grant of $75 million.
Al-Pac Pulp Mill. WCWC File Photo.
The World's Most Amazing Loan Plan!
The Getty / Klein government has been famous for its loan losses. Novatel, Magnesium Canada, Pocklington---the list is long and the memories painful. These were mostly loan guarantees. In other words, the taxpayers were on the hook if the company failed to meet its obligations. Most of the pulpmills in Alberta are backstopped in this way. Al-Pac's deal, however, is more generous than any of these, they were granted an "income debenture".
Al-Pac does not have to pay back a cent of that loan until it starts to show a profit on its own books. Who pays the interest in the meantime? The taxpayers of course. Mitsubishi / Al-Pac has received a $275 million "income debenture" from the province of Alberta. They have also been granted another $125 million, on the same terms, as a standby loan should they decide to expand. But how do we know if Al-Pac is making a profit on its production?
Unlike a loan guarantee where Mitsubishi would have to borrow the money and pay back the loan, this income debenture is such that the Alberta taxpayers must borrow the money and loan it to Al-Pac.
Mitsubishi has a "take or pay" contract with its Al-Pac subsidiary. The parent company buys all of the production from the mill, according to the financing prospectus, and sells the production on world markets. Financial analysts contracted by the Western Canada Wilderness Committee say it would be very difficult for the government to establish whether Mitsubishi is taking its profit at Al-Pac, at one of the complex holding companies which constitute the ownership structure or at the marketing end. Furthermore, with pulp prices continuing near $400 per tonne, it is possible that the mill will never show a profit. Meanwhile, the taxpayers continue to service the $275 million income debenture. So doubtful is the repayment, that it might as well have been given as a grant.
A Legacy of Subsidy and Debt
There are approximately 2.8 million Albertans. Most are struggling to meet the burden of their taxes, debt and living expenses. The amount of subsidy to Al-Pac is staggering: $350 million up front, with a promise of another $125 million. The annual cost of the ongoing timber subsidy is $78.7 million – 7.1 billion over 90 years.
For this kind of money, it is easy to see why Al-Pac has some of the best and brightest apologists money can buy.
If you live in Alberta, this is your share of the tab for Al-Pac:
