Northern Pulp general manager Bruce Chapman felt the need to correct the province’s claim that the mill was crying poor in 2018 while kicking millions back up to its parent company.
It wasn’t $60 million they shuttled off to Paper Excellence as the province claimed, it was $70 million.
And furthermore, claims Chapman in an affidavit filed with the British Columbia Supreme Court, the Nova Scotia government knew all about it because they were at the meetings when the decisions to make the payments were made.
“Representatives of the province were present at every meeting of the Board of Directors of Northern Pulp during the period in which the distributions (to parent company Paper Excellence) were made,” reads the affidavit.
At the same time the province was allegedly not objecting to the mill sending capital west, it was paying Northern Pulp $6 million for the design of a replacement effluent treatment plant, negotiating how much of the construction of the estimated over $100-million facility the taxpayer would cover and granting loan payment deferrals worth about $4 million. Those loan deferrals were continued in 2019.
The provincial government declined to comment on the allegations or state who its representative was at the board meetings.
"We had no control over the finances and movement of money. My concern was there would be money available to pay our suppliers and always money available to pay our employees."
- John Hamm, former chair of Northern Resources Nova Scotia's board of directors
The province claims via an affidavit filed by Labour and Advanced Education deputy minister Duff Montgomerie that it only found out about the cash funnelled out of Northern Pulp this spring when it sent the company's books to a private auditor.
According to former premier John Hamm, that's not true.
"(The provincial government) had people at the meetings," Hamm said Thursday. He was chairman of Northern Pulp parent Northern Resources Nova Scotia's board of directors at the time.
In Chapman's affidavit, he claims the payments to Paper Excellence were "made as partial repayments of related party loans to Northern Pulp, and were made during a particularly profitable period at Northern Pulp, for the purpose of redeploying capital to other operations of (Paper Excellence)."
He added that they didn't violate the terms of the $85 million in loans Northern Pulp and its associated company, Northern Timber, have with the province.
In 2018 the mill was working toward an environmental assessment of the highly controversial effluent treatment plant it was seeking to build as a replacement for the Boat Harbour Effluent Treament Plant that was legislated to close in 2020.
Though the parent company was siphoning huge amounts of money out of Northern Pulp in 2018, Chapman states that they still expected to get environmental approval based on the existence of similar facilities across Canada and the importance of the mill to the provincial economy.
"I believed that the mill provided an excellent support for the rural economy, the people that worked there and the people that supplied it," said Hamm.
"It was always my intention that a clean mill was the best solution for the people of Pictou County."
Asked about whether as chairman of the board and a former premier, he'd had a say in sending the $70 million to Paper Excellence, Hamm said, "no, not at all."
He said Paper Excellence's board of directors, as owner of the mill, had control over the movement of the money.
"We had no control over the finances and movement of money," said Hamm.
"My concern was there would be money available to pay our suppliers and always money available to pay our employees."
While it was apparently flush in 2018, Northern Pulp is now saying that it will run out of cash within the next two weeks to pay its employees severence and pension contributions, along with the costs to safely idle its kraft pulp mill.
On Friday it will ask the British Columbia Supreme Court to allow it to accept $50 million in loans from Paper Excellence so that it can keep paying those bills and work toward an environmental approval for a proposed effluent treatment plant.
The province is arguing against allowing the company to accept those loans because they would come before its security on the company's only real asset — more than 171,000 hectares of woodlands that were bought with money loaned from the province in 2010.
At $200 an acre the province estimates their value at about $85 million.
That will be relevant if Northern Pulp goes bankrupt — something that could happen if it runs out of money in two weeks or in the coming years if it doesn't get approval to build a replacement effluent treatment facility.
Clean-up bill hits $250 million
The mill itself, according to the company and the provincial government, is likely another environmental liability that the taxpayer could get saddled with.
The provincial and federal governments are already on the hook for cleaning up the mill's historic pollution at Boat Harbour. Latest estimates peg the cost at more than $250 million.
Montgomerie explained in his affidavit the effect of the British Columbia court approving the Paper Excellence loan would have on the province.
“In simple terms the entirety of the province's loans and the collateral on the land used to secure these loans is rendered worthless to the detriment of the people of the province with no countervailing benefit,” wrote Montgomerie on behalf of the province.
As if all that shouldn't be concerning enough to taxpayers, no matter what Justice Shelley Fitzpatrick decides there is a good chance we'll get sued.
The loan, if approved, is actually written up as an advance on the following milestones being reached by 2022:
• An environmental approval to build a replacement effluent treatment plant.
• An agreement with the province to help fund its design and construction.
• A court decision or negotiated settlement with the province paying lost profits and damages associated with the idling of the kraft pulp mill.
“In simple terms the entirety of the province's loans and the collateral on the land used to secure these loans is rendered worthless to the detriment of the people of the province with no countervailing benefit."
- Nova Scotia deputy labour minister Duff Montgomerie
If those milestones aren't hit or the mill is forced into bankruptcy next month because the loan isn't approved, Chapman warns the province to expect a “costly and lengthy” litigation for ending its contract to use the Boat Harbour Effluent Treatment Facility a decade early.
Boat Harbour was built by the province in 1967 as an incentive to the mill's former owners. The province operated it until 1995. At that point Kimberly Clarke, then owner of the mill, entered into a lease agreement and began operating it.
Liability hard to peg
That lease agreement was extended until 2030 in 2002 by then-premier John Hamm's government. Hamm became chair of Northern Pulp's board of directors shortly after leaving power.
Montgomerie claims in his affidavit that the province is protected from being sued over cancelling its lease early by the Boat Harbour Act of 2015.
“No action lies against Her Majesty in right of the province or a member of the executive council in respect of the cessation of the use of the facility for the reception and treatment of effluent from the mill as a result of this act,” reads a clause in the act that mandated the January closure of the Boat Harbour Effluent Treatment Facility.
But the very next clause reads, “The enactment of this act is deemed not to be a repudiation or anticipatory repudiation by Her Majesty in right of the province of the lease agreement dated December 31, 1995, between Her Majesty in right of the province and Scott Maritimes Limited, as extended by a lease extension agreement dated October 22, 2002, between Her Majesty in right of the province and KimberlyClark Inc.”
In his response to Montgomerie's affidavit claiming the province isn't liable, Chapman quotes Premier Stephen McNeil.
“We know we have an obligation,” McNeil is quoted as having said in the Legislature on Oct. 5, 2018. “We're closing Boat Harbour 10 years earlier. There's a liability on our side.”
Northern Pulp claims that liability would be in the form of lost profits over the length of the cancelled term of the lease.
Quantifying how big a number that liability would be is hard to do because both Northern Pulp and its parent, Paper Excellence, are privately owned by Jackson Widjaja, grandson of Asia Pulp and Paper founder Eka Tjipta Widjaja.
The only financials available are those filed as part of the current creditor protection court process in British Columbia, where Paper Excellence is headquartered.
Their relevance is limited because the vast majority of Northern Pulp's product goes to mills in Asia.
According to court documents Northern Pulp sold $327 million worth of pulp in 2018 but turned a net loss of $14,697,000
That's the year it found $70 million for its parent company.
In 2019 it sold $276 million worth of pulp and claimed a loss of $5.4 million.
John Hamm stepped down from Northern Pulp's board of directors in January.
