Three BC sawmills and a pulp mill formerly owned by Repap BC face indefinite closure as major stakeholders struggle for a solution.

By Jim Stirling
Copyright 1997. Contact publisher for permission to use.

Time and money have run out on Skeena Cellulose Inc., and three sawmills and a pulp mill in northwestern BC face indefinite closure.

The plug was pulled by the company's largest debtors, the Royal and Toronto Dominion banks. They say there's no money left to pay for logging, road building or needed capital expenditures at the pulp mill. The banks say no further credit will be extended until deals are reached with the pulp mill's union and the provincial government. At press time, there was no indication of when or if that might happen.

The closures represent a savage body blow to the troubled company's many creditors and the regional economy that's already taken a shellacking.

Skeena Cellulose was formerly known, and ran into problems, as Repap BC. It has about 1,300 employees. Probably three times as many depend on the company for a part or all of their livelihoods. Skeena Cellulose owns the pulp mill at Port Edward, near Prince Rupert, and sawmills at Terrace, Carnaby near Hazelton, and Smithers. The company owed about $620 million, $480 million to the two banks, when Repap BC sought six months protection in March under the Company Creditors Arrangement Act. The hemorrhaging has continued. It was to have a re-structuring plan in place by the end of September.

Negotiations between the major stakeholders were continuing. But a prolonged shutdown will force the company toward bankruptcy and jeopardize its contractural relationships with its customers for lumber and pulp. After three months, the provincial government can take away the company's forest licences.

The banks insist about a third of the 750 pulp mill jobs must go in three years.They also want contract concessions from the Pulp, Paper & Woodworkers of Canada Local 4. The union has stated it has no intention of being the scapegoat for the company's financial problems. The banks say reducing long-term fibre costs is a necessity. The provincial government had already responded on that score. A lower stumpage rate was introduced July 1 for the coastal region where only one tree in three contains sawlog volumes. Stumpage payments have also been deferred through 1997. Lower costs associated with streamlining the Forest Practices Code contribute further savings. But the big banks and big government have yet to negotiate a lasting solution.

Repap BC's debt load was abandoned by its parent company, Repap Enterprises of Montreal. That is because it was being courted by Avenor, another major paper producer, whose shareholders wanted no part of Repap BC's problems.

Repap BC owes logging contractors and suppliers in the northwest more than $70 million. At least four Terrace-based contractors are each owed more than $1 million.

The tentacles of Repap BC's collapse penetrate deeply. It has left people angry and frustrated, as well as broke. Repap's business practices savaged small independent contractors long before the mill closures. "The easiest way to describe it is they lost at least a sixth of a year in wages. January and February are pretty heavy months," explains Ken Houlden of Terrace-based Houlden Logging Ltd. and president of the North West Loggers Association. "There have been a few equipment re-possessions and the Hazelton area has been especially hard hit." The banks have been generally understanding of the cash-strapped loggers' plight. They have a hard time liquidating repossessed equipment in any event. Credit unions and Forest Renewal BC have done what they can during the crisis. The Hazelton area has a high percentage of contractors with one or two pieces of equipment, underscoring their vulnerability through payment delays as long as 120 days. Small contractors are left to the wolves; they don't have equity in their equipment, they can't sit on it or auction it. Houlden says the entire northwest has been damaged, from Prince Rupert to Burns Lake and north into the Nass Valley where Repap and its subsidiaries have extensive timber holdings.

When a licencee doesn't pay a contractor, the contractor can't pay his crews and none of them can pay their suppliers. The trickle-down effect rapidly becomes a torrent in small forestry-dependent communities. "One thing this Repap situation has really shown is that it's the unsecured people who take the kick,"says Houlden. "The Tree Farm Licence concept is supposed to help local people and provide its communities with stability."

Repap BC's problems have been apparent since 1990. But the banks have continued throwing money at them. Curtailed harvesting seasons and delayed payment schedlues were normal while the company was busy buying up new fibre sources. A letter from the North West Loggers Association to then-Forest Minister Andrew Petter in 1995 proved eerily prophetic. "The trickle down effect through the Pacific Northwest's economy of a delayed pay schedule will be devastating. What might be even more devastating is if Repap decides to abandon its BC division and leave millions of dollars in unpaid bills to unsecured creditors."

Frank Cutler blames Repap BC's chair George Petty for the mess. "He seemed to be a spendaholic," he charges, taking money from Repap BC to invest elsewhere. Cutler is the owner of K'Shian Construction Ltd., a stump-to-dump high-lead logging contractor in Terrace. He's owed $1.3 million by Repap BC, and he claims Repap BC was milked by its parent company to help subsidize a coated paper machine in Wisconsin and Repap's operations in Manitoba. Both of those are now on the selling block. Cutler would like to see a clause in forestry agreements prohibiting the use of BC's natural resources for collateral to expand elsewhere without repayment provisions.

Cutler normally employs 65 people in logging operations and another 20 during the summer road-building season. He's worked 46 years, gradually building equity in his logging and construction business and putting in many 24 hour days along the way. He's never sought or received a hand-out. The Repap BC fiasco sticks in his craw.