Owner: State should buy Katahdin Mills, or they’ll be scrapped

By Nick Sambides Jr and The Associated Press,Staff
Posted April 14, 2011, at 5:33 p.m.

EAST MILLINOCKET, Maine — The owner of two shuttered paper mills in Maine said Thursday that the state could purchase them for $1, and East Millinocket’s leader wants the mills’ towns to buy them, but the plants likely will be scrapped if a buyer doesn’t step up soon.

Dan Whyte, vice president of Brookfield Asset Management, said the company is advancing plans to dismantle the mills while “cognizant that the state could still step in and buy these assets.”

But the company doubts that a buyer will come forward, and though Brookfield officials talked with Gov. Paul LePage on Thursday, no state officials have expressed any desire to buy the East Millinocket and Millinocket mills, Whyte said.

“The only other option we have in front of us is decommissioning,” Whyte said Thursday, “and the term sheet says we have until April 29.”

A state purchase could be the only way to save the Katahdin Paper Co. mills because Meriturn Partners, which backed out of its tentative agreement to buy the mills by April 29 if certain conditions were met, is the only potential buyer to have surfaced over the past two years, said Whyte.

“We have said in the past that if there is a credible and financeable option, we would certainly explore it,” Whyte said. “We have been losing $1 million a month on these mills. This situation can’t last forever.”

LePage spokesman Dan Demeritt said Brookfield’s chairman agreed to delay a final decision until stakeholders meet and LePage expressed optimism that the mills could be saved when he spoke at a press conference in Augusta.

“I’m not losing hope. Not at all,” LePage said.

But the governor said high energy costs and lack of demand for products have hurt the mills’ ability to stay in business and now are complicating efforts to find a new buyer.

“It’s just like building a house. If you start with the roof, you’re going to be in trouble. You’ve got to have a good foundation,” LePage said. “The problem with the two mills is one mill needs steam, and the other mill, their two paper machines are producing products that are going downhill, primarily newsprint. … But we’ve got to get the products in there that are not mature and shrinking.”

The final decision on when to begin dismantling the mills will likely come sometime after April 29, Whyte said.

The chairman of East Millinocket’s Board of Selectmen, meanwhile, said he knows somebody interested in buying the mills.

“We should,” Mark Scally said Thursday.

Scally proposes that East Millinocket and Millinocket buy the mills for $1 under terms of a deal that San Francisco-based Meriturn walked away from last Friday, form an employee stock option plan, and with it give the employees and towns each 45 percent, and the mills’ management 10 percent, of the company.

“The state would be responsible for cleaning up the landfill in Dolby,” Scally said, something state officials had agreed to if the Meriturn deal was made. The Dolby section of East Millinocket contains an old mill dump. Maine Department of Environmental Protection officials estimated that the cleanup would cost $14 million, Scally said, of which Brookfield had set aside $7.5 million.

The key, Scally said, would be getting “a consortium of banks” to loan about $100 million to totally revitalize the mills, with the loans’ collateral coming from the mills themselves and the employee pension funds.

“It sounds simple, but it really isn’t,” Scally said. “The towns have got to have some collateral. The question is: Would the banks think the towns would have enough?”

“It makes sense,” Scally said of the plan. “It’s feasible, but it would take a lot of doing.”

Scally floated the idea to LePage and was told that state officials had considered a buyout by the towns but felt that the towns would lack enough collateral to make the plan likely to succeed. Union officials said it might be too late for such a buyout — that if it had happened a decade ago, it might have been workable, Scally said.

U.S. Sen. Olympia J. Snowe, meanwhile, urged Brookfield and state officials “to work through every conceivable option to avoid a dismantling of the mill sites,” saying that she was “deeply troubled” by talk of scrapping the mills.

“Economic options are limited once critical infrastructure is sold, and whole communities of hardworking families are adversely affected,” she said in a statement Thursday.

Snowe said she spoke to Brookfield officials and LePage and commended the governor for “working at the forefront” of the mills revitalization effort.

LePage has “pulled his team together and they are in overdrive, involving all parties in all realms to find a solution,” she said.

Brookfield, Whyte said, has demonstrated during its ownership of the mills a sustained commitment to their success, spending millions to keep them running, make them attractive purchases for another buyer, and to support the towns in which they sit. A partial list of the company’s investments includes:

? Almost $1 million in engineering and design development planning for a biomass boiler that would relieve the Millinocket mill of its need for oil to fuel steam-making processes crucial to papermaking. That need forced the mill’s closure in September 2008.

? Installing a pipe to transport pulp from the East Millinocket to the Millinocket mill in 2006, streamlining papermaking operations. The installation’s cost was not immediately available on Thursday.

? Spending $300,000 per month to heat the Millinocket mill’s nearly dozen buildings during winters since its closure and paying two workers to maintain it.

? Continuing to pay the full property tax value on the Millinocket mill since its closure.

“The appreciable value of an operating mill is significantly higher than that of a nonoperating mill,” Whyte said.

Whyte declined to estimate the company’s total financial commitment to the mills, but said he might have that figure available in a few days.

Bangor Daily News writer Kevin Miller contributed to this report.

http://bangordailynews.com/2011/04/14/business/brookfield-state-should-buy-katahdin-paper-mills/ printed on September 21, 2014