Katahdin unions support tentative deal with paper mills’ suitor

The East Milloinocket paper mill is seen at night in February.
The East Milloinocket paper mill is seen at night in February.
Posted Sept. 14, 2011, at 11:19 p.m.
Last modified Sept. 15, 2011, at 11:31 a.m.

EAST MILLINOCKET, Maine — More than 400 union members helped clear what might be the last hurdle to restarting two Katahdin region paper mills by overwhelmingly supporting a tentative contract late Wednesday with a prospective investor, officials said.

Under the five-year deal, Cate Street Capital would pay workers the same wages — $16 to $22 per hour — paid by present mills owner Katahdin Paper Co. LLC when it shuttered the East Millinocket mill in April but no wage increases except undefined, unscheduled bonuses if Cate Street finds its first foray into papermaking profitable. The Millinocket mill closed in Sept. 2008.

Workers emerging from the 2½-hour closed-door meeting at Schenck High School seemed to greet the contract with relief and resignation. They said they were happy that their hiring would reduce the region’s 21 percent unemployment rate but not pleased, given that their work has been almost universally praised as excellent, at resuming their place as the state’s lowest-paid papermakers.

“I have been out of work for about two years and I can tell you, you cannot find jobs anywhere in the state offering the kind of money that they are offering,” said Gerald Smith, a 54-year-old steam plant operator at the East Millinocket plant who lives in Burlington. “It’s not there.”

About 93 percent of the workers voted to OK the tentative deal, said Duane Lugdon, a United Steelworkers international representative. He declined to provide vote totals.

The successful end of rounds of meetings among Cate Street and state officials on Wednesday infused Gov. Paul LePage with optimism that Cate Street would make its deadline and close a deal to buy the East Millinocket and Millinocket mills by midnight Thursday, putting as many as 500 people back to work. Sale details have not been disclosed.

“We are getting very close to that deadline but we are optimistic,” press secretary Adrienne Bennett said. “There are a lot of meetings and discussions with lawyers going on. We are working in the right direction and hopefully we will have a positive outcome to all of this.”

An agreement Thursday would be provisional and allow Cate Street to put workers back to work Tuesday filling the East Millinocket mill’s woodyard and preparing the mill for a restart as soon as possible, Lugdon said. The completed deal is scheduled for Sept. 27, he said.

The company wants to start the hiring process for workers as soon as the provisional deal is done, he said.

Leaders of the mills’ host towns, East Millinocket and Millinocket, did their part Tuesday in helping set tentative property tax and tax increment financing deals with Cate Street, the Portsmouth, N.H.-based energy investor making its first foray into paper manufacturing with the new Great Northern Paper Co. LLC.

Like LePage, Cate Street continues to work to close the deal, company spokesman Scott Tranchemontagne said Wednesday.

“We are pleased with the agreements, and pleased to have cleared a few more hurdles in the process,” Tranchemontagne said. “We remain cautiously optimistic that we will be able to overcome remaining challenges and close the purchase on Thursday.”

As many as 200 East Millinocket papermakers could return to work to fill already placed orders for virgin newsprint, one of the plant’s specialties, by early October, with the plant’s recycled newsprint operations resuming as orders arrive. The mill employed as many as 450 workers when it shut down in April.

The Millinocket mill’s production of magazine-style catalog and newspaper inserts is not expected to resume for several months. It depends on whether orders are placed, state officials have said. That mill employed as many as 150 workers when it closed in September 2008.

Cate Street signed a tentative agreement with mills parent company Brookfield Asset Management on Aug. 30 to buy the mills for an undisclosed price. Part of the deal is an estimated $20 million investment in the East Millinocket mill.

The company received financing last week to start building a $275 million biomass boiler in Berlin, N.H. Cate Street specializes in the development of alternative-energy resources, including torrefied wood. Also known as biochar, torrefaction involves roasting wood chips until they store enough energy to compare to coal — which scientists say is responsible for more than one-third of the world’s carbon dioxide emissions — without many of the pollutants involved in coal burning.

Richard Cyr, a senior vice president of Cate Street Capital and possible chief executive officer of the new Great Northern Paper Co., has stressed that all conditions of the agreement Cate Street signed with Brookfield must be met by the deadline or the deal would die.

By virtue of the number of people employed, the restart of the mills would be the largest single economic development accomplishment of the LePage administration.

“The governor has invested a lot of time and resources into this,” Bennett said. “It certainly is a priority for the administration. We want to get people back to work.”

As part of the tax and TIF deals Millinocket’s Town Council voted 7-0 to accept on Tuesday, Cate Street would pay the town $900,000 in property taxes annually, the same amount Katahdin Paper Co., the mill’s present owner, would have paid had it remained the owner.

Katahdin Paper removed equipment from the site over the last several years that reduced its annual property tax payment by $1.7 million to $900,000, Town Manager Eugene Conlogue said.

“It is a fair level of taxation. It gives the town stability and it gives the company predictability,” Conlogue said. “That is a good deal for both parties.”

As part of the new agreement, the TIF, which is scheduled to lapse on the property in the 2020-2021 fiscal year, would be extended on qualified investments installed after the sale to the 2030-31 fiscal year. An unnamed portion of the tax would be paid for by a Finance Authority of Maine loan, a copy of the proposed agreement states.

Cate Street would “use its best efforts to pay the outstanding 2011-12 property taxes as soon as possible following closing” of the deal, the agreement states. “Both GNP and the Town realize that there is a ‘ramp up’ period for the mills following acquisition and that cash flow will be limited during that period.”

For that reason, interest on the first half-year payment due in November would not begin to accrue until Jan. 1, 2012 — and then the interest would be 7 percent per annum.

Tax increment financing dedicates portions of tax gains, or tax increments, from new or redeveloped business — in this case, a revitalized paper mill — within certain defined districts to finance debt created by the project and to finance improvements in those zones or within the municipalities that employ TIFs.

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