EAST MILLINOCKET, Maine — Tragic.
That was how two forest products industry experts described Great Northern Paper Co.’s announcement Thursday that it would be stopping production at its Main Street paper mill for as many as 16 weeks. They said the company and its parent, Cate Street Capital, face significant challenges in producing newsprint and torrefied wood, which another Cate Street subsidiary, Thermogen Industries LLC, hopes to do in its Millinocket location starting as early as fall 2014.
Meanwhile, town leaders who plan to meet at 4 p.m. Monday to discuss GNP’s plight said they remain optimistic that production will resume.
“It is a tragedy all the way around for the community and workers and for the company, too,” said Lloyd Irland, president of Irland Group, a forest products industry consultant for 25 years. “Despite some things you will hear about them, they have done something that a lot of these private equity firms haven’t done — take a difficult situation, invest in it and try to make it work.”
“It is sad, but market conditions make it [the production halt] not unexpected,” said Robert Rice, a professor of wood science at the University of Maine in Orono. “I think the key would be to ask them where they will reconfigure and what are they going to do to move forward.”
Company spokesman Scott Tranchemontagne said the company would spend the next several weeks working to answer those questions. It was impossible to predict, with the business plan not yet completed, whether the company’s 256 workers would be laid off once they finish two months of work aimed at improving the company’s water and energy efficiencies.
Company leaders are consulting with advisers to determine whether they would need to file a 60-day notice of pending or possible layoffs to workers under federal law, he said. He said Friday that he has heard of no imminent filing of that notice planned.
The company, which had fallen behind on its payments to vendors, also will work toward paying its suppliers, Tranchemontagne has said. East Millinocket and Millinocket are owed the company’s first-half tax payments for the 2013-14 fiscal year, with second-half bills due next month, officials from both towns said.
The company owes Millinocket in excess of $2.3 million in taxes on its properties in that town, which include a Katahdin Avenue industrial park and a paper machine on site, Millinocket Town Manager Peggy Daigle said. Much of that gets refunded under tax deals the company has with the town and state. East Millinocket is owed $657,900 in property taxes, town Administrative Assistant Shirley Tapley said.
Caused by a decline in the town’s mill rate, the $657,900 figure is a slight reduction from the $700,000 annual property tax agreement Cate Street made with the town when it reopened the mill in fall 2011. Town leaders will discuss GNP at their selectmen’s meeting at 4 p.m. Monday, said Tapley, who was updating the agenda posted to the town website on Friday afternoon.
She and East Millinocket Selectman Clint Linscott, who owns an auto repair shop, said they were hopeful that the company’s restructuring plan will come together.
“Everything so far with this company has been positive. We trust them,” Tapley said Friday. “You have to trust and believe that 16 weeks is what they need. I am going to remain positive.”
GNP’s production halt isn’t the only worrisome economic news in town. Since Jan. 1, Soup to Nuts and The Aerie restaurants are among the businesses that have closed, while two buildings on Main Street near Napa Auto Parts, including one that Linscott owns, are being razed due to bad economic conditions, he said.
“I will support them. They presented somewhat of a business plan to me and hopefully they can fine-tune it to be successful,” Linscott said Friday of Cate Street. “Most of the people are hoping that the overall plan works and [are] optimistic. We have to be.”
If the mill cannot pay its property taxes or shuts down, East Millinocket loses its largest single taxpayer. Selectmen can institute a spending freeze or delay making their budget final, which typically occurs in June, to offset some of the revenue loss, Tapley said.
Two business owners who described themselves as vendors to GNP declined to comment on the situation, saying they didn’t want to upset their relationship with the company.
As part of the restructuring, the company will discontinue plans to convert its heating system at the East Millinocket mill to natural gas, saying that natural gas prices were too unstable. The company makes paper for newspapers, fliers, inserts, manuals, catalogs, directories and paperback novels.
Rice and Irland described GNP as being caught in a squeeze between increasing wood prices and declining market shares for the East Millinocket mill’s products.
“It is always a tough Canadian-dominated market,” said Rice, who has given seminars on torrefied wood production and what he describes as “the enormous gamble” torrefaction represents.
The U.S., he said, has one working torrefied wood facility, in Mississippi. Another 15-20 have been announced as in development in the U.S., Canada and Europe that have failed to materialize, underlining how challenging the business metrics are for such a fledgling industry.
And a key point that Thermogen supporters have made hasn’t yet materialized, Irland said.
“A synergy between newsprint manufacturing in northern Maine and torrefied wood remains an unproven hypothesis,” Irland said, “so in three to five years they [Cate Street] may be praised as bold pioneers — or not.”