ANALYSIS

Are hopes for a ‘fairy tale’ turnaround lost at Old Town Fuel & Fiber?

Posted Aug. 15, 2014, at 12:33 p.m.
Employees at Old Town Fuel and Fiber learned Wednesday night that they would be indefinitely furloughed due to foreign trade and high fuel costs.
Employees at Old Town Fuel and Fiber learned Wednesday night that they would be indefinitely furloughed due to foreign trade and high fuel costs. Buy Photo

Old Town Fuel & Fiber was in a tough business that, late Wednesday, got beaten to a pulp.

The company’s furlough of 180 workers results from an inability to meet challenges faced by a business that has for years tried to broaden its operations beyond an unfavorable position for turning wood fiber into pulp and selling it to paper makers.

“They were producing solely market pulp and in the world of pulp and paper, that’s a very difficult position to be in,” said Bob Rice, a wood products scientist at the University of Maine.

Rice said he expects that potential buyers could fit one of three profiles: someone interested in re-establishing on-site tissue paper production, someone who would use the plant just to make pulp for other paper operations or someone banking on the intellectual property and research that could lead to commercial production of biofuels.

He views the first two profiles as the most likely for sustaining the mill over the long-term, particularly because the market for tissue paper has remained strong while other segments of the paper industry battle changing reading habits in a switch to digital technologies.

The latter challenge apparently proved too great for turnaround investor Patriarch Partners, whose owner Lynn Tilton has dubbed herself “Diva of Distressed.”

Tilton said in a written statement after her firm purchased the Old Town plant in 2008 that she hoped the project would “demonstrate the benefits of a marriage of manufacturing and technology” and the enduring strength of American manufacturing.

“I need this to be the fairy tale, because I need others like me who have money and have the ability to care about small-town America,” Tilton said to a group of the mill’s workers in a video documenting a 2011 visit she made to Old Town. “When this is that fairy tale story, you will have every part of it.”

What’s next is still unclear as Tilton’s firm, which specializes in turnarounds, this week turned around from — not with — the Old Town mill. A spokesman from Patriarch did not respond to requests for comment Thursday and Friday.

Company officials and industry observers agree on the challenges the mill faced: a reliance on producing wood pulp, a product that has fallen in price because of rising foreign competition as costs for the raw material, wood fiber, have gone up; ongoing problems with its biomass boiler; and delays turning research on innovative biofuels into a sellable product.

Three years ago, mill officials said groundbreaking on a biorefinery was a month away. In a February 2014 forum, the mill’s point person on that project said construction was set for later this year.

Hemant Pendse, director of the University of Maine’s Forest Bioproducts Institute who has worked with the company on that research, said he thinks the work will continue after the mill is sold to new owners.

“We have been in a similar situation, when the ownership changed last time,” Pendse said, referring to the 2008 bankruptcy of previous owner Red Shield, which had secured $30 million from the Department of Energy for that research. He expects the biofuel project’s proponents will seek a second phase of funding under new ownership.

But the success of that operation may rely on finding a workable structure for the rest of the business, according to industry experts in the state.

John Williams, president of the Maine Pulp and Paper Association, said that refining products like ethanol from wood-derived sugars could hold opportunity for mills across the state, “but unfortunately they have to be making enough money selling pulp to proceed.”

Rice said that the sale of the mill could hold opportunity for the Woodland Pulp mill in Baileyville, which is adding two tissue-making machines. It is owned by investment firm International Grand Investment Corp., which is part of a holding company based in China.

“That same company might be interested in looking at a third or second viable tissue site,” Rice said.

A day after its latest closure, the future of Old Town Fuel & Fiber is subject to a mixture of speculation and hope.

While Tilton’s firm came in with big hopes, she was aware of the stakes.

“In that town, that’s the world and when they shut it down, people lost their jobs and had nowhere to go,” Tilton said during her 2011 visit to the mill. “There’s a lot of pressure on me in this state to sort of be the lady of light and salvation.”

Town officials said in a statement Thursday they are grateful for her company’s efforts and state economic development officials said they’ll help find a new buyer.

But who will be the mill’s next lady of light and salvation remains an open question.

 

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