Kruger VP mum on dollar figures in new power agreement with N.L. government

A senior executive with struggling paper giant Kruger spoke to reporters in Newfoundland and Labrador on Monday but left them with more questions than answers about a new agreement to sell power to the province and prop up its Corner Brook paper mill. 

How much electricity will be sold? How much will taxpayers pony up? How is this different from the existing power purchase agreement between the two sides? Senior vice-president Roman Gallo fell short of answering any of those questions.

"The way to think about the cost and to think about the megawatts is that there's a lot of things outside our control," Gallo said. "And so I don't want to get into a specific number of megawatts or a cost, because it will vary."

Kruger shut down operations for a week in November, citing tough market conditions at the time. It also has an outstanding $117-million loan to the provincial government, which Gallo admits the company has not made a payment on in two years.

"We have not been paying on the loan," he said Monday. "But that was with agreement with the government. And the loan is fully guaranteed, so that's not going to be an issue. The people of Newfoundland and Labrador, and the government of Newfoundland and Labrador, they're under no risk of that being a long-term liability for them."

CBC News has requested comment from a trio of provincial government departments involved with Kruger's operations. 

How does this deal differ?

Corner Brook Pulp and Paper is powered by a hydroelectric dam in nearby Deer Lake. Both assets are owned and operated by Kruger. 

Kruger has an existing 10-year agreement to sell excess power from the dam to Newfoundland and Labrador Hydro — the province's Crown corporation for utilities.

On Friday, Kruger announced a new deal — a six-month contract to sell excess energy to the province. Gallo said they wanted a shorter-term agreement that would help steady the ship during these challenging times.

In an emailed response late Monday, Hydro told CBC News the new agreement is separate and distinct from the capacity assistance agreement. The paper company will adjust both its generating assets and its paper-making operations to direct more energy to the grid during the six-month period.

"We wanted it long enough where we could stabilize and efficiently operate the mill as well as deliver power to Newfoundland and Labrador Hydro," said Gallo.

Hydro said in Monday evening's email it will purchase 80,000 megawatt hours from Kruger at a cost of $275 per megawatt hour, or about $22 million.

But questions remain about why Newfoundland and Labrador Hydro would need to purchase power over the next six months. The province has just pulled through winter without any significant problems, and demand on the grid takes a considerable dip in the summer months.

Hydro did say it's working with the mill to "access the energy when its needed the most — during winter."

"While Hydro has plenty of generation to supply customers, having the certainty of excess energy reserves is always beneficial, even as we move into the spring and our maintenance season," reads the emailed statement.

"We work on a two-week schedule for deliveries from [Kruger] which allows us flexibility to adjust delivery based on needs, which may fluctuate through the agreement period, for example, we may use more of that available energy in the early months as opposed to June and July."

When it comes to questions about government handouts to corporations, Gallo said it's fair comment.

"You can't fault people for having that point of view," he said, before adding how the mill provides economic benefits to the city of Corner Brook and the province as a whole.

Looking for a green future

With the newsprint market in decline, Gallo said, the company has hired three independent consultants to look at the future of Kruger's operations in Corner Brook.

Gallo said they'll take the results of each report and boil it down into a few options. A leading contender so far is the production of biofuel made from wood. 

Gallo pointed to the company's access to an electricity source, a mill and a deepwater port and said the chances of diversification are strong.

"What we're doing is taking a look at all those advantages, and we're saying, 'What else could we make at Corner Brook, as well as newsprint, that could bring additional value to us?'"

Hydro said it's responsible for payments to the paper mill and the funds will not come from its regulated operations and will not be passed on to customers.  

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