Canada's Paper Makers Must Get Bigger

Canada's Paper Makers Must Get Bigger, Norske Skog CEO Says

Feb. 8 (Bloomberg) -- Canadian pulp and paper makers such as Abitibi-Consolidated Inc. are too small to compete globally and must merge with local rivals to avoid becoming takeover targets, said Norske Skog Canada Ltd. Chief Executive Officer Russell Horner.

``The ideal situation for Canada is to have at least one, maybe two global-sized players that can access capital markets,'' Horner said after an industry panel in Montreal. ``Otherwise we are going to find that Canadian companies are increasingly owned by operators from other countries.''

For consolidation to happen in Canada, competition authorities need to make it easier for pulp and paper companies to merge, Horner said. Merger reviews by the country's Competition Bureau can take at least six months and carry ``significant'' costs, he said.

``The problem is the law,'' Horner said. ``Government policy restricts the ability of companies to consolidate. We need our government to change Canadian law to allow market dynamics rather than government policy to determine industry structure.''

Even Abitibi, the world's largest newsprint maker, needs to get bigger, he said. Montreal-based Abitibi has a market value of C$3.2 billion ($2.5 billion), about one-fifth the size of Finland's Stora Enso Oyj, the world's largest paper maker.

``We in Canada look upon Abitibi as being a giant, but it's actually quite small by global standards,'' Horner said. ``We need something that has some weight.''

Vancouver-based Norske Skog Canada, the country's sixth- biggest forest products maker by market capitalization, is worth about C$794 million. Norway's Norske Skogindustrier ASA owns about 29 percent of Norske Skog Canada, while the remainder is widely held.

Close Plants

Horner and other participants in today's discussion suggested Canada's forest-products industry will continue to shut inefficient mills to cut costs.

``There is consolidation coming in the industry,'' Tembec Inc. CEO Frank Dottori said. ``We are going to rationalize between now and May 1.''

Horner thinks 15 to 20 ``significant'' production units could be shut across Canada in the next decade. Each unit employs 200 to 300 people, he said, though other workers would be hired as companies invest in new technology in the remaining facilities.

Horner said Canada's forest-products companies need to invest C$20 billion to C$50 billion in their facilities over the next decade.

``I see fewer mills operating with much higher energy efficiency producing higher-value products,'' he said. ``It's not a pretty picture but it is the basis we need to build our future platform. It's inevitable.''

Renewable Power Production Initiative

Posted Friday, February 25, 2005

Green power budget initiatives an improvement
Forest Industry applauds budget initiative
By Working Forest Staff

The Forest Products Association of Canada (FPAC) welcomed the initiative contained in the federal Budget regarding the creation of a Renewable Power Production Incentive (RPPI).

“The industry greatly welcomes and applauds the RPPI initiative contained in (the February 23rd) budget. We commend the Government for having recognized the important role that bio-energy can play along with other forms of low impact renewable energy such as wind power in meeting Canada’s economic, social and environmental goals. This measure is a perfect example of a forward thinking initiative that will not only enhance Canada’s competitiveness internationally but will also generate significant environmental, social and economic benefits for all Canadians,” said FPAC President and C.E.O., Avrim Lazar.

Canada’s pulp and paper sector currently derives a full 55% of its own energy demands from biomass, a clean, green, carbon-neutral energy source derived from industrial byproducts such as bark, wood shavings and sawdust. The sector is now the largest industrial source of cogeneration or combined heat and power capacity in Canada. Between biomass-fired cogeneration and small hydro generation, the sector produces enough renewable energy to power Vancouver or Calgary and Edmonton combined. The industry is poised to go even further as a number of breakthrough technologies currently under development hold the potential to dramatically increase this potential.

“Our industry has been a leader in greenhouse gas reductions over the past 10 years. Through continued development of our biomass capacity we can go even further. With the right policy framework, the industry has the potential to be a net exporter of renewable energy. We certainly look forward to working with the government to further develop this budget measure,” added Lazar.

FPAC also welcomed news that higher rates of capital cost allowance will be made available for eligible investments in energy efficiency and renewable energy technologies. Accelerating capital stock turnover is critical to improving both the competitiveness and environmental performance of Canadian industry.

FPAC is the voice of Canada’s wood, pulp and paper producers nationally and internationally in government, trade and environmental affairs. Canada’s forest industry represents 3% of Canada’s GDP and exports $40 billion of wood, pulp and paper annually. The industry is one of the Canada’s largest employers, operating in over 1200 Canadian communities and providing 900,000 direct and indirect jobs across the country.