Referring to the above project, the Auditor General and the Provincial Treasurer stated in the audited financial statement of the sacred Heritage Savings and Trust Fund as of Mar. 31/97 that:
"Due to low current pulp prices and the risks associated with volatility of future pulp prices, foreign exchange rates and sales volume, a recovery shortfall may result if the loans were sold in the near term subsequent to Mar. 31, 1997. HOWEVER BASED ON HISTORICAL OPERATING RESULTS AND THE LATEST INDUSTRY FORECASTS OF PULP PRICES OVER THE LONG TERM, THERE IS REASONABLE CERTAINTY THAT THE LOAN PRINCIPAL AND ALL ACCRUED INTEREST WILL BE REPAID BY 2010" (our capitalization).In other words do not sell now or you may lose money. Hold on till maturity and you will get the entire principal and accrued interest. The Provincial Government did exactly the opposite and it resulted in a loss to the Alberta tax payers of $140 MILLION.
Prior to the above strong statement by the Auditor General, a compelling and clear solemn promise in writing was provided by the Hon. Jim Dinning (who was then Provincial Treasurer). He described the Province’s participation as that of a “patient investor” and concluded that, “No portion of this loan will be forgiven. Taxpayers will see the money they have loaned returned to them with interest paid in full.”
Mr. Stockwell Day provided a similar statement recorded in the April 23, 1997 issue of Hansard in which he states in relation to the full amount of principal and the full amount of interest:
"There is no doubt on the part of any ALPAC officials that I have talked to that they are required to pay that amount. If they need a reminder of that, or if the Hon. Member thinks they need a reminder of that, we are happy to do that through the loan agreement, which is very clear. They must pay. They must pay in full. That is what we are requiring from them".
A pulp mill with no Forest Management Agreement has little value, and Mitsubishi and Alpac knows this. When they failed to pay full principal and interest, the Government would, in law and equity, under the Forests Act & Regulations and other Acts that may apply, have both leverage and a legislated, as well as a moral duty, to require full payment of principal and interest.
Less than 30 days after signing the audited financial statement of Mar.31/97, the Provincial Government hired a consulting firm to review an offer from Mitsubishi to write-off $140 MILLION.
The consulting firm stated that their “fairness opinion” (report) did not constitute a recommendation to the Provincial Government of Alberta to accept the ALPAC/Mitsubishi/et al, write-off offer. Shortly thereafter the write-off offer was accepted.
The write-off of a loan, not in default, made in part to Mitsubishi (a giant conglomerate), which is solvent and was secured by the world’s largest single-line pulp mill & which has achieved world record production, shows very clearly that there was no justification for such a write-off and the Auditor General stated as much.
By a letter of Dec. 29/97 to the Alberta Government, The Edmonton Friends of the north Environmental Society called for a public inquiry into the Klein government’s plan to write-off the $140 MILLION ALPAC loan. They wanted to know why the Conservative government was willing to forgo $140 MILLION worth of interest on the ALPAC loan at a time when market forecasters were predicting that the pulp business was going to rebound. ALPAC’s own forecasters predicted a turnaround in pulp prices, which would make the loan profitable. It pays interest at a rate of 9.2% a year. ALPAC’s August edition of the company newsletter, Forest Landscape stated, “Pulp prices should continue to rise through the rest of this year and into 1998". The September quarterly report of Crestbrook Forest Industries (one of ALPAC’s parent companies), confirms that “results reflect an improving pulp market.” The Provincial Government cannot have it both ways. The Provincial Treasurer cannot claim that pulp prices are low and that the $140 MILLION loan must be written off, while another branch of the Provincial Government, the Alberta Securities Commission, allowed a prospectus to say that pulp prices are expected to rise in 1998.
On June 1/97 restructuring of the Alberta debt was completed and on April 30/97 Millar settled its debt to our province by issuing a $25 MILLION non-interest bearing note payable and cash of $6.5 MILLION. At the same time the $264 MILLION of debt owing to the taxpayers and citizens of Alberta, by way of a loan from The Heritage Trust Fund to Millar Western to build a pulp mill, was written off. Not a single penny was paid by Millar Western on that debt.
At the time of the write-off, former Premier Don Getty stated that as the company is still operating, he didn’t understand why the loan was written off.
Premier Klein stated that the loan was a “sweetheart deal.” He did not explain why such a loan could be made from the sacred Heritage Savings and Trust Fund.
U.S. bond buyers learned about the project in a 128-page prospectus from Millar Western, when it was refinancing a $232 MILLION Canadian bank debt. The company prospectus, which was targeted at U.S. institutional investors, stated that; “the company benefits from its location in Alberta, which affords a low-cost, abundant fibre supply and a provincial government that is supportive of the forest products industry.”
The Millars of Edmonton became the sole owners of the Whitecourt pulp mill after the Alberta Government, their partner, walked away from the mill in April/97 because it incorrectly considered the mill to be a money pit.
The Province of Alberta lost $244 MILLION on the sale of the mill. The Alberta government has dug into our Heritage Savings and Trust fund for loans dating back to 1987 and began making loan-loss provisions in 1994.
The Alberta Progressive Conservatives knew about the pending write-off of the province’s interest in the mill in January of 1997. Nevertheless, the Tories waited until three weeks after their re-election (March 11/97) to disclose this awkward transaction.
The prospectus informed U.S. investors that Millar Western had been awarded a coveted Forest Management Agreement by the Alberta government to enable the firm to harvest timber for up to 20 years. The document also said that the elimination of debt obligations to the Province of Alberta had strengthened the company’s balance sheet. The prospectus also stated that the company posted in 1997 a $10.8 MILLION profit compared with the $8.6 MILLION in 1996. The document also disclosed that top company executives received compensation totalling $2 MILLION and non-management directors were each entitled to receive an annual fee of $12,000 plus $800 for every board meeting attended.
The prospectus also revealed that Millar Western paid an $18,000 (Canadian) “administrative penalty” for breaching environmental rules. The penalty stemmed from excessive discharges of certain resins and fatty acids in their effluent during a one-week period ending Jan. 3/96.
NO formal public hearings were held regarding the Daishowa pulp-mill. Neither the Federal Government nor the Provincial Government beyond what was offered by the company. Their efforts amounted to a number of "dog and pony" shows in the communities close to the project area. This project was approved without the benefit of creditable review.
Taxpayers heavily subsidized the Daishowa project in the form of infrastructure items. These items include a bridge, a rail spur, roads etc. The ultimate cost was in the tens of MILLIONS.