BUSINESS/ECONOMY

Tugging at the federal purse

Anthony Wilson-Smith March 25 1985
BUSINESS/ECONOMY

Tugging at the federal purse

Anthony Wilson-Smith March 25 1985

Tugging at the federal purse

Anthony Wilson-Smith

As achild in the Eastern Townships community of Windsor, Que., Emilien Dubreuil was fairly certain of what the future held for him. Declared the 32-year-old Dubreuil last week: “I wanted to work here, and if you want to work here jobs begin and end with Domtar.” Both Dubreuil’s father and grandfather, along with a majority of Windsor’s labor force since the 19th century, have worked at the company’s huge fine-paper mill. But last week Dubreuil, a widower with a small son and 12 years’ experience as a shipper at Domtar Inc., said he felt “angry, confused and fearful” for his job. The cause of his uncertainty is the federal government’s reluctance to provide the mill with a $117-million modernization grant. Without that grant, the future of the operation — and Windsor itself —will be in doubt. Said Windsor Mayor Adrien Peloquin: “There is one brutal truth: without the mill, there is no Windsor.”

Last Feb. 26 the town’s 5,200 residents were stunned to learn that federal Industry Minister Sinclair Stevens had rejected a request for funding assistance to help pay for a $1.2-billion overhaul of the mill. Domtar officials said that they would be forced to cancel the renovations and, ultimately, close the mill. The sprawling mill has outmoded facilities and requires environmental upgrading to keep its operating licence. The decision immediately sparked a

national controversy that has endangered the Conservatives’ newly acquired support in Quebec and provided the first major test of Stevens’s plan to cut back on federal grants to industry. Despite a wave of support in Quebec for the grant, Stevens told the House of Commons last week that such a profitable company “does not have to turn to the federal treasury.”

Stevens has the full backing of Prime Minister Brian Mulroney, who declared March 8 that one of the reasons the

Tories are not helping the company is that “Domtar’s financial situation is better than that of the federal government.” The company’s 1984 profit of $89.5 million was more than double its 1983 figure, and it has a revolving line of credit for as much as $450 million (U.S.) with a Canadian bank.

At the same time, the dispute over the grant has raised a sensitive issue for Stevens: whether or not the federal government should act as a benefactor for Crownowned corporations. Two Quebec governmentowned investment agencies, the Caisse de dépôt et placement du Québec and the Groupe SGF, own

45.4 per cent of the company. Although Mulroney has said he has not yet set a policy concerning grants to Crown corporations, Stevens has indicated he is hoping to eliminate such funding.

Domtar officials say that the grant is essential in order to raise the company’s return on investment to the “acceptable” 15 to 18 per cent needed to justify the project—a rate considered healthy by investment analysts. The company’s stand has sparked dire warnings about the effects of shutting down the operation. According to the Common Front for the Survival of Domtar, a coalition of local company, union and municipal representatives, over a five-year period the closure of the factory will cost 5,000 jobs directly or indirectly and result in a loss to the federal government of $170 million in lost tax revenue and unemployment insurance payments. Said Michel Bousquet, the spokesman for the committee: “They can save jobs and money by giving the grant or they can hold the grant back—and cost themselves money.”

Stevens argues that the grant would actually cost much more than the $117 million requested—more than $1 billion—because Ottawa would have to borrow money to make the loan. Stevens also says that the grant would set an unfortunate precedent. His office already has grant applications from several other forest product companies totalling $2 billion.

Last week the government proposed a compromise solution to the standoff. In the Commons, Stevens declared that his officials were studying other alternatives to an outright grant. Among the possible options: generous tax credits for the company’s investment, a government loan guarantee or a loan at re-

duced interest rates. Such measures, said a Domtar official who requested anonymity, would “ultimately give us the kind of breaks we are looking for and at the same time give those guys the out with honor they have been looking for.”

Any move toward breaking the deadlock would be welcomed by Windsor residents. Said Dubreuil: “I voted for these guys because they were going to fix the economy and create jobs. Hell, we don’t even want them to create anything —just to save what is I here.” As the Tories are " discovering, even compromises can be expensive.^