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Viewing cable 06HALIFAX90, NOVA SCOTIA GOVERNMENT AIDS PULP AND PAPER COMPANY ON EVE OF

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Reference ID Created Released Classification Origin
06HALIFAX90 2006-05-05 19:21 2011-04-28 00:00 UNCLASSIFIED//FOR OFFICIAL USE ONLY Consulate Halifax
VZCZCXRO5844
RR RUEHGA RUEHQU RUEHVC
DE RUEHHA #0090 1251921
ZNR UUUUU ZZH
R 051921Z MAY 06
FM AMCONSUL HALIFAX
TO RUEHC/SECSTATE WASHDC 0998
RUEHOT/AMEMBASSY OTTAWA 0357
INFO RUCNCAN/ALL CANADIAN POSTS COLLECTIVE
RUCPDOC/USDOC WASHDC 0014
RUEHHA/AMCONSUL HALIFAX 1062
UNCLAS HALIFAX 000090 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON ETRD EAGR ELAB PGOV CA
SUBJECT: NOVA SCOTIA GOVERNMENT AIDS PULP AND PAPER COMPANY ON EVE OF 
ELECTION CALL 
 
REF: OTTAWA 0172 
 
SENSITIVE BUT UNCLASSIFIED -- PROTECT ACCORDINGLY 
 
1.  (SBU)  SUMMARY:  Conservative Premier Rodney MacDonald of 
Nova Scotia is calculating that his government's C$65 million 
offer of assistance to an ailing paper exporter to the United 
States will pass the subsidy test.  However, this cash infusion 
could be only the first step in providing additional aid to any 
large industry in the province, one of the expected planks in 
the Premier's upcoming election platform.  END SUMMARY 
 
2.  (U)  The government of Nova Scotia may have raised some 
eyebrows with its announcement on May 3 that it would offer C$65 
million (US$ 58 million) to a troubled paper mill in the 
province's economically depressed Cape Breton region. Stora 
Enso, the giant Swedish-Finnish paper producer, owns and 
operates the mill in Port Hawkesbury, part of its North American 
network of plants.  The Port Hawkesbury operation produces an 
estimated C$50 million of newsprint and catalogue paper for 
export to the U.S. market and has supported 650 direct and 
approximately 2,400 spin-off jobs since it began operation in 
1961.  However, like other pulp and paper mills in North 
America, Stora has been hard-hit by increasing operating costs 
and heightened global competition (reftel). 
 
3.  (U)  In 2005, company officials warned that the mill's 
competitive position had eroded to the point that unless the 
province stepped in to help the operation, Stora would have to 
consider closing the plant permanently. The plant is currently 
idle, the result of a lockout of employees which began in 
January after the union rejected the company's final contract 
offer, which featured some hefty concessions by the workers. 
The shutdown of the mill has already had a significant impact on 
the southern Cape Breton economy, leading residents and local 
politicians to mount a high-pressure campaign for the MacDonald 
government to respond favorably to Stora's demands. 
 
4.  (SBU)  For Nova Scotia Premier Rodney MacDonald, who is 
widely predicted to call an election within days, there seemed 
to be little political choice but to help the ailing mill.  The 
deal as announced on May 3 provides Stora with C$65 million in 
C$10 million increments payable after each 12 months of full 
production, with a C$5million "bonus" at the end.  It also 
requires Stora to work out a new contract with the workforce to 
get the plant up and running.  In return for the cash, Stora 
will release the province from all contractual obligations to 
provide access to provincially owned land, including a 
commitment to provide 200,000 acres of forest by 2013.  Economic 
analysts had warned the government previously to be cautious in 
how it structured any assistance to Stora to ward off subsidy 
allegations, and it appears the government's reasoning is that 
the cash for land swap takes care of that.  However, there could 
be more aid to come and more subsidy tests down the road. 
Analysts see Stora asking for even more from the government and 
they predict similar moves by Stora's competitors and other 
large industries which are already lining up for taxpayer 
assistance. 
 
5. (SBU)  COMMENT:  Given the current political climate in Nova 
Scotia and the expected election call, it is not too difficult 
to see why the Premier took the plunge and came up with the deal 
for Stora.  Port Hawkesbury is near his home district and 
furthermore, his Conservative party has always relied heavily on 
the rural vote throughout the province.  Given those 
circumstances, it will be interesting to see just how much 
emphasis there will be on assistance to Stora and other 
industries in the province when the Premier unveils his budget 
next week.  After all, that document is considered to be the 
springboard for the Premier's election call so there should be 
lots of initiatives meant to please interest groups of all 
stripes.  END COMMENT 
 
HILL