Tax breaks for big business and heavy industry don’t usually play well on Main Street.
But a distress call from heavy industry and the forestry sector is being picked up and relayed by labour, small business and the mayors of eight resource communities throughout B.C.
The eight mayors, Unifor, the Mining Association of British Columbia (MABC) and a number of small businesses are lobbying to have the 7% PST on industrial power sales scrapped in the next provincial budget.
If it’s not, they fear heavy industry will become unsustainable in B.C. Three pulp and paper mills closed in 2015, and if more closures follow, it would have a domino effect that would likely trigger the closure of sawmills, they warn.
“The industry faces a ton of challenges, and, frankly, government plays a role in making sure that these industries are able to get through those times,” said Scott Doherty, executive assistant to the president of Unifor, which represents pulp and paper mill workers.
When a pulp or paper mill closes, it’s not just devastating for the community where it operates; it sends a ripple through the whole forestry sector, from B.C.’s Interior, where sawmills sell wood chips to pulp and paper mills, to Vancouver, where both wood chips and pulp and paper products make up a significant volume of Seaspan Marine’s barge business.
“The industry is so interconnected,” said Ryan Chambers, president of DCT Chambers Trucking in Vernon. “All those pulp mills on the coast have direct strong lines into the Interior, into the Cariboo, and their demise could lead to the eventual closure of sawmills in the Interior.”
Chambers’ company has a fleet of 350 trucks employing 500 drivers in B.C. About 60% of the company’s business is hauling wood chips used in pulp and paper mills.
He rattles off a list of sawmills that sell wood chips to the pulp and paper sector, and suggests they’re in jeopardy, if pulp and paper mills in B.C. continue to close.
Thanks to B.C.’s legacy hydroelectric dams, the province’s heavy industry has long had an economic edge over other North American jurisdictions. It not only had abundant natural resources – timber, minerals, natural gas – it also had abundant cheap power.
But that advantage is rapidly disappearing. Between 2013 and 2017, industrial power rates in B.C. have shot up 26.7% and will increase another 9.4% between 2018 and 2020.
Lafarge, which employs 1,200 people in B.C., pays about $10 million for power, plus $7 million in carbon taxes.
Teck Resources (TSX:TCK.B) spends about $50 million per year on power just for its Highland Valley copper mine near Kamloops.
Given that electricity accounts for about 15% of a mine’s operating costs, the recent increases can mean the difference between a mine continuing to operate or shutting down.
Last year, in recognition of the struggle B.C. mines faced following a prolonged commodity slump that closed several mines, the B.C. government allowed mining companies to defer a portion of their power bills for up to two years.
But that may be a Band-Aid solution to a more systemic problem, and it doesn’t help the pulp and paper industry.
For a company like Catalyst Paper, which operates three mills in B.C. and two in the U.S., power accounts for roughly 30% of its operating costs. It pays $11 million per year just in PST on its power bill.
“B.C. is the only jurisdiction in North America that applies PST on electricity used in manufacturing,” said Len Posyniak, Catalyst’s senior vice-president of human resources and corporate service.
Pulp and paper mills are at the top of the value-added chain for forestry. They take a waste product – wood chips from sawmills – and turn it into something that generates about $4 billion in exports annually.
A pulp mill typically employs hundreds of workers, with average wages of $85,000 per year. Catalyst alone employs 1,600 directly and more than 5,000 indirectly.
Catalyst’s Powell River mill pays $2.6 million annually in taxes – about 20% of the local tax base.
“If the mill was to close here, it would be pretty devastating,” said Powell River Mayor Dave Formosa. “The amount of taxation we receive from the mill would probably equate to a 20-some-odd per cent tax increase. Just taxes alone would be devastating, and the other issue is they’re 400 of the best-paying jobs in the community.”
Formosa and seven other B.C. mayors recently wrote a letter to Premier Christy Clark and B.C. Finance Minister Mike de Jong asking them to remove the PST on industrial power sales in the next provincial budget.
Up until 2015, there were an estimated 17 pulp mills and six paper mills operating in B.C. In 2015, Paper Excellence shut down its paper mill in Port Mellon and indefinitely shuttered its mill in Chetwynd.
Neucel Specialty Cellulose closed its pulp mill in Port Alice in 2015, putting 460 people out of work.
At the end of 2016, Tolko Industries closed its lumber mill in Merritt, putting more than 200 people out of work. •
