Mercer International Inc., on January 26, 2012 served a Notice of Intent to Submit a Claim to Arbitration (the "Notice") on the Government of Canada for breaches by it of its obligations under the North American Free Trade Agreement ("NAFTA"). Under NAFTA, Mercer's investments in Canada are to be treated on a basis that is no less favourable than the most favourable treatment afforded to Canadian investors. Mercer's NAFTA claim (the "Claim") relates to its investments in its Castlegar pulp mill, Zellstoff Celgar (the "Mill").
Mercer's Claim arises from the treatment of the Mill's energy generation assets and operations by the Province of British Columbia, primarily through the actions of BC Hydro.Mercer's Claim is against Canada, rather than the Province of British Columbia as, under NAFTA, Canada is responsible for the actions of its Provinces.
"We have been forced to commence the NAFTA Claim following years of attempts to resolve our issues through dialogue with the Province and proceedings before the Commission because of NAFTA time period limitations relating to the expiry of our claim", said Jimmy Lee, President and CEO.
"We are bringing the Claim as, under Provincial policy, the Mill's ability to effectively utilize its own generation assets and to sell and purchase energy is severely and unfairly restricted. All other competing pulp mills in British Columbia receive more favorable treatment with respect to their ability to purchase and sell energy. This puts the Mill at an unfair competitive disadvantage.
"In our various attempts to resolve the issue, we have sought fair treatment in order to put us on equal footing with other pulp mills within the Province that have electrical generation capacity. "Unfortunately, we were not able to obtain a satisfactory resolution through these efforts."
Mr. Lee then stated that: "Mercer acquired the Mill in 2005 for an aggregate purchase price, including working capital of over Cdn. $250 million. Since then we have invested in excess of Cdn. $100 million in additional capital to upgrade the Mill and increase its electricity generation capacity. We believe that maintaining and enhancing revenues from the production of green energy and other by-products at all of our mills is critical to Mercer's future success." Mercer must maintain its competitive position vis-à-vis other less efficient mills within the Province as well as at our other mill locations.
"Mercer simply cannot stand idly by and allow its competitive position to be unfairly eroded." Mr. Lee continued: "The unfair and discriminating treatment of the Mill has resulted in it losing about Cdn. $19 million of incremental energy sales per annum." Mr. Lee concluded: "Under the NAFTA Claim, we will be seeking damages in the amount of approximately Cdn. $250 million consisting of past losses of approximately Cdn. $19 million per year accruing since 2008 and the net present value of projected losses arising from the ongoing application of discriminatory Provincial policies."
The complete Mercer International press release may be viewed online at http://www.mercerint.com/i/pdf/news/2012-12-26-NR.pdf