City of Powell River council has approved a new agreement-in-principle (AIP) with Catalyst Paper Corporation that sees the city and Tla’Amin (Sliammon) First Nation take ownership of PRSC Limited Partnership.
The agreement, which has been signed by Mayor Dave Formosa and approved by Catalyst’s board of directors, also includes a deal that finalizes the ownership of a barge ramp built by City Transfer Inc. and provides other economic development opportunities for the city.
PRSC was incorporated in 2006 as a partnership between the city, Catalyst and Tla’Amin. Catalyst sold the company 325 hectares (805 acres) of property not required for local mill operations and PRSC assumed a five-year mortgage of $4.5 million.
Under the terms of the AIP, the city and Tla’Amin will pay $1.5 million each to discharge the mortgage on the remaining six parcels of land owned by PRSC. As well, Catalyst will transfer its shares of PRSC to the city and Tla’Amin and they will become 50-50 partners of PRSC.
“I think this is a huge win for the City of Powell River and Sliammon,” Formosa said.
Catalyst has realized $18 million in benefits already through the AIP, Formosa said, through property tax reductions. “We haven’t got our piece yet, so we’ve said, please don’t push us out now.”
Currently PRSC owes $4.3 million on the mortgage, Formosa explained. Of the $1.5 million that has been paid to Catalyst, only $200,000 has gone toward the principal. The remaining $1.3 million has gone to interest payments. Formosa said PRSC would gain all of its interest back and, in addition, “we’re able to pay off the mortgage for exactly what it was worth originally, $4.5 million, seven years later. And, we get Catalyst’s shares. Now it’s Sliammon and Powell River for $3 million. We pick up their one-third equity and we have them forgive the interest payment.”
The city’s share of the purchase price, $1.5 million, will be funded through the sewer capital reserve, Formosa also said.
Tla'Amin Chief Clint Williams said there have been discussions about the PRSC proposal. "The question was posed to us, would we be interested in this sort of deal," he said. "We said we could probably make something like that work. . . There definitely is a strong interest from our part in wanting to have some business lands in the area. We are interested and were entertaining some different options."
Roy Francis, president of the Sliammon Development Corporation, said although the city and Catalyst have signed off on an agreement, Tla'Amin is working on seeking internal approval. "Sliammon is doing the same work as the city, trying to get approval internally within Sliammon," he said.
The AIP also includes a deal that involves Catalyst property where the barge terminal is located, a lot leased to JRK Holdings Ltd. and a water lot in front of both those parcels. Catalyst has agreed to give the lot leased to JRK to the city for $10.
JRK is a partnership between City Transfer and John Spick. City Transfer has had an agreement with the city to operate the barge terminal facility since 2002. Toward the end of 2010, the facility had to be relocated from Westview because of the extension of the south harbour. City Transfer built what was supposed to be a temporary ramp on Catalyst land next to JRK’s leased land after the city negotiated a lease for the property with Catalyst.
Once the city owns the lot now leased to JRK, Formosa said, it will exchange the lot with City Transfer for the ramp. “Then we own the ramp attached to our lot,” he said.
City Transfer will pay the city $5,000 a month for the lease of the two lots, Formosa added. “Then this is free and clear own-source revenue,” he said. “It goes in the treasury to help keep the taxes down.”
Plus, City Transfer will pay taxes on the lots, Formosa said. “We will calculate the two lots as if they were already subdivided. Catalyst has agreed that City Transfer will pay us [the taxes] for each lot.”
That will generate between $10,000 to $15,000 a year in taxes,” Formosa said. “We’ll end up with $70,000 to $80,000 new revenue from the barge terminal business.”
As well, the city has a bylaw that sets the rates for the barge terminal, Formosa said, which will stay in effect, so the city will continue to set fees for using the facility.
The AIP states the lots are going to be subdivided as soon as possible and the water lot will be shared by the mill and the upland owners.
Because Catalyst is currently in CCAA (Companies’ Creditors Arrangement Act), the AIP has to go through the CCAA process. The CCAA includes legal language about “in the ordinary course of business,” Formosa said. “We were able to prove to the monitor that through this process, the CCAA re-organization, the AIP was a living document. Everything that we’re doing here is within the AIP, which is in the normal course of business.”
However, the monitor or the judge could say no to the deal, Formosa said. “If that happens, the AIP says the lot JRK currently leases stays with them and City Transfer can pick up their temporary [ramp] that they were supposed to build us under the rent agreement and move it onto their own lot,” he said. “They’re on their own. We have nothing to do with anything. We don’t have any bylaws, they’re on their own and you sign a release here that you’re not suing us.”
Additionally, the city will pay City Transfer $160,000 in cash, Formosa said. “That $160,000 is for the expedited move for what it cost to move from the old site to the new site,” he said.
City Transfer paid for that move up front, Formosa said. The city has the receipts from City Transfer, as well as records of the “massive overtime” the company incurred in making the move happen. “We agreed to give them the $160,000 for the expedited move and we’re going to charge that toward the barge terminal, even though it was really done for the south harbour. But it was the barge terminal that needed to get out of there and needed a new home. So the barge terminal fund is going to pay a cheque here as soon as they sign off on the deal.”
Another part of the deal that Formosa is excited about is all the property that the city will own. “We’ll be able to take out the triangle that everyone uses for parking at Dwight Hall, make it a separate lot and attach it to Dwight Hall,” he said. “Today, Dwight Hall has no parking. We park at the will of Catalyst or on the street. But when there is a big do, there isn’t enough street parking and you start to implode on the no parking at the Rodmay. This is going to give us a parking lot in perpetuity for Dwight Hall and those are wins that make me smile.”
The AIP also outlines other economic development opportunities, including allowing the city to explore the possibility of establishing a deep-sea port in the vicinity of the mill’s old deep-sea dock and giving the city an opportunity to explore potential participation in new alternative energy projects at the mill site.
If the mill were going to invest in another large power project, Formosa said, “We want an opportunity to be an equity partner in that as well, because we’re looking at getting into the green energy business.”
The city plans on creating a utility in partnership with Tla’Amin, Formosa added, and building a 34-megawatt run-of-river hydroelectric plant in Freda Creek. “We’re looking at some other power utility operations as well,” he said. “They are in-camera because they have to be. As soon as they can come out, they will.”
The AIP also includes a provision for revenue upside. “After the reorganization, if it goes correctly, there is a new way of looking at the assets,” Formosa said. “We captured that in the agreement.”
If Catalyst makes profits over 10 per cent of its capital value, the city has an opportunity to realize revenues up to a maximum of $500,000 a year.
The city has to wait until Catalyst’s new books come in after the reorganization because there will be a smaller capital base to work from, Formosa said. “The threshold is not as high, on profits from that capital. It’s a smaller number because they wrote off a lot. We just wanted to still be there, but not at the old numbers. We wanted the new numbers and they’ve said yes, that’s fair.”
The AIP also includes a provision for the city’s revitalization tax exemption program that sets major industrial taxes for 2012-2014 at $2.25 million, subject to Catalyst applying for the exemption annually, as stated in the city’s bylaw.
To read the city’s press release about the AIP, click here.