Pulp Fact or Fiction?
Questions of conflict in the Domtar-Mishtuk partnership.
In our April 2009 Earth Day Issue, Corporate Knights featured a ranking on the Aboriginal relations of Canada’s extractive industries. In the forestry sector, Domtar placed first with a 74% finish, largely due to its partnership with the Waswanipi First Nation in the Nabakatuk sawmill. Following the article’s release, Domtar notified us that it was no longer involved in the Nabakatuk mill, having sold its 45 per cent shares to the Waswanipi community in 2007. Shortly thereafter, we received a letter from a concerned reader alluding to considerable conflicts that arose over the course of the joint venture. In response, we set out to further clarify the issue.
Waswanipi is a small Cree community in central Quebec flanked by the Chibougamau and Waswanipi rivers. Situated in a timber-rich region populated by pulp mills and logging operations, the community saw opportunity in the forestry sector as a potential area for Aboriginal-led economic growth. In 1983, they founded the Mishtuk Corporation and began harvesting lumber on their own terms, using more sustainable methods that upheld the needs of Cree hunters and trappers, while preserving natural habitat.
As time went on, however, it became clear that in order to grow as a company and create more jobs for the community, the Mishtuk Corporation had to significantly expand its production capacity. What it needed was a sawmill – a costly venture that would require major financial support – so Mishtuk went in search of the industry giants.
Domtar was among three companies (out of eight contacted) that responded to Mishtuk’s offer. Owning a processing mill only 80 km from their community, and already possessing a much needed CAAF (Contrat d'Approvisionnement et d'Aménagement Forestier*) land agreement, Domtar was the obvious choice to move the project forward. After an environmental impact assessment and the signing of documents, the Nabakatuk project was underway.
The idea of working with Domtar was encouraging to John Kitchen, Chief of the Waswanipi Cree. “We had approached many different companies, but Domtar was the pioneer company to join forces with our community,” he says. “It played an important role, bringing financial prospects, training, and expertise to the community.”
However, as the partnership played out, Chief Kitchen’s positive outlook was challenged by others involved with the company. Jack Blacksmith joined Nabakatuk as General Director in 2004 with a mandate to grow the company’s profitability. Today, his opinion of the Domtar partnership is much less encouraging. “Solely based on the business venture, through a purely economic viewpoint, it was a bad thing for the community,” Blacksmith contends. According to him, over the course of seven years, the mill had run a deficit of $10.4 million.
The overwhelming loss of revenue that Nabakatuk suffered, according to Blacksmith, was primarily due to the relatively low selling price of its wood chips. Coupled with high transportation costs, the processing expenses outweighed the company’s revenue from day one. To add insult to injury, when seeking out other potential buyers, Blacksmith discovered Mishtuk was being paid 13 dollars below the market price by Domtar – a figure that when adjusted for 70,000 metric tonnes of material annually, was significant.
This disparity led Blacksmith to seek out other potential buyers in 2005. Unfortunately, a Right of First Refusal clause in the Shareholder’s Agreement prohibited any such outside agreements from taking place. So when Mishtuk approached Domtar with a firm offer from a new highest bidder, Domtar took the Mishtuk Corporation to court for a direct violation of the Shareholder’s Agreement.
The rub, according to Blacksmith, was that the Shareholder’s Agreement was never presented to Mishtuk as having much significance. Instead, the Protocol Agreement, which expired in 2005, seemed to be at the forefront of the agenda – and it was this agreement that Blacksmith had in mind when he approached the outside buyer. For Blacksmith, with regards to the contract, the devil was not only in the details, but in another document altogether.