Image via Flickr user eriwst

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.

Blacksmith’s reflection on the legal battle is a cautionary one. “If you are entering into a business agreement, it’s important to remember that business is business,” he warns. “There are a lot of great opportunities out there for communities to get involved in business ventures – but you have to keep an open eye to know exactly what you are entering into.”

In the end, Mishtuk Corporation was instructed to continue selling to Domtar, or to at least give them the chance to refuse. Domtar was subsequently ordered to pay Mishtuk the market price for its woodchips. The partnership continued until 2007, when the Waswanipi bought their independence.

For Chief Kitchen, the legal battles were a costly and unfortunate process that could have been avoided. “We had a contract with Domtar that clearly defined our conditions,” he says. “If you falter from those conditions, Aboriginal or non-Aboriginal, you’ll get taken to court.”

When questioned about their relationship with the Waswanipi community, Lyla Radmanovich, a communications advisor for Domtar, responded amicably. “Domtar had a longstanding and overall successful, mutually beneficial partnership with the Waswanipi Cree First Nation that lasted over 12 years,” she states. “Like in any partnership, some difficulties arose over the 12 years, but they were all eventually resolved.”

Her sentiments are echoed by Chief Kitchen, who still sees the partnership with Domtar as predominantly successful. “Typically our young people were the last to be hired on a construction site, and the first to be laid-off. But they went to work for the sawmill, took the training, and still worked for the sawmill after 10 years. And that’s success.”

These days, however, success is a difficult thing to demonstrate. In 2006, hard economic times led to the temporary shutdown of the mill. Corporate Knights made repeated attempts to speak with representatives from the Mishtuk Corporation, but couldn’t get past the automated message system. According to Chief Kitchen, Nabakatuk is currently searching for a potential buyer of their product, stating, “It is a struggle.” The forestry sector is faltering across the board, with AbitibiBowater filing for bankruptcy-court protection in April and Domtar and other industry leaders showing financial losses in 2008.

Despite Nabakatuk’s suspended operations, and the somewhat dismal state of the industry as a whole, Chief Kitchen has not given up on the company. “We will work to move operations forward and take it upon ourselves to try and work the company in the best way possible for the community.”

*Translation: Contracts Supply and Forest Management Agreement. The CAAF requirement was abolished by the province of Quebec in March of 2008.