MONTREAL - AbitibiBowater (TSX:ABH) is threatening legal action under the North American Free Trade Agreement over Newfoundland and Labrador's move to expropriate its resource rights and hydro assets in Grand Falls-Windsor
In a five-page letter sent Friday to Premier Danny Williams, the newspaper giant's president and CEO, David Paterson, urges the province to reconsider what it has done.
In an escalating war of words between Williams and the multinational company, Paterson describes Newfoundland and Labrador's seizure of its assets as "confiscatory and hostile actions" that could damage the province and Canada.
"The legislation is an entirely unfounded and unscrupulous attack by the province of Newfoundland and Labrador," it says.
"The legislation, which is without precedent in Canada, and is reminiscent of decrees emanating from jurisdictions with less democratic traditions, shocks common sensibility."
The province hastily passed Bill 75 on Tuesday to expropriate the company's hydroelectric assets, water and timber rights in the Grand Falls-Windsor area.
The move came after Montreal-based AbitibiBowater announced it was shutting down a century-old mill in the central Newfoundland region, with the loss of nearly 800 jobs.
The company says its legal advice is that the expropriation is "clearly and unequivocally" illegal under NAFTA and international legal principles.
"While the government of Newfoundland and Labrador appears to wish to punish AbitibiBowater Inc. for the announced closure of the Grand Falls mill, it is the people of Newfoundland and Labrador that stand to suffer from the clear signal being sent by the government that private property rights and the rule of law in the province are expendable," says the letter, which is copied to the Justice Department in Ottawa.
The law passed by the legislature says all of AbitibiBowater's assets except for its pulp and paper mill will be owned by Nalcor, a recently established provincial Crown corporation. Those assets include dams and power stations.
Under the free trade deal between Canada, the United States and Mexico, companies can use the so-called Chapter 11 provisions to sue the three governments directly for what is called "regulatory expropriation" or moves that negatively affect the commercial value of a property.
Several lawsuits have been filed in the past against all three countries and damages awarded by dispute resolution panels.
Williams has said AbitibiBowater broke a century-old "covenant" with the province when it decided to shut down the mill next March, a move that would devastate the Grand Falls-Windsor economy. He pointed to a 1905 agreement that gives AbitibiBowater access to wood and hydroelectricity as long as it runs a milling and logging operation.
Williams said the government will not compensate AbitibiBowater for the loss of water and timber rights.
But the company says under Chapter 11 of NAFTA, it is entitled to fair market value for all property taken by the province, whether it's directly or indirectly owned.
It says it wants to set up a joint working group with the province to address issues related to the closing of the mill in Grand Falls.
"Failing an agreed resolution or full and timely compensation, AbitibiBowater is determined to pursue its rights against the government of Newfoundland and Labrador to the fullest extent available in connection with the serious and unlawful infringement of its rights by Bill 75," the letter says.
The legislation gives Williams's cabinet the authority to determine a value for the hydroelectric assets, but he said he was open to discussing that with AbitibiBowater.
The mill's demise follows two rejections by workers of company proposals to trim costs, but the company wouldn't say if the mill would have been saved if workers had accepted the concessions.
The company said the mill is not competitive because of its high labour and transportation costs, despite the advantages of a weakening Canadian dollar and cheap hydro assets.
