Delta Regional Authority

 

April 21, 2009
 

A New York-based private investment group will spend $46 million to restart the former Tembec mill in St. Francisville with 200 new jobs early next year, state and West Feliciana Parish officials said Friday.

 

PanAmerican Capital Group investors, who paid $16 million to buy the idle mill and 600 acres Wednesday, played their specific production plans close to the vest, but they said expansion could lead to 375 jobs after three years.

 

Parish officials also hope to create a new economic development district around the mill that would bring in new industries and establish a Mississippi River port.

 

“We’re very, very, very focused on doing it right,” PanAm Managing Director David Stone said New York. “This is a paper (products) project.”

 

The announcement, in which Louisiana will provide $6 million in incentives up front and an additional $16 million to $19 million the next decade, ends a 21-month drought for the former Tembec Inc. mill. The site employed 545 people with annual pay and benefits of $50 million when it closed in mid-2007.

 

Through 2006, Canadian-based Tembec said, it had lost $200 million since acquiring the former Crown Vantage site in 2001. The mill briefly became profitable, but a weak market for its core product — coated paper — led to the shutdown.

Economic Development Secretary Stephen Moret said the initial jobs would average $71,400 a year in pay, excluding benefits, for a yearly payroll of more than $14 million to start. Should the company hire 375, the annual payroll could reach $34 million by 2018.

 

PanAmerican’s portfolio includes a former paper mill in Robbins, Ill., that the private equity firm is converting to a 50-megawatt power plant using wood products as fuel.

 

Stone said PanAmerican could adopt a power plant strategy, with additional jobs, at St. Francisville in the future. But for now, the focus is on paper products that use what he called an extremely attractive “wood basket,” or regional supply of forest products.

 

PanAmerican’s investment group doesn’t plan, as many private equity firms do, to buy a distressed property, get it running and quickly sell it at a profit, Stone said. Rather, the goal is to develop the former Tembec mill for a decade or more and make it an asset traditional forest products companies will want to own.

 

“At some point, a global paper company is going to say, ‘We should own this and not you,’” Stone said. “But what we’re driven to do is to make a real success out of this.”

 

In Friday’s announcement at the State Capitol, state Rep. Tom McVea, R-St. Francisville, remembered getting the call in 2007 that told him hundreds of jobs averaging about $68,000 a year were going away. It also meant a loss of more than $500,000 annually for West Feliciana schools.

 

“It was quite a shock,” McVea said. “So I’m glad to see it coming back on the payroll.”

 

PanAmerican considered mills in several states, but a company vice president who attended the announcement, Dean Schaffer, said flexibility of state, parish and local officials, the cooperation of Tembec — which resisted selling the mill for scrap — and access to raw materials steered the firm to West Feliciana Parish.

 

“This is yet another example of Louisiana outperforming the national economy,” Gov. Bobby Jindal said. “Since the day we took office we’ve been looking to secure a buyer for this facility.”

 

Parish Manager Ambrose Sims said the West Feliciana Police Jury will conduct a hearing in May for creating an economic development district that includes the mill and surrounding property, about 900 acres of which Tembec still owns. A decision about creating the district should come by July, he said.

 

All new taxes generated on site above 2008 levels, when the plant was closed, would be directed into the district and help the parish acquire land and develop water and wastewater treatment facilities that could serve other industries recruited to the district.

 

The parish began a planning process two years ago that targeted the Tembec plant and surrounding property on La. 964 between U.S. 61 and the river as an industrial zone. West Feliciana officials also hope to acquire 70 acres of riverside property from Tembec to develop a port.

 

“It is important to know we have the tools, ability and talent to do things differently,” said Ken Dawson, a West Feliciana police juror. “Failure was not an option. We had to find a way to make it work. It was a collaborative effort.”

Schaffer said hiring plans are still being formulated and the process for filing job applications will be announced later, along with more specifics on the company’s product plans.

 

Stone, the company’s managing director, said the global forest products slump soon will turn into a more productive marketplace.

 

“What we think is going to happen in the next 12 months, in terms of the global marketplace, is that it’s going to be better than it is right now,” he said. “That was absolutely compelling.”

 

Because the deal carried different risks than one with a Fortune 500 company, Moret said state incentives were staggered.

The $6 million in incentives up front include $4 million for upgrades to the plant, with PanAmerican investing another $30 million in capital improvements. A $2 million loan, secured by a first mortgage on the plant, will be repaid to the state, he said.

 

Beyond the initial incentives, PanAmerican must produce the agreed-upon jobs and include 3 percent annual raises to receive future payroll-based state incentives. In current day dollars, that means PanAmerican would gain $16 million from the state the next decade if it hires and maintains a 200-worker payroll. That number would reach $19.4 million if employment reaches 375 with the pay increases met.

 

Moret said the incentives aren’t too steep a price for the state to pay. West Feliciana Parish will leverage additional industrial and community development from the deal, and tax benefits and economic impact will far exceed the incentives granted, he said.

 

An LSU economic impact study by economist Dek Terrell estimates $1.97 billion in earnings and economic output over the next decade from the restarted mill, if 200 people are hired. The impact rises to $3.1 billion in current-day dollars if employment reaches 375.

 

Moret said as many as five indirect jobs would be created for each PanAmerican job.

“One of the exciting things about this project is even with about 200 direct new jobs, the project will create over 1,000 jobs indirectly,” he said. “And if they go up to 375 jobs, the total new job creation would be just over 1,900 jobs. It’s going to be a major economic driver for the state.”