Not many people know that the Georgia-Pacific mill in Old Town almost was torn down, bulldozed into oblivion and replaced with topsoil and grass seed. Although Atlanta-based G-P, which shut down the mill last year, denies that demolishing the structure was ever part of its closure plan, others are convinced the mill was destined for destruction. “No question,” says Jack Cashman, commissioner of the state Department of Economic and Community Development. “Selling the mill to a new user wasn’t [G-P’s] first option. For whatever reason, their intention was to shut it down and brownfield the site.”
But thanks to some high-profile intervention by the state, the mill that’s been a major corporate resident of the city just north of Bangor since the early 1900s was given another chance. In late September, the state and Georgia-Pacific finalized a deal to sell the mill to Red Shield Environmental, an investor group that plans to bring a handful of small manufacturing firms to the mill as tenants.
To many in Maine, that plan may be even more surprising than the idea that G-P was close to tearing the mill down. Few in Old Town and elsewhere in Maine expected anything other than a paper company as the mill’s new tenant. The announcement that Red Shield would use the mill as a base for manufacturing and a renewable energy project — thanks to the plant’s biomass boiler — ended months of speculation that another paper company would pick up where G-P left off. For weeks this summer, the front-runner for the mill was thought to be Montreal-based papermaker Cascades Inc., and scads of newspaper articles included breathy accounts of company executives visiting Old Town and state officials playing coy. But in the end, it was goodbye paper, hello mixed-use development.
It’s a sea change in Old Town, where paper has been the king of the local economy for decades. But according to many in the area, the shift away from papermaking isn’t a cause for mourning. In fact, some say it represents a step forward. For starters, many point to the potential growth the project may bring to the area: Red Shield CEO Ed Paslawski estimates that the mill’s mix of tenants will employ roughly 2,000 in just five years — a nearly four-fold increase from recent mill employment levels. “I personally think it’s a wonderful idea because you’re not counting on one person or one business,” says Janet Klitch, an Old Town resident and member of the city’s economic development committee. “They can come or go, but if one [business] closes down then the whole building won’t shut down.”
Still, Red Shield can’t guarantee its plan will be successful. Job projections can change on a dime, and any number of economic factors could impact the mill’s development. Neither of the two manufacturing companies that have announced plans to move to the mill is a sure thing. Hallowell International, a Bangor-based heat pump manufacturer that will move part of its manufacturing to the mill, is still in its infancy. And Michael Caron, president of Lamtec Inc., a Portland-based maker of pressure-sensitive labels, said any discussions of his company’s Old Town plans were “premature.” What’s more, Red Shield’s renewable energy project — the key to the mill redevelopment, according to CEO Ed Paslawski — may cost hundreds of millions of dollars to get off the ground.
But given the uncertainty of the global paper business, some say it’s worth it to roll the dice on a different approach. “Entrepreneurs coming in there shows that they see opportunities in a place like Old Town,” says Charles Colgan, a former state economist who teaches at the University of Southern Maine’s Muskie School of Public Service. “I think that’s a positive sign.”
Taking tissue out of the mix
The G-P mill’s closure made headlines last March, when it stopped making products such as Quilted Northern tissue paper. More than 400 jobs were left in limbo as the state swooped in and asked the company, which late last year was acquired by Kansas-based Koch Industries, to keep the mill maintained for 60 days while it searched for a buyer. That 60 days passed with no deal in place, but the state and G-P continued to work together to find a buyer.
At some point, however, the state’s negotiations with Georgia-Pacific hit a snag. For weeks this summer, reports surfaced that papermaker Cascades Inc. was close to buying the mill. DECD Commissioner Jack Cashman says Cascades was indeed an interested buyer. So were a few other paper companies, says Dan Bird, vice president of Local 80, which represents more than 400 former workers at the Old Town mill and was involved in the discussions between the state and G-P.
That interest quickly dried up once G-P told the state this summer that any buyer would have to adhere to a strict non-compete clause. (G-P spokesman Robert Burns confirmed that the company’s terms required a buyer to wait out a five-year window before entering the tissue paper market.) “I wish we had started knowing we weren’t going to be able to make paper there,” laments Cashman. “But at the end of the day, this is better for everyone involved there.”
Indeed, Georgia-Pacific may have done the state and Old Town a favor by including that non-compete provision. It’s no secret that the U.S. paper industry is struggling with cheap, overseas competition. One way to handle the market, notes Colgan, is the approach taken by Lincoln Paper & Tissue. Owners Keith Van Scotter and John Wissman in 2004 bought the former Eastern Pulp and Paper mill in Lincoln and quickly rebuilt the client base for its products, including specialized magazine inserts. After just three months under new ownership, the mill was operating in the black.
But most mills in Maine, says Colgan, simply aren’t in niche businesses like Lincoln Paper & Tissue. As a result, mill renovations often have meant converting old-line manufacturing space to space for new uses. “One of the major problems we and many other manufacturing-based states have is how to get this older capacity in place to do other things,” says Colgan. “We’ve got to evolve and find some new uses for these facilities.”
That was Paslawski’s idea when he approached Tamarack Energy a few years ago with a plan to launch a renewable energy project at an unused paper mill. Paslawski, a New Hampshire resident, has worked with the state of Maine as a sort of turnaround specialist, consulting with companies such as Elmet Technologies in Lewiston and Tex Tech Industries in North Monmouth that he says faced pressures from corporate suitors that wanted to move the operations out of state. Some mills, he figured, had the kind of infrastructure — from wood-processing capabilities to wood-fired boilers — that would be a natural fit for a renewable energy project.
Generating interest
Paslawski first began thinking about the G-P mill in particular earlier this year when he helped former paper company executive Burt Martin arrange financing to make a run at the mill. “We couldn’t reach a deal with G-P, so we stepped back,” says Paslawski.
At the same time, he was discussing his energy project with Tamarack, which has launched similar renewable energy projects in northeastern locales like New Hampshire, Connecticut and upstate New York, according to Tamarack President Derrick Amidon. “It meshed with our vision of wanting to build renewable energy assets that build jobs in rural areas,” he says.
With Tamarack interested in the G-P mill site, Paslawski put together Red Shield as the entity that would make a bid for the mill. He recruited three partners to help invest in the project and approached the state through Cashman, a long-time acquaintance. The plan called for making electricity through the plant’s biomass boiler, which would burn wood resources and construction and demolition debris that otherwise would be sent to the landfill. That electricity would then be sold to the local power grid or offloaded directly to users on the mill site. Those users would pay well below market rates for that power, says Paslawski, because it would cut out the transmission and distribution costs that get tacked on by any power company. (Portland-based Competitive Energy Services is helping Red Shield navigate the energy industry, says Paslawski.)
Meanwhile, Cashman had fielded a handful of inquiries from parties that wanted to use the site for renewable energy projects like biofuel manufacturing. In the end, however, Cashman says he felt most comfortable with the proposal from Red Shield and Tamarack, because of Paslawski’s previous track record and the reputation of Tamarack’s parent company, Haley and Aldrich, a nationally known development company based in Boston.
Cashman and other state officials helped Red Shield and Tamarack negotiate a few sticking points with G-P, including some key equipment such as pulping machines the companies wanted to keep at the mill after G-P left. (G-P’s Burns characterizes the deal thusly: “It took on a number of different shapes and forms, and in the end we came to a very equitable agreement with the state of Maine to allow those assets to be further utilized by third parties and the state.”) The final purchase price: One dollar, which the state is expected pay to G-P on the deal’s closing on October 27, after this issue of Mainebiz went to press. The state then plans on turning around and selling the mill to Red Shield for the same amount.
The real costs come later
It’s a cheap buy, for sure — especially for a mill that by all accounts is in great condition. From an environmental standpoint, the property also is in good shape. The state paid for two phases of Environmental Protection Agency testing, and Cashman says Red Shield won’t have to perform much remediation work to clean up the site. And both Paslawski and Tamarack’s Amidon say the mill also included infrastructure that not every mill has, from truck scales and railroad sidings to wood yards and a wastewater treatment plant. “At that mill in particular, it’s difficult to find tenants because it’s in a remote location,” says Amidon. “You have to have a strategy to make that attractive. We were attracted to those assets.”
What’s more, Paslawski says the physical layout of the mill is tailor-made for the project. Wood-processing operations — which would fuel the biomass boiler — are located at the north end of the mill while hundreds of thousands of square feet of wide-open manufacturing space is positioned at the southern end of the mill. “Everything’s sequential,” he says. “It’s perfectly situated to bring tenants into.”
Those assets have made the mill attractive to a handful of other companies in addition to Hallowell and Lamtec. Paslawski says Red Shield currently is in negotiations with four wood pellet manufacturers — three of which are foreign firms — that have shown interest in locating at the site. In addition to offering below-market-rate electricity, Paslawski says the biomass boiler can pipe steam for processing into sections of the mill.
That said, Paslawski readily admits that Red Shield and the other manufacturing companies moving into the site will have to shell out major bucks to make their ventures work. He estimates it will cost between $10 million and $20 million to retrofit the mill’s infrastructure — including its biomass boiler — to produce renewable energy. And a future plan to create stores of biofuel — including ethanol, a common additive in gasoline — would cost an additional $150 million or more. Much of the money will come from its partnership with Tamarack Energy, Paslawski says, which has access to institutional investors to help finance larger projects.
Meanwhile, new tenants like Lamtec are expected to face big costs to ready their parts of the mill for manufacturing. Paslawski says Lamtec is likely to spend $20 million-$30 million to convert its mill space — the amount of which is yet to be determined — into usable manufacturing space. (Lamtec President Michael Caron declined to discuss specifics with Mainebiz, saying only that it was “too early to get into the details” of the company’s move to Old Town.)
What’s more, Hallowell International, also is still a relatively early stage company. CEO Duane Hallowell launched the firm, which builds heat pumps designed to function efficiently in cold climates, more than a year ago with a promise of creating 900 jobs in Bangor in a five-year period. Its first product, the All Climate Heat Pump, hit the market this fall and in the first month sold roughly 250 residential units at a cost of $9,000-$12,000 a pop.
The company plans on assembling its commercial units, which are still in the development stage, at the mill, keeping its residential unit manufacturing at its Bangor headquarters. These days, the workforce is hovering at just 17 employees. Hallowell, however, declined to offer employment projections, saying “too much is being discussed right now.”
Meanwhile, members of Local 80, the papermakers union for the Old Town mill, recently signed a five-year labor deal with Red Shield. Initially, 50 union workers will go back to work at the north end of the plant, according to Dan Bird. Non-union workers will be hired at the south end of the mill, where Hallowell and Lamtec are setting up shop — but Paslawski says union members will still get first crack at those jobs.
Heat pumps and labels aren’t the same as bathroom tissue, but Bird says many Local 80 members have the skills to work in either side of the mill. He also notes that Baldacci has made a commitment to provide state funding for worker retraining. “We’ve negotiated what we feel is a fair agreement,” says Bird. “It’s a startup company, and initially we’re not going into it thinking it’s the size of a paper mill.”
Questions remain about whether this kind of mill redevelopment can work. Will those lofty workforce targets be met or fall by the wayside? Can young companies make a go in Old Town? But at this point, some observers say those uncertainties are better than facing the continued uncertainty in the paper industry. “They’re a long way from proving it will all work out fine,” says Colgan. “But it’s more encouraging than if someone came in there and just started making tissue paper.”
Read more