For Immediate Release
MERCER INTERNATIONAL INC. ANNOUNCES NAFTA CLAIM
NEW YORK, NY, January 26, 2012 -- Mercer International Inc.
(Nasdaq: MERC, TSX: MRI.U) today served a Notice of Intent to
Submit a Claim to Arbitration (the "Notice") on the
Government of Canada for breaches by it of its obligations
under the North American Free Trade Agreement
("NAFTA"). Under NAFTA, Mercer's investments
in Canada are to be treated on a basis that is no less
favorable than the most favorable treatment afforded to
Canadian investors. Mercer's NAFTA claim (the
"Claim") relates to its investments in its
Castlegar pulp mill (the "Mill").
Mercer's Claim arises from the treatment of the
Mill's energy generation assets and operations by the
Province of British Columbia, primarily through the actions
of British Columbia Hydro and Power Authority ("BC
Hydro"), a Provincially owned and controlled enterprise,
and the British Columbia Utilities Commission (the
"Commission"), a Provincial Government regulatory
agency. Mercer's Claim is against Canada, rather than
the Province of British Columbia as, under NAFTA, Canada is
responsible for the actions of its Provinces.
"We have been forced to commence the NAFTA Claim
following years of attempts to resolve our issues through
dialogue with the Province and proceedings before the
Commission because of NAFTA time period limitations relating
to the expiry of our claim", said Jimmy Lee, President
and CEO. He continued: "We are bringing the Claim as,
under Provincial policy, the Mill's ability to
effectively utilize its own generation assets and to sell and
purchase energy is severely and unfairly restricted. All
other competing pulp mills in British Columbia receive more
favorable treatment with respect to their ability to purchase
and sell energy. This puts the Mill at an unfair competitive
disadvantage. In our various attempts to resolve the issue,
we have sought fair treatment in order to put us on equal
footing with other pulp mills within the Province
that have electrical generation capacity. Unfortunately, we
were not able to obtain a satisfactory resolution through
these efforts."
Mr. Lee then stated that: "Mercer acquired the Mill in
2005 for an aggregate purchase price, including working
capital of over Cdn. $250 million. Since then we have
invested in excess of Cdn. $100 million in additional capital
to upgrade the Mill and increase its electricity generation
capacity. We believe that maintaining and enhancing revenues
from the production of green energy and other by-products at
all of our mills is critical to Mercer's future success.
Mercer must maintain its competitive position vis-à-vis other
less efficient mills within the Province as well as at our
other mill locations. Mercer simply cannot stand idly by and
allow its competitive position to be unfairly
eroded."
Mr. Lee continued: "The unfair and discriminating
treatment of the Mill has resulted in it losing about Cdn.
$19 million of incremental energy sales per annum."
Mr. Lee concluded: "Under the NAFTA Claim, we will be
seeking damages in the amount of approximately Cdn. $250
million consisting of past losses of approximately Cdn. $19
million per year accruing since 2008 and the net present
value of projected losses arising from the ongoing
application of discriminatory Provincial policies."
About the Claim
As background to the Claim, the Province of British Columbia
is served by two regulated utilities, BC Hydro, whose service
area covers approximately 90% of the Province by area, and
FortisBC Inc. ("FortisBC"), whose service area
covers the remainder of the Province. In the Notice, Mercer
describes how the Mill has received unfair and discriminatory
treatment as compared to other pulp mills and entities that
generate and sell electricity within the Province of British
Columbia.
The primary factual bases for the Claim are that: