Enron N.J. Mill Files For Chap. 11

By: Jim Rosenberg Some of the headlines announcing Enron Corp.'s collapse undoubtedly appeared on newsprint made by the company.

The Houston-based energy giant created paper-price-based financial swaps in the late 1990s, then began buying newsprint mills, acquiring its third this year and reportedly vetting Abitibi-Consolidated's Port-Alfred mill in Ville de la Baie, Quebec.

But on Dec. 7, the troubled company abruptly closed its first mill -- the 40-year-old Garden State Paper Co. (GSP), based in Garfield, N.J. GSP was the first commercially successful manufacturer of newsprint made entirely of deinked fiber from repulped newspapers.

Ten days later, on Dec. 17, Garden State Paper Co. filed for Chapter 11 reorganization in U.S. Bankruptcy Court, two weeks after parent Enron Corp. and Enron North America did the same. The latter was the company's largest customer. A separate operation continues to collect and sell old newspapers.

The fates of Enron's other mills, in Quebec, remain uncertain.

As the slump in paper consumption pulls per-metric-ton prices down to the $500 level, an indefinite closing of Enron's mills would help prop up prices. But shuttering GSP has other ramifications.

In midsummer, the nonprofit Northeast Recycling Council (NERC) received commitments from newspaper companies operating in the 10 Northeastern states, representing 86% of the region's newsprint use, that they will buy at least 27% recycled fiber. Aided by publishers' associations, NERC will track annual recycled-content purchases. The effort is a response to the difficulty of meeting high recycled-content levels often mandated by states without regard for market factors, primarily the absence of investment in new recycling capacity after 1995.

NERC members are state agency representatives. Advisory members are mostly trade associations, consultants, businesses, and recycling organizations.

The unenforceable minimum-purchase level is only an expression of intent -- states have no authority in the matter. It does, however, provide numbers and history to form a factual basis for possible regulation.

"I would like to believe that the agreements would remain in effect" and serve as a "stimulus" to the purchase and reopening of GSP, said Guy Watson, chief of the recycling and planning bureau in New Jersey's Department of Environmental Protection and a representative to NERC.

Ordinarily, the 27% minimum would seem achievable in view of the fact that approximately three-quarters of the 2.4 million tons of newsprint used by the region's newspapers last year contained an average of 36% recycled fiber.

But while GSP's 234,000-short-tons-per-year capacity alone is significant, its reliance solely on recycled fiber multiplies that significance. What happens when almost a quarter-million tons of 100%-recycled-fiber newsprint is gone? "We know there's no other mill that can [yield] that amount of recycled content," Watson said. "They were very instrumental in the overall 36% rate."

"We're definitely concerned about it," NERC Program Manager John Leigh remarked on GSP's closing. Though "hopeful" in plans to discuss the matter with the Newspaper Association of America and to "reassess" the agreed-upon minimum-use figure, Leigh asked, "Are we going to continue to make progress?"

GSP used roughly half the old newspapers (ONP) collected in New Jersey. For now, said Watson, "there are export brokers who have stepped forward who say they can take paper." But Watson and others think the closure will depress ONP prices, though collection costs won't change. "Because procurement was handled within Garden State operations, it's not clear whether anyone in New Jersey is buying ONP," said Andrew Battista, senior economist with Resource Information Systems Inc. He also sees likely pressure on ONP prices.

In the meantime, "we are actively seeking potential buyers for Garden State Paper," said Enron spokeswoman Jennifer Walker. While industry observers estimated the value of the mill (which Enron purchased last year for $72 million) at anywhere from $150 million to more than $200 million, all agreed the aging operation requires further upgrade. The cost of that, estimated between $10 million and $50 million, will depress the sale price, they suggest.

Three years ago, Enron arranged and was party to the purchase of Noranda Inc.'s 210,000-metric-ton-per-year James Maclaren mill in Masson, Quebec, which was upgraded to thermo-mechanical pulping.

Jacques Theriault, human-resources director and spokesman for the mill, now known as Papier Masson, said he had no information on other partners' possible buyout of Enron's 28.3% stake. "I suppose they are interested," he ventured, adding that the business has "very good assets" in a poor period for prices.

Enron's hedging deals on prices of the mill's output and costs of its inputs could complicate the sale of a stake, according to a longtime industry observer who asked not to be named.

Early this year, Enron bought Daishowa Paper Manufacturing Co. Ltd.'s mill near Quebec City. Rechristened Papiers Stadacona, its four machines make 387,000 tons a year of newsprint and some directory paper, both using up to 50% fiber deinked on site from U.S and local ONP.

Walker said Enron has "no intention of shutting down Papiers Stadacona." Rumored discussions with several prospective buyers, however, could not be confirmed, and Walker would not comment about them.