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Six months into insolvency, Soo steel maker's fiscal woes place Port of Algoma in jeopardy

City Solicitor Nuala Kenny says Essar Steel Algoma is $300,000 behind in its promised contribution to the Port of Algoma project. Unless Essar pays up, Kenny says the city won't authorize the project's second phase.
AnshumaliDwivedi
"I don't know why they're suddenly making things difficult for us," says Anshumali Dwivedi, Port of Algoma's chief executive officer. File photo by David Helwig/SooToday.

Today is the six-month anniversary of Essar Steel Algoma's insolvency and protection under the Companies' Creditors Protection Act.

And today, there's word that the Port of Algoma initiative, considered the city's top economic development prospect, may be in jeopardy unless the troubled steelmaker coughs up its part of the deal.

The port's peril is spelled out in court documents related to Essar (ESA)'s restructuring.

"The city, in light of its obligations to its federal and provincial financing partners, cannot authorize in good faith the commencement of the second phase of the port project or the engagement of a consulting team to implement the second phase of the port project in the absence of such payments," City Solicitor Nuala Kenny warns in an affidavit filed two weeks ago with Ontario's Superior Court of Justice.

City officials have been hoping that finding $120 million to $150 million for local port improvements will create a world-class, deep-water international marine gateway directly employing 250 staff, with 1,200 or more additional jobs at spin-off firms.

Port of Algoma Inc. was created in September 2014, part of a refinancing deal in which ESA spun off its aging Sault dock as a separate business entity.

The port is 99 percent owned by Essar Ports, a subsidiary of Essar Steel Algoma's parent company, Essar Global Fund Ltd.

The remaining one percent of the Port of Algoma is owned by the City of Sault Ste. Marie.

Steelmaker is $300,000 behind in its promised port contributions 

Kenny claims Essar (ESA) has so far contributed just $100,000 of its promised $800,000 contribution to the port, payable as $266,667 a year over three years.

To date, the Sault steelmaker is $300,000 behind on its commitment to launching the port initiative, she says.

The city contributed $300,000 and the federal and provincial governments each promised $2.12 million.

As SooToday reported on Friday, relations between Essar (ESA) and the city have been further strained by the steelmaker's recent failure to make a mandatory $1.8 million interim payment on its 2016 municipal property tax bill, on top of the $14 million it owes the city in taxes from last year.

Kenny acknowledges that ESA may be allowed under the current Companies' Creditors Arrangement Act proceedings to pull out of its port-related obligations, but she insists the city isn't prepared to cover the resulting cash shortfall to keep the Port of Algoma initiative alive.

Phase 2 'put on hold by the project management team'

The now-completed $3.1-million first phase of the port project consisted of 22,000 hours of preliminary work including traffic forecasting, environmental assessment, infrastructure planning, project scoping and consultations with First Nations.

It established that a deep-water port is viable as a stand-alone project, Port of Algoma Chief Executive Officer Anshumali Dwivedi told SooToday last month.

The $1.2-million second phase will be approved only if all partners (governments, private sector and others) agree to fund construction of the expanded harbour.

The second phase was to begin April 1.

Dwivedi tells SooToday that Phase 2 was "put on hold by the project management team."

So the KPMG and AECOM consultants working on the job have put their pens down, waiting for a chance to present their findings to City Council.

'While the city is dragging its feet, we are going ahead with our work'

But at the Port of Algoma offices on the third floor of the Civic Centre, Dwivedi says, work continues.

He wonders why it's taking so long to get an audience in the council chambers, just down the hallway from his office.

"While the city is dragging its feet on this, we are going ahead with our work," he tells SooToday.

The city has been trying to collect Essar's port contribution from Port of Algoma Inc.

While ESA and Port of Algoma Inc. are sister subsidiaries of Essar Global, they operate independently, at arm's length from each other, Dwivedi says.

Mixing up the Essars

“They're trying to mix up the tax issue with the Port of Algoma issue. These are two separate entities," he says, adding that Port of Algoma has never been made a formal funding partner and there's no documentation requiring the port to pay this money.

"I don't know why they're suddenly making things difficult for us," Dwivedi tells SooToday.

Still, Dwivedi says he's pushing ahead with the port initiative, at least for the time being.

Port of Algoma Inc. continues to occupy office space in the Civic Centre, employing two local consultants as well as interns.

"Irrespective of the city, I’m going ahead with the port project," he says.

Rumours swirl about possible U.S. Steel Canada merger

Over the weekend, Steve Arnold of the Hamilton Spectator published a story citing a rumour that's also been spreading around the Sault over the past week: that there's interest in merging ESA with U.S. Steel Canada, which is also under insolvency protection 

The deadline for offers to buy U.S. Steel Canada's former Stelco site in Hamilton was Friday, but it was extended one week until 5 p.m. this Friday, May 13.

The Spectator cited an anonymous source as saying that the delay was "a reflection of the strong level of interest in the Essar assets" as the steel market starts to strengthen.

The possible Essar-U.S. Steel Canada merger was one of four rumoured offers for the Hamilton operations - "two for all of it and two for pieces of it," the newspaper said.


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David Helwig

About the Author: David Helwig

David Helwig's journalism career spans seven decades beginning in the 1960s. His work has been recognized with national and international awards.
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