Gaspé cement deal should be revisited as project is a 'financial sinkhole’

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Canada: Quebec's US$350m investment in a new cement plant from Bombardier's founding family in the job-starved Gaspé region is a 'terrible deal' that could end up being a 'financial sinkhole' for taxpayers, according to the Province's Coalition Avenir Québec (CAQ) opposition party.

CAQ has called on Quebec to renegotiate the agreement with McInnis Cement, which is owned by the Bombardier-Beaudoin family. The party said that it saw a copy of the confidential agreement and that private investors, notably the family, are only putting in US$62m of money to gain majority control of the project, while Quebec will contribute several times that amount but will only get a minority stake.

In January 2014 McInnis announced plans for a US$1bn cement plant in Port-Daniel-Gascons that would produce 2.2Mt/yr of cement, largely for export by ship to the US. The project was being billed as a saviour for the chronically under-employed Gaspé region because it will support 1500 construction jobs and provide work for 200 permanent plant employees.

CAQ said that Pauline Marois's Parti Québécois government had by-passed Investissement Québec, the province's investment arm and ordered that the money be disbursed without analysis by Investissement's board. Quebec confirmed that it would provide McInnis with an interest-bearing loan of US$250m and take a US$100m equity stake in the company.

The federal government also contributed US$100m to the project through split participation by Export Development Canada and the Business Development Bank of Canada. This is senior-ranking debt, to be repaid first in the event of a default, and part of a larger banking group that included National Bank.

"The federal government decided that it couldn't risk taking equity or subordinate debt like Quebec did," said CAQ economy and external trade critic Stéphane Le Bouyonnec. "The reason is simple; the industry is already in a situation of overcapacity. We predict that this transaction could become a financial sinkhole, a disaster for the government of Quebec."

A December 2013 study on the cement market by independent economist Colin Sutherland concluded that adding McInnis's capacity to the mix could delay the return of a healthy supply-demand balance in north-eastern North America well beyond the expected date of 2021. At the moment, Quebec has about 1.2Mt/yr of unused capacity while eastern Pennsylvania and New York have about 0.6Mt/yr, meaning many plants are operating well below maximum volume.

"The rationale for this deal is not sound," said Michael McSweeney, president of the Cement Association of Canada. "When this project goes ahead, it will just shift jobs from other parts of Quebec to the Gaspé."

Quebec Premier Pauline Marois defended the agreement, calling it a 'good project' in which the government is demanding a higher interest rate than normal because it understands the risk.

The McInnis Cement announcement of 31 January 2014 can be found here.

Last modified on 19 February 2014

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