The Stel Salaried
Pensioners Organization wishes to thank The Hamilton Spectator for permission
to post the following article by Reporter Naomi Powell published in the August
9, 2005 edition
By Naomi Powell
The Hamilton Spectator
(Aug 9, 2005)
The Ontario government rejects Stelco's restructuring plan
and says it must do more to remedy its massive pension debt to steelworkers.
Finance Minister Greg Sorbara said the government will not
give the company an exemption on its legal requirement to refinance its $1.3
billion pension deficit within five years. In a letter yesterday to chief
executive officer Courtney Pratt, Sorbara said Stelco's plan is "not
acceptable to us."
"We're working on two principles here," Sorbara
said in an interview yesterday. "First, that a restructuring gives rise to
a viable company that is competitive on the global market, and second, that the
employee pension fund be properly funded."
He said Ontario is willing to make exemptions to its
five-year pension solvency requirement, but only for a restructuring plan that
meets both these requirements.
The letter comes at a critical time for Stelco, which is
trying to rally support for its restructuring plan before submitting it to the
court Sept. 9 for a vote. Without an exemption, Stelco must make pension
payments of at least $320 million each year, enough to swamp the company, Pratt
said.
Although the plan has yet to gain the approval of a single
stakeholder, Pratt has defended it as one that balances the interests of all
players.
"What this means is we have to keep working to find a
plan that is acceptable to all key players," he said. "One way or
another, we have to get them to agree."
Stelco's restructuring plan would handle the pension deficit
by making a down payment of $200 million, paying the balance over 10 years.
Five of Stelco's six locals of the United Steelworkers have shunned this plan
in favour of a proposal by Tricap Management, an arm of Brascan Corp., which
calls for a down payment of $500 million on the deficit, with the balance
settled in six years.
The Stelco plan also asks for a 10-year freeze on pension
increases, a clause both the union and Sorbara reject.
"We're not prepared to prohibit the union's right to
negotiate their labour contracts," Sorbara said. "That would be like
denying a union's right to strike. I think Courtney knows that's not a good
precedent to set."
The province has indicated support for the Tricap proposal,
but has said it will also consider any other plan that meets its criteria. Even
without the province's support, Stelco could technically get its plan approved.
That's because only its unsecured creditors have a vote on the plan. But
pushing the plan through without the support of the government and other
stakeholders would be highly unusual, said Bruce Leonard, president of the
Insolvency Institute of Canada.
"What you end up with is a standoff," Leonard
said. "The company emerges from protection and the government then says it
must make pension payments it simply can't afford. Then it could just stumble
again in six months. This really isn't the way the process should happen. It
means Stelco will hobble out of bankruptcy."
On Aug. 16, the Steelworkers will seek court permission to
submit the Tricap plan and to gain status as an unsecured creditor. In court
documents submitted Friday, the union claims its $1.3 billion pension
deficiency makes it Stelco's largest creditor. If Ontario Superior Court
Justice James Farley supports the claim, the Steelworkers would wield the most
powerful vote on the plan.
Sorbara would not say how much more money he expects Stelco
to invest in its pension deficiency or what changes he wants made to the plan.
Asked whether the government was prepared to put money
toward the pension deficit, Sorbara said, "We believe there is a
sufficiently strong company here that has the capacity over the course of time
to make their pension plan solvent."
Stelco's $1.3 billion pension shortfall is largely
attributed to the company's decision to take advantage of the so-called
"too big to fail clause," an exemption in the Pension Benefits Act
brought in by the NDP government in 1992. The exemption allowed Stelco not to
make certain payments into its solvency deficit since 1996. A solvency deficit
is the amount of money the company would need to meet all pension obligations
if it went bankrupt.
The provincial government has said it will not allow the
company to continue under the clause once it emerges from bankruptcy
protection.
Shares in Stelco fell five cents, nearly 6 per cent, to
close at 79 cents on the Toronto Stock Exchange.
npowell@thespec.com
905-526-4620
With files from The Canadian Press