Harbor Paper takes over Hoquiam mill

Harbor Paper officially took over the mothballed Grays Harbor Paper mill in Hoquiam on Monday.

The sale has been in the works for months, received court permission to proceed last month and exited escrow on Monday.

The mill was sold for $3.66 million. In a separate sale agreement that closed at the same time, the Grays Harbor PUD sold its interest in three biomass turbines at the mill for $540,000.

Greater Grays Harbor Inc., the regional economic development group, announced the completion of the sale and said that the new owners “expect to take possession of the facility immediately and begin producing paper within 45 days.”

The company immediately launched the website www.harborpaper.com to accept applications for employment online.

John Begley was immediately named the new CEO and president of Harbor Paper. Begley served as CEO of Grays Harbor Paper between June of 2009 and November of 2010. Begley has spent the past year leading efforts to find a new buyer.

He said he wants to hire about 175 employees over the next two to three months. Begley said he already has a small group of employees on the ground, a mixture of former employees that had been doing maintenance work at the mill over the past year, as well as new employees.

“We’ll be bringing on one paper machine, and another paper machine a number of weeks later,” Begley said.

“It’s a mill that’s been down for year,” Begley added. “In many ways we don’t know what damage was done when it was down. Starting it up will be a challenge and getting everything running smoothly will be a challenge. The Northwest power supply is always a challenge to us.”

The mill will also need to find biomass to fuel its turbines as well as pulp for making the paper. Begley said he and his employees have already reached out to potential contractors, as well as potential customers.

“I’m very excited, it’s been a long process and there’s been a lot of people key to this process and everybody is excited about where we are and the potential for the future,” Begley said.

The mill shut down roughly a year ago, laying off about 225 employees. An affiliated trucking company also closed down, laying off dozens more. The company cited lower-than-expected sales and the continued high price of raw materials as reasons for the closure.

Begley said those aspects of the market could still be an issue. The one advantage the new company has is that it doesn’t have a huge line of credit and a bank unwilling to work with them — issues that Grays Harbor Paper had to deal with.

Begley has secured financing through Craft 3, a regional economic development financer that specializes in sustainable industries in rural areas like Grays Harbor.

Bill Quigg, who helped lead Grays Harbor Paper for more than a decade, said in an interview Monday night that he wishes nothing but the best for his former mill. He especially hopes some of his former employees can find work at the paper mill again. “The markets changed and the paper markets are influenced by the international valuations,” Quigg said. “This is a worldwide commodity they’re producing. Hopefully, the timing is better now. I wish the new manager nothing but the very, very best. Our community needs the jobs and I’m for the community and I’m very, very pleased to hear the good news. … Hopefully, this is the fresh start the mill needs to succeed.”

Last month, Superior Court Judge Gordon Godfrey granted permission for the sale to proceed. However, Godfrey still has a hearing slated before him on Friday to deal with any unresolved issues.

Still outstanding are issues involving the Grays Harbor PUD. Although the PUD has sold its interest in a 7.5- megawatt turbine as well as its interests in a 5-megawatt turbine and a 2-megawatt turbine located at the paper mill, there is still an outstanding loan to the state that must be repaid.

Back in 2006, the state made the PUD an intermediary to provide $9 million in grants and loans to install the 7.5 megawatt turbine as well as a new substation and transmission lines to service the biomass turbines. When Grays Harbor Paper went out of business, $1 million of that loan was still owed to the state.

Last month, the state Community Economic and Revitalization Board agreed to forgive $172,400 of the debt.

The state board also allowed a $155,200 payment on the loan done in February to be applied to the principal of the debt. That still leaves a one-time payment of $672,400 that is owed to the state. PUD spokeswoman Liz Anderson said that the PUD commissioners will take up the issue to approve the payment at their next meeting.

The PUD must also pay the court-appointed receiver $104,000 to cover the maintenance costs on the turbines and $77,000 to cover back rent on the property.

“We’ve looked into other options and this is the highest dollar value back to the PUD with the greatest benefit to our community,” PUD General Manager Rick Lovely said of the $540,000 sale price for the turbines in a press release. “The other options were to remove the generation assets and try to sell them or scrap them.”

Factoring in all of the payments made and still owed to the state, even after the PUD gets its money from the sale of the turbines, ratepayers are on the hook for $468,600.

Plus, the PUD still continues to hold the lease for the land the turbines sat on. The PUD had been subleasing the land to Grays Harbor Paper, serving as the intermediary between the paper company and Rayonier. The PUD will now have to do something similar with Harbor Paper. PUD Chief Financial Officer Doug Streeter told the state board last month that the PUD tried to get out of the lease, but Rayonier wouldn’t let them.

The lease means that the PUD remains on the hook for environmental remediation to remove a giant ash pile and sludge, which could exceed $4 million, if Harbor Paper doesn’t deal with the issue. Begley pledged on Monday that his company would pursue the cleanup.

The closing of the deal was reported to the PUD commissioners at their regular meeting Monday afternoon. Lovely told the commissioners the new company wants to be generating steam for the turbines by Aug. 27.

“I’m sure the board agrees with me in thanking all of you that have been involved here for spending the time and close attention to make this whole thing work,” Commission President Tom Casey said to the PUD staff who helped negotiate the district’s part of the deal. “It’s given us another shot at keeping people employed and maintaining the tax base for the area.”

World writer Angelo Bruscas contributed to this story.