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Why Essar Algoma is still paying squat on the $25 million it owes the city for back taxes

On Wednesday, Judge Newbould rejected a city request for immediate payment of $10.8 million owed by the steel mill for property taxes since it first sought insolvency protection
The $350,000 a month that the steel mill has agreed to pay to the city represents about half its municipal tax liability under the 2016 assessment

The good news is that Essar Steel Algoma is going to start paying the City of Sault Ste. Marie $350,000 a month.

The bad news, as SooToday reader Patrick K. Shepherd was saying Wednesday on social media, is that the voluntary monthly payments amount to little more than "spare change from the corporate boardroom couches."

$350,000 a month, Superior Court Justice Frank Newbould said in an endorsement released Wednesday, represents about half the Essar's municipal tax liability under its 2016 assessment.

And that's just going forward.

On Wednesday, Judge Newbould rejected a city request for immediate payment of $10.8 million owed by the steel mill for property taxes since it first sought insolvency protection in November 2015.

And Essar Algoma also owes the city another $13.9 million for unpaid property taxes before it was granted protection under the Companies' Creditors Arrangement Act.

Mayor Christian Provenzano painted the $350,000 monthly payments as "a start."

"It's certainly better than nothing," the mayor said, at the same time disappointed that the steelmaker still isn't addressing the $25 million total it owes the city in back property taxes. 

“I recognize that the lack of payment of taxes is causing great difficulty to the city. The extent of the difficulty may be a matter of debate but, in a city like Sault Ste. Marie that has such dependency on Algoma, it is no small matter that the taxes are not being paid,” Judge Newbould said.

City officials are upset that the term lenders who've kept Essar Algoma afloat in recent months through a debtor-in-possession (DIP) financing package are being repaid, while until now the city has received nothing,

“Unfortunately I do not see this as just a dispute between two creditors," Judge Newbould said. "There is an issue of Algoma surviving and having the cash to do so.”

Additional cash may be needed for further cash sweeps to the term lenders, he said.

"A fall build-up of steel pellets will be required that can only be financed by a new DIP loan of some $50 million. It is uncertain what the term of the new DIP loan will be and whether it will cover the period of time required for the fall build-up."

"As well there is a replacement of a stove attached to a blast furnace that must be carried out that will have cash-flow consequences for Algoma. The stoves have not been updated since their original installation on the site over 30 years ago."

"As a result of the deterioration of one of the four stoves on the site, Algoma will need to replace one stove this year, which is expected to take place between July 2017 and November 2017. Algoma's steel production will be reduced by approximately 78,000 tons during this period, which will negatively impact its steel shipments and is expected to lead to a decrease in revenue of $60 million and a loss in profits of $25 million during that time frame,"  Judge Newbould said.

Lawyers for Essar Steel Algoma argued that a current appeal of its 2016 taxes might well result in a significant decrease in the amount it owes the city.

“I realize that a taxpayer does not have the legal luxury of not paying municipal taxes while an assessment appeal is underway," the judge said.

"But in considering a balancing of the interests of stakeholders, the prospects of a possible reduction of the municipal taxes is a factor that I take into account,” he added.

If circumstances change at the steel mill and Essar Steel Algoma is no longer able to make its $350,000 monthly payments, it must now return to the court to seek to have the payments reduced or eliminated, the judge said.