Domtar Paper

This file photo shows rolls of uncoated freesheet paper at Domtar’s Kingsport mill. That operation is going away and will give way to linerboard being produced at the plant.

KINGSPORT — Both the Kingsport Board of Mayor and Aldermen and Kingsport Economic Development Board (KEDB) approved on Tuesday a payment in lieu of taxes (PILOT) agreement that will keep Domtar Corp. in town.

“It took a whole lot of folks to do this,” City Manager Chris McCartt said during a KEDB Zoom meeting. City officials, NETWORKS Sullivan Partnership, state lawmakers and Tennessee Economic and Community Development officials were in on those negotiations.

“(The deal) was the results of hundreds of hours of work. I cannot state that enough,” McCartt said. “(The mill) has been a part of our city long before we were a city ... to be able to continue with one of those legacy industries. This is a major change for them.”

Domtar is closing the uncoated freesheet manufacturing operation at its Kingsport mill and the Ridgefields converting center, but it will enter the linerboard market with the conversion of the Kingsport paper machine.

Linerboard is a thin cardboard made for the flat facings of corrugated containerboard used in packaging.

Under the agreement, Domtar will convey the property to KEDB, which will lease it to the company for a term not to exceed 18 years. Domtar’s footprint would also expand into nearby city parks.

The PILOT calls for Domtar to pay 75% of the taxes it would have paid beginning in 2024 and each year through 2038. It also calls on the company to provide financial assistance to the city not to exceed $500,000 in reconstructing the nearby Scott Adams Skate Park at Brickyard Park.

Frank Cloud Park will be relocated to the Kingsport Landing area of town (near the roundabout on Netherland Inn Road and Industry Drive).

The city of Kingsport will receive Cement Hill, which could be commercially used or become a “passive park,” according to a city document. Domtar will provide trees for the city to plant on Cement Hill.

The company will also create a strong vegetative buffer along the Greenbelt and Center Street near Cloud Park.

A PILOT agreement is typically when a municipality forgoes collecting real and/or property taxes for a certain length of time, and instead receives gradually increased payments from the company.

When Domtar announced last April it would idle the mill, the facility employed 304 workers. The converted mill is expected to directly employ approximately 160 employees. The PILOT agreement calls for Domtar to maintain a minimum of 140 full-time jobs.

“It is an unusual period in our history, and if there’s ever a time to be loyal and buy local, this is it,” Mayor Pat Shull said.

“I’m glad to keep them here,” said Alderman James Phillips. “No one is happy about losing jobs, but the other outcome could have been much worse.”

“This will certainly assure us they’ll be here for quite some time,” Alderman Darrell Duncan said of Domtar.

Once in full operation, the converted mill will produce and market approximately 600,000 tons annually of high-quality and medium recycled linerboard. The conversion is expected to be completed by the first quarter of 2023. The city is expecting an “average local spend” of $130 million once the operation reopens.

Domtar estimates the conversion cost to be between $300-$350 million. An estimated 200 contractors are expected to be at the site. The city is expecting a $28 million annual economic impact during the conversion. Domtar also will receive a $1.5 million state Fast Track grant.

“Repurposing the Kingsport mill provides Domtar with the best strategic entry point into a growing market with a very competitive, low-cost asset and represents a first step to building a large and cost-competitive business,” said John Williams, Domtar president and CEO. “Kingsport is well positioned to be the go-to supplier to independent converters for quality, service and innovation as the mill is less than a day’s drive from over 60 customers representing an addressable 3.9 million tons of annual containerboard demand.”

Domtar is implementing a cost reduction program, targeting $200 million in annual run-rate cost savings to be realized by the end of 2021.

The cost saving initiatives include capacity reduction and asset closures.

The leaner organizational structure is expected to improve communication flow and cross-functional collaboration, leveraging more efficient business processes.

The Kingsport paper mill has maintained a presence at 100 Clinchfield St. since 1916.

About Domtar

Domtar is a leading provider of a wide variety of fiber-based products including communication, specialty and packaging papers, market pulp and absorbent hygiene products.

With approximately 9,200 employees serving more than 50 countries around the world, Domtar is driven by a commitment to turn sustainable wood fiber into useful products that people rely on every day.

Domtar’s annual sales are approximately $5.2 billion, and its common stock is traded on the New York and Toronto Stock Exchanges. Domtar’s principal executive office is in Fort Mill, South Carolina. To learn more, visit www.domtar.com.

Staff Writer Matthew Lane contributed to this report.