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1st Urban Fiber What happened?

August 16, 1997

Experts: Woes result of supply and demand

By GUY FLETCHER

Staff Writer

It looked like the perfect marriage - a multimillion dollar manufacturing plant opening in a community hit hard by the recession of the early 1990s and anxious for good-paying jobs.

During grand opening festivities for 1st Urban Fiber's paper recycling plant in October, festivities featured a marching band, confetti and gushing words from company officials and local leaders.

"It is ... the project of a generation for the city of Hagerstown," said then-Mayor Steven T. Sager, who noted that the plant - which has a current advertised price of $250 million - marked the largest single investment in the city's history.

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But beneath the optimism and confetti, problems were emerging in the recycled paper business that closed 1st Urban Fiber less than a year after it opened at the corner of Eastern and Memorial boulevards in Hagerstown, company and industry observers said.

"It's unfortunate. They jumped on a bandwagon that was losing one wheel before they knew it," said David Pineault, an economist for RISI, a Boston firm that researches paper-related markets.

Pineault said the problem with Hagerstown's plant, and several other paper recycling mills in the country that are experiencing financial distress, comes down to simple economics.

"The supply of wastepaper has really increased and drove down its price," he said.

The price got so low - about $450 a ton - that 1st Urban suspended production in April, laying off 40 employees but keeping 55 to work on plant upgrades. The situation did not improve, prompting the company earlier this month to shut down the plant completely and lay off the remaining employees.

It is a stark contrast to the industry's boom earlier this decade, industry observers said. Prompted by a public concern over dwindling trees and brimming landfills, investors pumped $2 billion into paper recycling plants nationwide, Pineault said.

"In the early 1990s, everybody thought recycling was going to take off," said J.T. Atkins, managing director of Oppenheimer & Co. and financial adviser to 1st Urban's bondholders.

Such was the industry climate in 1991 when developers approached Hagerstown city officials with a plan: Convert the old coal-burning Municipal Electric Light Plant, which had been used only once since 1972, into a gas-fired plant that would produce electricity and steam.

The steam produced by the plant would be used to remove ink from office paper in a state-of-the art recycling process.

Embracing the plan

City officials embraced the plan in part because it addressed the nagging problem of what to do with the old MELP building, which contained asbestos that it was estimated would cost $1.5 million to remove. More importantly, the project would bring manufacturing jobs and add to the city's tax base.

"We were in a recession. The attraction (of the project) was jobs and a major investment," Sager said.

But by the time construction began in 1991, the scope and size of the project changed several times.

First, it was determined that chemicals, not steam, were required to remove the ink. Then the facility moved from the MELP site to across Eastern Boulevard, with the recycling process - not the power generation - becoming the main priority.

Meanwhile, the cost ballooned from $50 million to $250 million.

The final plan called for a 200,000-square- foot building that would turn 700 tons of mixed office paper into 500 tons a day of dry pulp, to be used for making printing and writing paper.

"It was something of a moving beast, there's no doubt about it," said former City Councilman John L. Schnebly.

But Schnebly said any concern over changes in the plan was offset by the knowledge that the project was being headed by Carl C. Landegger, chairman of Black Clawson Co., a New York recycling equipment supplier. The Landegger family is heavily involved in the pulp and paper industry and has an estimated worth of $650 million, according to Forbes magazine.

Black Clawson provided the recycling equipment and design expertise for the Hagerstown plant.

"I wanted to make sure we had a big hitter somewhere in the process, and that big hitter was Landegger and Black Clawson," Schnebly said.

Schnebly recalled hearing Landegger, during a speech to local business leaders, talk of running a successful business, being a good employer and becoming a positive force in the community.

"It sounded like we had gotten that gift from God," he said.

Raising concerns

But amid the giddiness of having a new manufacturer in Hagerstown, there were questions. During one meeting to discuss the plan early on, some members of the Greater Hagerstown Committee raised several concerns - from the possibility of foul odors drifting from the plant to whether the business plan could succeed in such a volatile market.

"It looked like an awfully aggressive undertaking," said Merle Elliott, an accountant active in local economic development efforts.

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