POINT TUPPER, Nova Scotia — Employees of the Port Hawkesbury paper mill are returning to work this week, the result of an eleventh-hour government rescue that will allow the mill to start producing paper again as early as next week. The reopening of the mill, which closed in September 2011, has the potential to seriously impact Maine mills that produce similar grades of paper.

The Port Hawkesbury mill has the capacity to produce nearly 400,000 tons of supercalendered, or SC, paper — the kind used to produce magazines, catalogs and newspaper inserts. That amount of SC paper makes up between 25 percent and 30 percent of the entire market for that type of paper, according to David Elstone, an analyst who follows the paper industry for ERA Forest Products Research in Gibsons, British Columbia.

Given the size of the Port Hawkesbury mill, its restart will put “downward pressure on prices until the market adjusts,” Elstone said, “and the market adjusts by removing supply.”

In other words, “removing supply” would mean mills with high costs would be forced to cut production or shut down completely. “Maybe there’s a mill in Maine that might be in that category of being at risk of closure,” Elstone said.

One mill in Maine produces the exact grade of SC paper that the Port Hawkesbury mill does. That’s the paper mill in Madison, which is co-owned by Finnish giant UPM and the New York Times Co.

Verle Sutton, owner of Sutton Paper Strategies, told the Chronicle Herald in Halifax that a repercussion of reopening the Port Hawkesbury mill “will definitely be closures of SCA machines in the U.S.,” adding that the UPM paper mill in Madison could be among the first on the chopping block.

North American mills, including the Madison and Port Hawkesbury mills, produced approximately 1.1 million short tons of the highest grade of SC paper, known as SCA, according to John Maine, vice president of Graphic Paper at Resource Information Systems Inc.

The Verso mills in Jay and Bucksport produce a small amount of a similar type of paper and also could be affected, according to Maine. “They would be impacted tangentially as the coated papers they produce are sometimes used in the same end-use as SC,” he wrote in an email.

Russ Drechsel, manager of the Madison paper mill, which produces 220,000 tons of paper a year and employs about 240 people, said the demand for the high grade of SC paper the Madison mill produces has been in relative balance since NewPage shut down the Port Hawkesbury mill a year ago. Reopening it with subsidies from the government will throw the market out of whack, he said. Drechsel said it’s too early to tell how exactly it will affect the Madison mill.

Drechsel said he and his mill employees have been watching the “roller coaster” that has been the negotiations to reopen the Port Hawkesbury mill very closely.

The reopening of the Port Hawkesbury mill has been the subject of intense negotiations over the past month. Last month, the provincial government announced a $124.5 million aid package to help Pacific West Commercial Corp. buy the mill from NewPage and reopen it. Pacific West was confident the mill would be opened by the end of September. However, after a setback two weeks ago involving a negative tax ruling from the federal Canada Revenue Agency, the provincial government and Pacific West walked away from the table on Friday evening and announced the deal had been scrapped and the mill would not reopen.

In a complete reversal of that announcement, the government and company announced on Saturday evening that a new deal had been struck and the mill’s employees would be called back to work this week. “This government has worked for a year now to restart that mill,” Nova Scotia Premier Darrell Dexter said in a statement. “We didn’t do this because it was popular; we did it because it was the right thing to do.”

Pacific West is expected to pay $33 million for the mill and close the sale on Friday. It will incorporate other mills and related assets into the mill, calling the new entity Port Hawkesbury Paper. “It is our plan … for paper to begin to roll off the machines in the very first days of October,” Ron Stern, Pacific West’s CEO, said in a statement released Saturday. “Our sales team has alerted customers and we are taking orders now.”

The $124.5 million aid package announced last month still stands, but there were some changes made to sweeten the deal for Pacific West. Now the previously repayable loan of $40 million will be forgivable if the company can verify that “an equivalent amount of taxes is being paid by Nova Scotia Power as a result of energy purchases under the proposed new tariff. The province will forgive no more than what is paid to the province in taxes, to a cap of $40 million, over a maximum of 12 years,” according to the province’s announcement.

There has been talk about a trade dispute that could happen if the Port Hawkesbury mill is reopened with that level of help. Drechsel said there’s “potential” that U.S. paper manufacturers could go through the formal process of petitioning the U.S. International Trade Commission to impose tariffs on Canadian paper imports. In 2010, U.S. manufacturers were successful in convincing the commission to impose tariffs on cheap paper imports from China and Indonesia. Sappi Fine Paper, which owns the paper mill in Westbrook, and NewPage, which owns the mill in Rumford, were parties to that complaint.

However, the process of arguing for tariffs on subsidized imports is slow and often comes too late for manufacturers, Drechsel said. “Usually in those cases you have to wait until the damage is done before you can file, so there’s very little preparation to be done until you can demonstrate the damages.”

Elstone at ERA Forest Products Research admitted there likely would be questions asked about the government assistance Pacific West is slated to receive, especially if it forces a closure somewhere else, “particularly south of the [Canada-U.S.] border.”

However, Elstone suggested that U.S. paper manufacturers would have a difficult time making a case. “It would be the pot calling the kettle black given the substantial subsidies the U.S. pulp and paper industry has received over the last couple years,” he said.

Elstone is referencing “black liquor,” which was an alternative fuels tax credit that returned roughly $8 billion to U.S. paper manufacturers who burned a byproduct of the papermaking process as fuel, according to the Minneapolis Star Tribune. “The black liquor credits were significant,” said Drechsel at the Madison mill. However, the Madison mill never benefited from them as its production process was different, Drechsel said.

The only loose end still left to tie up before Pacific West closes on the mill on Friday is receiving approval for a new power rate from the Nova Scotia Utility and Review Board.

Whit Richardson is Business Editor at the Bangor Daily News. He blogs about Maine business, entrepreneurs and the economy.