Premier Danny Williams says AbitibiBowater no longer should have timber and water rights, once its Grand Falls-Windsor mill closes. (CBC)

The president of AbitibiBowater says the Montreal-based newsprint giant will fight to protect its interests in central Newfoundland, following the provincial government's decision to expropriate timber and hydro resources.

AbitibiBowater decided earlier this month to shut down its Grand Falls-Windsor mill before the end of March, putting about 450 mill employees and 300 others out of work.

Premier Danny Williams said Bill 75, which was passed quickly this week in the house of assembly, was a necessary move to safeguard the province's natural resources.

But in a statement issued after the close of trading Wednesday, AbitibiBowater president and chief executive officer David Paterson indicated that a fight over the rights is looming.

Paterson said Abitibi "will consider all options available to protect the interests of its stakeholders in the expropriation of its provincial assets and contractual rights to natural resources."

Apart from timber rights, the government intends to take over hydroelectric rights affiliated with the plant. AbitibiBowater built its power plant at Star Lake to generate electricity for Newfoundland and Labrador Hydro.

Abitibi 'surprised' by move

Paterson said AbitibiBowater was "surprised by this course of action" and would not let it go unchallenged.

AbitibiBowater's hydroelectric generating station at Star Lake is one of the key assets in dispute. (CBC)

"The Williams government also indicated the company may be paid for its hydro assets with the expropriation but no commitment has been made to ensure AbitibiBowater obtains proceeds representing the full value of these operations," Paterson's statement said.

Williams received a rousing reception on Wednesday in Grand Falls-Windsor, where he told residents the government is prepared for a legal battle over the expropriation.

AbitibiBowater has suggested that a trade fight may also be looming, and is studying whether the expropriation violates North American Free Trade Agreement rules.

Stockwell Day, Canada's minister of International Trade, said Wednesday that he doesn't see a role for the federal government in the dispute.

"I think it's fair to say it's an interesting move the premier of Newfoundland has taken," said Day.

"I have not heard from my colleagues at this point that there would be any reason for [federal government involvement]. This is a provincial decision. We respect provincial areas of jurisdiction."

Could reignite feud

However, a policy analyst with the C.D. Howe Institute said the federal government may have to become involved if the conflict turns into a NAFTA challenge.

Benjamin Dachis said because such a challenge would be adjudicated federally, it may reignite a simmering feud between Williams and Prime Minister Stephen Harper, who was the target of Williams's controversial "Anyone but Conservative" campaign leading into October's federal election.

"I see little reason for Stephen Harper to fight on behalf of Danny Williams on this case," Dachis said.

"Are we going to go back to what we had over the last year or so where it looks like a personal feud between Danny Williams and Stephen Harper?" said Dachis.

"I'm not sure the federal government is going to get involved in that debate."

Dachis added that it is difficult to say whether a NAFTA challenge would be successful.