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Resolute Forest Products, which owns the mill, threatened to close it if it didn't get help. ((CBC))

Nova Scotia is throwing Bowater Mersey Paper Co. Ltd. a $50-million lifeline over the next five years to keep the paper mill afloat.

The deal, announced Friday, includes a grant of $25 million to help overhaul the newsprint-making process at the mill near Liverpool.

Bowater will also use the money to pay down debt and for energy efficiency upgrades that will save between 10 and 12 per cent per year on power and $5 million a year will be forgiven from its loan if it maintains its operations.

Another $1.5 million is to retrain Bowater's workers over two years.

The provincial government also said it will spend $23.75 million to buy 10,117 hectares of land from the company to give it a cash injection.

The company could receive an additional $40 million if the province exercises an option to buy up to 20,234 hectares more from the company.

Premier Darrell Dexter heralded the deal as a way to protect jobs in rural Nova Scotia.

"This mill is a major employer on the South Shore, and throughout southwest Nova Scotia. If it closed permanently, it would be a devastating blow not only to the hundreds of workers and their families, but to the economy of the surrounding area and the entire province," Dexter said in a statement.

Richard Garneau, CEO of Resolute Forest Products, the company that owns the mill, signed an agreement Thursday to maintain the plant for five years.

"As for the future, it is certain with the investments announced today, it will put the mill in a better position to compete in the longer term," Resolute Forest Products spokesman Pierre Choquette said in a call to CBC News from Montreal.

The mayor of Liverpool was also happy about the announcement.

"It's not lost on me that exactly a month ago today exactly, we were staring into the abyss, thank you very much and Merry Christmas," said

The company had threatened to close the mill if it didn't get help from the province and others. It said the cost of fibre, labour and electricity were too high.

The company — formally known as AbitibiBowater — paid two former executives $4 million for helping it emerge from creditor protection.

Last month, unionized workers voted for a new collective agreement that eliminates 80 full-time jobs.

The company also got a three-year discount on electricity, though it asked for five years.

There were no representatives from Bowater or its parent company at Friday's announcement.