The Saskatchewan government and forestry giant Domtar announced a deal Wednesday that could see the Prince Albert pulp mill reopen next year.

Under a memorandum of agreement unveiled by Premier Lorne Calvert and Domtar officials, the pulp mill could reopen in the late summer or early fall of 2008 if there's a "business case" and various conditions are met.

The annual production capacity of the redeveloped mill is expected to be approximately 328,000 tonnes. However, the paper mill part of the complex that's been mothballed for more than a year would remain closed.

The plan calls for Domtar to sell excess energy produced at the redeveloped pulp mill to SaskPower.

Also in the deal is the eventual construction of a new wood chip and sorting facility located close to the mill. There will be a major upgrading of the Wapawekka sawmill to double its annual production.

Saskatchewan taxpayers will be footing part of the costs: up to about $100 million in grants and equity financing for developments contained in the memorandum of agreement.

Crown Investment Corporation of Saskatchewan is to buy a large portion of Domtar's equity interest in the Wapawekka sawmill. CIC also plans to acquire Domtar's interest in the former Big River sawmill, which it will target for redevelopment.

Domtar said it has concerns about the rising Canadian dollar and said the decision to move ahead is still contingent on a number of "critical factors," including successfully concluding negotiations with aboriginal groups.

The Montreal Lake Cree Nation said the announcement will have significant implications for the First Nation and its traditional territory. It wants to make sure it's properly consulted and will benefit.

The deal also needs the approval of the unions. The Communications, Energy and Paperworkers union said about 300 members of local 1120 gave approval to CEP to negotiate a new collective agreement with Domtar.

Some 700 people lost their jobs when Weyerhaeuser closed the pulp and paper mills in 2006. The company, which had been the largest private employer in Prince Albert, later sold the facility to Domtar.