Weyerhaeuser closed the Prince Albert pulp mill in 2006. (CBC)

The Saskatchewan government has signed a letter of intent it says could lead to a multimillion-dollar redevelopment of the mothballed Prince Albert pulp mill for ethanol production — but it could also mean costs for taxpayers.

The letter has been signed between the government and Iogen Energy and Domtar, Energy and Resources Ministry Bill Boyd said Monday.

Domtar is the current owner of the former Weyerhaeuser pulp mill that closed in 2006.

Iogen is investigating the possibility of turning the mill into a straw-based ethanol plant. Iogen would use cereal straw to make ethanol.

If the Iogen project — a partnership with Royal Dutch Shell — proceeds, it would also include a power plant producing green electricity from forest and ethanol plant residues.

Under the agreement, the government says, it will "assume ownership" of mill property that's not part of the new proposal. It will also be responsible for paying for an environmental cleanup. Domtar will then pay the government a portion of the costs.

Responding to the announcement, the New Democrats said the Saskatchewan Party's plan for the mill could cost taxpayers hundreds of millions of dollars.

The letter of agreement calls for the province to pay for 100 kilometres of new road, which could cost $100 million, said NDP MLA Darcy Furber. He said the government is expected to give Iogen some kind of a tax break.

While environmental costs are currently expected to total more than $50 million, that figure can be expected to rise, Furber said.

Saskatchewan Party government officials replied that Furber is wrong and Boyd did not say there would be new roads built for the project.

Iogen is planning to hold meetings June 15-17 with communities and First Nations in the Prince Albert area to discuss the proposal.