ST. JOHN'S, N.L. — Premier Danny Williams was tight-lipped Tuesday as the federal government announced it will pay AbitibiBowater $130 million to settle the company's claim that Newfoundland illegally seized some of its assets in the province.

The decision brings a costly end to a hasty expropriation that Williams has vigorously defended, but it wasn't clear if the province will help foot the bill.

Ottawa said it wanted to head off a long legal fight.

"The government of Canada has resolved this dispute for the benefit of Canada's long-term economic interests," the Foreign Affairs and International Trade Department stated in a news release.

"In reaching this agreement, we are avoiding potentially long and costly legal proceedings."

The department stressed that: "This approach reaffirms the government of Canada's commitment to maintaining a rules-based business environment that facilitates free trade and encourages investment."

The case was settled after the pulp and paper giant filed a complaint under the North American Free Trade Agreement.

AbitibiBowater sought $500 million under NAFTA after the province expropriated its timber and water rights when the insolvent firm decided to close its Grand Falls-Windsor mill in 2008.

With the settlement announced, the company will drop the NAFTA case.

AbitibiBowater, one of the world's biggest pulp and paper operations, has its headquarters in Montreal but is incorporated in Delaware, allowing it to proceed under NAFTA.

It used the trade agreement to argue that the expropriation was unfair and demanded compensation for the fair market value of the lost assets.

The company is in the process of restructuring after seeking bankruptcy protection. Ottawa said the $130-million payment will be made after the restructuring is complete.

When it filed its NAFTA complaint last February, company president David Paterson said the province's action hurt AbitibiBowater financially.

"After operating in Newfoundland and Labrador for more than a century and contributing significantly to the region's economic, social and sustainable development, the nationalization of AbitibiBowater's assets was unexpected and unnecessary," he said.

He welcomed Tuesday's settlement and thanked the Canadian government for avoiding a protracted NAFTA case.

"We believe this is an acceptable settlement for our company, stakeholders and creditors given the set of circumstances faced by the company at this particular time, as well as the inherent uncertainty of any judicial process. We are now able to move forward and focus on finalizing our restructuring process and plans to emerge from creditor protection in the fall 2010."

The settlement is conditional on AbitibiBowater obtaining approval of its terms by courts in both Quebec and the United States. It will also require court approval of the restructuring.

In its NAFTA complaint, AbitibiBowater said Newfoundland's seizure was "sweeping."

"It affected the immediate expropriation of most of AbitibiBowater's interests in the province."

The company subsequently tried to negotiate a settlement with the province and the federal government, but when the talks failed, it turned to the free trade agreement.

Williams had little to say late Tuesday, issuing a brief statement through his office.

"We are pleased that the matter has been concluded and we appreciate the work of the federal government in resolving the issue," the release said.

The premier has said he had no choice but to push through the bill seizing the company's rights or be left with nothing after Abitibi went bankrupt.

"As a result of the expropriation, we have the timber assets, the land assets, the hydro assets and now the mill," Williams told reporters in May after conceding that a bureaucratic foul-up led to the accidental seizure of the paper mill itself.

The province is now asking the Supreme Court of Canada to review Quebec court decisions that it says leave the government unfairly on the hook for environmental cleanup of the property.

News of the $130-million NAFTA settlement raised questions and highlighted gaps in the agreement.

"It seems unfair that the taxpayers of Canada have to contribute to pay a settlement which involved the actions, regulations and laws of the province of Newfoundland and Labrador," said lawyer Lawrence Herman, an international trade specialist with Cassels Brock & Blackwell in Toronto.

"It was the provincial action that caused the matter to be litigated," he said in an interview. "There are no ... formal (NAFTA) arrangements that resolve this. So the question is whether the province is going to be paying part or all of the settlement."

Even though the move to seize the assets received all-party support, Kelvin Parsons, interim leader of the provincial Liberals, said Williams alone is to blame for a "hasty expropriation" that could haunt Newfoundland and Labrador.

"Will we have to pay this back in some way?" he said. "How will it impact our province's future negotiations with the federal government for any other project that we might try to secure financing for?"

Williams just wrote a letter to the federal government with Nova Scotia seeking $375 million for an undersea cable that would bring power from the proposed Lower Churchill hydroelectric megaproject in Labrador to the Maritimes, Parsons noted.

"I don't think the federal government will have much appetite for entertaining any request by this province for substantial funding to the tune of $375 million when they are, on the other hand, forced to pay out $130 million because of the sole actions of this premier."

AbitibiBowater rose out of a major merger of American and Canadian companies in 2007.

It filed for Chapter 11 protection in April in a Delaware court after lenders refused to accept a proposed debt restructuring.