A New York investment firm and the provincial government have signed a deal to save 2,500 jobs by restructuring U.S. Steel Canada.

The package, which promises to protect pensions, jobs, retiree health benefits and the environment, was hailed Wednesday as a positive development in the two-year long saga but still faces two major challenges — getting approval of the former Stelco's American parent, U.S. Steel, and unionized workers in Hamilton and Nanticoke.

In a news release Wednesday the government said the agreement provides for "the development of industrial lands on behalf of pensioners in an effort to promote the economic development of the Hamilton region while ensuring that the environment continues to be protected."

Details of the agreement are being withheld until they are presented in court, but a source familiar with the file said the plan is for surplus land to be developed "and to use the proceeds for the benefit of pensioners."

The source added the agreement calls for "much higher" payments of retiree health benefits. "It will not be 100 per cent, but will be significantly higher than now," as well as ensuring some environmental remediation of the company's heavily polluted bay front land.

Retiree health coverage — called other post-employment benefits or OPEBs — were cut off last year when the company sought court approval to stop paying some costs, including municipal taxes.

Some relief has been provided by the provincial government which funded a pool for the hardest hit pensioners. It will continue through the restructuring process.

The deal would see pension payments "continue as they are, supported by the Ontario Pension Benefits Guarantee Fund," while most current operations would continue. It won't, however, see the revival of steel making in Hamilton. The local plant will continue to process and refine steel made at the Lake Erie Works in Nanticoke.

Currently only the coke ovens and finishing department of the Hamilton plant are still running, employing about 500.

Protection for jobs, pensions and retiree health benefits, were the key points both the province and the United Steelworkers union demanded as the price of their support for any bid for U.S. Steel Canada.

Finance Minister Charles Sousa said the agreement is a good framework for settling Ontario's concerns.

"We wanted to see jobs saved, pensions protected, the industrial lands well-managed and the environment associated with those lands protected. We believe the MOU helps address those concerns without exposing public monies to risk," he said in a statement. "We are hopeful that this will clear the way for a restructuring process that results in a viable, healthy company that supports continued operations in Ontario and in local economies."

U.S. Steel Canada chief restructuring officer Bill Aziz also welcomed the deal.

"We welcome this constructive engagement from the parties that have negotiated this (deal)," he said. "We consider it another important step toward facilitating a going concern transaction that will allow U.S. Steel Canada to complete the restructuring process and continue manufacturing and delivering high-quality steel products over the long term."

Union leaders were also generally positive about the development.

"We are encouraged by many aspects of the agreement," said Marty Warren, Ontario director of the United Steelworkers. "We have been briefed on the agreement and we acknowledge that the province and Bedrock have made an effort to address many of our concerns about protecting the interests of our members and retirees."

Gary Howe, president of USW Local 1005 in Hamilton, said in a news release Bedrock still has to reach a new collective agreement with the union, talks in which the USW will press for job growth, retiree benefits and pension protection.

"Local 1005 members will want to know in simple terms will their pension plan be fully funded in five years as the law states? No tricks," he said.

Bill Ferguson, president of Local 8782 at the Lake Erie Works, saw the agreement as "the beginning of a road to a settlement.

"They are the contenders now, but they still have to step forward and begin a negotiation with U.S. Steel and complete labour agreements with us," he said in a video report to his members. "There is still a long road ahead of us but this is a solid step forward. It's a definite step toward the acquisition of these properties."

Lawyer Andrew Hatnay, representing the active and retired salaried employees, was also positive.

"The court-appointed representatives of the non-USW active employees and retirees welcome this development, are supportive of this step forward and look forward to working with all the other stakeholders for a positive result for the employees and retirees of USSC."

The major hurdle facing the deal is the need to get the support of Pittsburgh-based U.S. Steel, sole owner of U.S. Steel Canada and its largest creditor with secured claims of $118 million and $2.2 billion in total.

A spokesperson for the American parent did not respond to a request for comment.

For McMaster University business professor Marvin Ryder, settlement of the parent company's debt claims will be the critical point.

"This process is all about taking care of the creditors," he said. "U.S. Steel is still the major creditor and if they don't like the deal it could be dead in the water."

He welcomed the plan to develop surplus land for pensioners, but cautioned that might not produce a lot of money because the soil is so heavily contaminated.

"It would be good if they can do something to bring it back into production, but the cost might be prohibitive," he said. "Retirees should be encouraged by this, but it isn't time to ring out the horns and bells just yet."

The chance some of the former Stelco land might become available for development was welcomed by the Hamilton Port Authority and city economic development officials.

"Whatever the outcome of the CCAA process, HPA will remain open to ways to participate and collaborate with other stakeholders," port authority spokesperson Larissa Fenn said in a statement. "We are not privy to details on the potential use of the surplus lands, but we have always believed that the best use for these is as productive industrial employment land, where modern industries can bring jobs and investment to Hamilton."

Norm Schleehahn, manager of business development for the city, said the city's fledgling Bayfront industrial strategy will hinge, to some extent, on what happens to the Stelco land.

City manager Chris Murray added, "Reanimating those lands, protecting jobs and pensions, that's always been the goal. The bottom line is we haven't reached the finish line yet, not by a long shot, but we appear to be heading in the right direction.

"It has to be a positive reaction at this point, because we have been advocating a resolution, some certainty, on these issues for a long time," he added.

Mayor Fred Eisenberger said in a statement emailed from Europe, where he is attending a conference, said, "This proposal is welcome news to Hamilton as it represents a potential solution for sustaining operations, retaining jobs, pensions and benefits for active and retired USSC employees, which is of the utmost importance to our community‎."

City councillors with major stakes in the restructuring also welcomed the deal. Ward 4 Coun. Sam Merulla, chair of the city's steel issues subcommittee, said "on the surface it sounds promising," while Ward 7 Coun. Donna Skelly added "I just hope it genuinely addresses the concerns of pensioners." Her ward is home to the most USSC/Stelco retirees in the city.

Ward 3 Coun. Matt Green, however, said the restructuring process remains seriously flawed, adding "I, like many others, have lost faith in the CCAA process and will not be celebrating this advancement until the critical labour details are worked out, made public and ratified by USW Local 1005."

Three bidders made serious offers for U.S. Steel Canada. The other competitors were New York investment fund KPS Capital Partners and Ontario Steelworks Inc., a unit of Essar, the Indian conglomerate which owns Algoma, now also in creditor protection.

KPS dropped out after it failed to reach an agreement with the province over pension funding and environmental liabilities. Ontario Steelworks' bid was rejected on fears the company lacked the financial ability to complete a deal. They had both proposed to merge Stelco and Algoma into a new Canadian steel company.

USSC's current protection order expires Nov. 30.