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May 2004

Spotlight

A careful watch on the clawback

The industry, especially logging contractors, is watching carefully to see how the BC government’s plan to clawback 20 per cent of tenure volume is going to play out.

By Jim Stirling

The clawback plan in British Columbia will see 20 percent of tenure volume taken back from major licencees. Half of the volume is to be allocated to wood auctioned through the BC Timber sales program.

One fact is clear: some logging companies and forest dependent communities will take a hit from the British Columbia government’s 20 per cent clawback plan. What is less obvious, however, are the long-term implications of the new forest policy and what form of compensation will be available for those most affected. The province has begun the process of taking 20 per cent of tenure volume from licensees with Annual Allowable Cuts in excess of 200,000 cubic metres annually. The goal is to use the withdrawn wood to stimulate a more market-responsive timber pricing system and to encourage new entrants into the industry. That sounds praiseworthy, but the devil is in the details.

Mike de Jong, BC’s Forest Minister, says he wants the process completed by the end of 2004. He estimates the province-wide clawback will allow the government to juggle the disposition of 8.2 million cubic metres of timber. Half of that volume is to be directed to boost the amount of wood auctioned through the BC Timber sales program to about 20 per cent of the total harvest. The market-based system would then be used as a benchmark for establishing stumpage on the remaining 80 per cent of Crown timber.

The other 4.1 million cubic metres produced by the tenure take-back is to be distributed among First Nations, communities and woodlot owners. Revamping the old three-month stumpage assessment method is largely viewed as positive by the BC forest industry. But it is also designed to appease the United States. American lumber producers have long maintained that Canadian provinces subsidize their forest companies through their revenue-targeted stumpage systems. It’s an issue at the core of the protracted softwood lumber dispute between the two countries and the reason for the 27 per cent duties imposed on Canadian softwood lumber producers. A flurry of recent decisions from WTO and NAFTA panels have argued the veracity and methodology of the American case.

Although $200 million of a $275 million transition fund has been set aside to compensate the licensees for their volume losses, less than half of the remaining $75 million has been specifically earmarked to help logging contractors, truckers and their employees who have had the rug pulled out from beneath them.

Those decisions—along with more wood being available for auction—are providing BC with additional leverage for a negotiated settlement around the crux of market share, timber supply and lumber processing efficiencies. The US Coalition for Fair Lumber Imports is on record as demanding BC auction off at least 50 per cent of its standing timber and ease regulations on raw log exports. If BC auctioned off 65 per cent of its timber, the US would want 80 per cent. And so on. The mechanics of the 20 per cent clawback are proving interesting. It’s early days, but it appears the large forest companies are in the driver’s seat when it comes to deciding what timber volumes and types will be taken back and from where. Especially the “from where.” The broadside couldn’t come at a worse time for the region.

The main forest employer, New Skeena Forest Products, is at this writing seeking a second 60-day extension from the courts to consolidate partnerships and re-structure itself for a possible resumption of operations this summer. There are a couple of factors the government feels will mitigate the clawback impacts for the Bear Creek contractings and the large forest companies forced by government decree to give up volume. The government has created a $275 million transition fund to help ease the pain. About $200 million has been set aside to compensate the licensees for their volume losses. Less than half of the remaining $75 million has been specifically earmarked to help logging contractors, truckers and their employees who have had the rug pulled out from beneath them.

Only the government knows the formula for distributing compensation fairly, or at least one assumes it knows. Other ideas are being discussed to help restore some cash flow for disenfranchised loggers and hope for their A case in point is in the Prince Rupert Timber Supply Area (TSA), on the province’s north coast. Interfor, a large integrated forest company, is prepared to give up 80 per cent of its north coast forest licence volume. It makes a lot of sense for Interfor. It’s operationally more efficient for Interfor to release volume in large chunks rather than in little bits here and there across the company’s interest areas. That is why Interfor’s cut in the TSA will plummet in 2005 from around 206,000 cubic metres annually to 40,000 cubic metres.

The reverberation from that decision moves upstream like a thunderclap. Bear Creek Contracting in Terrace is Interfor’s prime contractor in its Skeena River, Work Channel and Princess Royal Island operating areas. Clearly, with only 40,000 cubic metres annually remaining on Interfor’s licence, Bear Creek can forget about supplying up to 125 loggers with pay-cheques and fully utilizing its equipment fleet. communities. One has companies receiving a combination of cash and credits they can use for accessing clawback timber volumes allocated to auction. The government, however, seems to favour a no-cash option, preferring to allocate contractors in the northwest with uncut volumes that have accumulated during the convulsions of New Skeena’s predecessor companies.

On the coast, the Truck Loggers’ Association has suggested offering contractors a non-replaceable timber tenure to tide them over. Auctioneer Ritchie Bros has waded into the timber sale debate by offering its private sector expertise in holding unreserved auctions as a transparent method of establishing market prices for timber. The second factor the government feels will help defuse the clawback calamities is the other 4.1 million cubic metres. The timber set aside for First Nations, community forests and woodlot owners will, argues the government, be available to logging contractors.

This may be the case in some circumstances. But not in the near term. It will take time to put the volumes into the communities. And that’s a commodity in short supply for loggers whose income source is arbitrarily removed and not replaced by a workable, transitional method. Meanwhile, to further complicate matters, the militant faction of the aboriginal community is mightily miffed with its eight per cent allocation from the clawback trough. They want more and some of them plan to get it. “We’ll blockade. We’ll stop everything,” declares Justa Monk, representing the Northwest Treaty Tribal Nations. “I was first in this country. I own 100 per cent of the territory and they want to give eight per cent because of the population. That’s ridiculous,” states Monk.

Some observers of the clawback fallout predict it will spawn a new breed of contract logger. A small, gypsy-type operation willing to roam the province picking up a few thousand cubic metres here and there left from the clawback, but insufficient to sustain a larger, community-based operation. How it all plays out in reality will dominate more than a few headlines in the coming months.

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