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Ontario firms balk at additional management costs

The Ontario government wants the industry to take on added forest management responsibilities - plus $70 million in incremental costs.

By Tony Kryzanowski
Copyright 1997. Contact publisher for permission to use.

The Ontario forest industry and government remain at loggerheads over $70 million in costs associated with the transfer of forest management and some fire protection from the Ministry of Natural Resources to industry.

The Ontario Forest Industry Association (OFIA) has rejected the report prepared by the six-member team of government and industry representatives, called the Forest Management Transition Team, or "six-pack". Its mandate was to find areas that were negotiable within the province's recently drafted Sustainable Forest Management Business Plan.

The association's major objection is that the six-pack team did not find a way to eliminate the $70-million incremental costs transferred to the province's forest industry if it takes on the additional duties of forest management and fire protection as laid out by the government. One industry member on the transition team is E.B. Eddy Forest Products vice-president of forestry and wood products, Craig McManus.

"The industry association, when it allowed people like myself to sit on this committee, gave us a very clear mandate," says McManus. "And that was no net increase in wood cost."

He adds that the OFIA has not rejected the report in a mean-spirited way, but has sent a letter to Premier Mike Harris, to the Minister of Natural Resources and to the Minister of Finance, stating that the team did not meet their overlying objective of no net wood increase.

McManus described OFIA's concerns in this manner: "You, Mr. Premier, have just recently convened a very significant public affairs happening where you wanted to get the message out that Ontario was open for business," says McManus. "Well, loading ever-increasing cost on business is somewhat inconsistent with the goal you have of being a business-friendly climate."

He adds that the OFIA believes there is plenty of positive material in the report and would like to meet with the Premier to see if, together, they can achieve the goal of incurring no net cost to industry during this transition.

The whole issue of moving to a system in which the forest industry in Ontario would operate under a Sustainable Forest License (SFL) system began several years ago under the NDP administration. Faced with a declining budget, the Ministry of Natural Resources (MNR) sought to replace the existing flawed system. Currently, some forestry companies operate with 20-year Forest Management Agreements, while others operate with five-year Forest Resource Licenses. MNR wants a system that operates on a level playing field, with reduced government involvement, and based on Sustainable Forest Licenses.

The business plan process hit the home stretch just as the Mike Harris Conservatives swept into power in the spring of 1995. According to MNR Senior Forest Industry Liaison Supervisor for Ontario Riet Verheggan, the objectives of the Sustainable Forest Management Business Plan suited the Conservatives' mandate for reduced government spending. Among the plan's main recommendations was transferring most forest management activity from MNR to the forest companies.

"The government mandate was clearly there," Verheggan says. "In my view, what happened is it (business plan) turned out to be a pretty good document that has stood the test of time, things are being transferred over with a good template, and the principles are there to ensure that MNR maintains the stewardship for the whole resource."

The Ministry will retain about 70 compliance technicians to ensure that industry plays by the rules. After MNR presented the business plan to stakeholders last fall, the government created a transition team with three representatives from industry and three representatives from MNR; thus the "six pack' was born. MNR had teams walk through their forest management programs to arrive at a dollar transfer amount. The transition team then mandated sub-teams to look at costs they could eliminate.

McManus says just because the government says it costs them a certain amount to provide certain services, it does not mean that industry cannot provide the service more cheaply, or eliminate it all together. That was part of the transition team's job - to attempt to also meet industry's objective of a net zero cost transfer. McManus says a simple transfer of cost to Ontario's forest industry would have been 'devastating'.

"Good heavens, I don't think Ontario should want to follow the lead of British Columbia,' says McManus, "where they have loaded so damn much cost on industry, they don't know what they are going to do now.'

One way the transition team has suggested reducing incremental costs in the transfer of forest management responsibilities is by reducing the $102 per square kilometre annual area charge allocated to all FMA holders and active Crown Management Areas.

They have also recommended setting up fewer crown management units for economy of scale, and improved tenure for license holders. Under this latter recommendation, industry has a major concern about using a licensing rather than an agreement system.

"It's more than just a play on words,' says McManus. "An agreement is negotiable, with positions taken by two parties. A license is imposed by the Crown. The move to Sustainable Forest Licenses from Forest Management Agreements was seen as a negative step by industry.' Ontario took a partial step toward Forest Management Agreements (FMA) in the early 1980s. Some companies operated under the terms of an FMA while others continued to operate with shorter-term licenses called Forest Resource Licenses (FRL). Several forestry operators received free forest management services from the government, while others had to pay. It was not a fair system.

Both McManus and Verheggan say that the new system creates a level playing field, although those who have not been paying for forest management in the past face a substantial cost increase. Verheggan says the chances of an established company having its license revoked under the new system is extremely remote. "These licenses are (issued) to the major companies,' she says. "They have a history in Ontario. They are established, there is infrastructure around them. You don't go yank a license. But we have put in place an independent audit process, and we have to make sure that they are performing to the standards that we have outlined.'

Most forest companies, says McManus, want to take on the task of forest management; however, they do not want extra cost in the process.

With regard to handing more forest management to the companies, Verheggan says response from other forest stakeholders has been -pretty quiet. . . . I think people are aware that the industry is improving in the way that the forest is managed, and there is a lot of communication out there.'

Everyone is now awaiting the government's response to industry's request for a discussion of how to reduce incremental transition costs to industry even further, hopefully to zero.

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