March 2001 - Logging and Sawmilling Journal -

The BC government has initiated a few first steps towards helping the troubled forest industry in the northwestern part of the province.

If the profoundly troubled forest sector in northwestern British Columbia was expecting a quick fix, it now has yet another frustration to add to an alarmingly long list. The provincial government has adopted what are generally conceded as helpful first steps by injecting some operational flexibility and easing stumpage rates, but the impacts of implementation will take time. And that's a commodity that is lacking for cash strapped forest companies, their work starved logging contractors and several regional communities dependent on a healthy industry. An estimated 2,700 workers were employed in the northwest BC forest industry in 199899, a figure that has since shrunk with business failures and forced migration. Some logging contractors turned a wheel on less than 90 days of work during 2000. The region suffers a complex architecture of problems.

Some are province wide: high operating costs; the negative impact of the US softwood quota; the continuing Japanese recession. Other problems are specific to the region. At the core is the resource itself. Between 70 per cent and 85 per cent of the timber is pulp wood. Under prevailing conditions, it costs more-much more-to pay stumpage on, access, harvest and transport this wood than it's worth. As a bizarre illustration, it has made better financial sense for Skeena Cellulose Inc's pulp mill near Prince Rupert to barge down chips from Alaska rather than wholly sourcing its own fibre. Skeena Cellulose- with its pulp mill and three sawmill/planer complexes-is the region's largest forest company. But West Fraser Mills, Kispiox Forest Products and other smaller operations face similar problems. And they've been facing them for a long time. That's the trouble: reviving a weakened patient takes much longer. Financial difficulties were surfacing within Repap British Columbia, Skeena Cellulose's previous owner, in the early and mid 1990s. Contractors were getting stiffed, annual allowable cut (AAC) volumes remained uncut.

Among the problems the industry faces in northwestern BC is a resource that, unlike other areas of the province, is made up of up to 85 per cent pulp wood.

Repap and its affiliates dissolved into full meltdown, leaving huge debts with all kinds of businesses throughout the region. Major creditors included two chartered banks which wanted no part of majority ownership in an ailing forest company. The provincial government ended up bailing out Skeena Cellulose to the tune of $250 million in 1998. Now, in 2001, after $450 million and counting, BC taxpayers are still the owners. North Coast MLA Dan Miller commissioned a report into the state of the northwestern forest industry when he was provincial premier. It was conducted by Victoria based Cheston Forest Consulting Ltd. Principal Wes Cheston has an extensive forestry background and was a former assistant deputy minister within the provincial Ministry of Forests.

Cheston delivered his report in January 2000, outlining several ways the high operating costs and low returns in the region might be addressed. Among his options was the creation of a special economic zone for northwestern BC which would, among other things, recognize the poor timber types dominating both the coastal and interior sections of the region. Cheston's report was studied within government until December 2000 when new forests minister Gordon Wilson announced the government's action plan. It didn't include a special economic zone in the northwest. Government is worried about the me too effect.

Other companies facing the spiral of high operating costs and with poorly performing forest licences in the province would want special treatment extended to them. Additionally, the government is scared to further upset the protectionist lobby in the US with more charges of unfair subsidies as the existing softwood lumber agreement draws to a close. Instead, the government is calling upon the powers invested in its Jobs Protection Commissioner's office to initiate changes. These include working on independent five year plans with the major forest companies in the region. The plans will permit limited log and chip exports. Significantly, they will also flash the green light to independent logging contractors to harvest volumes the licensees have found uneconomic if they can establish niche markets for the wood products.

In return, the licensees can sidestep the use it or lose it provisions in their licences for not harvesting the prescribed annual volumes. At the end of five-year periods, licensees are expected to be within 10 per cent of their AAC. Skeena Cellulose, for one, is nowhere close. For example, its contractors have been restricted to logging less than half the cubic metres allowed on its Buffalo Head licence. It's the same story with Skeena's other licences. And that doesn't take into account the full AAC volumes credited to the company by the Ministry of Forests during Repap BC's collapse in 1997 when, in reality, very little timber was being harvested. The other major break offered the northwest is on stumpage. The market based stumpage system experiment on the BC coast is being extended to cover about four million cubic metres of timber in the northwest region. Abandoning stumpage rates set by the government's arbitrary target revenues in favour of the market approach should bring more harvestable volumes into the economic reality zone.

The Cheston report also suggested the government consider a proposal to build about 130 kilometres of new road to link the Kemess mine north of Smithers to the northwest. Gold and copper concentrates from the isolated mine site now follow a circuitous and expensive route via Prince George to North Vancouver. A new route connecting with the port of Stewart, BC, near the bottom of the Alaska Panhandle, would be much shorter. Cheston noted that such a route would open up new areas for northwest forest development. But it would also open a Pandora's box of issues including environmental, native and other forest company concerns. Consequently, the government has made no commitment to constructing the road.

Cheston told Logging and Sawmilling Journal that he had been out of the country and had not had the opportunity to become fully aware of the government's responses to his report or garner much reaction from the region. "The way I designed the report was as a menu for the premier to take and the Ministry of Forests to choose from and come forward with some solutions," he explains. Solutions that would improve the economic viability of the industry in the region. "The nature of the industry is such that one solution might not be necessarily good for each company having problems," he notes. Companies need to choose different parts of the menu that address their financial burden and overall circumstances, he adds.

Cheston fully recognizes the role played by the government's division of the region between coastal and interior. He recommends classifying it all as coastal for stumpage purposes or the interior sections as a transition zone to better reflect the terrain, precipitation and timber attributes. Like Cheston, Peter Hollist is glad to see something positive happening in the region. Hollist is a truck logger and spokesman for the Hazelton Economic Action Team, which has been actively drawing the government's attention to the region's economic malaise. "But," he reports, "not a lot has happened yet from the Cheston report. Skeena Cellulose is trying to keep us informed ." In the meantime, it's the same old, same old, he says. The phone rang while Hollist was being interviewed for this story: he and his logging truck had work to go to the next morning. Hopefully, that's a sign of better times ahead for the entire northwest.

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