The Alberta government will take a much tougher stance during negotiations with companies holding Forest Management Agreements (FMAs) in the province.

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

The days of simple rubber-stamp FMA renewals are gone. After a decade of unpredecented expansion in the province's forestry sector, the government will be asking forestry companies, "what have you done for me lately?"

The new tone of negotiations has its roots in the Jacques Report, which calls for specific changes as to what the government should expect from FMA holders in the future. It was recently ratified by the provincial Standing Policy Committee, which sets the government's agenda. Among the most contentious issues are FMA tenure and transferability.

Grande Prairie area member of the Alberta Legislature Wayne Jacques, who is also a former Canfor employee, tabled his report with the Policy Standing Committee and Environmental Protection Minister Ty Lund last spring. It outlined what the government's position should be regarding the term of an FMA, FMA ownership, FMA renewability, and what capital investments an FMA holder should be expected to make so that Albertans receive fair economic value in return for forestry companies harvesting crown timber.

This new process of negotiation will have a significant impact on how comfortable existing FMA holders feel about their expected level of commitment, versus the level of commitment being offered by the government. FMA holders have earned harvesting rights on more than half the province's available timber resource, and together they represent the backbone of forestry in Alberta.

Among the first Alberta forest companies having to renegotiate a new FMA deal under the new guidelines is Canfor, with holdings in Grande Prairie and Fox Creek. Their current FMA expires in April, 1998 and their deal is expected to set the stage for negotiations with other FMA holders. FMAs are negotiated agreements between individual companies and the government, and currently have a tenure of 20 years.

Canfor recently held its first negotiation session with the government. Canfor general manager for Alberta operations Jerry Bauer says it appears both sides want a win-win outcome, but there are many questions still unanswered. This has many other FMA holders nervous.

"The feedback that I have gotten from some of the other FMA holders is that it (non-automatic renewal) is a bit of a concern," he says, "because you have people planting trees for the long term, but there is no guarantee that you are going to get an FMA again."

During this era of production quotas for shipping product to US markets, the most concerning aspect of the Alberta government's position is a vague reference to 'financial commitment to renew the agreement'. Bauer says that is Canfor's biggest concern at present, especially since it is not spelled out whether that means a straight cash transaction, a specific commitment to more capital spending, or a requirement for more value-added production.

"I guess that is a concern to us because we have a large financial commitment in our FMA," he says, "planting trees and maintaining a sawmill. You build a new sawmill for $40 million and there is annual upkeep. We have a large infrastructure in place and we feel that meets a lot of the financial commitments."

Among those FMA holders concerned about non-automatic renewal is Sunpine Forest Products co-owner Bruce Buchanan. He feels the government has to offer some measure of guaranteed renewal if companies meet their obligations under existing FMAs, if long-term forest planning is expected to occur.

"I'm planting trees today that I'll never harvest," says Buchanan. "So the benefit of that investment is actually going to the province of Alberta and not to Sunpine Forest Products." He was unaware that the Jacques Report has been adopted as the government's new standard for FMA negotiations.

Both Buchanan and Bauer said they understand why the government is taking a new, tougher approach to FMA negotiation.

The issue heated up when West Fraser Lumber Company purchased Alberta Energy Company's holdings at Blue Ridge about four years ago. At that time, there was a question whether the government had the right to re-open negotiations on the existing FMA with the new owner to negotiate for more capital spending, more jobs, and more value.

"The industry people took the position that it was none of their business," says Buchanan. "It was a commercial transaction. The government decided to have a look at it and study it, and that's what the Jacques Report was basically all about."

Canfor's Bauer doubts that any company living up to its commitment in past FMAs should have any real concern that their FMA will not be renewed. The terms, however, are another issue. "I think the government recognizes that the FMAs have done a good job of forest management over the years," he says. "They have a proven track record in reinvesting in that FMA or the infrastructures that support it."

He adds that given its current trend toward downsizing, the government is not coming to the negotiating table from a position of strength.

"I don't think they have the means to do the same level of forest management that the owners have," he says. "Therefore, I think they recognize that we need a partnership here, where we provide the expertise, the financial commitment under forest management, and certainly they are always looking for new jobs, value-added, and things like that."

That does not mean, however, that the government does not have a legitimate beef regarding some aspects of previously approved FMAs. One area of concern raised by Buchanan is a 25 per-cent cushion on harvesting requirements written into several existing FMAs. If this wood is not being used by the FMA holder, should it become available to other forestry companies? He adds that the government is also correct in raising the issue of better utilization and value added to the existing resource.

"There are lots of FMA holders who have not utilized the total harvest level of their FMA the way that we have," he says. "We have created almost 1,000 jobs here around 100 million cubic metres. And basically, nobody else in Alberta does things with their bark, their sawdust, their poles and posts, and tops and butts the way we do."