2fiifL - Temagami

Transcription

2fiifL - Temagami

Page 1 of 1
Sabrina Picard
From:
Patrick Cormier
Sent:
Friday, February 06, 2015 11:54 AM
To:
Sabrina Picard
FW: Invitation to Meeting on March 6, 2015 Regarding Forest Tenure Modernization in
Temagami
Attachments: Final Report for Temagami Tenure Modernization Initiative Advisory Team January 7
2015.pdf; Invitation Temagami Tenure Modernization Mtg March 6 201 5.pdf
Subject:
For incoming.
TatricI Cormier
CAO
Municipality of Temagami
Please consider the environment before printing this email
From: Jeff Barton [mailto:jbarton.consulting©gmail.com]
Sent: Friday, February 06, 2015 9:49 AM
To: [email protected]; [email protected]; [email protected];
[email protected]; [email protected]; [email protected]; [email protected];
[email protected]; [email protected]; ‘Chief Roxane Ayotte’; ‘John Mckenzie’; [email protected];
[email protected]; ‘Joe Katt’; [email protected]; [email protected];
[email protected]; [email protected]; [email protected];
[email protected]; [email protected]; Patrick Cormier; ‘Lone Hunter’;
[email protected]; ‘Danny Bisson’; [email protected]; ‘Rudi Ptok’; [email protected];
[email protected]; [email protected]; ‘Robert (MNR’; ‘Jim Duncan’; ‘Doug Mckenzie’;
[email protected]; ‘Casey Becker’; ‘Marc Hamelin’; [email protected]; ‘Ley, Keith’; ‘David Flood’;
[email protected]; ‘Robin koistinen’; [email protected]
Cc: ‘JEREMY WILUAMS’; ‘Tom Clark’; ‘Steve Munro’
Subject: Invitation to Meeting on March 6, 2015 Regarding Forest Tenure Modernization in Temagami
Please see the attached invitation for a meeting on March 6, 2015
2fi ifL
L
FEE 0 C 2C5
iJ1E3
:
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F
2/6/20 15
:
On behalf of Temagami First Nation, Teme-Augama Anishnabai, and the
Municipality of Temagami, we wish to invite you to the above mentioned
meeting.
As many of you are aware, since late 2013, The Temagami First Nation, in cooperation with the
Municipality of Temagami has been leading an effort to work with other local municipalities, First
Nations and the forest industry to develop a recommendation to be put forward to the MNRF
regarding the future forest Tenure on the Temagami Crown Management Unit.
An Advisory body was established as a workable forum to solicit input and guidance from the
above constituencies.
To support this endeavour, the Advisory Team solicited proposals for the provision of consulting
services to aid in the identification and evaluation of options.
The Advisory Team selected a group led by Arborvitae Environmental Services (AVES) Ltd. to
complete this work.
The Advisory Team would like to invite you to a meeting to present the findings of this report,
the responses of the team members, as well as the recommendation from Team members. The
report is included with this invitation.
Please see the following agenda, and I look forward to your participation on March 6.
Respectfully,
Robin Koistinen
Lands & Resources Manager
Temagami First Nation
(705) 237-8275
Forest Tenure Modernization Meeting for the Temagami Management Unit
Municipality of Temagami
Bunny Miller Theatre
March 6, 2015
9:30
—
4:00 pm
Agenda
1. Call to Order
—
welcoming remarks by Mayor of Temagami /Chiefs of TFN/TAA
2. Opening Prayer
3. Intro
4.
—
Robin Koistinen
Review of process and Introduction of AVES Environmental Team
5. Consultants Analysis and Recommendations
6. Recommendation and next steps
—
—
—
Jeff Barton
Jeremy Williams, Tom Clark, Steve Munro
Jeff Barton
BREAK FOR LUNCH
PREPARATION FOR NEXT STEPS
7.
Panel Discussion
—
Pros and Cons of eSFLs, LFMC
A number of individuals from forest management agencies will discuss various elements of the two
existing governance models.
Time will be provided for questions from the audience
8.
Closing Prayer! Adjournment
1I
AS
ARBORVITAE
ENVIRONMENTAL SERVICES LTD.
Development and Analysis of
Alternate Tenure & Governance Models for
Temagami Forest
Prepared for:
Temagami Tenure Modernization Initiative
Advisory Team
Submitted to:
Temagami First Nation
by:
ArborVitae Environmental Services Ltd.
CMC Ecological Consultants
Westwind Forest Stewardship Inc.
January 7, 2015
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Temagami Forest Tenure & Governance
Table of Contents
1
Executive Summaiy
1
2
Introduction
4
3
Current Forest Management Environment
5
3.1
New Tenure and Governance Options
5
3.2
Temagami’s Forest Resources
6
3.3
Wood Cost Terminology
8
3.4
Assessment and Review Process
9
4
Alternatives
4.1
Current Management
4.2
Amalgamation
4.2.1
4.2.2
10
—
Crown Unit
11
12
Amalgamation with Nipissing Forest
Amalgamation with Timiskaming Forest
13
13
4.3
Enhanced SFL
13
4.4
Local Forest Management Corporation (LFMC)
15
4.5
Use of a Service Provider to Deliver Management
17
4.5.1
4.5.2
NFRM Inc Service Contract
FRMG Service Contract
18
18
4.6
Summary of Costs for Options of Interest
19
4.7
Other Issues
22
5
Detailed Cost Comparison ofAlternatives
23
6
Governance and Equity Considerations
28
7
Advisory Team’s Response to the Options
30
8
Discussion and Conclusions
30
Figures
Figure 1.
Figure 2.
Figure 3.
Figure 4.
Diagram of a possible future Crown Management Unit.
An eSFL structured as a Not For Profit Corporation.
Diagram of a Local Forest Management Corporation.
Diagram of a generic “service provider” approach.
12
15
17
19
Tables
Table
Table
Table
Table
1.
2.
3.
4.
Target Wood Disposition for Temagami Forest.
Essential revenues and costs from the alternative SF1 models.
Detailed revenue and cost estimates for alternative SF1 models on the Temagami Forest.
Illustrative Workload Distributions under Three Staff Level Scenarios.
8
21
24
27
2 I Page
The authors would like to acknowledge the following people, who are the members of the
Temagami Tenure Modernization Initiative Advisory Team, and thank them for their participation
in the discussions and their willingness to share information and discuss differing viewpoints
with respect:
•
•
•
•
•
•
•
•
•
•
•
•
Chief Roxane Ayotte /Councillor Doug McKenzie, Temagami First Nation
Terry Fiset, Reeve, Township of James
David Flood! Cathy Yandeau, Matachewan First Nation
Britt Griffin, Timiskaming First Nation
John Kenrick, Deputy Mayor, Town of Temagami
Carman Kidd, Mayor, City of Temiskaming Shores
Robin Koistinen, Teme-Augama Anishnabai
George Lefebvre, Mayor, Town of Latchford
Sylvain Levesque, Georgia-Pacific
Keith Ley, EACOM Timber
John McNutt, Goulard Lumber
Alex Welch, Alex Welch Logging
The authors would also like to thank Jim Duncan, MNRF NE Region, who supported the
creation of the Advisory Team, and Rob Baker and Don Farintosh from MNRF’s North Bay
District, who have been the main MNRF staff managing the Temagami Forest for many years.
They all provided very useful insights to the consultants and the Advisory Team.
The consultants also acknowledge Jeff Barton, who facilitated the Advisory Team and provided
many helpful comments throughout the process and the preparation of this document.
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1 Executive Summary
Temagami Forest is the only large Ontario forest that has always been managed by the Crown.
However, the Ministry of Natural Resources and Forests’ (MNRF’s) Transformation Initiative has
re-organized MNRF functions and staffing templates so that the North Bay District no longer has
the mandate or the staff time to manage the forest. MNRF is interested in considering what
alternate tenure arrangement may be most effective on the Temagami Forest in the future.
This Temagami Tenure Modernization Advisory Team was convened in order to consider the
advantages and drawbacks of various tenure and management options for the Temagami Forest,
and to recommend to the MNRF the Team’s preferred tenure and governance model. The
Advisory Team had 12 members four representatives of local municipal governments, four First
Nations members, and four forest industry members. A facilitator assisted with the process and
ArborVitae Environmental Services Ltd., CMC Ecological Consultants, and Westwind Forest
Stewardship Inc were engaged to provide technical information and research regarding options.
The intent was to develop a recommendation that all Team members supported unanimously.
—
A total of six options were identified for consideration at the outset: continued Crown
management, use of a service provider, amalgamation with a neighbouring forest, a conventional
SFL, an Enhanced SFL (ESFL), and a Local Forest Management Corporation (LFMC). It was
soon realized that the use of a service provider was not a tenure option per se and could in fact
be used to deliver management under any of the tenure models under consideration.
The consultants, assisted by the Advisory Team and the facilitator, developed estimates of the
costs and revenues associated with each option, and presented these on a per cubic metre
basis. Staffing levels ranging from 2.5, 3.0 and 3.5 person-years were considered under the
eSFL and LFMC options to estimate the cost impacts of various.choices. The Advisory Team
held four in-person meetings and numerous teleconferences throughout the project, and a sub
group composed of one representative from each of the three member groups undertook work
reviewing and refining the analysis. The costs and revenues that appear in this report are the
result of extensive discussion and review. The analysis indicated an estimated range in costs
from $1.32 for continued Crown management under the current level of cost to $3.15 for an
LFMC with3.5 staff, however these figures are not strictly comparable.
The Crown figure is lower than management costs will be going forward under Crown
management. The District MNRF contracted out the preparation of the Annual Report, Annual
Work Schedule plus revisions, compliance monitoring and supplementary aerial photography for
2014-15. As of December 2014, the Crown management charge for 2014-15 equates to
3 for the year. There are also
3 on the basis of a harvest volume of 130,000 m
$1 .50/rn
uncertainties around the cost figure obtained from Nipissing Forest Resource Management
(NFRM) for an amalgamation scenario. We appreciate NFRM’s willingness to provide a figure,
and we note that it has not been sanctioned by the NFRM Board. The Team recognized that
there would be negotiations if amalgamation was pursued seriously, and the Advisory Team did
not subject the costs to a thorough review out of concern that starting a dialogue with NFRM
might be perceived as the start of negotiations. Thus the final cost outcome could be different
from the figure provided. Lastly, the LFMC cost did not account for the potential impact on
management fees associated with having the Crown base dues rate set to zero the LFMC can
beexpectedtocaptureat leastsomeotthat revnueandcouldalsoreducethemanagernentfee
—
--
CMC Ecological Consulting
2 I Page
if it wished. At the extreme, should the industr’ retain the equivalent of the entire base rate, the
management fee would be as low as $1.61 /m It is noted that such an extreme outcome is.
highly unlikely since it would not leave the LFMC with funds to pursue its corporate objects;
however there is clearly potential for the LFMC Board to have some discretion on where the
management fee would be set.
.
In summary, the likely range of management costs under the set of stand-alone options appears
to be between approximately $2.25 and $3.00, which is comparable to the management fees on
many other forests. This is the main result of the analysis. The table below shows key financial
metrics for the main options considered the figures associated with the eSFL and LFMC options
are based on there being 3 staff.positions.
—
Vehicle
& Admin
GIS &
Planning
Net
Income
N/A
50,000
123,750
N/A 91,874
379,295 251,875
54,500
77,420
43,400
50,000
N/A
0
575,170 291,750
77,420
50,000
156,000
SFL Mgmt &
Other Fees
Crown Management
Amalgamation
Nipissing
Enhanced SFL
Local Forest
Management Co.
294,930
dierns
N/A
V9I11t
($/m3)
1.32
-
1.49
2.47
1.61
2.81
-
Crown Fees include a management fee of $171,180 (based on historical figures), which was
determined administratively, and reimbursements for eligible silvicultural expenses from the
Special Purpose Account and some provincial roads funding. The latter two incomes were
summed to equal net income. The only known specific expense associated with Crown
management is for the GIS services contract, which is assumed to be part of the management
fees charged. Cost figures under amalgamation were provided by Nipissing Forest Management
Corp, although they were not sanctioned by that Company’s Board. For the eSFL, the
management fee was set equal to costs since such a company would be managed to break even;
if any profit was being made, pressure would be exerted by the shareholders to reduce
management fees. In the case of the LFMC, the value of base dues rate payments was
estimated at $156000 based on historical data the management fee was set equal to costs. In
the table shown above, the revenue figure assumes that the LFMC captures the full amount of
the base rate payment the LFMC Board would have discretion on this point.
-
—
At a meeting on July 16, 2014, the Team members conducted a non-binding, straw poll to identify
the option of greatest interest to them. There was no consensus reached. The municipal and
Aboriginal representatives were most strongly in favour of one of the two stand-alone options
an eSFL or a LFMC. Municipal and Aboriginal members felt that they have not had adequate
local representation in the management of the Forest under Crown management, and both of the
stand-alone options provide a meaningful decision-making role by virtue of a Board with strong
local participation. The industry preferred to either amalgamate the Forest with one of the
neighbours or to maintain Crown tenure failing the availability of those options, two industry
members chose an eSFL as their second option. The Advisory Team’s report will provide further
detail and discuss the recommendations that emerged from that outcome.
—
—
—-
----The-consultants-note -that-while--Temagarni-is-a-reIati-veIy--small-forest-by--Ontaric--standards
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3IPage
(containing 339,000 ha of productive managed Crown land), there are at least five other forests in
the province with smaller landbases. At 118,000 ha, the smallest of these is the Dryden Forest,
which has operated using a 2.5 person base staff level since 1996.
In summary, we concur with the majority of the Advisory Team that a stand-alone forest
management entity represents a viable option for the Temagami Forest. The following
recommendation is made:
The consultants recommend that the Temagami Tenure Modernization
Initiative Advisory Team request that MNRF support the transition of the
Temagami Forest from a Crown managed forest to a stand-alone forest
licensed to, and managed by, a new corporate entity with modern
governance to be recommended by the Advisory Team.
4I Page
2 Introduction
This report summarizes the work of the Temagami Tenure Modernization Initiative Advisory
Team as it considered the advantages and drawbacks of various tenure and management
options for the Temagami Forest. The Advisory Team was convened in order to develop a
recommendation that would be submitted to the Ontario Ministry of Natural Resources and
Forests (MNRF) for modifying the tenure and governance of the Temagami Forest. Implicit in the
recommendation would be an understanding of what entity would manage the Forest. It was
hoped that the recommendation would be unanimous, and the process that was followed made
every effort to reach a common understanding.
The Temagami Forest (TF) is the only remaining Management Unit in Ontario that has
continuously been managed by the Crown since inception. Over the last several years, three key
factors have opened the door to making changes in the tenure, governance and management of
the Temagami Forest:
•
•
•
MNRF has been moving assertively to modernize the forest tenure system in the
province, including providing meaningful decision-making roles for local First Nations and
municipalities at the forest management unit level;
With the appearance of these opportunities, municipalities and First Nations have become
much more active and assertive in seeking opportunities to participate in forest
management; and
MNRF’s Transformation Initiative has resulted in fewer MNRF resources being available
for most activities, including management of the Temagami Forest, and changes to
MNRF’s management structure support the view that MNRF would prefer a different
approach.
At the outset of this process, the Advisory Team developed a series of guiding principles which
reflected the goals and perspectives of the Team:
To recognize and honour wood supply commitments and use;
To facilitate full utilization of the allowable harvest volume;
To favour local economic development opportunities that includes, but are not limited to
underutilized wood;
To recognize, respect the aboriginal and treaty rights of representative First Nations including
recent case law and to help resolve issues as appropriate;
To develop a cost effective and sustainable business model;
To promote the best end use of forest products produced from forested lands through
innovation and technology;
To promote a strong working relationship with the MNRF and other government
departments, federal and provincial, including scientific and management support;
5 Page
To increase local governance participation and provide opportunities for meaningful
involvement of local First Nations and local municipalities; and
To increase government investments directed towards enhancing local sustainability of forest
management.
While the various tenure options were not explicitly assessed against each of the principles, they
did serve to guide the discussion and to provide a foundation for the Team’s discussions.
This review was funded by the MNRF, however staff from MNRF did not participate in the review
process other than to provide information on an as requested basis. Under the leadership of the
Temagami First Nation and the Municipality of Temagami, an Advisory Team was struck
consisting of four representatives from the forest industry who have been harvesting on the
Forest, four local municipalities, and representatives of four First Nations. The contract was
issued by Temagami First Nation, who also hired a local forest consultant as a process facilitator.
The consulting team included Tom Clark, of CMC Ecological Consultants, Steve Munro, R.P.F.
general manager of Westwind Forest, and Jeremy Williams, R.P.F. of ArborVitae Environmental
Services Ltd. Tom and Jeremy have been actively involved in the tenure modernization efforts in
Ontario; Westwind Forest has been actively modernizing its governance and has one of the most
diverse boards of any forest management company in North America; Tom is a founding member
of Westwind and in 2012 rejoined its Board.
The next sections of the report describe various tenure and governance options for the Forest.
Following that, estimates of revenues and costs were developed for a number of the alternatives.
Table 4 was developed to show how the workload associated with managing the Forest would be
adjusted depending on the number of staff positions filled. The Advisory Team’s assessment of
the various options is also provided. The report concludes with a discussion of some key aspects
of the options that received meaningful consideration during the process, followed by a
recommendation from the consultants to the Advisory Team based on the perspectives that we
heard during the review process.
3 Current Forest Management Environment
3.1
New Tenure and Governance Options
The financial crisis of 2008-09 originated in the US housing sector and led to massive reductions
in the scale of the Ontario forest industry. The provincial Crown timber harvest declined from
. This
1
/year in the mid-2000’s to recent levels of 12.6 million m3/year
3
more than 24 million m
devastating impact was due to many factors, however it laid bare the shortcomings of Ontario’s
forest tenure system. In response, the provincial government undertook to modernize the forest
tenure system, identifying and targeting for revision a handful of key deficiencies:
•
The forest was viewed solely as a cost centre there was little incentive in the system for
forest managers or forest companies to seek better prices for the available wood;
11ittps//wvwojitarka/environrrient-and-energy/forestry4act
-
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•
•
•
•
There was a widespread concern about low levels of harvesting that were well below the
available levels, and especially underutilized wood supply commitments;
It was very difficult for aspiring new industry entrants to access wood so that they could
enter the industry, or for existing members of the industry to expand their business;
Because most Sustainable Forest Licences were held either by individual forest
companies or by co-operatives of forest companies with an interest in the forest, First
Nations, municipalities and local stakeholders were largely excluded from meaningful
decision-making roles; and
Forest governance was well behind the norms in corporations and other organizations
that manage lands, infrastructure and other public assets (see for example Korn/Ferry
International’s annual review of corporate governance in Canada, the requirements for
Toronto Stock Exchange listed companies, and the many reports and reviews done by
Canadian law firms).
At a high level, the provincial government’s response has been two-fold. In 2011, via Bill 151,
Ontario passed Ontario Forest Tenure Modernization Act, which enabled the province to create
Local Forest Management Corporations, which are entities that are designed to overcome the
deficiencies identified above. The objects of an LFMC are established in the Act, and the
relevant portions were included as an Appendix to the Request for Proposals (RFP) issued by the
Temagami Tenure Advisory Team in December 2013. To date, there has been one LFMC
established Nawiinginokiima Forest Management Corporation which is intended to take in the
Big Plc, Plc River, Nagagami and White River Forests. That LFMC is just getting itself
established and operational. The Modernization Act sets a limit of two LFMC’s that can be
established prior to 2017. At this time, the effectiveness of the LFMC’s is to be reviewed and a
decision made on whether to allow additional ones to come into being.
-
—
The second response of the MNRF has been to work with First Nations, municipalities, the forest
industry and others to develop and implement Enhanced SFL’s, or eSFL’s. The eSFL Principles
were included as an Appendix to the RFP for this project. eSFL’s will move towards improved
governance, including enhanced Aboriginal and community participation at the Board level,
however existing industry shareholders and commitment holders will remain in the governance
structure. There is considerable flexibility in both the eSFL and LFMC structures for variation,
which is also one of the principles of tenure reform, namely that variability to accommodate local
conditions and context is encouraged.
3.2
Temagami’s Forest Resources
Temagami is an iconic forest. Located in the transition zone between the Great Lakes-St.
Lawrence and boreal forest types, it has a varied and valuable timber resource set within a
heavily used recreational area. The forest was the site of public protests against provincial
management approaches in the 1990’s, this history is the main reason it has remained under the
management of MNRF.
The forest is centred on the village of Temagami, and extends as far north as New Liskeard (see
Figure 1). The southern boundary of the Forest is approximately 50 km north of North Bay. The
Forest extends east to the Ontario-Quebec border, and contains Lake Temagami as well as Lady
Evelyn Smoothwater Provincial Park.
7IPage
Figure 1. Map of the Temagami Forest (synonymous with Temagami Management Unit). Map
sourced from MNRF.
Compared to the average management unit in Ontario, the Temagami Forest is rather small. Of
the total area of 634,088 ha, 446,135 ha (70%) is Crown managed land. Of this, 339,032 ha are
productive forest land that is available for timber production. The planned average annual
harvest volume is 290,511 m
3 during the 2009 FMP period, and during the last five years (i.e. the
most recent data were available for the 2008/09 to 2012/13 period), the average harvest was
130,000 m
/yr.
3
Throughout the last 15 years, the harvest rate on the forest has consistently been well below the
allowable level. (Many other Ontario forests have been in a similar position since 2008.) The
2008-09 Annual Report (AR) states that the actual harvest area, as a percentage of planned
area, was 38% during the 1997-99 period, 43% during the 1999-2004 plan term, and 22% during
the 2004-09 plan term. It is not clear whether the low levels of activity have primarily been due to
low demand for the timber, or whether the availability of timber was reduced after the
implementation of constraints related to the Temagami land use plan. Since 2009, Georgia
Pacific Canada Northwoods (GP), which purchased the assets of Grant Forest Products,
including the Englehart mill, and EACOM (which acquired the Domtar sawmills in 2010, including
the Elk Lake Planing Mill and Liskeard Lumber) have both harvested actively in the Forest, with
the result that the actual harvest area was 61% of planned area (and 68% of the planned volume)
during the first three years of the 2009 FMP. However, GP, EACOM, and Goulard all “pulse” the
forest, taking the lion’s share of the harvest during the first two years of the five year operating
plan, and then harvesting a declining amount in years 3-5 of the plan period. As a result, it is
8I Page
expected that the actual harvest volume will be close to 45% of the planned level at the end of
year 5 (i.e. at the end of the 2013-14 fiscal year).
Understanding the obstacles to an increased harvest by the disposition holders2 is a critical
question for the forest and for this project, since it greatly affects the amount of timber revenue
that can be generated by the forest, which in turn affects what sort of administrative structure can
be supported. The current wood disposition targets on the forest, based on the District Wood
Disposition Strategy for the Temagami Crown (May 15 2012), are shown in Table 1.
Table 1. Target Wood Disposition for Temagami Forest.
Licensee
Alex Welch
Fuel wood
Georgia Pacific
Goulard Lumber
EACOM
Tembec
Temagami
First Nation
TOTAL
3.3
Target % Disposition
PwIPr SPF
OC
Po
7.2
7.6
6.6
3.0
--
--
--
--
24.7
39.1
22.3
5.0
1.7
34.3
7.0
45.6
3.8
1.7
33.3
14.6
32.3
6.5
6.7
51.6
18.3
17.2
7.8
2.1
Hdwd
5.7
3.6
35.9
14.7
24.5
12.9
2.7
100.0
100.0
100.0
I
100.0
I
100.0
I
Total
5.9
1.0
37.9
16.0
30.2
7.0
2.0
Bw
5.6
4.5
35.8
15.6
24.8
11.8
1.9
I
100.0
I
100.0
Wood Cost Terminology
There are a number of terms that are helpful to define. It is beyond the scope of this report to
describe these in detail, but through the links below we have provided more information. If you
click on the highlighted blue words you will go to a user friendly definition of some of the terms.
Delivered Wood Costs may be defined as the sum of harvesting, transportation, road building,
administrative and licensing costs associated with harvesting wood and delivering it to a mill for
processing. Delivered wood costs have risen significantly over the last decade. Similar to the
situation with energy costs, rapidly rising delivered wood costs erode the profit potential of the
industry and make wood that is more distant from the mill less attractive to harvest.
Stumpage Charge is made up of a minimum price and residual price, as well as amounts that go
to the Forestry Futures Fund and for forest inventory work. Charges are calculated monthly by
MNRF and posted in a document on the MNRF website. The stumpage charge is also referred to
as the Crown dues charge.
Costs per Cubic Metre is used throughout this document to refer to the management fee that
would be charged by the forest manager. We consider this fee to cover the manager’s cost of
administering the forest, including annual planning, reporting, and overseeing activities including
compliance. The general manager also may spend a considerable amount of time liaising with
2 Wood disposition is the term used for the allocation of the planned harvest amongst the parties who have
harvest rights on the Temagami Forest; this is notionally equivalent to wood supply commitments on other
--
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Tern agami Forest Tenure & Governance
key stakeholders, local First Nations representatives, MNRF staff, and representatives of
companies that harvest and br use wood from the Forest. The management fee figures used in
this report are based on our cost estimates which have been extensively reviewed by the
Advisory Team. The fee figures are based on the actual harvest, as averaged over the past five
years (2009-10 to 201 3-14), with the 201 3-14 harvest estimated at 20,000 m
. Estimated fees
3
serve as a metric that somewhat standardizes the costs for comparative purposes. We note that
industry members of the Advisory Team informed the group that management fees generally
account for between 3-5% of the delivered wood cost.
We have not considered how the costs of management planning will be addressed, since these
are likely to become much lower in future as planning continues to be streamlined and as the
MNRF takes back key parts of the planning process.
3.4
Assessment and Review Process
The project began in earnest with an initial meeting between the consultants and the Advisory
Team in January 2014, where options of interest were discussed. The consultants also met with
District MNRF staff to discuss past, present and future management on the forest and to gain an
understanding of past initiatives to amalgamate the Temagami Forest with others. Following
these meetings, the consultants spoke individually with Advisory Team members to get a sense
of their preferences, key concerns, and perspectives. Then the consultants developed
preliminary estimates of wood cost under each of the options.
The draft analysis was prepared and distributed in mid-March, before a second meeting of the
consultants and the Advisory Team at the end of March. The purpose of the meeting was to
review costs and discuss how the options were being framed and assessed. Part of the meeting
was also spent discussing how a forest management company operated and what the obligations
of an SFL-holder were. A sequence of revisions to the costs and some of the scenario details
followed, with a series of draft financial analyses being developed and reviewed by a sub-group
of the Advisory Team. This process of refining the cost estimates led to best cost estimates
being developed these were shared at an Advisory Team meeting on July 16, where a decision
was made the next-to-last chapter in this report summarizes the decision of the Advisory Team.
—
One of the recommendations that followed from the July meeting was that the sub-group of the
Advisory Team would seek a meeting with senior MNRF staff to discuss the recommendation and
also discuss the potential implications of continued Crown management, if that was an option.
The cost and revenue estimates presented here do not take into account start-up costs nor do
they include costs associated with preparing a forest management plan. The start up costs were
not estimated here because considerably more detailed information is required about each option
before a credible estimate can be developed. Estimating the start-up costs is more suited to
inclusion in the business plan. The forest management planning process is in transition it is
anticipated that MNRF will no longer require the development of a Phase II Planned Operations
document, which will save a considerable amount of money. Perhaps more significantly, MNRF’s
Transformation Initiative is returning the development of strategic management direction to
MNRF the Regions will be leading the development of the Long Term Management Direction
(LTMD), although at this point the details of the process, including respective responsibilities and
—
—
10 I P a g e
decline significantly, however it is very difficult at this point to estimate what the new cost level will
be. In this environment, it was not prudent to try to estimate these planning costs in any event,
they will be the same for each of the stand-alone options, although there are different approaches
that the SFL-holder may take to fulfil its obligations.
—
4 Alternatives
During this assessment, the following tenure options were brought forward for consideration:
•
•
•
•
•
•
Continued Crown management
Conventional SFL
Amalgamation with the Nipissing Forest
Amalgamation with the Timiskaming Forest
Enhanced SFL (or ES FL)
LFMC
The conventional SFL model was eliminated early on in the process when it became clear that
MNRF would not support the implementation of a conventional SFL on the Temagami Forest.
The model would also have failed to meet many of the key principles set forth by the Advisory
Team. Conventional SFLs remain a common model in Ontario. One form of this tenure model
occurs when the SFL is held by a single forest products corporation. In this situation, the
employees looking after the forest are direct employees of the mill owning company, and there is
no Board of Directors overseeing forest management. A modified version of this form occurs
when a consortium of forest companies using wood from a forest management unit combine to
create a management company to hold the SFL and manage the forest. Representatives of
these companies form the Board of the SFL company, which has a shareholder agreement to set
the ground rules and amount of votes held by each Board member. These arrangements are
known as “Co-op SFL’s”.
For each remaining alternative, the following sections provide a brief description of the format of
the entity, a graphic interpretation of each option, and a summary of estimated costs. Note that
HST charges on management fees have been excluded from the analysis. Following these
sections is a spreadsheet that compares the estimated costs of all of the alternatives.
Under each tenure option, forest management may be delivered by organization employees or,
alternatively, by one of several organizations that provide “service contracts”. This refers to a
management approach whereby the SFL-holder entity hires a contractor to do the planning,
reporting, and day to day management of the Forest, leaving higher level functions, and
governance, to the SFL Board. We asked two companies that might potentially be interested in
offering management services for the Temagami Forest to estimate what they would charge the
SFL-holder for a management contract. Thanks are due to First Resource Management Group
Inc (FRMG) and Nipissing Forest Management Inc. (NFMI) for providing cost estimates on short
notice. They should not be considered as official proposals.
To keep the number of management options tractable, we decided to estimate the costs for the
eSFL and LFMC options as if the SFL-holder hired staff. One reason for this approach is that it is
more difficult to accurately estimate costs under the service provider option, since the contract
11 P a g e
will ultimately be negotiated between the provider and the SFL-holder (or the SFL-holder will
request competitive bids). In either case, the costs in the eventual contract are likely to differ
from the estimates provided. Hence, we are reluctant to do much more than present the
estimates provided by FRMG and NFMI as guidelines for the eventual agreed-upon cost.
4.1
Current Management
—
Crown Unit
The TF is the only provincial forest that has always been a Crown Unit managed by MNRF.
Although the Advisory Team originally intended the Crown Unit scenario to be the “base case”, it
may be more accurate to call it the “current case”. MNRF was helpful in discussing how the unit
has been managed in the past; staff recognize that the fees were originally set administratively
and do not provide for full cost recovery. If all other alternatives are rejected and Temagami
remains a Crown Unit (at least for a time), MNRF has stated informally that the operational
requirements are likely to be contracted out. This may mean some form of competitive bidding
process, because of the contracting rules that Ontario must follow. MNRF did not provide any
definite insight regarding how they might respond if this process were to either not produce a
recommendation or if it were to recommend continued Crown management.
Some idea of what future costs might be under continued Crown management can be seen in the
management charges for 2014-15. The total charge, which includes MNR’s costs of having a
service provider prepare the Annual Report, Annual Work Schedule plus revisions, and provide
compliance and supplementary aerial photography, is $195,461.31, which equates to a cost of
.
3
$1 .50/rn
Cost summary:
The wood cost under this option was calculated as the average cost charged by MNRF over the
past five years per cubic metre actually harvested3. During this period, all MNRF staff were
based in North Bay (although one staff person resides in Temagami) three staff in particular
devoted a majority of their time to managing the Temagami Forest. These are solid numbers,
however it is hard to break them down further because the government bookkeeping system
does not lend itself to SFL management accounting.
—
Box Stats
Current Crown
Management
SFL fee
total
)
3
($/m
Income
Expense
Salary
FMP
Staff in
TF
$171,180
1.32
$171,180
$171,180
NA
NA
0
Cost
For details see Table 3. Detailed revenue and cost estimates for alternative SFL models on the
Temagami Forest.
3 We note that MNRF charges disposition holders on the basis of their allocated disposition, not on the
basis of the actual harvest. We used the cost based on actual harvest since this is what matters to industry
andasconsideredbythem
-—---
-
------------
—
12Page
Closest to status quo
that “transformation”
will allow
—•
Advisory Body of
Communities, Companies
and individuals
MNR directly
responsible for Plan
preparation and
oversight of the fó rest.
I
J
I
ii
J
A contractual
arrangement with a
3 party provides on
the ground resource
management
1
Figure 2. Diagram of a possible future Crown Management Unit.
42
Amalgamation
There have been at least several initiatives undertaken to amalgamate the Temagami Forest with
either the Nipissing Forest or the Timiskaming Forest. In some cases, the undertaking was
initiated by one of these neighbouring forests, however in other cases MNRF or local
stakeholders in Temagami explored the option but could not gain the support of the Timiskaming
or Nipissing Forest Board. This underscores a key consideration that even if the Advisory Team
was to recommend amalgamation, there is no assurance that the Board of the other
amalgamatee would agree. Further, amalgamation would involve negotiation, making it difficult
to forecast costs or other aspects of the outcome. While both SFL managers kindly provided an
estimate of the cost of running the forest under an amalgamation, these are best regarded as
preliminary estimates. The two most plausible amalgamation options are described below; other
amalgamation scenarios are possible but were not explored as they were considered unlikely.
One variant is the notion of splitting the Temagami Forest (presumably based on the earlier
Latchford CMU and Temagami CMU boundaries), with the northern part being added to the
Timiskaming Forest and the southern part to the Nipissing Forest. It is assumed that splitting the
unit would be the first step in a two-part amalgamation. The comments above are applicable to
the split scenario as well, however this option is not explored in detail below.
13 I P a g e
4.2.1 Amalgamation with Nipissing Forest
Amalgamation with Nipissing Forest would create a large contiguous forest primarily located
within the transition zone between the Great Lakes-St. Lawrence and boreal forest types. Many
of the companies operating on Temagami are also shareholders of Nipissing Forest Resource
Management Inc. (NFRM) and Nipissing’s GIS service provider provides GIS services for the
Temagami Forest. However, joining Nipissing would do little to address the issue of a low
harvest level, since Nipissing Forest itself has recently been experiencing low levels of actual
harvest versus planned levels (i.e. in the mid-40% range).
No illustration of the governance /management structure was provided, because the Temagami
Forest would come under the control of NFRM, which is in the process of modifying its own
governance. NFRM in previous discussions had opted not to explore amalgamation because of
the risk of extra costs because of the special circumstances surrounding Temagami. For
example the recent last minute bump up of the new Temagami forest management plan will draw
MNRF resources intended for other tasks.
Cost summary:
The cost figures provided below came from the General Manager of NFRM, however industry
members of the Advisory Team cautioned that these figures were not sanctioned by the NFRM
Board. These cost figures were not subjected to the same rigourous review by the Advisory
Team that the ESFL and LFMC costs were.
In the case of an amalgamation, the entries for income and expenses etc. are a moot point
because they would be the responsibility of NFRM. It is possible an amalgamation would result
in there being one employee living in the forest, but that was not made clear.
Box Stats
Amalgamation with
Nipissing
SFL fee
total
Cost
($/m
)
3
Income
Expense
Salary
FMP
Staff in
TF
NA
1.49
NA
NA
$91,874
$1,400
0
Temagami Forest.
4.2.2 Amalgamation with Timiskaming Forest
First Resources Management Group (FRMG) is a forest management service provider that has
been contracted to manage the Timiskaming Forest. FRMG staff, when interviewed, indicated
that an amalgamation with Temagami Forest is unlikely because the Board of the SFL-holder
Timiskaming Forest Industry Alliance (TFIA) considered this recently and determined it was not in
the strategic interest of the company. However, it is possible that a recommendation from the
Advisory Team could lead to a re-consideration of this option. No cost summary was provided.
4.3
Enhanced SFL
14 I P a g e
Conventional SFL’s. The company holding an ESFL may be a for-profit or a not-for-profit
company. The “for profit” model requires that share capital be issued and allocated to whichever
entities which to be shareholders, and a shareholder agreement must be developed. The
negotiations and the development of the shareholders agreement add costs to the start-up of the
company. The for-profit model therefore has some similarities with a Conventional Co-op SFL,
with the primary difference being that it has non-industry Board members as well as industry
members.
Although in theory a forest management corporation could make a “profit” that would be
dispersed to the shareholders, this is rarely the case in Ontario. This is not a problem as there is
no expectation of profit by the share holders of the company. It is a common model in more
productive forests, such as in the U.S. where timber sales can be very profitable.
A “not for profit” company has no shareholders in the sense of ownership, and as such there is no
expectation of money being dispersed. Note in this context the term “share” is not used in the
sense of a percentage of the harvest. “Not for profit” Companies also must operate as “not for
loss”, meaning they must always ensure adequate funds are available for cash flow.
Not for profit companies have an advantage in the area of community relations. As a Not for
profit, there is a perception that the company operates in a way that is kinder and gentler
because of the absence of a profit motive. This can be an advantage when dealing with the
public and has been shown to be so for Westwind, which is an existing example of this model.
Over the years, Westwind has benefitted greatly from grants and joint projects with community,
provincial and national organizations that treat the Company differently than a “for profit”
corporation. Among the tangible benefits are becoming the first FSC certified forest licence in
Canada. MNRF recognizes this as a distinct tenure model.
A downside of such a model is that there are no shareholders to pay for special projects should
they be necessary. Large corporations that hold SFLs can use their financial resources to
support an SFL company if the need arises. In practice this has not been a significant obstacle,
but it is a consideration, especially during a start up.
Cost summary:
As above, we have assumed that forest management, including planning, is undertaken by staff
of the SFL-holder.
Box Stats
ESFL
SFL fee
total
Cost
($1m
)
3
$310,595
2.47
Income
Expense
$379,295 $379,295
Salary
$251,875
FMP
staff
cost
Staff in
TF
3
For further expenditure and review details see Table 3. Detailed revenue and cost estimates for
alternative SFL models on the Temagami Forest. Figure 2 shows how a not-for-profit ESFL
would be structured.
151
Page
SF1-holding Company
focused on resource
governance
[
Board has individuals from
municipal, Aboriginal and
industrial backgrounds
Board is independent
and responsible for
ensuring licence
conditions are met,
other legal obligations
met, and forest is
ustainably managed
i’Th
1,_ _j
IL’ ]
j
Operations staff
delivers programs,
implements FMP
other on the ground
resource mgrnt
Figure 3. An eSFL structured as a Not For Profit Corporation.
4.4
Local Forest Management Corporation (LFMC)
The Forest Tenure Modernization Act defines what a LFMC is and enables the Minister of Natural
Resources and Forests to create two LFMC’s in the near term. Each LFMC would be a Crown
corporation, and a key characteristic of an LFMC is that it has five objects as specified in the
legislation:
1. To hold forest resource licences and manage Crown forests in a manner necessary to
provide for the sustainability of Crown forests in accordance with the Crown Forest
Sustainability Act, 1994 and to promote the sustainability of Crown forests.
2. To provide for economic development opportunities for aboriginal peoples.
3. To manage its affairs to become a self-sustaining business entity and to optimize the
value from Crown forest resources while recognizing the importance of local economic
development.
4. To market, sell and enable access to a predictable and competitively priced supply of
Crown forest resources.
5. To carry out such other objects as may be prescribed by regulation.
Ohirf 9 R.
rcIfcH fn mnv nf fh nrinrinIc fhf th Ar1viqnr, Tm fihIihr1
if
fh
16 I P a g e
outset of its activities.
There are two examples in Ontario of what the LFMC model looks like. The Algonquin Forest
Authority (AFA) is the best known of these, even though it is not formally designated as an LFMC.
However, like an LFMC, the AFA is a Crown Corporation that holds the licence document for
Algonquin Park. The sensitivity among the public about forestry in the Park is comparable to that
associated with the Temagami Forest. The AFA was created in the I 970s as a vehicle to enable
the continuation of forestry in the Park while safeguarding the Park’s values.
The seven-person Board of the AFA is made up of community members who have some
knowledge of forestry, park management, and a good network among the public in the area. As
a Crown Corporation there is some additional fiscal oversight, as with all public companies and
agencies. The Park produces a relatively high volume of wood and as such is quite financially
stable. The AFA has over 20 staff, but with this staff they also provide a high level of service to
the allocation holders. One example is the merchandising yards that are used to sequester wood
andsort it to meet optimal uses. Again this is an advantage of volume; merchandising is a good
way to add value to raw products.
The Nawiinginokiima Forest Management Corporation (NFMC) in Marathon / Manitouwadge is
still being established as an LFMC and is still working out some of the start up issues that any
SFL must address. In their case recently there was some discussion of the Crown’s liability that
remains from previous industry SFL holders. This can be an expensive issue to sort out.
A primary benefit of an LFMC is that it is not required to pay the base rate component of Crown
dues, which is directed to Provincial Consolidated Revenues. In theory, it should be able to
collect a considerable percentage of the base rate of Crown dues, which could be a significant
amount of money. The retained funds may be used by the LFMC to advance achievement of its
corporate objects, which are spelled out in Bill 151. The LFMC Board may also decide to allow
harvesting companies to keep some of the funds that would have gone to pay the base rate. In
theory, if the full amount of the base rate was retained by harvesters, the management fee would
be as low as $1.61, using the conservative assumptions that the base rate payments would
average $156,000 /year. In practice, the LFMC would need to retain at least a portion of the base
rate in order to be able to attain its corporate objects.
Cost summary:
Costs are similar to those for an ESFL. FMP production costs are borne by the company through
the staff salaries; that is why the entry for FMP costs says “staff”.
Box Stats
Local Forest Mgmt
Corp
SFL fee
total
Cost
($1m
)
3
1.61
2.81
Income
Expense
Salary
-
$506,470
$575,170
$415,170 $291,750
FMP
staff
cost
Staff in
TF
3
Temagami Forest.
17 I P a g e
LFMCs are Crown
Corporations and have
some additional
expectations for
accountability
-
]
-
—1
[
—
1_
J
-.
j
-
1
Board includes
1 Aboriginal
municipal
and industry members
‘‘-
and responsble for
ensurirg licence
conditions are met,
other legal obligations
met, and forest is
sustainably managed
Operations staff
delivers programs.
There is some ability
of the LFMC to
retain dues and
these can be applied
to costs such as
existing liabilities
Figure 4. Diagram of a Local Forest Management Corporation.
4.5
Use of a Service Provider to Deliver Management
The “service provider” approach means that the Board of the SFL contracts out the day to day
work of the SFL to a separate company. The service provider is not a tenure holder. Its business
model is dependent on managing the forest and administering the business requirements of the
tenure holder, including most of the operational requirements and planning functions. They carry
out these activities under strategic direction from the tenure holder, and report back to the SFL
holder Board. The closest example in Ontario is TFIA, which uses FRMG as its service provider.
FRMG also manages the Abitibi River Forest (ARF) on behalf of the ARF Board. In the Hearst
Forest, the Board of Directors uses Thunderhouse Forest Services Inc., although in this case the
general manager is an employee of Hearst Forest Management lnc, the SFL-holder. The
remaining primary staff delivering forest services are employees of Thunderhouse.
The two service providers who were asked to provide estimates were selected because they
manage forests adjacent to Temagami, however there is the potential for a service contract to be
given to another organization. As yet this has not been explored by the group, but a placeholder
is left for future discussion.
l8lPage
4.5.1. NFRM Inc Service Contract
Nipissing Forest Resource Management Inc. kindly provided some estimates and an overview of
the administrative structure, which is the basis for Column C in Table 3. As service provider,
NFRM would conduct much of the planning and oversight functions from its North Bay office but
would have one staff person on the forest. The proposal suggests that in essence one person
would deliver most of the management, and a portion of the NFRM GM’s time would also be
charged to the Temagami Forest. No clarification was provided regarding how one additional
person with some GM time would be sufficient to provide all of the required services, especially
when a 2.5 3.5 person team is considered under many of the other options described above.
NFRM would have some leeway to shift staff time amongst forests, however it is likely best to
consider the costs provided as an opening bid in what would become a negotiation process. The
costs presented would give the lowest cost per cubic metre of all of the options.
-
Cost summary:
The cost figures provided below came from the General Manager of NFRM, and industry
members of the Advisory Team cautioned that these figures were not sanctioned by the NFRM
Board. The estimated cost per cubic meter is among the lowest, but these cost figures were not
subjected to the same rigourous review by the Advisory Team that the ESFL and LFMC costs
were.
Box Stats
NFRM Inc Service
Contract
SFL fee
total
Cost
($1m
)
3
Income
Expense
Salary
FMP
Staff in
TF
NA
1.75
NA
$239,600
$98,700
$10,000
1
Temagami Forest.
4.5.2 FRMG Service Contract
FRMG also kindly provided a rough estimate and a description of their approach, and indicated
that they would be willing to discuss a more detailed proposal with the Temagami Tenure
Advisory Team. However, this further discussion did not happen with FRMG due to concerns
that it might be mis-construed as an approach to open negotiations.
Cost summary:
FRMG emphasized that the costs they provided were estimates based on limited information;
they believed they can provide a basic service for $300,000 to $500,000 annually. Human
Resources are critical and the availability of people may change the actual structure of the
organization. Generally about 3 to 5 full time equivalent persons would be required, one of whom
will be entirely dedicated to the Temagami Forest.
Box Stats
SFL fee
total
--
FRMG Service
flnnfrrf
I
NA
Cost
($/m)
2.92
Income
Expense
l.-Lfl7l
MA
TRfl
Salary
FMP
Staff in
TF
TRfl
TRfl
I
-f -F -F
191 Page
Any of the SFL models
could use this approach
Board composition could
be any combination of
independent and industry
r
and responsible for
overall management,
but key deliverables
are offloaded to a
service provider.
A separate company
has a contract to
administer arid
provide day to day
operations support
and preparation of
FMP
Figure 5. Diagram of a generic “service provider” approach.
Summary of Costs for Options of Interest
4.6
Table 2 below summarizes the key cost and revenue figures for the tenure and management
options that were considered and reviewed by the Advisory Team. The amalgamation with
Timiskaming Forest is omitted because there was scant detail provided, and the cost figure was
centred within a fairly wide range. The Advisory Team focussed its review on both the high level
characteristics of the options and the costs, with the cost review being most intensive for the
ESFL and LFMC options. The costs associated with amalgamation were discussed by the
Advisory Team but no revisions or clarifications were sought from NFRM since there was concern
that such inquiries might be viewed as interest in opening negotiations.
The service provider options are also omitted from Table 2, because they are not tenure options
but only management delivery options. In principle, a service provider could be used under any
of the tenure options considered here, although for consistency the options are costed out under
a staff-based model. Consultants could be used to provide additional services that are only
needed from time to time, such as forest management planning.
The Advisory Team did not spend considerable time discussing what the ideal number of staff
the eSFL nd LFMC ootions were costed usina 2.5. 3.0 and 3.5 staff. The summary
would be
—
20 I P a g e
table (Table 2) shows only the 3.0 staff options, whereas the more detailed table (Table 3) shows
options costed under all three staffing levels considered. One of the key unknowns was whether
a full time GM would be required given the many stakeholders in Temagami and the high profile
of the forest, the consultants feel it is advisable to have a full time GM to manage relations, but no
decision was made on this topic. A full-time GM is likely to be necessary under an LFMC
structure, in part because the obligations of a Crown Agency entail a greater workload, leading to
a higher salary level compared with the SFL models. Under lower staff levels, activities such as
compliance monitoring would be undertaken by the wood users Table 4 shows how the
workload could be distributed under various staffing levels. There is likely also a higher quality of
service and a greater ability to prevent issues from becoming problematic under a higher staff
level, but these benefits were difficult to translate into costs.
—
—
The revenues were comprised of management fees and other revenues, specifically including
roads funding and the portion of the silvicultural Special Purpose Account expenditures that
covers eligible staff time. Another potential source of funding is the Forestry Futures Fund. The
management fees collected under the LFMC option were assumed to include the funds that are
presently paid as the base rate portion of dues. The management fees for the eSFL and LFMC
options were set so that the forest management company broke even. This is why the Net
Income of the eSFL is shown as zero. The Net Income of the LFMC equals the base rate portion
of dues, estimated using harvest levels and dues rates from the previous five years. The LFMC
would be able to capture at least some of these additional funds to further the objects of the
corporation, undertake special projects, or to set some of it aside to cover management planning
costs. The LFMC Board could also lower management fees to make the wood more attractive
in theory, the management fee could fall to $1.61 /m
3 if industry retained all of the base rate fees.
—
Costs have been sub-divided into staff salaries (including benefits) and per diems and expenses
for the Board members, vehicle and administrative, and GIS work + certification expenses. There
is no need for the Temagami Forest to be certified, and so this is set as a zero cost except in the
amalgamation scenarios, as both Nipissing and Timiskaming are certified. This approach is in
keeping with the high level of concern on the part of the Advisory Team that costs should be as
low as practicable. Under Crown management, MNRF expenditures for relevant salary, vehicle
and other expenses needed to manage the forest are difficult to calculate and have not been
broken out by the Crown, although it is known that the Crown does pay an external service
provider for the GIS work. GIS and management fees were estimated by NFRM under
amalgamation, and assumed to remain at the present level under the eSFL and LFMC options.
The far right hand column of Table 2 shows the management fee expressed on a per cubic metre
basis, where the average annual harvest over the last five years was estimated at 130,000 m
.
3
The value under amalgamation was estimated by NFRM, and it depends on harvest levels and
costs on the Nipissing Forest, as well as the analogous data for Temagami. This figure could not
be independently verified by the consulting team.
These cost data are not definitive. While it appears that the Crown and amalgamation options
are much less expensive than the LFMC and eSFL options, many on the Advisory Team
expected that the Crown would charge more in future as a result of changes in District staff
structure and organizational mandate. The estimate from NFRM was very approximate and did
not appear to completely cover all required functions. Hence, the costs per cubic metre are
probably much more tightly grouped than Table 2 suggests.
506,470
C
Eb
Fb
68,700
SFL
Other
Income
123,750
N/A
68,700
291,750
Salari &
per
diems
N/A
91,874
251,875
77,420
N/A
54,500
77,420
50,000
50,000
43,400
50,000
GIS &
Planning
irborVitae Environmental Services Ltd.
ote: As discussed in Section 4.1, the Crown is charging a management fee of $1.50 in 2014-15.
—
Crown Management
Amalgamation Nipissing
Enhanced SFL
Local Forest Management
Co.
SFL
Mgmt
Fees
171,180
N/A
310,595
Vehicle
& Admin
Table 2. Essential revenues and costs from the alternative SFL models.
2:1 P a ge
156,000
123,750
N/A
0
Net
Income
1.61 -2.81
1.32
1.49
2.47
Mgrnt fee
($/m3)
22 P a g e
As the Team looks at the costs associated with the various options, it will be useful to consider
cost reductions for some of the expensive items like production of the forest management plan,
GIS costs, compliance monitoring etc. There are variations of basic model that could save
money and at this time we have not looked closely at those opportunities. For example the
discussion of a part time General Manager, as is the case for Mazinaw Lanark SFL is interesting.
In discussions with them the indication was that it does work in their circumstances, but they are
able to share some of the work with the adjacent SFLs. This may or may not work in Temagami,
although the concept of some of the employees being part time was recommended by several
people.
Other cost savings /revenues that can be considered include:
• Accounting reviews rather than full audits;
• Reduced insurance costs for non forest workers;
• Office cost through partnership
• External funding through partnerships and grants
4.7
Other Issues
Start up Costs are not discussed in much detail in this report. In the case of the LFMC, this has
been a sticking point in the discussion. However the costs are negotiable and the Crown may be
willing to provide a reasonable amount of start up money, however with government wide fiscal
constraints in place, the level of any assistance is difficult to anticipate. Scoping out the
requirements for start up assistance is part of the job of a transition team.
Liability refers to any unresolved issue on the forest that may result in a cost to the new entity.
These need to be scoped out as much as possible before a new Board takes over responsibility.
Examples may include old/unsafe infrastructure, incomplete silviculture activities, and an old
inventory. In some forests, the FMP may be problematic and require a major amendment that
needs to be delivered this has often been the case on the Temagami Forest. The 2009 FMP
was subject to nine issue resolution requests and four requests for Individual Environmental
Assessments; the latter were all denied by the Ministry of the Environment.
--
—
Certification There is no legal requirement for a forest to be 3rd party certified, although
MNRF continues to encourage and support the forest industry in pursuing forest certification. In
April 2004, the government announced its intent to require that all SFL holders be certified to an
acceptable performance standard by the end of 2007. In 2007, a regulation was approved to
provide the Minister with the discretionary authority to amend a forest resource licence to add a
condition requiring the licensee to have third party certification of its forest management
practices. Currently no SFLs in Ontario have a condition requiring third party certification.
--
Certification has the benefit of a separate set of eyes examining a forest to check for unrealized
liabilities. Cost can be approximately $50,000 80,000 for the initial assessment followed by
annual fees of $15,000 —20,000. It isa significant consideration for a new Board.
-
Board Costs are a relatively small factor in the overall cost of running a forest. Estimates of
annual costs run from $10,000— 15,000. Discussion about whether independent Board members
should be paid sometimes comes up. Per diems are paid to LFMC Board members and
--
23 I P a g e
the usual practice, since the workload can be meaningful. The per diem rates are normally fairly
low and can be determined as part of the transition.
5 Detailed Cost Comparison of Alternatives
In Table 3is a list of more detailed line items for each alternative. The costs have been reviewed
in considerable detail by the Advisory Team however the costs are best estimates as opposed to
researched costs that could be put into a business plan. In the header the type of governance
model (Crown, SFL etc) is also grouped by colour. The costs per cubic metre shown at the
bottom of the table represent the column total divided by the average harvest per year over the
last five years. This period includes both the active pulse of harvesting at the start of the FMP
and low years when the major companies had little or no operations in the forest.
The following notes apply to individual rows in the spreadsheet.
Row Data Description
Management Fees
Share of Crown dues
Eligible SPA/RTF
Roads funding
Board expenses
Staff Salaries
Benefits
Vehicles
Staff Training
Office Equipment/ Supplies
Office lease
Accounting, Legal,
Consulting, Misc.
Insurance
Fees / Dues/ Subscriptions
Contingency
GIS
Certification
Notes
These were set at the historical level in case of Crown
management; for other options, they were set equal to expenses.
Revenue to the LFMC assumes the LFMC can capture all of the
dues not collected by the Crown; the amount shown is based on
the average harvest and dues rates over past four years.
Set at historical average in case of Crown; at 10% of estimated
2008-2012 SPA revenues for other options.
Set at 5% of estimated roads funding from province.
Per diems + meeting attendance expenses.
Based on information provided to consultants; generally agreed to
by core advisors.
25% benefits for eSFL, 30% for LFMC; no benefits for Admin /HR
person who is part time in all alternatives
Estimated at $12,000 /vehicle per full time forestry staff person
Not specifically estimated; assumed included in Fees &
subscriptions
Based on Westwind numbers
Estimated at $1 000/month in Temagami
Estimated based on Westwind numbers; consultant expenses
may be higher with fewer staff
Estimated based on Westwind numbers + buffer; includes
directors insurance
Estimated based on Westwind numbers
For unforeseen expenses and over-runs
Based on current MNRF contract with MITIG for Temagami
Forest.
Certification not necessary under stand-alone portion of annual
fee shown for amalgamations.
-
Temagami Forest Tenure &Governance
income
.
ehcs
ciuiprncmU 1iphow
and Admin
-
5
S
$
5
5
148
2,500
34.500
7.200
12.000
101)00
2000
1.000
$2 QOC
2.000
20,000
776
$0
510.1 Xl
52400
$3960
‘10,000
10000
21,3
$
$
5361.920
48 rUC
20.001)
S
.
5
S
$293,2711
a
588,00
520.41
570,000
$
a
65.000
2.00(
2,000
.
0
n
Tk
5
.
$
,
Nipissing
3,0gaff
2,5taff
Ec
3,Satdf
eSFL
Fa
25r44ff
LFMC
$
S
S
5
$
5
$
$
2.80
::$439,j7Ø
$5,
$12
S$ C 0
$35,
$2W
$8.0
520,
$70
$55
$51,250
10,0041
10000
$43217U
48,700
241,000
0
$363A70
$
$
$510
$1000
520,00
570710
19,0041
16000
$399,420
48.100
20.000
$326,72e
1i6,0041
41
2,51
$395420
$158,000
$5O
$
j4 0
$24.0
sz5,6o
$
$
$
Fb
$20
$1
$
S
S
2.81
‘ia9,uuu
$
0
$434,170
S4’i’
$
3.8aff
15,000
16000
$478,420
48 700
20.000
$409,720
156,000
3 15
$478428
$
$
‘‘‘OOO
$
$10410
520.000
52
,,,,,,,,j7
57fl0
$27
$65
$59
15000
16.000
$434,170
48 ‘00
20.000
Fc
LFMC
Local Forest
MOmr8
Company
$365,470
155,0041 $
“
S
S
3
$
Local Forest
Mnnt
Company
3Oataff
LFMC
7,47
$10,
$12.
$7.
$10’
$3.
$5.
$30 000
580.000
520.000
$70000
527.600
$44.37
10,000
10000
$89,29.
48 700
20000
5320.595
0
Local Forest
ESFL (br
ESFL (ror
ESFL (tot
Mgmnt
pcofit or NFP) profiL ii,NFP) profit or NFP)
Company
Eb
eSFI.
Ea
oSFt.
5.848
$
$
ii
1.32
$123,Tht
‘W”
171.180
284,880
$
$
103,750
20.000
171,18.0
0
$
S
5
Asutnptions wood costs
Avail ciii (nl)!yl)
222,000
6 year av cut le,,eI
130,1100 $
Cart ott0n
od Exensei
ProfgILcss
IOther protects
ITo,taLOthcei Adm4
Contingency
0
CIOuad
T %‘el & 1’rarnin
st
Expenes
Board
‘harehld agrsoment
‘total Board
Salary
GM
‘fmlnMRiAccte Payable
‘p
adi ‘silv,otiltuc
EligibI $PA!kTF
koads4’Unding(’5’).)
Other ltccimi
FFTS$’Lttsdop
Total Inoome
hsre ol Grown auc
\4anageoiaiitk
Curoflt
Myrnnt Crown
Unit
Temagami Forest Cost Examples
Alternative:
A
0
C
Governance’
]jrn
AMAGAMATI0N
Delivery
Mt4R
TFAI
NFRM
Table 3. Detailed revenue and cost estimates for alternative SFL models on the Temagami Forest.
24 I P a’g e
25 I P a g e
The number of staff required to manage the Temagami Forest has become a notable discussion
point with MNRF. The government is rightly concerned that any company that might emerge
needs to be able to undertake the required workload while also being on a solid foundation.
There is no disagreement on this point the main question is what number of staff is sufficient to
undertake the required workload.
—
There is a considerable range of staffing levels the highest staffing level is that of the AFA,
which has upwards of 25 staff and two offices (Pembroke and Huntsville). At the other extreme
are forests such as the Dryden Forest, which has run with 2.5 staff more or less since its
inception in 1996. A discussion with the GM was quite revealing he said that the MNRF has,
since 2008, been telling them that they need more staff to handle the workload. The SFL-holder
responded by adding another staff person but found that they weren’t fully occupied after a while,
and so they eliminated the position. The Dryden Forest Management Company (DFMC)
manages a productive Crown landbase roughly third the size of Temagami (Dryden has 118,000
ha of productive managed Crown land vs 339,000 ha for Temagami) that is less contentious, with
/year during the 2011-13 period), down from an average of
3
a similar actual harvest (115,000 m
155,700 m3/yr during the 2006-11 plan period.
—
—
The 2008 Independent Forest Audit (IFA) for the Dryden Forest observed that the previous IFA
had had concerns regarding the low level of Dryden Forest Management Co (DFMC) staff, and
so during the preparation of the 2006 FMP, the staff level was 4.5, including a consulting forester.
The half position was office manager. Upon the completion of the FMP, the Consulting Forester
was no longer needed, and at the end of 2006 the Planning Forester (a staff position) had been
laid off indefinitely due to lack of work and depressed conditions in the sector. The 2008 IFA
auditors felt that a staff level at 2.5 people plus consultants to help in the field as needed was
sufficient to address forest management responsibilities on the Dryden Forest.
Other small forests in Ontario include Red Lake (180,000 ha of productive managed Crown land),
Mazinaw-Lanark (190,000 ha), Pineland (214,000 ha), Magpie (323,000 ha), and Nagagami
(380,000 ha) Forests.
The recent changes in MNRF’s structure associated with its Transformation Initiative are
expected to provide further reductions in staff requirements at SFL-holders. The move to
eliminate the Phase II Planned Operations, which is the second five-year operating plan
produced for the last half of a ten-year planning period, will reduce the planning workload in years
4 and 5 of the plan period, and the shift in the leadership of the strategic component of forest
management planning from the local level to the MNRF Region has the potential to greatly
reduce SFL personnel needs, because potentially MNRF staff would play a major role in
preparing the LTMD and writing the Analysis Package and the relevant parts of the main plan
document. While the exact breakdown of responsibilities between the MNRF Region and the
MNRF District and SFL-holder staff is not known, there seems to be the basis for a major
reduction in local staff requirements.
Because the Temagami Forest is a high profile forest with many stakeholders and with a complex
set of land use regulations in place, it is unlikely that a 2.5 person management staff would be
sufficient to handle day-to-day duties. We feel that having a full-time GM, and full time forester as
well as a part-time technician and part-time office administrator, or some similar staffing
configuration, is most likely the best fit. There is also the potential to transfer some of the
26 I P a g e
responsibilities to industry staff, most notably insofar as compliance monitoring is concerned.
Table 4 is an illustration of how management tasks may be allocated under the various staff level
scenarios that were examined. This breakdown of tasks is based on the judgment of the
consultants, and is intended not as a recommendation but as an illustration of potential options.
Tern agami Forest Tenure & Governance
27 I P a g e
Fable 4. Illustrative Workload Distributions under Three Staff Level Scenarios.
Table 3. An illustration of the distribution of work responsibilities by staffing level for Temagami Forest SF1..
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28 P a g e
6 Governance and Equity Considerations
While all members of the Advisory Team were concerned that any new management entity would
need to be able to provide wood at a reasonable management fee, the municipal and Aboriginal
Team representatives had other important objectives in mind, as expressed in the guiding
principles set out in the Introduction section of this report.
The municipalities felt that they have had no voice in how the forest that comprises the majority of
the municipal landbase is managed. Many of the residents have lived in Temagami for a long
time and have a strong attachment to the area. Aboriginal representatives mentioned a number
of times that in their view, they had received negligible benefits from Crown management, and
that the consultation processes associated with forest management planning were very
constrained in scope and the planners were under no obligation to make adjustments to the plan
based on Aboriginal feedback. There was a sense that had governance of the Temagami Forest
included representatives of the elected Aboriginal and municipal governments, some of the
controversies related to roads, gates, and forest use may have been avoided.
Besides having no say in how the Temagami Forest is managed, the local communities receive
negligible benefit from one of the area’s key resources. Temagami First Nation has a disposition
equivalent to 2% of the allowable harvest, which translated into an allowable harvest of 14,500 m
3
over the first five years of the current plan period. Even at the full harvest level, 2,900 m
/year is
3
far from sufficient to sustain an independent logger. So the disposition does nothing to create
employment for Temagami First Nation. None of the other First Nations with traditional territory
on the Temagami Forest have a harvest allocation. There is also no direct or even indirect
employment of local townspeople, and the wood is shipped elsewhere for processing.
While a change in tenure arrangements cannot address all of these issues, there is an
opportunity to create a governance structure in a stand-alone Temagami forest management unit
that provides meaningful municipal and Aboriginal voice in management. Furthermore, central to
keeping the option open to create some local benefits from forest management is keeping the
Temagami Forest as a stand-alone entity. These considerations were behind the strong
viewpoint expressed by Aboriginal and municipal Team members that keeping Temagami as a
stand-alone forest was a very high priority.
The community and Aboriginal Team members were strongly attracted to the governance
possibilities under the ESFL and LFMC tenure models. There was a recognition that having
significant representation on the Board of a Temagami Forest Management Company (TFMC)
would lead to decisions being made that better reflected local priorities than is currently the case.
In this respect, the Team saw little difference between an ESFL and an LFMC model. There was
some confusion regarding whether industry representation on the Board of an LFMC was
permissible it is clear from Bill 151 that there are no restrictions however the absence of
industry members on the Board of NFMC made Team members somewhat unsure. Industry
members of the Team contended that industry had been excluded from the NFMC Board, in
contrast to the NFMC’s information that industry had declined their invitation to join the Board. In
any event, the Team was unanimous in agreeing that some industry representation on a TFMC
Board was important. The consultants agree that it is valuable to have industry representation on
the Board when all Board members act in the interests of TFMC.
—
29 I P a g e
There was general agreement among the Aboriginal and municipal Team members that the
LFMC objects as put forward in Bill 151 were very much aligned with their interests, and there
was interest in retaining those, or very similar, objects in the SFL-holding company if the ESFL
option was chosen. Temagami First Nation indicated that it was very important that the First
Nation have a meaningful voice in how its ancestral lands are managed, and also expressed the
desire to have Band members participate as staff of a management company. Matachewan First
Nation indicated that they were very interested in having the new TFMC be active in addressing
section 20 of the standard SFL (the section is titled “Aboriginal Participation”). Section 20 states:
The Company shall work co-operatively with the Minister and local Aboriginal
communities in order to identify and implement ways of achieving a more equal
participation by Aboriginal communities in the benefits provided through forest
management planning.
Object #2 of the LFMC speaks to this point in a very similar way, and Object #3 also touches on
it. The two objects, as stated in Bill 151, are reproduced below:
2. To provide for economic development opportunities for aboriginal peoples.
3. To manage its affairs to become a self-sustaining business entity and to optimize
the value from Crown forest resources while recognizing the importance of local
economic development.
An ESFL would also be expected to be very engaged in achieving the aim of Section 20.
In part because the MNRF had signalled tepid enthusiasm at best for creating another LFMC
over the next few years, in part because of NFMC’s slow roll-out, and in part because of
questions related to governance, the Team was not certain whether an LFMC or ESFL model
would be preferable. Team members were not sure whether the need for LFMC Board members
to be proposed and approved by government (since each LFMC is a Crown corporation) would
result in a significant loss of control over TFMC on the part of local communities. The consultants
believe that the risk that government would ignore local Board preferences is small (but not zero),
and based on our understanding of the AFA, there would be no interference in the day-to-day
management of the Company. However, many Team members felt there was a heightened level
of governance risk associated with an LFMC compared to an ESFL.
The ESFL model would also permit a wide range of Board configurations that would be
determined by the Company, however at present, harvesters of wood on ESFL’s pay the full base
dues rate, so there is little opportunity for TFMC to generate revenue from conventional forestry
that would fund activities related to community and Aboriginal capacity development, supporting
potential new entrants, etc.
The consultants are of the view that MNRF would seriously consider an LFMC model if the local
communities strongly desired it. MNRF has expressed doubt that a stand-alone forest
management entity is viable in Temagami yet at the same time, by removing the LFMC option
from consideration, MNRF has removed the best chance for a stand-alone option to thrive. The
consultants believe that from MNRF’s perspective, the logic for an LFMC is compelling if local
communities strongly push for it.
30 P a g e
7 Advisory Team’s Response to the Options
During the options review process, there were numerous rounds of review and revision of the
costs and revenues under the various options, by the Advisory Team as a whole and also by a
sub-group. There was also considerable discussion regarding the other aspects of the options,
including governance. The final version of cost and revenue estimates, as shown in Table 3, was
presented to the Team at a meeting held on July 16 in Temagami. In a non-binding, straw vote
held at the conclusion of the meeting, where team members were asked to identify their two most
preferred tenure options, the outcomes were (as reproduced from a summary document
produced by the Advisory Team):
•
•
•
•
•
•
A majority of the twelve Advisory Team members preferred that Temagami Forest remain
as a stand-alone Forest Management Unit.
Eight members, comprising all of the municipal and Aboriginal representatives, preferred
that the Forest be managed as either an LFMC or an eSFL. (Note that two munidipal
representatives were absent from the July 16 meeting; their inclusion with the other
municipalities and Aboriginal representatives is based on their views expressed during
previous discussions.)
The four industry members would most prefer to see the Crown continue to manage the
Forest and there was some range of opinion regarding the likelihood of this happening,
although most felt that the Crown had no interest in continuing to manage Temagami.
However, should continued Crown management at costs similar to current levels be a
viable option, the four industry members would rank this option most highly.
Two industry members stated that they did not think it likely that the Crown would
continue to manage the forest, hence they gave as their preferred option that the Forest
be amalgamated with either the Nipissing Forest or the Timiskaming Forest.
The other two industry members indicated that their second choice, after continued Crown
management, was that the forest be managed as an eSFL.
Many non-industry group members expressed their disappointment in the level of benefits
that they realized from Crown management.
8 Discussion and Conclusions
From the perspective of the consultants, the majority of the discussion during the options review
process was devoted ensuring that the wood costs under the preferred tenure option would be
competitive with those prevailing in the province. Once it became apparent that a stand-alone
unit could be viable and charge wood costs that were not out of line with provincial norms, the
municipal and Aboriginal Team members became more comfortable giving full consideration to
their other goals, leading them to endorse a maintaining Temagami Forest as a stand-alone
management unit licensed under either an ESFL or an LFMC model. The consultants
understand this perspective, since it is based on the expectation that local residents would have a
greater degree of influence on how the forest would be managed, and that to some extent there
would be a greater level of benefits realized by the community and local people.
In contrast, the industry representatives were very focussed on wood costs and felt that any
differences in cost per cubic metre were enough to influence which outcome they would prefer to
see. The process revealed that wh He the re wasageneral level of consistency between the gals
31 I P a g e
of the industry, municipalities and First Nations, cost minimization dominated industry’s priorities
to a greater extent than it did those of the other Team members..
The management fees that have been charged by the Crown are very low it is common in
Ontario for management fees to range between $1.50 and $3.00 per cubic metre, although it is
the case that the neighbouring Timiskaming Forest has one of the lowest management fees in
the province, due to the large harvest that takes place. However, it was also clear that the Crown
charge rate was set administratively and did not reflect the Crown’s actual costs for the
management of the Forest. Those costs are difficult to estimate accurately, since not only must
staff time be apportioned between managing Temagami and other duties, but also overhead and
administrative costs need to be factored in.
—
With the re-structuring of the MNRF organization under Transformation, the District no longer has
staff time available for directly managing Temagami, and it has begun to contract the work to
service providers. In December 2014, District MNRF made available the management charges
for the Temagami Forest for 2014-15. The total charge (excluding HST), which includes MNR’s
costs of having a service provider prepare the Annual Report, Annual Work Schedule plus
revisions, and provide compliance and supplementary aerial photography, is $195,461.31, which
equates to a cost of $1.50/rn
.
3
The company representatives in the Advisory Team also expressed concern regarding the higher
level of uncertainty associated with the start up of a new management company, which is a fair
enough point. Other members of the Team also recognize these risks and arguably are more
exposed to the negative implications should a new venture be unsuccessful. However, there are
several factors that mitigate this concern. The first is that there are numerous SFL management
companies in existence, with different configurations according to local conditions. There is also
a reasonable supply of people in the North Bay area who would be very capable general
managers, and it is likely that many potential GM candidates would view North Bay or Temagami
as a desirable place to live. Foresters and technicians are also quite available in the area.
Lastly, there is also the ability of the SFL-holder to contract out some or even all of the
management to an existing service provider. The arrangement could be structured so that local
management capability could be built up over time, leading to a lessened role for the service
provider and a greater role for staff.
While cost containment is undoubtedly important, there are a number of benefits to the industry of
having the forest managed as either an ESFL or LFMC. These include:
•
•
•
the risks associated with the forest management company are shared among a wide
range of interests;
a forest management company with inclusive governance has a greater ability of resolve
complex issues; and
overall there is a greater legitimacy to the management of what is a public resource.
The pulsed nature of the harvest on Temagami provides both opportunities as well as risks.
Clearly the risks involve being caught with major financial needs during the period when the
harvest is low, and having inadequate reserves saved up. If the pulse model is maintained by the
industry, the two highest years of harvest in the near term will be 2015-16 and 2016-17, followed
by lower years in 2017-18 and 2018-19. A new plan is scheduled to come into effect April 1,
32 I P a g e
2019. Starting up a new SFL company in say 2017 would be financially challenging, since it
would have low revenues and high expenses associated with planning. However, a revenue
shortfall during the start-up phase could be mitigated if MNRF were to put into place a
mechanism to begin to accumulate some of the dues revenue that will be produced from the
Forest over the next couple of years. In addition, once the criteria for determining consistent and
sufficient use of wood are finalized, it is likely that some portion of the available harvest will fall
outside of this definition. This could be put out for public tender, which would enable the
company to gain some additional revenue.
Given the upcoming planning schedule, it would be ideal if the new management company could
be established in 2015, since planning for the next FMP is scheduled to begin in spring of 2016,
under an “ideal” scenario as envisaged by the 2009 Forest Management Planning Manual
(FMPM). A 2015 start up would give the company time to get organized and prepared to
participate in forest management planning.
One of the opportunities afforded by pulsing is that the low harvest periods correspond with the
periods when planning activities are elevated. This therefore provides the opportunity for the
forest manager to have staff focussed on operations during the early part of a planning term and
then shift them to planning during the latter part of the term. This will help maintain employment
and also provide some variation in work for staff, which will likely be seen as a benefit.
The Advisory Team members did not show a clear preference for either the LFMC or the eSFL
among the stand alone options. In our view, this was due to uncertainty regarding MNRF’s
willingness to initiate a second LFMC, even though Bill 151 clearly states that they have the legal
right to do so, as well as concerns regarding the following range of LFMC characteristics:
•
•
•
•
the level of government involvement in agency decision-making;
the ability of the LFMC to capture funds equivalent to the portions of dues that go into
Consolidated Revenue Fund (CRF) (i.e. the base rate and any residual value when it is
present);
the ability of forest company staff to participate as members of the Board;
the extent to which there were other differences between an LFMC and an eSFL.
While acknowledging that there is some uncertainty around what an LFMC might look like in
Temagami, the general outline is clear. The problem is that the LFMC model is not widely known
or understood, in part because there is an information vacuum.
There is some question regarding the ability of the LFMC to capture all of the stumpage dues that
go into the Consolidated Revenue Fund. The mechanism that MNRF is presently contemplating
is that the base rate would be set to zero on the LFMC’s forest, and this in theory would allow the
LFMC to add that amount to the management fee that it charges. The implication is that the
LFMC would set the management fee at a level equal to the base rate + the rate per cubic metre
that would be required to sustain the company if the Crown dues were charged as per normal on
other forests. In theory, the base rate payment amounts would be used to fund undertakings that
would help the LFMC to achieve its objects.
It is interesting to carefully consider the perceived trade off of added funding under an LFMC
33 I P a g e
framework versus potentially greater freedom from government constraint under an eSFL
framework. The additional funding that is theoretically available to a Temagami LFMC averages
$156,000 per year. The amount is a conservatively calculated figure based on the harvest levels
and dues rates from 2008/09 to 2012/13. Dues rates have gone up since then. There is little
precedent to go on here, NFMC does not yet have an SFL and so the base dues amount is being
collected by the Crown and put into an account with the Forestry Futures Trust. The account is
being used to fund NFMC’s operations. Any amount remaining in the account reverts to NFMC
when it gets its SFL, and the current funding arrangement will be replaced by the one outlined
above wherein the base dues rate is set to zero. In any event, it is clear that the LFMC has the
potential to bring in a higher revenue than the eSFL model.
Should an LFMC be adopted in Temagami, there would be a greater amount of revenue
generated for the company, which would improve its viability and also provide the opportunity for
the LFMC to make progress towards its corporate objects. Is there a higher degree of
government involvement in an LFMC than in an eSFL? In our view, the level of government
involvement in the LFMC will be fairly low once it gets started. There will be more in the start-up
phase, but when one looks at the AFA, which is another Crown corporation in the same way that
an LFMC will be, there is been no involvement by government in the AFA’s day-to-day operations
and decision-making, to the best of our knowledge. We expect that the same situation would
hold once an LFMC has gotten a firm start. Secondly, the government has a considerable
degree of latitude to affect an eSFL for example by making wood supply commitments that do
not need the consent of the SFL-holder. Government is also currently pressuring SFL’s to
improve their governance, so the potential for government involvement or influence seems to be
on par whether it is an SFL, an eSFL or an LFMC. The argument that government is more
involved in an LFMC does not seem to be particularly strong to us.
—
Lastly, we would like to suggest that a SFL-holding company that does not have shareholders
could be an advantage in Temagami. Both an LFMC and a not-for-profit eSFL corporation meet
this criterion. In our view, the advantages to having shareholders are more than balanced by the
difficulties of having them, and this does not account for the challenges and costs in setting up
the shareholder structure in the first place. A shareholder-based structure can be useful in the
unlikely possibility that the corporation needs funds it can call on shareholders to contribute.
However, as the industry changes, shareholders come and go, necessitating changes to the
shareholders agreement. Adding new shareholders in particular can be complicated since it
involves diluting existing holders.
—
Most pertinent to Temagami, negotiating share distributions can be very difficult when some
shareholders have wood allocations and others have little or no allocation. Those entities with
large share holdings often seek greater representation on the Board. While share ownership
does not need to correlate with an organization’s proportion of the harvest, it often does and it
could be difficult to move away from that approach. So, in our view, considering that the
municipalities and First Nations both would like to have a significant voice in the forest
management direction for the Temagami Forest, a for-profit corporation with a share structure
does not seem to be the most appropriate choice.
In summary, we concur with the majority of the Advisory Team that a stand-alone forest
management entity represents a viable option for the Temagami Forest. The following
recommendation is made:
34 P a g e
The consultants recommend that the Temagami Tenure Modernization
Initiative Advisory Team request that MNRF support the transition of the
Temagami Forest from a Crown managed forest to a stand-alone forest
licensed to, and managed by, a new corporate entity with modern
governance to be recommended by the Advisory Team.
The next steps would include developing a business plan and starting to develop the corporate
structure. Further consultation with MNRF would also be necessary, in part to obtain their
endorsement and in part to begin to discuss what the SFL-holding entity might look like, what the
transitional strategy would be, and assuring MNRF that the entity which would be created would
be viable and able to withstand the inevitable ups and downs of the industry.

2fiifL - Temagami

Transcription

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