Minister's Council 26 Recommendations

This section captures the 26 recommendations as outlined in Sections 3 and 4 of the "Minister's Council of Forest Sector Competitiveness" final report. Please refer to the entire report to view other sections.

3.0 Closing the Competitiveness Gap

This section addresses the cost factors that the Minister’s Council believes must be addressed in Ontario to remove key barriers to competitiveness in the forest sector. The Council believes that these serious issues can and should be addressed within the context of long-term sustainability of the forest resource. With that in mind, the Council proposes this goal for Ontario: Consistent with the requirements of the Crown Forest Sustainability Act, Ontario will strive to ensure a competitive forest products industry that strengthens the economy of the province, while providing stability and employment to the communities within which it operates.

3.1 Wood Supply

Challenge: To ensure there is accurate information on the wood supply, in which all parties have confidence.

No other issue was raised as often around the Council table as wood supply. There are mills, especially those in northwestern Ontario, that are experiencing shortages of the fibre they require to operate at full capacity. There is no disagreement about the difficulty that some mills are having, but there is lack of trust in the overall numbers for current and projected wood supply. The Council believes this matter urgently requires resolution.

There is much debate about the extent of the impact of a number of different factors on the volume of wood available for Ontario mills to produce their forest products. But there is general agreement among Council members about the importance of having accurate data and a transparent process in which everyone can have confidence.

Disagreements over inventory and allocation are not new. The current tightness of supply is exacerbating the problem. When supply was more plentiful, if the trees were smaller than estimated, reducing the yield from part of a management unit, or if a mill used more wood than estimated, for example, the harvesters could usually make up the difference somewhere else. That is seldom an option now.

Timing is also a factor. Because of the age profile of the Crown forest in Ontario, long-term forecasts have shown a dip in supply occurring this century. Industry representatives say, however, that the current supply crunch was not expected at this time and is attributable to factors other than normal growth and decline of the forest.

Over and over again, industry leaders said that they cannot run their mills efficiently without secure supply. Some companies are augmenting their supply of Crown timber with timber from private land and in some cases timber from outside Ontario. Some mills have had shifts reduced and are struggling to find enough fibre to keep running. Other mills have been shut down.

Wood supply is not just an issue for industry and government. Communities and workers have an important stake in the future of these mills and the jobs and revenue that go with them. The public of Ontario also has an interest in sustaining a healthy forest and a healthy forest industry. The location, extent and timing of predictable future shortfalls must be established to allow mills, communities and workers to prepare in advance for the impacts on the local economy.

Strategic Direction: An independent process is required to settle the current debate over supply and oversee the inventory for the future.

RECOMMENDATIONS

Recommendation #1:

The Council recommends that the Ontario government establish an independent position of Chief Forester for Ontario, reporting to the Minister of Natural Resources, with the following responsibilities:

• undertake an immediate audit of projected and actual wood supply based on current forest resources inventory information, reporting to the Minister no later than December 31, 2005;
• carry out an immediate review of the existing forest inventory with a focus on its accuracy, completeness and currency;
• develop a set of effective standards to ensure consistency and reliability of the forest inventory;
• review the models and tables employed in the determination of available wood supply and establish standards which give rise to confidence in the volumes of wood supply determined; and,
• review the adequacy of science employed in the development, implementation and application of forest management guidelines.

Recommendation #2:

The Council recommends that the Ministry of Natural Resources undertake an immediate forest resources inventory, and a full inventory of parks and protected areas, to be completed no later than March 31, 2007.

Notwithstanding concerted effort by the Council, we are unable to gain consensus on one subject. That is the allocation of wood supply when a mill closure occurs.

Our forest industry must be as efficient as possible if it is to compete in the global market and maintain and grow its contribution to the prosperity of the people and communities of Ontario.

It is inevitable in the course of pursuing efficiencies that some companies will have to consolidate operations resulting in the requirement to redirect at least some of their wood supply from inefficient mills to those that are more efficient. Many argue that this process will result in a healthy primary industry which will in turn serve as the backbone for more value-added enterprises dispersed widely and evenly across the province.

It is equally inevitable that this will cause immediate disruption to the affected communities and employees. It is also argued that these communities, First Nations and employees do not believe that the rationalization of the primary industry will return benefits to them in a timely manner. They demand opportunities to mitigate their disadvantages in such circumstances. Most often, the opportunity requested is a locally driven decision-making process resulting in preferential allocation of wood supply to local endeavours with the goal of maintaining or restoring and adding value to their community immediately. First Nations, in particular, argue that this provides the only real chance to secure supplies of wood necessary for their business plans to develop local value-added enterprises and thus share in the prosperity generated by the forest industry. First Nations feel that “next generation value-added projects” servicing export markets will require wood cut to different dimensions than are available from Ontario’s primary industry and propose specific policy directions that include initiatives to meet the wood supply needs of “next generation value-added projects”. Unions also argue that a public review process for mill closures will result in more favourable outcomes for local communities and employees.

The public forests of Ontario are Crown resources and the Crown Forest Sustainability Act is explicit that it is the responsibility and the prerogative of the Provincial Government to allocate this resource and this may not be relinquished.

Minister, in exercising this onerous responsibility, we encourage you to continue to consider all points of view and irrespective of your decision, that you engage communities, First Nations, employees, unions, companies, appropriate cabinet colleagues and federal departments in developing appropriate mitigative measures for those affected.

3.2 Delivered Wood Costs

Challenge: To bring the delivered cost of wood in Ontario into line with the global average.

Delivered wood costs include those costs incurred by industry bringing wood from the forest to the mill. Costs of mill operation, specifically energy costs, are discussed separately. The delivered wood costs are discussed in three areas: road and hauling costs, regulatory issues related to harvesting and transportation, and efficient distribution of wood/wood products.

Roads and Hauling

For the past several years, the forest industry has been bearing the full cost of building and maintaining access roads and bridges in Ontario’s Crown forests. These roads and bridges are built to government standards, and are owned by the government. Many of these roads are public access roads, used by tourists, campers, hunters, other industries like hydro and mining, and other users.

Putting the full burden of costs on the forest products industry is inappropriate. Road costs are a major drag on competitiveness and are making harvesting in some areas uneconomic. At a time of supply shortages, this is counter-productive. Hauling and road costs per cubic metre are well above the competition not only in Canada, but also in other jurisdictions such as Finland and Sweden.

Strategic Direction: There should be greater fairness in the way road costs are shared between government and the forest products industry.

Reducing transportation costs in the forest sector is important not only because of rising costs of construction and fuel, but because loggers are having to build roads and haul loads farther because of where the available wood supply is located. The Transportation Task Group argued that the implementation of changes to the forest management guidelines in recent years is indirectly related to higher transportation costs because smaller cut blocks are being made available for harvest. More roads are required and haul distances are increased. It noted that in some instances, industry may opt to use a less efficient route for short-term savings rather than building a new, more direct road for the low volumes associated with a smaller cut block.

RECOMMENDATIONS

Recommendation #3:

The Council recommends that the provincial government assume its proportional share of the costs of building and maintaining the public access road network in provincial Crown forests; and that proportion be defined as 100% of primary road costs, and 50% of secondary road costs.

Cost-sharing of roads and bridges between industry and government would be proportional with usage by the industry and other users on the public access road network. In addition, the Council is proposing a remedy for fuel costs directly related to hauling fibre to the mills to reflect the fact that the forest industry makes a direct contribution to roads that benefit multiple users.

Recommendation #4:

The Council recommends that the forest industry be made eligible for a fuel tax credit amounting to 50% of the provincial fuel taxes paid when hauling fibre from the forest to the mill.

The Council’s understanding is that the intention of the fuel tax is to collect funds from road users to cover the costs of maintaining the road network built by government across Ontario. In Northern Ontario, when trucks haul wood from the forest to a mill, a significant portion of the fuel (estimated at 50%) is consumed while driving on access roads which are built and maintained by industry. In southern Ontario, many trucks operate on private lands using self-loading equipment that is powered by fuel subject to the same tax.

The proposed fuel tax credit should be available across the province for all trucks hauling wood from forests to mills. The program should be administered through the operators directly, and does not need to involve the mills.

Regulatory Issues

Challenge: To remove barriers to efficiency, avoid job losses and eliminate unnecessary business costs due to administrative red tape and delays in the approvals process.

The Council does not dispute the need for government regulation and policy to balance the various uses and protect multiple values in the province’s Crown forests. What the forest sector is looking for is:

• greater efficiency in the regulatory process;
• faster timelines for decision-making related to approvals; and,
• greater consistency in application of the rules.

Three Task Groups – the Front-Line Approvals Task Group, the Aggregates Task Group, and the Transportation Task Group – identified irritants that members felt could, and should, be resolved by government without compromising protection of the natural environment and other values in the forest.

Strategic Direction: A review of irritants in the system is required to create a more cooperative spirit, to speed up the approvals process and to deal with unduly burdensome requirements.

RECOMMENDATIONS

Transportation

Much of the attention of the Transportation Task Group was directed to the cost burden of transportation. But there were some important regulatory issues that were discussed.

Members were concerned about the slow pace at which proven technologies such as Central Tire Inflation (CTI) and configuration changes are accepted by government regulators.

Indications from many forest industry firms are that it would be possible to increase payloads by using different truck and trailer configurations that are allowed in other jurisdictions, but not in Ontario. Allowing wider axles, or double trailers with the same tire pressure, should not cause further deterioration to the roads than do the restrictive configurations that are currently allowed.

If the provincial government were to move more quickly in adopting new technologies, such as the CTI systems, it would be the first step in encouraging industry to conduct research and development to seek out other advancements. For example, efforts to build lighter trailers that are capable of handling a comparable load to heavier trailers would allow for heavier payloads while maintaining overall weight.

The Task Group also highlighted the issue of the government’s plan to implement regulations which would require trucks to use steering axles. The intention is to minimize the damage caused to the roads network from trucks hauling fibre to mills. However, government has not conducted studies that show decreased damage to roads, the safety of the axles, or the maintenance costs of the axles in forest operating conditions.

The Forest Engineering Research Institute of Canada has estimated, based on Quebec testing, that the additional capital costs associated with changing equipment will be approximately $10,000 per trailer and the increase in the annual operating costs will be $11,000. Costs may be much higher, and durability much lower in typical forestry operations in Ontario. Further testing must be done on the safety and durability of the Safe, Productive, Infrastructure Friendly (SPIF) vehicles in harvesting conditions before they are approved for use in Ontario.

The Task Group also proposed that the government develop a measurement system to determine when half-load truck rules should apply, and remove the difficulties in planning road systems between two forests on different time schedules, involving different MNR offices or different Sustainable Forest Licence (SFL) holders.

The impact of wood supply directives on transportation was also raised. In some instances, these directives specify that a given mill is expected to receive fibre from an SFL. The directive may prevent the rationalization of wood flow that would minimize transportation distances for all parties. Further efforts should be made to eliminate these types of situations.

Recommendation #5:

The Council recommends that a Processing Streamlining Task Force be appointed to review guidelines, regulations and policies affecting the forest sector. The Task Force should report by August 10, 2005, on specific areas where unnecessary delays and impediments can be removed. These would include:

• removing barriers to business in the forest sector;
• continuing to actively encourage a rationalization to minimize haul distances;
• avoiding the creation of further regulatory costs such as the proposed steering axles regulations;
• speeding up the acceptance of proven technologies such as Central Tire Inflation (CTI); and,
• reviewing the new Crown Land Bridge Policy in consultation with the forest industry.

Aggregates

The forest industry is involved in aggregate extraction to build forest access roads. It uses approximately four million tonnes annually. Industry builds the roads to MNR standards. The industry is not in the aggregate business and does not directly profit from the aggregate it uses. Aggregate extraction is a direct cost to the industry in harvesting timber.

Current legislation governing aggregates is under review, and the report of the Aggregates Task Group has been submitted to contribute to that process. The proposals are intended, in the words of the Task Group, to “streamline the process of building and maintaining forest access roads while minimizing costs and reinforcing the industry’s commitment to progressive rehabilitation and minimizing environmental impacts related to aggregate extraction.”

Recommendation #6:

The Council recommends that the attached report from the Minister’s Council Task Group on Aggregates be accepted in its entirety, and acted on immediately.

Front-Line Approvals

The Front-Line Approvals Task Group identified a number of irritants in the system, but it did not just focus on the negatives. Rather, the Task Group called for a “Team Ontario” approach that would recognize that it is in our collective interest to ensure a smooth, fast and effective regulatory process.

A huge issue is time – time spent on site in the forest with equipment idle and workers waiting for approval to proceed and, in the meantime, mills not getting wood.

Better, more up-to-date information on the multiple values in the forest would help. The Council believes that the independent audit by the Chief Forester will provide a resolution. Better information will allow for better planning and fewer surprises when harvesters arrive to cut a stand of trees. However, there will always be features discovered on the ground in the forest that were not included in the original planning for the management unit. There will continue to be a need for government approvals. The issue is how to make the process faster and more efficient and effective.

The Front-line Approvals Task Group suggested that delegation of decision-making to specific people in the field and district offices of MNR would help to expedite processing of approvals. There was a general feeling among industry representatives that too much time is spent sending paperwork through lines of authority when the government official closest to the action is in the best position to make the decisions.

One example that came up several times in the Task Group discussions as a major irritant for loggers was stream crossings and the time it takes to get an approval to build. Industry representatives said that they are not looking to violate the stream crossing guidelines; they just want to be able to get on with the job.

Recommendation #7:

The Council recommends that the Minister build a Team Ontario approach in dealing with the front line approval process, reducing costly delays and promoting a positive attitude and accountability.

This would include:

• joint field inspections – (industry, SFL, MNR);
• an individual at each district or field office to expedite the rapid processing of industry approvals, including delegation of authority in cases of absence; and,
• an independent provincial level representative/panel to provide recommendations to the Regional Director on planning and operational issues that cannot be resolved through district or regional channels.

Recommendation #8:

The Council recommends that the Ministry of Natural Resources provide updated values information for the forest management planning process.

• the Ministry of Natural Resources must adhere to the Forest Information Manual obligations to provide all non-timber values in a timely manner for use in the forest management planning process; and,
• the provincial government should provide a complete survey of streams (including fisheries values) in the area of the undertaking.

Recommendation #9:

The Council recommends that the Ministry of Natural Resources commit to developing a process that will ensure timely decisions in the following areas:

• crossings on unmapped or incorrectly mapped streams (48 hours); and,
• approvals to change the site for a crossing (48 hours).

Recommendation #10:

The Council recommends that the Ministry of Natural Resources extend the Annual Work Schedules to 13 months and allow overlap of 2 schedules for a one month period to allow completion of approved operations.

Another regulatory issue that was discussed at the Council level was Environmental Assessment “bump-ups”. A person or organization who objects to MNR approval of a forest management plan has the right to ask the Ministry of the Environment (MOE) to undertake an individual environmental assessment. The average for bump-up requests is approximately 10 per year. The time taken by MOE to make a decision on bump-up requests ranges from several months to several years. During this period of time, the areas in the forest that are the subject of the request are not harvested.

It is recognized that the appropriateness or validity of these requests tends to be in the eye of the beholder (i.e. the company may consider the request frivolous; the objector does not). But the main complaint from the industry side is timing. Because bump-up requests can only be made after all efforts to resolve the dispute have been exhausted through the forest management planning process, the requests are often halting work when equipment and workers are on site, in the forest, ready to roll. This necessitates last-minute contingency planning, resulting in additional costs and time delays.

It was suggested that a solution would be to start the forest management planning process earlier so that these disruptions could be avoided. The MOE should also undertake to render its decisions within the time allowed by this change in the process.

Recommendation #11:

The Council recommends that the timelines for the development of forest management plans be adjusted to allow for earlier resolution, by the Ministry of the Environment, of requests for bump-ups for individual environmental assessments.

Recommendation #12:

The Council recommends that the Ministry of Natural Resources and the Ministry of Environment (MOE) identify key barriers to timely decisions on requests for individual environmental assessments and implement a plan to address the barriers. Furthermore, the Council recommends that the resolution of bump-ups be delegated to the MOE Director level.

Cost-sharing and Distribution

The Council considered the impact of business-to-business relationships within the industry. These relationships have become increasingly complex, with multiple demands for wood/wood products within a single forest management unit. When these relationships do not work well, they prevent efficient distribution of wood products and increase costs.

Strategic Direction: Industry should show leadership in fostering a cooperative approach to sharing of harvesting costs and efficient distribution of wood/wood products.

In the past, there tended to be one company which held the timber licence for harvesting in a forest management unit. Now, there are usually multiple companies involved. In some instances, a Sustainable Forest Licence (SFL) is held by more than one company (shareholder company), which can work well. In other management units, the licence-holder negotiates with other timber users who have rights to harvest some of the allowable cut.

Disputes arise between companies over sharing the costs of harvesting and ensuring efficient distribution of wood products. In some cases, the SFL holder feels that other companies are not willing to pay their fair share of the costs of harvesting. On the other hand, there are other instances where non-licence-holders feel the SFL holder is not providing access to their fair share of wood product.

The Council believes this is an area where industry can and should show leadership. It was argued at the Council that shareholder company SFLs can be one option, but that government should not force companies to follow this route. Where efficiencies can be achieved in flow of wood/wood products, they should be explored by industry. Government should be the facilitator.

The bottom line is that all wood supply agreements must be honoured efficiently and effectively, and where industry is not able to make this happen, it is appropriate and necessary for government to enforce remedial action.

RECOMMENDATIONS

Recommendation #13:

The Council recommends that the Ministry of Natural Resources create a process to convert single entity Sustainable Forest Licenses (SFLs) to Shareholder SFLs where the following benefits can be reliably anticipated:

• more efficient management of disputes between companies dependent on the wood supply from the SFL;
• increased wood availability (of all species and products) beyond that achievable through beneficiary participation in the Ontario Forest Management Planning (FMP) process;
• reduced delivered wood costs beyond those achievable under the FMP process;
• equitable sharing of costs amongst Shareholders (forest management, road construction, harvest, renewal and maintenance, etc); and,
• increased wood supply and reduced management costs through SFL amalgamation, where ecologically appropriate.

3.3 Energy Costs

Challenge: Ensure competitiveness in energy costs and utilization.

Rising energy costs are affecting both industrial and residential users in Ontario. What sets the forest sector apart is the level of consumption. The industry consumes 6500 gigawatt hours of electricity annually at an estimated cost of $500 million. These costs are particularly problematic for some parts of the industry for which energy represents up to one third of operating costs.

It should be emphasized that the challenge involved in ensuring competitiveness in energy costs and utilization is not the result of some temporary dip in the business cycle. The problems are systemic and are the result of a complex set of measures and counter-measures that have been instigated by successive Ontario government administrations.

When the previous government attempted to create an open market, the expectation was that private sector participation would create new supply to fill the gaps and would stabilize and even reduce prices. However, the transition to an open market has not been a smooth one, and the anticipated new sources of supply have not materialized. A number of factors have contributed to this failure, including post-Enron re-evaluation of risk premiums needed to attract new private suppliers and uncertainty about market rules. Other cost pressures include high natural gas prices and the high costs of refurbishing idle nuclear plants.

In 2004, the current government put forward a restructuring proposal that includes contracting new supply, Market Power Mitigation Agreement (MPMA) rebate elimination, and heritage asset price regulation.

Strategic Direction: Government should remove barriers to the creation of new supply of electricity and create the conditions for reliable supply at a reasonable cost.

The forest sector’s position as the largest buyer of electricity in the manufacturing sector in the province should be taken into account in considering mitigation measures.

RECOMMENDATIONS

Co-generation, especially biomass-fuelled co-generation, has many advantages, including environmental benefits, lower costs, and better efficiency. But there are barriers to constructing or expanding co-generation capacity. The Task Group on Energy Policy documented barriers in the “Renewables” Request for Proposals (RFPs) issued by the Ministry of Energy:

• the requirement for proponents to finance connections with the electrical grid is a problem for more remote projects; and,
• unnecessarily limited definition of qualified waste biomass which may have inadvertently disqualified black liquor fuelled boilers or turbines.

Similarly, there were barriers to cogeneration in the 2500 MW Clean Energy Supply RFP:

• for some areas of the Province, the penalties associated with any new transmission capacity required to deliver the proposed new generation capacity; and,
• extremely high interruption penalties.

Gross transmission rates are also a disincentive. Facilities that build their own generation capacity for self-use and go off the grid are still charged transmission costs. A network service charge is removed with fully-embedded generation (a “net” basis), but a line connection service charge and transformation connection service charge are applied to the sum of power served from the transmission system, plus power served from the self-generation (“gross” basis).

In addition, if a facility installs embedded generation and no longer draws from the grid, it has to continue to pay the Debt Reduction Charge (DRC) on electricity consumed.

The appropriate allocation of forest residue is also an issue. Biomass/wood waste should be used for energy purposes if there is a buyer who will pay a delivered price the same as or higher than landfilling cost.

It is hoped that the appointment of a Co-generation Commissioner will assist in removing barriers and encourage implementation of viable co-generation opportunities.

Recommendation #14:

The Council recommends that government take action to remove barriers for co-generation, especially biomass co-generation, including:

• implementation of "net" transmission rates;
• waiving of the Debt Reduction Charge for electricity not drawn from the grid;
• elimination of high interruption costs in RFPs; and,
• encourage the use of forest residue for energy purposes where appropriate.

Removing barriers will not be enough to encourage significantly more co-generation by forest sector facilities if the industry cannot raise the capital to invest in the necessary changes. The Council sees a role for the provincial government in encouraging more “green” energy alternatives that will serve to increase electricity supply for the province, as more large users go off the grid.

Recommendation #15:

The Council recommends that the government provide incentives for “green” energy alternatives, including co-generation, energy efficiencies and conservation.

There is a follow-up recommendation in Section 3.4 Climate for Investment that speaks to incentive funding for “green” alternatives.

Getting new supply on line is a major issue, and it will take some time. In the meantime, parts of the forest sector are suffering major losses because of increased electricity prices.

Much of the electricity system public debt is held by the Ontario Electricity Financing Corporation (OEFC), and is serviced by Ontario Power Generation (OPG) and Hydro One surplus funds, with the residual burden, including defeasement, by the DRC. The DRC was set in 2001 with the expectation that the residual debt would have a 16-year amortization period. The financial structures and processes were set up so that the DRC was fixed at $7 per megawatt hour.

In February, 2005, the government announced changes in rate regulation of OPG heritage asset production and the rebate mechanism applied to OPG non-heritage asset production. The Task Group’s analysis is that if the government were, in addition, to fix the residual stranded debt amortization and allow the DRC to “float”, there would be little impact on total delivered costs of power. But because the DRC remains at an historic rate, it is not clear whether total delivered costs net of the rebate will be any different than if the OPG assets had stayed in the market and the MPMA rebate had remained.

The Task Group proposed that the government lengthen the amortization period to make the residual stranded debt perpetual debt. The impact will be lower electricity rates in the first 16 years, but higher after that. For large electricity users who are operating close to the edge because of high electricity costs, lengthening the amortization period might allow survival. There should be consultation with electricity users on the best mechanism for allowing the DRC to float.

The advantage to eliminating the MPMA rebate is that the three-month delay between DRC collection and rebate is removed, effectively keeping DRC funds in the hands of electricity users a little longer. But elimination of the MPMA rebate must be matched by a reduction in the DRC.

The Task Group was supportive of the thrust of the government’s restructuring proposal, but expressed serious concern about adequacy of supply at reasonable cost when Ontario’s remaining coal plants are closed. The Task Group was not only worried about cost and supply; it also expressed concern that substitute U.S. supply would add, rather than abate, the smog problem in southern Ontario.

Recommendation #16:

The Council recommends that the Ontario government:

• adjust the amortization period to make the residual stranded debt perpetual debt and allow the DRC to float;
• adjust the DRC payments to correspond with the elimination of the Market Power Mitigation Agreement rebate that was eliminated April 01, 2005; and,
• ensure that adequate and competitively priced replacement generation is in place prior to the scheduled shutdown of coal-based generation facilities in 2007.

The Task Group on Energy Policy was supportive of the 5% rate set by the government for OPG heritage assets, but suggested that controls should be put in place to encourage efficiency improvements and requiring reliability standards and objectives.

Recommendation #17:

The Council recommends a renewed and intensified focus on efficiency at both Ontario Power Generation and Hydro One.

3.4 Climate for Investment

Challenge: To create a more favourable climate for investment that will benefit industry, communities and workers.

The Council is looking to the future to ensure that there will be a strong forest industry and sustainable, forest-reliant communities down the road. This report includes a number of recommendations that will help to improve the climate for investment – by reducing the delivered cost of wood, by streamlining regulatory processes and by encouraging greater supply of reasonably-priced electricity. Resolution of wood supply issues will also contribute to greater certainty.

However, the Council feels that governments – both provincial and federal – should recognize in a pro-active way the importance of a vibrant forest sector to the Ontario economy and particularly to the communities and workers in Northern and rural Ontario.

Strategic Direction: Governments should play a role in improving the business climate through financial incentives to stimulate investment.

RECOMMENDATIONS

Recently, the Ontario government has materially recognized the contribution of the auto sector to Ontarians’ prosperity by providing it with approximately $500 million in financial assistance to ensure its continued competitive position in this province. The forest sector faces many of the same issues as the auto sector and is equally integral to the prosperity of Ontario.

The Council proposes that Ontario contribute an amount comparable to that recently provided for the auto sector in Southern Ontario to create a new business climate competitiveness fund for the forest sector and that Ontario approach the federal government to match its contribution.

The fund should be used to ensure a sustainable and competitive industry. There are mills and harvesting equipment that require upgrading. The current workforce and a new generation of forest workers need to be trained in state-of-the-art equipment to improve productivity. Many of those new workers will come from First Nations communities that are looking for assistance with entrepreneurial capacity-building so that they can share in the benefits of this economic sector.

Incentives for investment in energy conservation and green energy production, production facility modernization, the development of value-added facilities, workforce training and First Nations entrepreneurial capacity-building will be a catalyst for building a competitive and sustainable forest sector.

The fund should support communities to transition toward a more secure economy relying on a continued strong and vital primary industry as their keystone, supplemented by a vibrant, innovative and diverse set of complementary value-added enterprises.

The fund should provide up to 35% of the cost of co-generation projects to make the capital investment economically feasible. Other “green” investment in energy efficiencies and conservation should be considered for funding as well. Taking large power users off the electricity grid in Ontario will have benefits for stability of supply for other users.

The Council is of the view that the fund should be managed by a Board of Directors. Applicants who wish to obtain funds should be asked to present their business cases for evaluation. Funding decisions should take into consideration, among other things:

• the return on investment that will be generated by a project in terms of future corporate and individual tax revenues for all levels of government;
• maintenance and growth of employment;
• Ontario’s balance of trade; and,
• contribution to sustainable and diverse economies for communities.

Financial assistance, preferably in the form of grants, should provide incentives for investment in technologically advanced systems such as Central Tire Inflation (CTI) systems, on-board scales, and Global Positioning Systems (GPS).

An example in which the fund could be used to benefit workers and the industry is to address a shortage of drivers available in Northern Ontario for hauling fibre to the mills. Insurance costs are a major barrier to entry for truck operators. Insurers require drivers to have three years of experience in the industry before the level of risk diminishes sufficiently to lower rates. Young people and small business people cannot afford the insurance rates to get three years’ experience.

The fund could be used to provide training, perhaps with support from FedNor, and involving a partnership between the insurers and the provincial government. The training would be designed to reduce the risk associated with new drivers. It could target Aboriginal people, other residents of Northern Ontario, and immigrants interested in pursuing opportunities in Northern Ontario. The training would be delivered through the colleges in Northern Ontario.

The Council is not recommending a limit on the size of project or company that may have access to the fund. This is partly in response to what is already available through, for example, the Northern Ontario Heritage Fund Corporation (NOHFC), which is aimed at small to medium-sized businesses which have fewer than 100 employees. NOHFC funding is generally limited to one million dollars.

Analysts predict further restructuring in the Ontario’s forest sector to meet global competition. The Council wishes to make clear that the fund is intended to improve the business case for investment in Ontario. Wherever further rationalization and consolidation may occur in the industry, an improved investment environment will help to foster the growth of new industries and jobs to sustain the vitality of forest-dependent communities.

Recommendation #18:

The Council recommends that the Ontario government establish a Business Climate Competitiveness Fund. This Fund should be used to support and stimulate:

• upgrading and modernization of facilities, harvesting equipment and trucking equipment;
• “green” energy alternatives, including co-generation, energy efficiencies and conservation;
• promotion of Ontario’s forest products, and promotion of the concept that forest management is sustainable and is being currently practiced in Ontario’s forests;
• projects to promote the expanded use of wood and wood derivatives in non-traditional applications in communities;
• diversification projects in communities hit by existing or projected layoffs and mill closures;
• worker training and transition;
• driver training; and,
• First Nations capacity-building.

Ontario is not a major centre for research on forest products. Research efforts in Ontario have traditionally been directed towards forestry. This is not the case in many other jurisdictions, which invest heavily in research institutes or university programs with a focus on forest products research. Ontario’s industry would benefit through the establishment of an organized forest products research organization which engages both the scientific, and the industrial communities.

Recommendation #19:

The Council recommends that one dollar of stumpage (a portion of existing rates, not an increase) should be directed to a Forest Industry Research Fund. The stumpage contributions to the fund would be matched by an equal contribution from the forest industry.

Even with the Business Climate Competitiveness Fund in place, it may still be difficult for firms to secure funding from the private sector, given the perceived level of risk related to the sector because of the softwood lumber dispute with the United States. The U.S. currently holds $4.3 billion in duties paid by Canadian producers, pending resolution of the cross-border dispute.

Recommendation #20:

The Council recommends that, in addition to the Business Climate Competitiveness Fund, the provincial government consider providing loan guarantees with respect to some portion of the countervailing duty deposits held by the United States government related to the softwood lumber dispute.

The Council heard about the potential to market wood products more aggressively as a renewable resource that can be used to make a range of non-traditional products. With a very limited budget to date, the Wood WORKS! initiative has succeeded in promoting a significantly expanded use of wood in Ontario’s non-residential construction industry. The Ontario government funds some very successful initiatives for agricultural products. The forest sector should receive similar support.

Recommendation #21:

The Council recommends that the provincial government provide ongoing funding for the Wood WORKS! program.

Seasonal half-load restrictions are a major barrier to business for the forest industry in Ontario. Infrastructure improvements, such as upgrading highways to all-weather roads, would be a great benefit.

Recommendation #22:

The Council recommends that the provincial government invest in secondary highway improvements.

In the past, companies pursuing market opportunities outside North America have benefitted from the knowledge and support from trade experts located in Ontario consulates in other countries.

Recommendation #23:

The Council recommends that Ontario consider reinstating trade consuls in nations that represent key markets for Ontario industries.

4.0 Working Together

Challenge: To keep industry, labour, communities, government and other interests working together.

The Council is keenly aware of the many factors – globalization, new lower-cost competitors, the dollar, interest rates, trade disputes, to name a few – that will continue to have a variety of impacts on the forest sector and its competitiveness. That means that not only business enterprises, but also communities and workers, will have to adapt to new challenges.

The Council is grateful to the Minister for this opportunity to work together and would like to ensure that positive working relationships are maintained.

Strategic Direction: We should maintain or create ways to keep the lines of communication open.

RECOMMENDATIONS

Recommendation #24:

The Council Recommends that MNR develop a forest sector implementation strategy with consideration given to supporting improved economic performance of traditional resource industries, encouraging diversification of natural resource industries, improving value-added production of forest products in Northern Ontario and exploring increased benefits to aboriginal communities.

There are a number of committees that bring together representatives of industry, the environmental community, labour, MNR and others. While not replacing these, the Council proposes two other vehicles.

Recommendation #25:

The Council recommends that a committee be formed of senior members of labour organizations and senior managers of forest industry firms to facilitate high-level discussions.

Both labour and business leaders on the Council supported the idea of creating a joint committee to work on some issues related to ongoing restructuring in the industry. These discussions would not replace collective bargaining or get into labour-management contractual arrangements.

One of the key areas that this group will look at would be the transition of workers and communities where the industry is undergoing restructuring. Issues will include, for example:

• identification of strategic skill requirements;
• creation of an employment opportunities database;
  retraining and relocation support; and,
• bridge funding for early retirement.

The Council would like to retain a way of monitoring progress on its recommendations and advising the Minister and Council members of the follow-up on such items as the Process Streamlining Task Force.

Recommendation #26:

The Council recommends that the Minister recognize the following delegates, appointed by the Council, to monitor the implementation of its recommendations, meet with the Minister and report back to the original Council members in six months, one year and two years.