While B.C.’s premier and minister of jobs visited the Kitwanga sawmill to celebrate the resurgence of B.C. forestry, industry leaders were just starting to cope with a big tax hike on logs for the Kispiox region.
“This is the 27th mill that has re-opened in British Columbia in the last year and a half,” premier Christy Clark said to the a crowd of more than 50 people who gathered to celebrate the mill’s opening July 8. “I believe the Northwest is going to be the economic engine of British Columbia, and I believe it is going to be the economic engine of Canada.”
To Kitwanga and the Kispiox region, the mill’s opening and planned pellet plant are the engines. Both mean jobs for many left unemployed since the lumber mill shut a few years before. But a dramatically increased stumpage tax implemented July 1 means the mill’s owners have yet another challenge to deal with since its opening in June.
Pacific BioEnergy, the Prince George-based company who bought the mill, intended to export to China. But a softened market there meant switching gears and selling lumber to Canada. And although a change was expected for stumpage, which is a B.C. tax per metre of raw log, the magnitude of the increase came as a surprise, said business representatives.
“The lumber markets haven’t really been improving,” said John Drew, president of Forsite, a company working with Pacific BioEnergy on the mill under joint management. “So the market’s challenged with tight margins, we’re challenged with thin margins. We don’t need costs going up in the short term.
“This area ended up having the highest stumpage in all of B.C.,” he said.
The stumpage increases work out to about an additional $4 per metre on logs purchased, said the mill’s general manager Mark Starlund, who cautioned stumpage rates and pricing are very complex.
But the way stumpage was calculated does not accurately reflect the economic circumstances of the Kispiox region, said Brad Bennett, Pacific BioEnergy’s operations vice president. He said part of the reason for this is that the system relies on historical data, and involves larger regional considerations that skew the Kispiox region’s unique attributes.
And although the Ministry of Forests, Land and Natural Resources said Pacific BioEnergy was informed about a month prior to the increase, Bennett said there
was a lack of Kispiox regional industry input during the calculation process, and also a historical data shortage.
“Someone from industry wasn’t there to say, ‘what about this?’” he said. “So you get these unintended consequences and collateral damage which is what’s happening to us.
“It’s not just an easy thing to change,” said Bennett. “But we don’t want to be collateral damage either.”
But the forest ministry said the Kispiox tax is what it should be.
“We’ve looked specifically at the permits that have been appraised to Kitwanga…and find that the market pricing system is functioning as it’s supposed to be,” said the ministry’s pricing branch in an e-mail. “A stumpage increase is always a concern for a licensee.”
The ministry said July 1 was the final of a two-year gradual phase-in for full market-based stumpage pricing.
Some calculation factors taken into account are region and lumber grade; Kitwanga/Kispiox is classified as interior lumber because most of the lumber in the region is manufactured in the interior instead of selling as logs on the Vancouver market.
The ministry also said Kitwanga’s lumber quality involves less lower-grade wood than the provincial average, but Bennett said this does not reflect the “normal operating conditions” of the region.
He also said that lumber isn’t selling at the same rates as other areas in the interior.
Bennett stressed data is skewed during calculations for the Kispiox region, and the remedy lies in stronger representation in government from northwestern industry.
For now, he said the tax hike is a warning sign something needs to be done about this.
“It’s unfair what was done,” he said, “but you know, we’re still going to manage our way through it.”
Pacific BioEnergy still plans to open its second pellet mill in the region in the coming months.
“The market for this is expected to five-fold in Europe by 2020,” Bennett said.
“If there were a message to leave with the premier and Mr. Bell (B.C.’s minister of jobs), it’s that there’s a lot of opportunity here,” he said.
“And if they can help assist in a variety of ways, I think there’s more to be had here.”