The Last Great Forest: Japanese Multinationals & Alberta's Northern Forests
Alberta's Forest Management Agreements
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By Larry Pratt and Ian Urquart
The following contains information about Crestbrook's operations in British Columbia and outlines some of the events which led up to the approval of the Al-Pac project. For a more detailed description of the economic and political situation surrounding the Al-Pac deal, read "The Last Great Forest" (see advert below).
Part I
Crestbrook's interest in expanding beyond British Columbia was based on several factors. The company's access to new timber resources was being threatened on several fronts. British Columbia was, according to (General Manager) Stuart Lang, using all of its available fibre and this would constrain Crestbrook's ambition to expand. Moreover, the trees that were available were becoming more and more expensive to cut, as the British Columbia government had increased its stumpage fees, or royalties, after the initial victory by American lumber producers in the Canada-United States softwood lumber dispute. From 1987 to 1988, Crestbrook's stumpage costs rose by 80 percent, from $5.2 million to $9.5 million, leading Lang to blame the Crown's royalties for dragging down the company's financial performance.
Wood costs in Alberta were 40% lower than in B.C.
He claimed that its wood costs in Alberta - where the company was gaining access principally to hardwood resources with very low stumpage fees - were 40 percent lower than they were in British Columbia (twenty dollars versus thirty-five dollars per cubic metre), and "regulators" in British Columbia were largely responsible.
And then there were British Columbia's environmentalists. Environmental groups had already succeeded in removing portions of the forestry land use base in the neighbouring West Kootenays. The Valhalla Conservation Society's successful campaign to create Valhalla Provincial Park, a wilderness park overlooking the western shores of Slocan Lake, reduced the annual allowable cut of forest companies operating in this area. Their vocal presence at tree farm licence hearings prompted Lang to call the hearings "a zoo and a disgrace to intelligent civilization." In an open letter to his employees, written in the summer of 1991, he lamented that: "Our provincial resource base is under threat from several sources including provincial government actions, Native land claims and extreme preservationists whose hidden agenda is an end to the forest industry in British Columbia. Put simply, loss of timber means the industry and Crestbrook have to reduce operations. A sharp loss could mean the end of our Company."
And finally, there was British Columbia's infamous labour climate. While the company enjoyed reasonably good relations with the Pulp, Paper and Woodworkers of Canada, in 1986 Crestbrook had been hit with an eighteen-week shutdown by the International Woodworkers of America, the worst strike in the company's history. Lang tended to blame the wage demands of the trade unions for those difficulties that could not be attributed to the provincial "regulators" of the environmentalists; with so many other groups conspiring to destroy the forestry industry, there was little left over for which to blame management. A visionary, he dreamed of moving Crestbrook and its Japanese backers to free-enterprise Alberta where, relative to British Columbia, the pastures - but not the environmentalists - were greener and the hardwood forests much cheaper. The Alberta-Pacific project in the Athabasca region of northeast Alberta was his ticket.
Part II
Crestbrook's ALPAC project was selected by the Getty government in December 1988 after months of strenuous behind-the-scenes lobbying by its backers and other major forest companies for the exclusive rights to harvest the Lac La Biche forest, a huge expanse of northeast Alberta. There were half a dozen proposals under consideration, including a chimithermomechanical project favoured by some environmentalists and the New Democrat MLA for Athabasca/Lac La Biche, but the cabinet's short list came down to two transnationals: Alberta-Pacific and the American forestry giant, Weyerhaeuser (one of whose lobbyists was Calgary corporate lawyer and former premier Peter Lougheed). Although it had the best site and the strongest backing among local politicians and business, not everyone in the Alberta government was impressed by Crestbrook's credentials, and eyerhaeuser's proposal also had influential supporters - for instance, Fred McDougall, the deputy minister of the forestry department, was skeptical about the Crestbrook project and favoured Weyerhaeuser (indeed, McDougall left the Alberta government to head up Weyerhaeuser's Alberta operations shortly after the cabinet's decision in favour of ALPAC).
The ALPAC joint venture came together in 1988; its ownership is based on a web of risk-sharing agreements among Japanese-controlled entities. Crestbrook, itself controlled by Mitsubishi/Honshu, holds a 40 percent interest in the ALPAC joint venture; 35% is held by MC Forest Investment, which itself is 85.72 percent-owned by Mitsubishi and 14.28 percent-owned by Hokuetsu Paper Mills; and the remaining 25 percent is held by Kanzaki Paper Canada. Mitsubishi is the dominant interest in the group.
"The cost and risk of financing the $1.3 billion project are, we believe, extremely attractive to these Japanese-owned corporate interests, though much less attractive to the Alberta government and to the taxpayers."
From the outset, Alberta agreed to fund the provision of all the transportation infrastructure for all the ALPAC project, a commitment whose final cost amounted to seventy-five million dollars. In addition, Crestbrook initially requested $150 million in government financing in the pulp mill either as direct equity investment or in the form of a debenture subordinated to private-sector loans. Why? Alberta had not given such concessions to Daishowa, and these very big and wealthy companies were certainly in no need of direct financing from government. In the first place, such financing would deepen the state's direct involvement in the project, eliminate the fiction of its neutrality as between proponents and critics, and give it a stronger political interest in its success: if ALPAC went under, so too would the government's direct financial stake in the project. Second, government financial participation would make bank financing easier to obtain and limit the companies' risks to this particular project in case of a failure.
As for access to the resource, the Japanese owners of ALPAC secured their exclusive long-term control over a very large supply of low-cost hardwood timber via the renewable twenty-year FMA that they concluded with the Alberta government in August 1991. Tenure over the timber supply was a far more important and "bankable" asset to the transnationals than any financial concessions received from Alberta: without security of tenure over the fibre supply, longer term investments would not be made and the banks would not loan capital.
ALPAC's FMA is lengthy and legalistic and cannot be fully analysed here, but its main features can be briefly related to the strategies of the government and the companies. A general, if subjective, observation is that the FMA seems to be rather generous to the Japanese joint ventures in ALPAC, particularly when we consider that many of the ministerial powers that can hypothetically be used to require the companies to meet their obligations to Alberta are unlikely to be tested.
Under the 1991 FMA, the companies were to pay stumpage charges of $2.09 per cubic metre for coniferous species, and $0.40 per cubic metre for deciduous species; but the stumpage fees are revised each year on the basis of bleached kraft pulp prices in the United States market, and since 1991 prices have been falling.
Data compiled by the Canadian Pulp and Paper Association in 1989 revealed that Alberta's stumpage fees were among the lowest in Canada, well below those charged by B.C. Ontario, and Quebec.
The above is a short excerpt, from Chapter 5 of "The Last Great Forest" by Larry Pratt and Ian Urquart of the University of Alberta's Political Science Department. Published by NeWest Press.
