1998 Legislative Session: 3rd Session, 36th Parliament

HANSARD

The following electronic version is for informational purposes only.

The printed version remains the official version.

Official Report of

DEBATES OF THE LEGISLATIVE ASSEMBLY

(Hansard)

WEDNESDAY, JUNE 10, 1998

Afternoon

Volume 10, Number 16

[ Page 8549 ]

The House met at 2:05 p.m.

Prayers.

Hon. G. Clark: In the gallery we have some special guests who are closely connected with the annual MLA-press gallery tennis tournament. The prize for the winning team is the coveted Speaker's Trophy.

The outstanding success of the tournament can be attributed to the players on both teams, and to the following guests who are here with us today: Dave Fujisawa, the B.C. vice-president of SHL Systemhouse Co.; Owen Taylor, the Victoria manager of systems integration with SHL Systemhouse Co.; Jack Hutton, a program development specialist with Providence Farm; and Chuck Johnstone, a Cowichan resident and event organizer. I understand that the Speaker of the House will be attending the tournament to present the trophy.

We wish the tournament every success, and of course, all members expect that the Legislative Assembly team will once again beat the press gallery team. Please join me in welcoming all the visitors to the gallery.

G. Campbell: I am pleased to rise and join the Premier in welcoming the representatives of the tennis tournament. As you know, Providence Farm is an exceptional community facility on Vancouver Island. The tennis tournament is one of the highly regarded sporting activities of the year; in fact, they put it off until late June so that it doesn't interfere with the NBA finals. I want to welcome all of the representatives here today and say that we need more quality players from the legislative side to make sure that we continue our record of success.

G. Robertson: In the House with us this afternoon is a very good friend of mine, Mr. Rick MacEachern. I've known Rick for over 40 years. He is down in Victoria with his wife Pat for a few days. I would ask the House to please make Rick welcome.

W. Hartley: I'm pleased to acknowledge the presence in the House today of some 25 young grade 6 visitors, along with some adults and their teacher, Ms. Cortez, from Fernwood Elementary School in Bothell, Washington. Please join me in welcoming them.

L. Reid: I have two groups of students in the precincts today to introduce. The first group is 57 grade 7 students from Howard De Beck Elementary School and their teacher, Ms. Daley. The second group is from Garden City Elementary School. They are 31 grade 7 students accompanied by their teacher, Mrs. Aitchison. I would ask the House to please make both of these groups extremely welcome.

I. Chong: Visiting us today are a number of UVic students. They are Aaron Gairdner, president of UVic's B.C. Young Liberals; and Candice Ford, Herman Chung and Christian Hoefer. I would ask the House to please make them welcome, as they will be observing us at question period.

B. Penner: It is my pleasure to introduce Mr. Paul Decloet, who is here today on his way back to Ontario. He has just come back from Asia. He is visiting his son, who is a reporter in the press gallery: the bright and energetic reporter we all know, Derek Decloet of the B.C. Report magazine. Would the House please make them welcome.

G. Janssen: Joining us on her birthday today is a very good friend of many years, Kinnie Van Benthem, who is a neighbour and fellow countryman. I'd ask the House to make her welcome.

Introduction of Bills

ELECTORAL BOUNDARIES COMMISSION AMENDMENT ACT, 1998

(NORTHERN ELECTORAL BOUNDARIES PROTECTION ACT)

J. Weisgerber presented a bill intituled Electoral Boundaries Commission Amendment Act, 1998 (Northern Electoral Boundaries Protection Act).

J. Weisgerber: I move that a bill intituled Electoral Boundaries Commission Amendment Act, 1998 (Northern Electoral Boundaries Protection Act), of which notice has been given in my name on the order paper, be introduced and now read a first time.

Motion approved.

J. Weisgerber: This bill, if adopted, would protect the parliamentary representation of northern British Columbia residents by ensuring that our four northern constituency boundaries remain intact following the Electoral Boundaries Commission review. The constituency boundaries of Peace River South, Peace River North, Bulkley Valley-Stikine and North Coast would be protected. The bill allows these four constituencies in the northernmost reaches of the province to have up to 50 percent less population than the average across-British Columbia population representation.

The four constituencies are unique among the existing 75. Not only do they rank in the top five constituencies according to size -- at over 50,000 square kilometres each -- but by far they are the most remote, all more than 800 road kilometres away from Victoria.

The intent of this bill is threefold. First, it distinguishes the four existing constituencies, which, by virtue of their special geographic considerations, impose unique demands on their constituents and MLAs. Second, the bill recognizes that in very special circumstances, population cannot be the primary or sole factor used to determine the configuration of our provincial electoral boundaries. Finally, it provides a mechanism that would maintain northern representation without the need to increase the total number of seats in British Columbia beyond 75.

Our northern constituency boundaries must be protected so that northern voices are not diminished in our provincial Legislative Assembly solely in a bid to achieve a population statistical average.

Bill M209 introduced, read a first time and ordered to be placed on orders of the day for second reading at the next sitting of the House after today.

Oral Questions

SUITABILITY OF EMPLOYMENT STANDARDS BRANCH APPOINTMENT

G. Campbell: Hon. Speaker, one of the key players in the most violent labour dispute we've seen in this last decade, Mr.

[ Page 8550 ]

Laird Cronk, has recently been appointed by the Ministry of Labour to the position of fair-wage enforcement officer. How can the Minister of Labour justify the appointment of Mr. Cronk to a position that requires fairness and good judgment, when he was a key player in one of the most violent labour disputes we've seen in the last decade?

Hon. D. Lovick: I thank the member for the question. I think it ought to be raised. The applications for positions with the employment standards branch were advertised some time ago -- I believe in March of last year -- and all of the major stakeholders in the affected industries were invited to make submissions.

For the position in Nanaimo, which Mr. Cronk now fills, there were five specific applications made. Mr. Cronk, who operated an independent contractor business as an electrician, had long experience and qualifications, and the employment standards branch in its wisdom decided he was clearly the best candidate. They clearly didn't look at whatever his history might have been in any kind of trade union activity; rather, they were measuring his abilities in his candidacy to carry out that job. They decided he was the appropriate person, and therefore he was offered the job.

The Speaker: For a first supplementary, I recognize the Leader of the Official Opposition.

G. Campbell: Clearly Mr. Cronk's history should have been looked at. The fact of the matter is that he stood idly by as the most violent labour dispute we've seen in the last decade took place. When that dispute was over, Mr. Cronk said quite clearly that the wider struggle against Mac-Blo and what he called the rat unions wasn't over. He said that he was sworn to wage war against those companies, those so-called non-building trades companies across the province. He said -- this is part of his history, and this is something that should be a matter of concern: "We'll put the squeeze on them all over the province."

How can the minister justify the appointment of a person with Mr. Cronk's background to a job that requires fairness and good judgment? And more importantly, how can any of those companies expect to be treated fairly?

[2:15]

Hon. D. Lovick: First of all, let me emphasize that the appointments are not made by the minister. Rather, the minister's relationship with Employment Standards is arm's-length. The only reason I know about this appointment is the same reason that the Leader of the Opposition does -- namely, he received a copy of a letter from Philip Hochstein, executive vice-president of the Independent Contractors and Businesses Association of B.C. Mr. Hochstein makes the various points that were quoted into the record by the Leader of the Opposition.

It seems to me that the important point is that a person's historical . . . .

Interjections.

Hon. D. Lovick: Members, please. Wouldn't the members like an answer, hon. Speaker?

The Speaker: Hon. minister, would you wind up your answer, please.

Hon. D. Lovick: I shall indeed. It seems to me that there's a principle that ought to obtain here -- namely, that a person's past history of involvement in a trade union ought to have nothing whatsoever to do with his or her suitability for this particular job.

The Speaker: I recognize the Leader of the Official Opposition on a second supplementary.

G. Campbell: Mr. Cronk stood idly by, and he was responsible for the organization, for the picket line that engaged in one of the most violent acts that we've seen in this province in the last decade. He did nothing. That is his history; that is his background. He is not an appropriate appointment for this government or any other government. It doesn't have anything to do with whether he's a trade unionist or not; it has to do with the fact that he stood by as his people broke the law -- threw hammers through truck windows and hurt people . . . violently opposed to what was taking place in the province of British Columbia.

Will the minister admit that Mr. Cronk is not an appropriate appointment for that job, and will he do the right thing and have him fired today?

Hon. D. Lovick: To my knowledge, Mr. Cronk has never been convicted of anything, although he has been accused by Mr. Hochstein and by Mr. McCarthy -- a.k.a. the Leader of the Opposition across the way . . . . I would also point out that Mr. Cronk received one month's training and instruction on how to perform this particular job on the skills development and fair wage compliance team. He is supervised by a manager in Victoria. Since he commenced his work conducting site investigations, there have been no complaints received about his activities or his decisions.

C. Hansen: This is not an individual who is simply a member of a trade union that got involved in difficulty. This was the picket-line boss in a trade dispute that resulted in some of the worst violence we've seen on any picket line in this province in the last ten years. This is a guy who is an avowed enemy of the non-building trades unions and an avowed enemy of companies that use non-building trades labour. How can the minister allow an individual such as this to have the enormous powers of a fair-wage enforcer and to use that power in a vendetta against companies that he has dealt with in the past?

Interjections.

The Speaker: I will recognize the minister when there is silence and order in the chamber. It's getting a little out of hand. I recognize the Minister of Labour and of Aboriginal Affairs.

Hon. D. Lovick: Madam Speaker, I know that the political environment in the province has changed with the return of Mr. Vander Zalm, but it seems to me that the folks across the way are moving much further to the right with this line of questioning than even Bill Vander Zalm ever went.

The Speaker: Minister . . . .

Hon. D. Lovick: The suggestion that somebody's alleged history as part of a trade union picket line should be grounds for prohibiting that individual from ever being employed in a position such as the one described here is unlawful. It smacks of blacklisting and witch-hunting and the worst kind of outrageous right-wing, redneck behaviour we've ever seen. These people ought to be ashamed of this line of questioning.

[ Page 8551 ]

The Speaker: Thank you, minister.

Hon. D. Lovick: They owe an apology . . . .

The Speaker: Thank you, minister.

First supplementary, the member for Vancouver-Quilchena.

C. Hansen: Hon. Speaker . . .

Interjections.

The Speaker: Members, order, please.

C. Hansen: . . . if this minister is contending that for us to be opposed to picket-line violence and violence in the trade union movement is somehow a right-wing phenomenon, I don't think so.

This minister is accountable for the people that work in his ministry. If they had done one bit of research, they would realize the vendetta that this individual has been carrying out through the venomous words that he has been speaking over the years. This is a dispute that resulted in a TNL Construction employee being airlifted to Vancouver with serious injuries. This is a dispute that led to 33 arrests. This is a dispute that is a black mark on labour history in British Columbia. Will the minister ensure that this individual is removed from this responsibility with the employment standards branch, so that he cannot continue this vendetta in the future?

Hon. D. Lovick: Hon. Speaker, if I were to agree with the request being made by the member opposite, I would be party to the worst kind of blackmail, the worst kind of intimidation, the worst kind of coercion, in the name of doing the right thing. What those folks are really suggesting is that they want me to break the law. They want to, in fact, single out an individual . . .

Interjections.

The Speaker: Hon. members . . . .

The minister will wind up his remarks.

Hon. D. Lovick: . . . named by their friends, who are well known to be not terribly supportive of trade unions and who are suggesting that because of the activity of this particular individual on a very ugly picket line -- ugliness caused by both sides, let's not forget -- and on their say-so alone, he ought not to be given the job in the employment standards branch. I stand by the recommendation given me by the branch. This was the best person of those who applied for the job. He has the qualifications and, indeed, has done the job well thus far.

G. Farrell-Collins: I see the Premier and the Deputy Premier sitting there laughing. This is a man who was the picket-line captain on a picket line where we saw the most violent actions we've seen this decade. An individual was airlifted by air ambulance to hospital with serious injuries. There were 33 arrests made. If the minister can't understand that someone who was the picket-line captain, who, after those violent actions, vowed to continue his vendetta to every corner of this province, and who now has the power of an enforcement officer with Employment Standards . . . . It's the minister who doesn't deserve to have the job.

The Speaker: Your question?

G. Farrell-Collins: This isn't McCarthyism; this is Jimmy Hoffaism. Will the minister demand the resignation of this individual, who has no right to hold that position of power?

Interjections.

The Speaker: Order, hon. members.

Hon. D. Lovick: I'm tempted to ask the member to repeat the question, because I didn't hear one. I think we had a statement, and the statement, unfortunately, is an ugly one. The member suggests a vendetta. Let me suggest that the only vendetta being carried out here is by the Liberal opposition. The vendetta is being carried out against working people and trade unions in this province, and that's what this is about.

The Speaker: On a first supplementary, the Opposition House Leader.

G. Farrell-Collins: This gentleman, Mr. Cronk, said: "We'll put the squeeze on them all over the province. The wider struggle against Mac-Blo and these unions is not over." In the time frame from when he was out there on the picket line, where we saw this kind of violence -- individuals airlifted to hospital, 33 arrests . . . . At the end of that, he vowed to continue the struggle and made statements like that.

Now the Minister of Labour defends the right of someone like that to be an enforcer on the fair-wage deal. How can the minister justify someone of that calibre, someone who has sunk that low, holding a job in the public service where he has the powers that he has as an enforcer under the Fair Wage Act?

Hon. D. Lovick: How wonderful it must be to be able to speak with such passion about an issue that one knows nothing about and has no personal experience of. This line of questioning amounts to absolute character assassination, based entirely on the word . . . .

Interjections.

The Speaker: Order, hon. members.

Hon. D. Lovick: Hon. Speaker, how interesting that these people who claim to argue for due process and fairness believe in shouting down anybody who disagrees with them. But that happens.

The only point to be made here is whether an individual should be automatically excluded from employment because of his or her involvement in a trade union. We on this side of the House say: "Absolutely not; that will not happen." We will ensure that the laws and due process in this province are maintained.

And if the hon. members want to talk about sinking low, let me remind them of their own paradigm illustration of labour relations: the member for Kamloops-North Thompson, who believes that "you whack 'em, and then you whack 'em again." -- that's how you discipline workers.

Interjections.

The Speaker: Order, hon. members. Will both sides settle down, please.

[ Page 8552 ]

A. Sanders: Hon. Speaker, I seek leave to make an introduction.

Leave granted.

A. Sanders: On behalf of my colleague from Langley, I wish to introduce Mr. Knelsen, a teacher from Glenwood Elementary School. He has with him 32 grade 7 students. Could we please make them welcome.

Orders of the Day

Hon. J. MacPhail: In Committee A, I call Committee of Supply. For the information of the members, we'll be debating the estimates of the Ministry of Municipal Affairs. In this chamber, I call Committee of Supply B. For the information of the members, we'll be debating the estimates of the Ministry of Forests.

The House in Committee of Supply B; W. Hartley in the chair.

[2:30]

ESTIMATES: MINISTRY OF FORESTS

(continued)

On vote 44: minister's office, $436,000 (continued).

G. Abbott: I'd like to pick up where we left off yesterday, with the small business forest enterprise program. I presume we have the right staff here to deal with that issue today. I want to begin by reviewing with the minister, if I could, the application of the recently announced stumpage relief to the forest sector and its particular application to the small business forest enterprise program.

I think I have a clear understanding in my mind about how stumpage relief will be applied to the major licensees. On the coast we will see a fixed reduction of $7.45, I believe; for the coast licensees, superstumpage paid to Forest Renewal B.C. will be reduced by that amount. In the interior, it's $3.50 or $3.10 -- something like that -- that's going to be deducted from the amount that's paid to Forest Renewal B.C. What I'm trying to do is just make sure that I've got it clear in my mind how the same thing is going to work with respect to the small business forest enterprise program.

What I am assuming occurred here is that, effective June 1, 1998, there will be a reduction in the base stumpage for small business sales. The minister gave me these numbers yesterday. I believe that for the coast, just over $9 will be deducted from the base amount on the small business sales. As I recall, in the interior the amount to be deducted was in the $4 range.

Perhaps the minister can refresh me on that and correct me if I'm wrong in saying that as of June 1, 1998, all small business sales, whether they are on a fixed stumpage basis or a variable stumpage basis, will have the deduction of those amounts that I've stated, depending on whether they're on the coast or in the interior. Could the minister correct me if I'm wrong?

Hon. D. Zirnhelt: This is where we left off. I just wanted to get the numbers precisely. The average reduction on the coast is $8.10, and the average reduction in the interior is $3.50. But because a certain percentage of the timber is billed at minimum stumpage and it can't be reduced, it makes the average for the non-minimum-stumpage timber higher. That results in a $9.45 reduction at the coast and $4.90 in the interior -- that is only for those sales that have a variable stumpage.

Those small business sales that elected to have a fixed stumpage rate, which protected them from it going down or up, are stuck with the contractual arrangement made at the time they entered into the sale. Any new sales -- where someone might opt for a fixed-stumpage rate -- will start from a reduced base, which will be, you know, roughly $9.45 and $4.90 lower. The new upsets for new small business sales will have the reduced amount, but not those that elected the fixed rate.

G. Abbott: I appreciate the minister confirming, I guess, my understanding of how this is going to work with respect to the small business program.

The concern that flows from my understanding of the changes that have been executed as of June 1 is . . . . It's difficult to explain, and I hope the minister can bear with me as I try to translate something that I put in graph form into words that, hopefully, are meaningful. If one sets the change in base stumpage from '94, when superstumpage was introduced to fund FRBC, and puts it over to June 1, 1998, when we see a dip in that line because some stumpage relief has been offered that will reduce the amount that goes to FRBC . . . .

If one sets that graph against a curve of basically what softwood lumber prices did over the course of that period between 1994 and June of 1998, one sees, really, quite a pronounced bell curve -- I guess that is what it would be referred to. It swings up in '94, '95, '96 -- we had very good softwood lumber prices through '96 and through about half of '97 -- at which point it starts to tail off into 1998. Basically, we set a kind of bell curve indicating the price of softwood lumber on the American market atop this other line which we have which indicates the base stumpage that is paid at the same time.

My concern here is that those contractors, those companies that in 1996-97, when the markets were very buoyant, when it looked like, you know, those prices were going to hold up for the long term . . . . Some of those contractors' businesses obviously bid some fixed stumpage contracts, and what we find as a consequence with them bidding high in '96-97 is that . . . .

The minister can presumably argue, if he wishes to, that it was their own choosing to do that, but where it leaves them in terms of the situation in 1998 is that with their fixed bids and their fixed stumpage sales that were bid in '96-97 -- they're up there already . . . . What they're going to be up against is not only a situation where softwood lumber prices have fallen dramatically since that time and have rendered their sales probably uneconomic, but in addition the serious factor of variable-bid stumpage sales dropping off further.

So the margin between what is economic and what is uneconomic, in terms of the variable sales versus the fixed stumpage sales, is going to be very wide.

I suggest to the minister that perhaps what we are looking at again are unintended consequences from the perspective of trying to keep some consistency on the fixed-bid side. I hope the introduction and the explanation is not too complex here. Essentially, I'm saying that as a consequence of these two factors -- the reduction in the price of softwood lumber and the reduction in the variable stumpage licences -- there's a huge gap between the fixed-bid and the variable-bid small business sales. I'd like the minister to comment on that as we proceed.

Hon. D. Zirnhelt: I have a couple of points to make. One is that there is no strong linkage between log prices and stumpage. Just because you reduce the stumpage, it doesn't

[ Page 8553 ]

mean you're going to increase the price that they'll pay for logs. Stumpage is driven by the log prices; the log prices on the coast determine what the stumpage is. Anyway, I'll come back to that; it's complicated.

We're prepared to consider extending the term of these licences, so that when the market rebounds they might be able to hit the upswing a little bit. We're looking at that; we're looking at ways to mitigate this effect. I go back to the point that when they did bid, they made some judgment about what's going to happen with log prices.

G. Abbott: And they did. There is no question, hon. Chair, that when they did their calculations around submitting a fixed-bid stumpage proposal on a small business sale back in 1996 or '97, they undoubtedly made some projections about markets and all the rest of it. The point here, as I see it, is that the recent stumpage relief that was announced in Kamloops by the Premier and the minister was all about getting people back to work and relieving lumber businesses, whether they be big companies or contractors or small lumber businesses -- whatever it happens to be.

The notion was that the savings in stumpage would help to make the industry economic again. As I recall, it was very clearly a recognition as well that the Forest Practices Code had cost a good deal more to implement, particularly on the coast, than what the former Minister of Forests had anticipated back in 1994.

[2:45]

Stumpage relief was to be a recognition of those two things: (

a) the code had cost more than anyone anticipated, particularly on the coast, and (

b) the stumpage relief was designed around trying to make our industry more competitive again, whether it be large, small or any other size of industry. My concern is that we may have in a partial way addressed the difficulties faced by the major licensees in the province, by the relief of $8.10 and $3.50 on the coast and in the interior respectively. We may have gone some distance in making those contractors and those business people who had one small business sale, based on variable stumpage rates, more competitive in the marketplace. I should photocopy this graph and send it across to the minister, because it depicts what I'm saying.

Again, it seems to me that while we have addressed those, we have made, in this process, those unfortunate companies and small business people -- who had, from 1996 to 1997, fixed stumpage small business licences -- less economic as a consequence of this. We have widened the gap between the variable stumpage folks and the fixed stumpage folks. That was already happening because of the decline, in the latter part of 1997 and the early part of 1998, of softwood lumber prices.

I more or less understand how the stumpage systems work, and I don't want to get into an argument about what drives stumpage. I mean, clearly the value of forest products declined, and we see it being less economic to harvest those small business sales. We may have inadvertently added one more impediment here to the recovery of particularly those businesses that are trying to work with fixed-rate stumpage small business sales.

Hon. D. Zirnhelt: Well, we haven't added an impediment. They opted to lock themselves in, so when a change was made, they were stuck with the deal made at the time. One of the effects might be . . . . We don't know this for sure, but often it's the major licensees that buy the small business wood so that their situation is more economic. They'll be able to purchase the small business wood. But just reducing the stumpage doesn't mean that they're going to get any more for their logs anyway, you know. One effect might be that they reduce the price of logs too. That's the problem with that particular little market there.

When we chose the relief, we thought it was fair that the system be equitable for all those who were in on the fixed rate: major licensees, woodlot, ag lease and so on -- all types of licensees. It wasn't discriminating against any particular type of licensee.

G. Abbott: I'm not arguing that the government set out to discriminate against people who had fixed-rate stumpage small business licences. That's not my argument. The point I'm trying to make here is that as a consequence of a set of government actions, the gap between how economic small business sales are on a variable-stumpage rate versus a fixed-stumpage rate has been inadvertently widened.

Again, let me back up here, because I want to pursue this point -- it's a very important one. I don't fancy that any member in this chamber would want to look back six months or a year from now and say: "Oops, we inadvertently bankrupted 50 small businesses in British Columbia because we didn't recognize the particular difficulties that we were going to add to or exacerbate."

Let me put it this way. Let's try, for a moment, to put ourselves in the shoes of someone who is proposing to bid on a small business licence back in the summer of 1996 or the summer of 1997. At that point in time, we had pretty good to very good prices for random-length lumber on the American market. Things looked good. We bid strongly in order to get the sales.

We would all concede, too, that back in the summer of 1996 or the summer of 1997, a contractor or business person bidding on one of those sales would have had no inkling that in June of 1998 the government was going to introduce stumpage relief for variable-rate small business sales but not for fixed-rate small business sales. I don't think any business person could reasonably be expected, in the summer of 1996 or the summer of 1997, to have anticipated that.

Now, certainly that argument might be made for the spring of 1998, when this issue was very much on the front burner and, I suspect, probably induced people to go variable rather than fixed. But I don't think anybody can be reasonably expected to have anticipated that possibility back in the summer of 1996. I think that is imposing upon them an ability to look into the future which is not realistic.

So again, what we have is someone bidding a sale back in the summer of 1996 based (

a) on the premise that lumber prices were going to hold up and (

b) on no knowledge that some two years hence the government would be introducing a reduction in the base rate of variable-stumpage small business sales. Again, what has occurred here is that with the additional reduction to the variable rate, folks, the gap has widened between what it's costing the fixed-rate guy and the variable-rate guy. The variable-rate guy has been made more competitive; the fixed-rate guy has quite possibly and perhaps inadvertently been priced out of the opportunity to harvest sales, that with the relief, might otherwise be viable. I'd like the minister's comments on that.

Hon. D. Zirnhelt: Our defence of the approach here is that if we had affected log price . . . . When he bid he knew what the log price was or had some idea what the log price

[ Page 8554 ]

was, so he bid his stumpage accordingly. We didn't do anything to change that log price. So he's in a situation where he can contract for both -- what he pays for the logs and what he will get for the logs.

Just to remind the member, if he'd bid on a sale back in '96 . . . . Typically the sale is for one year, and there may be an extension for another year. So it's going to run out in the summer of '98. But in the summer of '97, there was a softening; people knew there was a softening happening. But adjustments were made because of the code cost increases; in '96 and in '95 we knew that there was a cost to the code. That was factored in to those who were doing the bidding. The people who had a chance to bid, and then to elect to set that price, knew what the costs of the code were at that time.

G. Abbott: But the point here is that everybody knew that the code costs were higher than what the former Minister of Forests had anticipated and considerably higher, particularly, on the coast. Everybody knew that. Yet what's happening here is that the recognition of those additional costs is being extended only to those who, whether through good luck or good judgment, elected to go with variable stumpage as opposed to fixed stumpage.

If the extra costs of the code are a burden to everyone in the industry -- and clearly they are . . . . I have correspondence, as I know the minister does, from a variety of contractors, particularly on the coast, who are scared to death of the current situation. We are not delivering relief from code costs to that particular group. We're delivering it to everybody but those who, for good reasons or bad reasons, elected to go with fixed stumpage. Would the minister concede that?

We are delivering those code savings, in the form of stumpage relief, to those that had variable stumpage small business licences, and we're delivering it to major licensees. But we're not delivering it to the fixed-rate guys.

Hon. D. Zirnhelt: What I will say is that we are delivering the savings to those who were on the variable rate. But let me make a couple more points. Anybody who is in the small business program could bid on new sales with the stumpage change; they can do that. But if someone bid in '96, when we were on the swing up on the bell curve, they already had a saving. They didn't have to pay more stumpage. It was going up.

I have to admit that there are some people who get caught in the movement up and down. That happens, and I know of no fairer way . . . . If we had an unlimited resource, we could have come in and reduced it even more perhaps -- if we could have got away with it and so on. Don't forget that the small business program's bidding process is often what we refer to as the market that determines the price. We use that as the justification to show that we do have a market-based pricing system. We're reluctant to tamper with the system itself, with the way it was set.

In '97 we were continually talking about stumpage reduction, so anybody who bid in that era could have projected that the stumpage would come down -- taken us, in fact, at our word. They knew we were negotiating or at least dealing with licensees to do that.

I'll just repeat. In '96, to use your example, if they elected a fixed rate, they were pretty smart, because it went up and they won on that. There's no way to get what is seen on the part of some of these people as this 100 percent equity they would rather have. I do feel for those people who get caught in the market turn, but I dare say we would never hear from those people who had the fixed rate when stumpage went up -- they weren't crowing. And I'll just remind you that when we did increase the stumpage back in '94 . . . . We didn't increase it; we kept those people whole for the one-year or two-year term of their licence. So that same category of people had an advantage at that time.

G. Abbott: It's an interesting discussion we're having here, and I hope we are gradually rising to a broader understanding of what each of us is saying. I don't dispute anything the minister has said about the market being in operation. According to when you bought in '96 or '97, and what you bid in '96 or '97, you're going to be a winner or a loser in the marketplace, depending on how well you bid and the luck of the draw and circumstances -- all of those things come into it. There's no question about that. I agree entirely with the sentiments there.

The point I'm making here is that the government -- with the best of intentions and actually in the right direction, I think -- did tamper, to use that term. "Tamper" is not the right word here, because that's not the intention. Two weeks ago the government chose to announce stumpage relief for the industry. The government had concluded that stumpage relief was necessary to get the industry back on its feet again.

Further, the government concluded that because the costs of the code were far in excess of what the former minister had anticipated, there was a powerful argument, a powerful rationale, for introducing that relief and hopefully persuading the Americans of the virtues of the argument.

[J. Doyle in the chair.]

The government made a decision to change the marketplace; they made a decision to change the stumpage rate. They got involved in changing the playing field and the ground rules. My point is that if we are going to change the playing field and the ground rules for the major licensees and for those on variable-stumpage small business sales, we should be doing it for the fixed-stumpage small business sales, as well, in the interests of consistency.

[3:00]

There's no argument here about the marketplace creating winners and losers. That happens. All I'm saying is that if we are going to adjust the marketplace, as we did when we adjusted the stumpage and introduced some stumpage relief, we need to do it in a way that is fair and consistent to all the players in the system, including those who perhaps wisely or perhaps foolishly submitted a fixed bid at some point over the past couple of years. That is my point again. I hope I'm getting through to the minister.

Hon. D. Zirnhelt: You make one argument, and I make a counterargument. But you used the word "marketplace." We do not affect what they get for their logs; we have studied it, and we're prepared to share information with you. We do not believe that we'll affect the price that they get for their logs. They're in a special market; they're operating on a log market basis, which is different from most of the other licensees.

The point is that if we did affect the log market, then they would have an additional argument to make.

G. Bowbrick: I ask leave to make an introduction.

Leave granted.

G. Bowbrick: Joining us in the gallery today are 49 grades 4 to 7 students from Connaught Heights Elementary

[ Page 8555 ]

School, which is in a nice neighbourhood in New Westminster, along with their teacher -- and I apologize in advance if I don't pronounce her name properly -- Ms. Jenny Mwenifumbo and Ms. Maureen Bodie, the principal of the school, as well as several other adults. I would ask all my colleagues in the House to please join me in making them welcome.

G. Abbott: The minister makes an argument about the recent stumpage changes not affecting the value of logs. He may well be right in making that argument. But what I don't seem to be able to communicate here is that with these changes, as of June 1, we are effecting a substantial reduction in the stumpage that is going to be paid by the variable-rate small business licensees on the one hand compared to the fixed-rate small business licensees. As of June 1, the one group is going to drop, and the other group's going to stay the same.

The viability for those on the fixed-stumpage small business licences is going to be adversely affected. I can't see how it could be otherwise. We are going to give that relief of unexpectedly high Forest Practices Code costs to the one group but not to the other. That's the point I'm making, and I don't seem to be getting through on that. Perhaps I'll see if I have this time.

Hon. D. Zirnhelt: I hear and I understand. The point is: we have one small business bidding system that has a stumpage rate determined in one way, and that's what they bid. The other system we have -- calculated stumpage -- is the one we have to effect, because that's the one the Americans have been watching, for example, and that's the one covered by the softwood lumber agreement. Therefore, we have to approach it rationally and change it systematically. That's the argument that we made, and that's the rationale for making the changes.

To use your argument for a minute: if the price of logs goes up -- which it could do -- those people on the fixed rate will still be on the fixed stumpage, and they won't have to pay any more. The other people will have theirs go up. It's tougher for them when there's a reduction, but there's a major advantage for them when it goes up. So they have a disadvantage one way and an advantage the other way.

G. Abbott: I wholeheartedly agree with that. In their fixed position, as the markets go up and down, their fortunes -- good or bad -- will change. I'm saying that that's right: in some cases the market going up or down will benefit the guys that elect to go variable, and sometimes it will benefit the guys that elect to go fixed.

But in this case the government has resolved to deliver stumpage relief to forest operators in British Columbia, yet there is a portion of them that we're not going to be delivering that to. If we're making the argument here around relief from unexpectedly high costs associated with the Forest Practices Code, surely it holds just as powerfully for somebody who bid on a fixed basis as it would for somebody who bid on a variable basis. I'll read some letters here -- perhaps a little later -- which are from people who elected, wisely or unwisely, to go with fixed stumpage in '96 or '97 and who are now looking at uneconomical harvest opportunities.

Maybe the minister could respond to my point here, which is, again: if the argument holds for the major licensees and for the variable-rate small business licensees that because of unexpectedly high code costs there is justification for an approximate, across-the-province $5 reduction or relief from stumpage, then surely it holds for the fixed-rate guys just as well as it would for the rest of them.

Hon. D. Zirnhelt: We are going around in circles, and I don't think we can stop it very easily. I think this is really all that I have to say about it: the people who bid on the wood -- and then fixed -- knew what their costs would be, because the code has been around since before they considered bidding. So they knew that . . . .

Interjection.

Hon. D. Zirnhelt: Well, they did. But the other people had no choice. Their stumpage was going to go up if there was a fluctuation in the market. There are two systems. The systems are quite different, so the systems are treated differently. I'll just finally comment that they're different.

G. Abbott: The minister says we're going around in circles here, and perhaps we are to some extent. I'm still not convinced of the argument that is being presented by the government. Furthermore, I think that what's going to occur, as a consequence of the one group that is -- in my estimation, not in the minister's -- being treated differently than others, is that we may have businesses in the province that fail or experience difficulties or give up small business licences because of this. I think the government's intention of getting the industry back on its feet will be marred to some extent by the unfortunate situation here.

Let me ask this question so that we can perhaps move along here: did the ministry calculate what the cost of relief would be to those on fixed stumpage rates? In the process of sorting out whether they would extend stumpage relief to that group, did they arrive at what the cost would be to Forest Renewal B.C.'s coffers in terms of that relief?

Hon. D. Zirnhelt: As the member will remember, we looked at the accumulated stumpage in the FRBC bank account, and that was the pot from which we were going to pay the cost relief. These small fixed-rate sales don't contribute to FRBC; they contribute to general revenue. So while we tried to make some estimates of what this would be . . . . The studies are imprecise, but we did do various calculations.

G. Abbott: Is the minister prepared to share what those calculations were?

Hon. D. Zirnhelt: We can provide some information to you, through the director of the revenue branch, but I just want to say that estimates are difficult to be precise about, but we did make some estimates.

G. Abbott: It's the estimate of potential cost and/or saving, depending on which side you're looking at. I'm not looking for down to the last million dollars. Would we be in the realm of $50 million in costs or $10 million? What kind of ballpark are we looking at?

Hon. D. Zirnhelt: The problem in the estimates is trying to figure out how much would be logged if you reduced it and how much would be logged if you didn't reduce it. There is no science that helps with that very precisely. I don't have a ballpark figure for you. But what's going to happen if stumpage happened to go up on July 1 for some types of sales? Would you then be asking us to reduce it for the fixed-rate people? People will benefit as this goes up and down. That's to say that when they bid, they take a chance, and that's the system they're playing in.

Even if we did the reduction for the fixed-rate people, it's not clear that that would put them back to work, as there are other factors.

[ Page 8556 ]

We're prepared to look at some of the administrative arrangements -- the terms of the licence and so on -- to make it as easy as possible. From time to time when this happens, we do deal with administrative extensions, for example . . . . But you have to ask the question: is it fair to the other person who bid? That person might say: "I'm prepared to log at what I've bid. How come you give this guy a break?" It's never fair to the other bidders when you start mucking with the fixed rates.

G. Abbott: What I would do . . . . The minister asked the hypothetical question: if the rate goes up the next month, would we offer relief to the variable-bid people? I'd say no, we would not. What we are doing here -- and this is the point I've been trying to make all the time -- is that we're making a one-time change to the system as of June 1 in an effort to get logging companies and lumber companies back on their feet.

The reason I'm having some difficulty embracing the line of argument I'm hearing from across the floor is that we do appear, at least on the surface, to be treating one group differently than another. I'm understanding the argument that is being made. But it's not something we're going to be repeating next month. I don't expect that the government is going to be introducing additional stumpage relief for the foreseeable future. On a one-time occasion the government elected to do that.

I still need to be persuaded that it's not appropriate to deliver that saving to the one group that elected to go fixed rate. I appreciate that that's contrary, in some respects -- theoretically at least -- to the notion of a fixed rate. But we're doing it for everyone else, and it's tough for me to understand how we aren't in that respect not fundamentally changing the marketplace these fixed-rate people are working in. That's the point I've been making here, but I'm not going to ask the minister to comment again on it, unless I have suddenly persuaded him of the merits of my argument.

I want to move along and not dwell on this point. We have been around it. So unless the minister is persuaded, I'll move on to the next point.

Interjection.

G. Abbott: Oh, I'm sorry. You are persuaded? Good.

[3:15]

Hon. D. Zirnhelt: We have treated the fixed-rate people fairly. When we raised the stumpage in '94, we didn't raise it for them. Nor did we lower it when we reduced it in '98. We treated the people who were on a variable rate equitably. When we raised it, we raised it for them all; and when we reduced it, we reduced it for them. So we've treated people consistently.

G. Abbott: We'll complete the circle by saying again that the theoretical argument being advanced here may have some merits, but we are cutting off our nose to spite our face in terms of the treatment of one group and what they have to work with, I think. Let me note that over the past few weeks I've received numerous letters. They're primarily from logging companies around the province who have been very, very concerned about this issue -- particularly companies on the coast that have been particularly concerned about whether the stumpage relief would apply to them. They have been advancing arguments as to why it should.

I'm not going to read all of those letters into the record. We have some time constraints around these estimates, and I don't propose to take all the time up to do that. But I think it is important for the record to show the concerns that have been expressed around this, because I think they are important ones, and they're ones that I have found persuasive.

I want to quote here from a letter from Harold Hayes, who is the vice-president of Hayes Forest Services Ltd. and, I think, one of the larger independent contractors in the province. Mr. Hayes advises, in a copy to me of a letter that was directed to the MLA for Malahat-Juan de Fuca . . . . He notes at the outset that he has five small business sales that were awarded prior to the June 1 changes. He goes on to say:

"We have been an active participant in the SBFEP for the last eight years and have successfully completed 13 timber sales comprising a total volume of over 500,000 cubic metres. These timber sale licences have been both conventional and helilogging sales. We have been active in this program to augment employment opportunities to our employees and to maintain the level of work and business which our company performs.

"Our involvement in the SBFEP has been critical to our company's survival, as we have lost work in our traditional operating areas due to land use decisions -- Carmanah, Walbran Valley, Great Central Lake and Clayoquot -- and to native issues . . . . In the latter area, our operations and annual cut of 150,000 cubic metres was totally lost for a period of five years.

"Four years ago, we undertook a great challenge and risk and entered the helicopter logging field. Having invested our resources in training, aircraft and facilities, we are now very successfully operating two S61 Sikorsky helicopters. The timber sales which we currently hold are all helicopter logging sales and were bid to provide work to our helicopter logging program. In this extremely difficult economic period, this work is critical to our employees and to our company. If the stumpage is not reduced, we will be forced to lay off approximately 50 employees by September 30.

"As you are aware, poor markets and high stumpage rates have severely contracted the level of harvest in the province. The government's recent reduction of stumpage rates across the board was made in response to this problem in order to try and stimulate economic activity, employment and revenue to the Crown. We are requesting that this same reduction be extended to all licence holders, regardless of their type, including SBFEP competitive-bid timber sale licensees who chose fixed stumpage rates.

"It is imperative that the stumpage reduction be extended to all parties and that the economic playing field remain level. The actions of the government in reducing stumpage across the board has fundamentally changed the market and cost-structure for Crown timber. As this change in the market is caused by government intervention and policy, rather than market forces, it is only fair that stumpage relief be extended to all parties. If stumpage relief is not extended to SBFEP participants such as our company, they will be penalized and put at great disadvantage as a result. In our opinion, there is no compelling rationale to discriminate against small businesses in this way."

As I say, I do have other letters. I'm not going to enter them into the record. I think Mr. Hayes puts the case for relief to the fixed-rate small business licensees probably as effectively as anyone can -- and certainly more effectively, obviously, than I can. I think the point is an important one -- again, there's no persuasion here -- and it goes back to the point I made: we are altering the marketplace, effective June 1, to reduce the stumpage that's going to be paid to those folks on the variable system. It's going to stay the same for the fixed folks.

The gap is going to grow in the amount of stumpage that's going to be paid by those respective contractors, and it's going to make it that much more difficult for people like Mr. Hayes to follow through and keep people working on the small business sales that he won back in 1996. To me, that is an important point.

If I can't persuade the minister at this point that his ministry ought to review this situation and revisit some of the issues around it, I hope that in the weeks ahead, when

[ Page 8557 ]

undoubtedly he will be lobbied and persuaded by others, he'll give this issue a serious second look. I invite the minister's comments on Mr. Hayes's letter and my commentary after that.

Hon. D. Zirnhelt: I've seen Mr. Hayes's letter. We expected letters from people like that. I have a number of them. I have read them all, and I will be responding to them in due course.

G. Abbott: I regret that I've been unable to persuade the minister of my view on this. One of the options that the minister suggested might be a possibility here would be the extension of the harvest period, so that presumably, as markets hopefully reverse in the months and years ahead, a sale that might otherwise just be outright lost . . . . I hope the minister can concede that there are a number of uneconomic harvest possibilities there for some of the fixed-rate small business sales right now.

What do we mean by extending the harvest period? Is the ministry prepared to extend it until markets turn around or until some fixed period of time into the future?

Hon. D. Zirnhelt: It would not be more than one year at a time. We will observe the situation, monitor it, to see how it goes. We've done it before. Anything we do would have to be seen to be fair. In particular, it has to be fair to those people who also bid on it, who could equally make the argument that if that person hadn't taken the sale, they could have bid it at the price they paid. We have to have it be seen as fair.

G. Abbott: I think we'll move along to other aspects of the small business forest enterprise program at this point. In leaving it, I think we do have a problem out there, particularly on the coast, with a lot of unemployed loggers right now. If we can get them back to work without offending any code of fairness around how small business sales are conducted and so on, I hope we can do it. The contractors, the small business people, need a lot of help right now -- that's clear -- particularly on the coast.

The reduction that has been provided to the folks that have variable-rate small business sales is considerable; a $9.45 reduction is going to go a long way toward getting people back to work. Regrettably, that won't hold for those in the fixed-rate position. I guess we've made all the arguments around that, and we need to . . . .

Unless the minister has something further to say, in concluding that, I want to go back to a point we were at yesterday. I had requested some information around category 1 and category 2, etc. The minister didn't have the right staff here at the time to provide us with the detail I needed. Perhaps I will ask the minister if the right staff are here to proceed with that discussion now, and whether the minister had anything that he wanted to add in conclusion around the issue of stumpage relief to small business folks.

Hon. D. Zirnhelt: There was a question about where the million cubic metres transferred to bid proposals came from. What I would say, and get it on the record, is that it came from category 1 or 2 -- either category -- and in the "Any" category there were 110,000 cubic metres . . . . In category 1 alone there were 380,000 cubic metres; and in category 2, which is the small business with a sawmill, a bush mill, there were 340,000 cubic metres. There's a transfer of 170,000 into the small business forest enterprise program from other apportionments. So that totals a million; that's where the million came from.

G. Abbott: Could the minister advise, then, with the addition of the one million cubic metres that have come from category 1, category 2 and other categories, what will be the total cubic metres available in the bid proposal category?

Hon. D. Zirnhelt: It started out at three million, and it will end up at 4.4 million. So there's that one million and there's another 400,000 from TFLs. TFLs have to contribute a portion.

G. Abbott: Could the minister advise what portion will be contributed via the TFL route?

Hon. D. Zirnhelt: There are 940,000 cubic metres in the TFLs. There used to be 400,000 sold as bid proposals. There now will be 810,000 sold as bid proposals. The rest will be sold in other small business sales, category 1.

G. Abbott: I thank the minister for that explanation; it clears up that point.

The next question I had, which we were unable to answer last day, is: what remains of the category 1, category 2 and other category wood? What is the volume that is going to be left, in short, for sale as open market sales to whoever is the highest bidder?

J. Weisgerber: I request leave to make an introduction.

Leave granted.

J. Weisgerber: It's my real pleasure to introduce to the members a number of students from Little Prairie Elementary School in Chetwynd. They're grade 7 students. They're seated in the gallery behind me. They're accompanied by Mr. Brian Bradshaw, Ms. Filgate, Mr. Oliver and a number of other parent chaperons; Mr. Bradshaw's class comes every year. It's a real pleasure for me to see groups from Chetwynd. It's a further pleasure, inasmuch as Mr. Bradshaw taught both of my daughters when he was a teacher at Pouce Coupe, and I know that he is fondly remembered by them. Would all members please make the class particularly, and their teachers and parents, welcome to this House.

[3:30]

Hon. D. Zirnhelt: The answer to the question is that in category 1 . . . . In the Any category the bid proposals will be 4.3 million. In category 2, which is the small sawmills, it will be 600,000 cubic metres. The total of those two will be 4.9 million cubic metres that will be on the open market.

G. Abbott: The reduction to 600,000 cubic metres in the small mill category gives me some pause, at least initially. Obviously there were about a million cubic metres prior to the transfer out to the bid proposal category. Why would the minister not anticipate that possibly, in order to bump up the value-added sales or the bid proposal portion of timber available, that the 50 percent reduction in the amount going to the category 2 small mills will not pose problems to that group in the province.

[W. Hartley in the chair.]

Hon. D. Zirnhelt: The overall intent of government policy is to direct more fibre to the reman sector. What we have

[ Page 8558 ]

done here is that while that category has been reduced, they will be able to bid on the special bid proposal sales in which we have increased the amount. So they will qualify. They'll be able to sell their lumber to a remanner. You take some away, but you add some back. We've just shifted and targeted the direction, much as we have done with the bid proposal sales. We say that that can't go to primaries. It can go through primaries and can be logged by small business market loggers, but it has to end up in the remanners' hands.

G. Abbott: We've just spent a considerable amount of time talking about the marketplace and the government getting involved in the marketplace. Again, this is an example . . . . Perhaps it's for the best of intentions, and maybe it's entirely in the right direction, but there is obviously going to be some movement away for a portion of timber for more open-market sales. Is this something that would give rise to the Americans around their issues on sales reflecting real market conditions as opposed to the government altering the situation in the market? Is that at issue here?

Hon. D. Zirnhelt: I have to say that there's still competitive sales, so from that point of view, it's salutary. The Americans, don't forget, have limited the amount of primary sawn fibre that they'll accept. So we have no choice. If we want the industry to thrive and grow and find internal markets, we have to direct it to the reman sector -- but we expect that the bids will be very competitive.

G. Abbott: This is a big ministry that the minister is attempting to guide. We do run into these interesting situations where in some sectors it appears that it's okay for the government to intervene, and then we get into other instances where we want to let different factors rule. I guess we've run into this with respect to plywood earlier on, and we've run into it with respect to small business sales, which we more recently discussed.

This is an interesting one here, as well, where, again . . . . I'm not going to argue with the action here at this point, but I do think it should be noted that we are moving away from open market sales. I guess the government has concluded that it is necessary to do that at this point in time. It's presumably going to be a fairly cumbersome and difficult matter to administer, I would think -- to have a million cubic metres of wood that the government has said has to go here or has to go there.

I presume there is a tracking mechanism involved, and I guess the issue is whether there are particular factors at work here -- particular market forces or other forces at play here -- that require the government to do that. Why would the open market sales not work in a way . . . ? Particularly if those open market sales were larger, would they not work in a way where presumably the value-added producers might want to bid that wood alongside a licensee or whoever?

Does the government, in short, consider that this particular kind of intervention is going to be necessary in the long term, or is it a reflection of the relatively limited amount of wood that is sold on a market basis in British Columbia?

Hon. D. Zirnhelt: Well, there is a major size differential between the major licensees and the small business, particularly the remanners, so they don't have the purchasing power or the long-term licence and so on upon which to make investments. We're just trying to create a larger critical mass of remanufacture operators that, over time, hopefully will be able to have enough purchasing strength to purchase on their own. In the meantime, it was clear that it required a public policy intervention to steer more fibre in that direction.

G. Abbott: I should note, again for the record, that as opposition Forests critic I have received a considerable volume of correspondence around this issue. Just one example of it is a letter from the chair of the Boundary Small Business Timber Association. They take exception to the amount of wood that has been transferred from category 1, 2 and others into the bid proposal apportionment. I'll just briefly advise of what the reasons for that concern are. I quote here from a letter of May 3 to the minister, and these are on category 1, category 2 and category Any:

"The small business operators in these categories provide high-value jobs from which a family can actually be supported, in contrast to the lower-end wages that are paid in the remanufacturing sector. The Boundary Small Business Timber Association feels that the government commitment to transfer timber is merely a manipulation of numbers in order to achieve your government's promise of job creation. We also question if these bid proposals are providing newly-created jobs or are just another avenue for existing licensees to obtain a greater wood supply.

"The small business program in the Boundary district has been very successful in the past, with all sales being sold -- an unprecedented return on every dollar being invested by government. Therefore the Boundary Small Business Timber Association is unanimously opposed to any transfer of timber from category 1, category 2 or category any to the bid proposal apportionment."

I'll end the excerpt from their letter there.

So what we have, obviously, is a view among some contractors and so on in the province that this particular incursion, I guess we could call it, by the government into the marketplace is not appropriate. Obviously this is one group that feels more wood, rather than limited, should be available to the open sale. I don't know if the minister has any comments on that. If he does . . . . Apart from that, I'm ready to move along again to other small business issues.

Hon. D. Zirnhelt: We expect that the overall increase in the amount of market wood will mean that small loggers will continue to work. I mean, there's more wood going to be put on the marketplace. It won't be somebody, the remanner, setting up a logging show; we expect that it will go to the small business community. So while they might not be bidding on that wood, we expect this is going to be the same loggers who will then contract to log it.

G. Abbott: I'm not sure whether this is the right place to raise this question; this is a broader question. I think the minister made a comment along these lines yesterday, that what we need to create in British Columbia is a larger pool of market-driven log sales. My understanding is that this concept is moving along in the coast region fairly well and that there have been considerable discussions of that possibility -- that there appears to be even some disposition on the part of some licensees to see more wood sold on that basis. I don't know whether the same kind of discussions are going on in the interior.

Is it the view of the minister that in the longer term, the broader term, what we need is a larger pool of market-based log sales, both in the interior and on the coast, to overcome some of the American objections about our stumpage system, etc., and to provide a fairer and more accurate appraisal of the real value of wood in British Columbia -- in short, a B.C.-based stumpage system?

Hon. D. Zirnhelt: Our B.C.-based stumpage system is what we say . . . . It's a combination of the Vancouver log market, other small log markets that are developing and the

[ Page 8559 ]

calculated, determined stumpage system. There is no doubt that the Americans are going to ask for moving toward that direction. That's one of the reasons why we have incorporated pulp into the index. So I guess we have to say that we should reflect the market as best we can. It's a little crude now in that we have such a lag, so there are other ways of making it more market-sensitive.

We have talked to industry about a number of ways of doing that, either through a transaction-based system . . . . There are a number of options, but there is no consensus yet in British Columbia. It is my view that we have to be cognizant of the arguments that are going to be made next time we negotiate a softwood lumber agreement. That's three years away. We'll have to come up with a system within British Columbia that's made in B.C. -- and we're happy defending with the International Trade rules -- and make sure that that system is suited to our needs. But we do have to consider in the process B.C.'s need for community stability.

G. Abbott: I'm happy to concur with the minister's written suggestion that we take a brief break for refreshment.

The committee recessed from 3:43 p.m. to 3:47 p.m.

[W. Hartley in the chair.]

G. Abbott: The other item left over from yesterday and related to small business is the addition of the Small Business 2000 program. I had a question about whether Small Business 2000 was a restructuring of the small business forest enterprise program or if it was sort of a side program in relation to the broader program involving the allocation of additional wood to value-added producers. The minister said that he would advise of that today, and I look forward to hearing that now.

Hon. D. Zirnhelt: What I didn't have at my fingertips were all the details. Small Business 2000 is a redefinition of the delivery strategy and program outputs for the small business enterprise program over the next three years. It's a comprehensive plan, which implements five commitments affecting remanufacturers, agreed to under the jobs and timber accord. The accord called for a significant increase in the amount of wood to be made available to the remanufacturing sector, leading to an expanded production of value-added goods and increased employment.

Specifically, it does it this way. There are a number of initiatives: firstly, the increase of one million cubic metres of harvesting rights in the bid proposal system -- we spoke about that earlier; the sale of most of the small business apportionment within tree farm licences as bid proposals, and we spoke briefly about that, and I gave you those figures; the sale of all volumes available each year -- in other words, to make extra efforts to get the volumes sold; the sale of the accumulated volumes which have gone unsold -- that's the small business undercut.

Since the beginning of the small business program in 1988, there has been an accumulated undersold volume. In addition, we have made it possible for the shake-and-shingle people to bid on some 250,000 cubic metres. They were considered as primary breakdown before. They are now considered to qualify on this amount of the sales -- not on everything but on the 250,000 cubic metres. Those are the elements.

G. Abbott: Thank you to the minister for the brief outline of the changes that are incorporated in Small Business 2000.

The question I have around the reorganization of this portion of the small business forest enterprise program into Small Business 2000 is whether the difficulties, the problems, the shortcomings, that have been inherent in the SBFEP up to this point will be overcome by, I guess, among other things, a name change. I know that there is a slightly larger complement of staff in the Ministry of Forests to deal with the forest enterprise program in the coming fiscal year than there was in the previous one.

But I'm not sure whether the name change and the slightly larger staff complement will overcome what have been fairly chronic difficulties within the program in successfully achieving the goals that have been set by government.

Among the inherent problems with respect to the small business programs is, typically, an undercut across the province on an annual basis. My understanding is -- at least as of February of 1997 -- that we are looking at an accumulated unsold volume of somewhere around eight million cubic metres; presumably that's a little bit larger now. I expect the undercut in small business sales was considerable in 1997, as well, so I expect we've probably got somewhere around nine million cubic metres in undercut at this point that could potentially be moved by the new Small Business 2000 program.

While I admire the ambitious objective of trying to move those nine million cubic metres into the marketplace in the near future, I suspect that perhaps the ministry is overreaching with that particular objective -- but I guess we'll see.

So that's one of the big problems: the annual undercut. The first question is: what's different about Small Business 2000 from the small business forest enterprise program that is going to see us not only cut the volume that is set by the ministry as an annual objective but also deal with that accumulated undercut of -- and the minister can correct me if I'm wrong -- some nine million cubic metres over time?

Hon. D. Zirnhelt: We've undertaken to sell 2.1 million cubic metres of that undersold . . . . So while there's been an accumulated undercut, it has been redistributed back through the timber supply review to cushion other impacts. You know, some timber supply areas have had overcut situations, and they're on their way down. This has contributed to wood for future in an unbroken stream. Some of it's been taken back into the general wood supply for all licencees.

We offered last year 9.3 million cubic metres, and 8.5 million was taken up. So there is a shortfall, that was the market. But the performance of the small business enterprise program has been improving every year over the last two years, and we will advertise it all. We're not sure that it's going to be bought, but we will endeavour to get it sold if there's a market for it. The only thing that might change things is if there's a continued poor market and there aren't sales for it. But we will get it sold -- that's our commitment, to offer it for sale -- and we're confident we can.

G. Abbott: There's an interesting question that arises from the first portion of the minister's answer, that perhaps 2.1 million cubic metres of the undercut accumulated in the small business program could be put back into the TSR to offset what everyone knows is going to be a continuing dilemma around fibre volumes, particularly in the coast region. Is the 2.1 million cubic metres in the coast region where it could be reincorporated into the TSR as one way to offset the fibre shortage difficulty, which we know is coming in the southern coast region?

Hon. D. Zirnhelt: Of the 2.1 million cubic metres of the undercut that we're going to sell . . . . We're not going to try to sell all the undercut that's accumulated since way back in

[ Page 8560 ]

1982. That nine million cubic metres of total undercut that you were talking about doesn't exist in some places, because it's gone through the timber supply review. But we have identified the 2.1 million cubic metres that will be sold. So there's 2.1 million cubic metres of undercut that will be sold. Of that, 740,000 cubic metres are from the coast region.

G. Abbott: The notion, then, is not . . . . This was a concern expressed to me, and I'm not going to get preoccupied with it, because I think the question's been answered. There was never any notion on the part of Small Business 2000 that they would attempt to inject into the marketplace, in short order, eight or nine million cubic metres of additional wood. We are going to see a gradual reincorporation of that. I gather from the minister that some of it has already been reincorporated in TSRs around the province.

We're going to see, in the short term, 2.1 million cubic metres coming back into the system, but we're not trying to throw so much of it back in that it's going to affect the marketplace significantly. Is that a fair

summary of what's been said?

Hon. D. Zirnhelt: Yes, it's over three years. We sold some of it last year; this year we anticipate it to be 800,000 cubic metres, and then there's another two years running. So it will be over the years. We didn't want to put so much on there that it would depress the market too much. That's what we think is manageable.

G. Abbott: One of the rumours circulating with respect to Small Business 2000, prior to its announcement, was that it would be set up as tantamount to a Crown corporation, perhaps at arm's length from the Ministry of Forests. I gather that that is not part of the new program -- that this is simply another program in Small Business. So there are no issues around accrual of silviculture responsibilities or anything along that line. Is that correct?

Hon. D. Zirnhelt: We do have in the act and in the program policy structure . . . . The small business forest enterprise program, for example, still exists. Small Business 2000 is a strategy, a way of delivering extra wood, of getting these new targets in place. So there are elements of that that total up to more wood for the reman sector, basically. That's what it is. There are still other elements to the small business forest enterprise program.

There was consideration of a separate agency, but upon examination, and looking at the record of the small business program, it was determined that we could deliver the wood on a timely basis. We've made some changes to the act to allow us to sell a little bit larger and longer-term sales, sales for which the larger of the small business enterprise participants could actually do the engineering and planning, so that it would also help to get the wood on the market faster.

G. Abbott: Another area where the small business forest enterprise program has fallen short of the expectations of government has been in the annual revenues delivered to government from the program. In some cases the expense side has exceeded what was anticipated. In some cases the revenues were lower than forecast, and on several occasions, at least, the fact that anticipated volume for sale went unsold confounded the expectations of the Ministry of Forests prognosticators as to the performance of the small business forest enterprise program.

[4:00]

Could the minister advise me briefly of the performance level of the small business program in recent years from a fiscal perspective? The second part of the question is: is there anything in the mandate or approach or strategy of Small Business 2000 that will lead to improved fiscal performance in terms of revenue and expense projections by the government?

Hon. D. Zirnhelt: There is a lot of uncertainty out there in the marketplace. The director of the revenue branch says it's difficult to forecast, but the record in forecasting in the last couple of years has been remarkably close. We're very close on our expenditure side, and we've seen improved performance on the revenue side. I can get those figures for you, and they'll be available a little later. I'd just say that we're close, and I don't think the shortfall has been significant.

G. Abbott: The performance, at least in some years, has been as much as 30 percent, which seems to me to be very significant. In some cases, obviously, there's a market factor involved. But the question I had was whether Small Business 2000 is going to be doing things in a different way or adopting a different strategy or somehow . . . . Regardless of whether the name of the program is Small Business 2000 or SBFEP, the program has to contend with a bunch of forces which sometimes conspire to leave the program short of expectations. What, if anything, can be done in Small Business 2000 to improve -- at least theoretically -- the fiscal performance of Small Business?

Hon. D. Zirnhelt: We are confident that we can deliver the wood as promised under Small Business 2000. We're confident, given our record last year and the plans we have this year, that we'll do it. We have introduced two new tenures -- the non-replaceable forest licence and the timber sale licence with cutting permits -- as two new methods of getting the wood out and under licence and allowing people to work on it. I mentioned that earlier. We have additional funding for the program of $5 million to get the wood out. We've made it a higher priority and emphasis within the ministry.

We've organized within the ministry and reallocated staff so that we now have separate groups in the district offices that specialize in the business of getting the wood out. We've gone through an evolution that makes for a much more efficient organization. That was done independently of the 2000 initiative, which targeted wood to the remanners. I think the combination of efforts we've made should see the delivery of what we intend to deliver.

G. Abbott: Has there been a reorganization of the staffing or staffing model within the small business forest enterprise program to enhance accountability of senior staff related to that particular function? Perhaps the minister can outline whether, in order to achieve the objectives around enhanced sales and enhanced fiscal performance, there has been any change in terms of the deployment of staff in order to achieve those objectives as well.

Hon. D. Zirnhelt: In discussing how to organize better to deliver what we knew to be the new policy thrusts, we created stand-alone units so that staff were pulled together into a unit to work more efficiently.

I just want to respond with respect to the forecast for the small business program. The forecast for '97-98 was $298 million; that was the revised forecast. The actual estimate for that year . . . . The first estimate was $300 million, so we came

[ Page 8561 ]

in within $2 million. That was a revised forecast. But actually, we may come in -- and this is the unaudited actual -- close to $313 million when the audit is finally done. We forecast at $300 million and have come in at $313 million. That was last year. We feel we're getting close now, but of course, with markets like this, we'll stick to our forecast for now. The Minister of Finance may choose to change those as we go through the year. But our performance has been good, knowing what we know about the market.

G. Abbott: That's good. I hope that the program is highly successful. I think that the tenures associated with small business licences are an important element in our forest industry in British Columbia. I hope that more and other diverse tenures can be developed through this program and others, and I hope that it's highly successful. I hope that every year hence it eclipses expectations. That's good if we eclipsed expectations in the last year. I don't think we need to argue about the point that in the past, the goals have not been achieved as effectively as that.

Hopefully, it is being reorganized in a way that will see continued and greater success for the small business program in the future, whether it's called Small Business 2000 or any other description.

The last question I have on this is . . . . The minister made reference to the shake and shingle industry being offered 250,000 cubic metres, I believe, as potential sales to them under small business. Is it the minister's understanding that that 250,000 cubic metres is essentially a starting point to alter the small business program in a way that will get those folks involved? Or is that a realistic estimate of what's needed, and will it suffice to make the shake and shingle sector happy in the months and years to come?

Hon. D. Zirnhelt: This is a number that we arrived at in some negotiations with the various aspects of the sector. We're going to try that number and see how it goes. We're not prepared to open up everything to the shake and shingle sector; we're prepared to open up some. It's not without its controversy. The remanufacturing sector has a different view. But we're trying it. This is a new category, and the shake and shingle people are pleased. This will help them. One of the reasons we did it is that there is a bit of a shortage of cedar, particularly when the cedar price is high.

So they are having trouble maintaining their operation, but this will help. It isn't everything; it isn't their only source of fibre.

G. Abbott: That will be an interesting and ongoing dilemma: how to distribute the available volume of cedar around the province. Of course, there are several different groups with rather different views about the best disposition of the available cedar. So it is an interesting issue that the ministry is going to have to wrestle with in the years ahead.

Unless any of my colleagues have questions about the small business forest enterprise program or Small Business 2000, I think we can probably move along. I believe that my colleague the deputy critic for Forests has some questions for the minister around the shake and shingle industry specifically.

R. Coleman: I'm glad to have the opportunity to ask the minister some questions this afternoon relative to the shake and shingle industry and to enter the debate relative to the Forests estimates. I spent the last day and a half dealing with leaky condos, so this could be somewhat refreshing -- unless the shakes leak, and then maybe we have a problem there.

[T. Stevenson in the chair.]

First of all, I would just like to sort of profile this industry a little bit. I don't think that everybody understands what the shake and shingle industry's impact is and what it really is to the British Columbia economy and to the forest industry. This industry exports $210 million a year. About 97 percent of that is going into the U.S. market, which is a very strong market for this particular industry, and the Pacific Rim is growing at a rate of about 13 percent. Most of the mills are located in the Fraser Valley, and there are 105 mills in the Shake and Shingle Association.

Those are small, non-integrated and family-operated mills. They can be operations with from ten employees to 80 to 100 employees, depending on the size of the operation.

What they do contribute is about 3,500 direct jobs and 500 jobs in the salvage and transportation area. Interestingly enough, the industry basically produces 2.5 jobs for every 1,000 square metres of fibre. Obviously everybody knows -- most people should know -- that the material used is western red cedar. One of the difficulties of this industry is the security of fibre, because it's really determined by other markets. It's determined by what's going on in the industry and their access to fibre. The only market for salvage when a log is below lumber grade, other than wood chips, is what this industry provides.

I found it interesting, when I looked at this industry, that it actually creates seven times value-added into this industry, but it does not seem to be recognized as a value-added industry. So my first question to the minister would be: why isn't the shake and shingle industry recognized as a value-added industry?

Hon. D. Zirnhelt: It is, for the first time. We recognize it as a value-added industry.

R. Coleman: Is that relative to the 6 percent that you were referring to earlier, with the 250,000 cubic metres? Or do you recognize it as an entire value-added industry relative to its access to fibre?

Hon. D. Zirnhelt: As a category of value-added, it has access to the 250,000 cubic metres; that's right.

R. Coleman: I take it that would be the 6 percent under the enhanced eligibility sales for this particular industry.

I just want to refer to a couple of comments relative to that from the industry itself and ask the minister a couple of questions. The industry was promised that it would be allowed to bid on 250,000 cubic metres of value-added timber sales per year. We're calling these enhanced eligibility sales. Because shake and shingle would only be given access to less than 6 percent of the 1998 small business timber, they've requested that the provincial template for waiting for enhanced eligibility category sales be modified to reflect the unique contributions of their industry's sector to the province's forest economy.

Would the minister tell me whether that has been taken into consideration -- to tailor the waiting of this industry for their eligibility to access the 250,000 cubic metres?

Hon. D. Zirnhelt: Because it's a major departure, we're going to take half of the 250,000 and make it available under that modified template. The other 250,000 would be the provincial template.

R. Coleman: Could the minister expand on the reasoning for that decision to take half and leave the other half under the provincial template?

[ Page 8562 ]

Hon. D. Zirnhelt: First of all, the shake and shingle people took the position that all they wanted was access to some wood that they didn't have access to before, and we said okay. Later they came back and said they wanted the point system devised to favour them.

R. Coleman: I don't anticipate that the minister was surprised that they'd come back and try to gain additional advantages. The question is: is this enough fibre for the industry? How much more fibre do they need? Where are they going to get it without shutting down their mills? I just wonder what the ministry's take is on how much fibre this industry really needs to function relative to the 3,500 jobs that are at stake.

[4:15]

Hon. D. Zirnhelt: Everyone's after it. There are a lot of other jobs that are dependent on cedar, and they'll argue for their industry while other people are arguing for theirs. I said that I was persuaded by the employment factor that they had, so we're prepared to open up the door a bit. I think at this point that we'll need to try this, have a look at what happens, pause, and be grateful that we've made some changes in this direction.

R. Coleman: One of the statements made to me by the industry, basically, was that if the shake and shingle industry has access to bid openly on all 4.3 million cubic metres of the small business wood, they would gladly compete. Having had access to 6 percent of the wood under the enhanced eligibility sales, shake and shingle should be given, by virtue of job content, a more even chance of getting the wood. So what they're saying is that they'd gladly compete for the 4.3, but since we've got the 250,000, they'd like to get some weighting put to their advantage.

Could the minister explain to me why we didn't just have them bid openly for the 4.3 million cubic metres, rather than getting into 6 percent access and then splitting off the weighting between the ministry and the industry?

Hon. D. Zirnhelt: We undertook some negotiations with the various parties, and that's what we resolved. They're choosing to make an appeal indirectly through you, and I'm saying: "You went in the process; you cut a deal; stick with the deal."

I would just tell you that shakes are boards. You split the stump once. There may be two hacks at it, and you get a shake. You make the bolt, and then you . . . . So it's a board. If they want to add value to it, take the shakes and make them part of panels or something else, then they can qualify for the whole 4.3 million. That they're neither fish nor fowl, I guess, is their argument. They have traditionally been treated as a primary breakdown, and I was persuaded by their argument. But we're not going to give them the whole access to the red cedar market at this point. There are other takers and other people who have jobs that are dependent on it as well.

R. Coleman: I've been in a couple of shake and shingle mills. I actually used to lay them as a roofer a long time ago -- back in memory, when I was very, very young. The question is . . . . I'm not actually renegotiating through the minister during estimates; I'm just trying to determine the reasons for some of these things happening. The industry brings these to your attention in spite of the fact that they may have made a deal, but that doesn't mean that everybody is always satisfied, of course. So obviously I come and ask the question.

There's another access to fibre for this particular area of the industry, and that's salvage. It seems to be a bit like the bottom of the food chain. But I understand, according to this industry, that salvage has been treated as harvesting, the same as a clearcut. Salvage goes against the tenure holder's allowable cut. Tenure holders are responsible, under the code, for the actions of their own salvagers. There are a couple of questions there that I would like to explore with the minister.

If the salvage goes against the tenure holder under their FTA, are they having a tendency to leave fibre that's salvage in the forest and not take it out because it goes against their cut? Are we missing an opportunity relative to getting something else out of the forest that could go into shake and shingle mills?

Hon. D. Zirnhelt: It varies a bit across the province, but some of the material doesn't go against the cut, particularly in the interior. On the coast it may well do. Both the ministry and the industry are taking salvage out all the time. I think it's a continuing to and fro about who can take it out most economically. The whole reason why we have a provision to charge it against the cut is that it is fibre; it is merchantable fibre; it has value. The licensee usually has the first rights over that area. We want them to take as much of the salvage wood out as they can. But to the extent that it provides an opportunity for salvage operators, we try to facilitate that as well.

R. Coleman: If the salvage is of a lower value than timber within the cut, and it goes against their cut, I think the tendency would be, in some cases, to leave the salvage in the forest and cut more timber for other uses. I'm just wondering if the minister could tell me what analysis has been done relative to where we have salvage going against the tenure holders' allowable cut. What analysis do we have as to the amount of salvage we're taking or leaving in the forest in those circumstances versus when it doesn't go against the allowable cut?

Hon. D. Zirnhelt: The rule is that if it's usable, then it's waste-assessed, and it'll be charged in one way against the licensee if it's left behind. If it's below the utilization standard, if the regulations don't require that it gets taken out, then we try to find some way to make that available through the salvage program. We're going to put more resources into the salvage program so that we can actually get at some of this stuff. If it's below utilization standards, it isn't charged against the cut.

R. Coleman: The process that determines whether the fibre that is left behind is usable fibre that should be taken against the cut would be, I take it, through the Ministry of Forests. I'm just wondering how far behind or how up to date you are on analysis of these types of cuts, as far as knowing what's not being cut and what's not being taken.

Hon. D. Zirnhelt: Within the year, sort of, it's assessed. Before they burn, if that's the prescription for the area, we have to do the waste assessment. So it is current. There may be a slight time lag, but the waste assessments are current.

R. Coleman: That waste assessment is done by your officials?

Hon. D. Zirnhelt: Yes. The major licensees do their own, and we do verification audits. It's done by contractors for the small business program.

R. Coleman: I'm also led to understand that the tenure holders are responsible under the code for the action of sal-

[ Page 8563 ]

vagers. I'm wondering if that is the action of salvagers after they've finished with the property and they've left some fibre in the forest, or whether that's during . . . . I'm trying to understand for how long the actions of salvagers are the responsibility of the tenure holder on a particular TFL.

Hon. D. Zirnhelt: The legal obligations under the code are for the activities on that sale, so the licence holder holds the obligation. So they are reluctant to let in someone who might have some effect on their obligations. We realize it's a problem. We're trying to find some way to work around it, but there's no easy solution. You can't hold two people responsible for the same piece of land at the same time. But we are trying to finesse how salvagers can get access to salvageable material.

R. Coleman: With regards to salvagers, as part of that review or discussion for salvagers to get this fibre out of the forest, has there been any discussion relative to the bonding of salvagers, so that if they go into an area when the licence is in place to take out the fibre that may have been identified as low grade and that can go to a shake and shingle mill . . . ? Has there been any thought to trying to get a handle on the bonding and the management of salvagers, so that we can encourage more salvage to be taken?

Hon. D. Zirnhelt: Since the licensee holds the primary responsibility for the area, we're trying to encourage them to partner up with people in the salvage business. Then there can be a business relationship of a bonding nature, if necessary, between the licensee and the salvager. If the government gets involved, then it's another sale to be issued and another process and another bonding and so on. So the simplest way is to let the two parties operating on the landscape work it out between them.

It will remain for government not to be an impediment to that, but we are going to hold the primary licensee responsible for activities. We've tried to create incentives for them to do that, and we're continually examining how it's working and trying to make improvements there.

R. Coleman: I guess it would be safe to say that the ministry has identified the problem and is working on it and trying to come up with better ways of dealing with salvage in the forest. Would that be a fair assessment of our discussion at this point?

Hon. D. Zirnhelt: Yes, that's a fair assessment.

R. Coleman: One of the points that was brought to me when I met with the shake and shingle industry was that the application of stumpage fees and costs applied to different sizes of logs -- between a shingle, which is 18 inches, and a shake, which is 24-inch quality -- is actually an impediment to taking shingle wood out of the forest. It obviously hasn't got the same value added to it that a shake does. One of the positions of the industry was that the salvage fees need to differentiate between those two sizes: the shingle size and the shake size. Has there been any discussion in the ministry relative to that differentiation?

[4:30]

Hon. D. Zirnhelt: The difference appears to be that shingle bolts -- the shorter ones -- are worth about $300, and the longer ones are worth $1,000. If they're bidding on it, they have to take into account what's recoverable and what the end product is. But if we were to charge a different stumpage, I don't know how that would work, quite frankly.

I'm not sure what the problem is. It seems to me that on a short log, you could make whatever size is the best size; you'd be trying to make the longest one possible. I don't know that there's a big problem there. I mean, it's not something that they've brought to my attention.

R. Coleman: That's interesting, because they brought it to mine, and that's why I brought it up to the minister. But at the same time, not knowing the economies of scale of the 18-inch versus the 24-inch . . . . It was a question that I wondered if the ministry had had brought to its attention and had discussed. Obviously I don't run a shake and shingle mill. It was just a question of the salvage fee differentiating between the two sizes: the 18-inch and 24-inch. I think it refers not to stumpage but to the salvage fee.

The salvager prefers to take out the 24-inch, because there's a better return to the salvager, and leave the 18-inch in the forest. Is there any thought, therefore, to creating an incentive to take out the 18-inch on the salvage side?

Hon. D. Zirnhelt: Given the relative values of $300 and $1,000, the stumpage is a flat rate of $5.20 for both of them, so it's not a big part of their costs. They can optimize for the market based on what they get. The base rate is still pretty low.

R. Coleman: I'll just take those comments back to the industry, because obviously what they're looking for, or their explanation . . . . It may be best to crystallize it back to the minister in more detail.

There were some general comments, and I just would like to get the minister's comment on them on the record, obviously, for the industry is one of the areas -- of many, I guess -- in forestry that we walk through. But one of them was basically that stumpage is too high. Sales are being awarded, which are uneconomic, to develop shake and shingle mills that are not directly affected by the U.S.-imposed quota. Therefore stumpage rates could be adjusted for this sector. I'm sure that every sector wants their stumpage rates adjusted; all sectors would probably like to see none whatsoever.

Has the ministry had any discussion relative to the stumpage as it affects this particular industry? Or is it just the industry again looking for a stumpage reduction?

Hon. D. Zirnhelt: The $5.20 rate for cedar is a very low rate, and it's low to encourage salvaging, actually. But no, we haven't undertaken product-specific stumpage discussions with the producers of those products. They compete in the market for some of the other wood that also goes into cedar products, some of which is shipped to the United States.

That raises the whole issue of fungibility, and we have to be aware of that. We did, in discussions with licensees, talk about destination-specific . . . . Stumpage is based on the destination of the product. But that's a more complicated, more complex and more costly stumpage determination system. Industry as a whole has rejected that at this point in time.

R. Coleman: One of the other issues just brought to me, as I noticed in my notes relative to salvage and the Forest Practices Code, was how quickly deactivation took place in the new river and stream setback requirement -- but particularly the deactivation to get access to the salvage, and the timing for the deactivation. The industry seemed to feel that as we deactivated we were actually taking away access to fibre supply. I know this is an issue elsewhere, relative to access to timber, silviculture, thinning and what have you for the future

[ Page 8564 ]

of the industry. I'm wondering what the minister's comments are relative to the deactivation and the timing of it relative to reforestation and, obviously, access to salvage and that sort of thing.

Hon. D. Zirnhelt: Deactivation is now being done, as much as possible, before the road is constructed. The problem is that if you leave the road open, waiting for a number of activities that lag well behind the harvesting operation, you've got the issue of liability. If deactivation should have taken place to stop a washout, and there's a washout, who then is liable for it? So there are some very serious practical problems associated with this. We're trying to address it, for example, by leaving the roads open longer on the flat, where there isn't the same risk. I've been in conversations with forest management people and salvors, and I think there is a resolution often -- but not always.

R. Coleman: When I was going through some notes relative to the industry in the Fraser Valley -- and this isn't from the industry -- there was a comment made . . . . I haven't been able to get hold of anybody in the industry to ask them what the status of this is. This is actually quite old, so this could have already happened. This note is dated November 28, 1996. But it brought a question to my mind because of one of the requests.

It was basically that the industry needed the Forests minister to champion a proposal for a Fraser Valley wood residue power conversion plant. I take it that it's with regards to hog fuel or whatever. It said, basically, that the outline was to save industry jobs, support a new Forest Practices Code, help clean up the environment, help small business, lessen the need for hydro projects and new transmission lines and invest in their own region.

I'm just wondering: seeing as it was 1996, has there been any discussion or did anything ever happen with that movement towards some sort of power conversion for the hog fuel, I guess it would be, in the Fraser Valley?

R. Thorpe: I seek leave of the House to make an introduction.

Leave granted.

R. Thorpe: It's with great pleasure that I introduce to the House 27 grade 6 and 7 students from Wiltse Elementary School in Penticton. They're accompanied today by their teachers, Glenn Rebuka and Clare Ingles, and parents Jim Mottishaw, Sandy Ewanchuk and Marianne Frank. Would the House please make them feel very welcome.

Hon. D. Zirnhelt: I can't say that I am familiar with it. It's common around the province, but I really can't . . . . I'll endeavour to get information and pass it on to you. It probably went to the Minister of Environment and the Minister of Employment and Investment, but I'll try to dig that up for you.

R. Coleman: It would appear, actually, that these are talking notes from a meeting with the minister in November of 1996. I'd be happy to give him a copy of this so that he doesn't have to go chasing his tail. It dealt with five requests, and the five requests include the inclusion in 16.1 sales, which has obviously affected the value-added credits program. The note here is that that's been dropped, and the new focus is a jobs-for-timber program. Then there's a request for consultation and a request for easier access to salvageable wood, and then the wood residue power conversion plant was on there.

That's why it got to my attention, and I wanted to bring it to the minister's attention. I'll get him a copy of that so that he can maybe follow up on those notes.

I just want to go back to . . . . In between, I was looking for the explanation that I had written down relative to the salvage issue on the 18-inch and 24-inch . . . . The explanation was this: "Fibre that is suitable for making shingles is being left in the forest, wasted because there is no adjustment fee to account for the lower shingle recovery. The recovery of squares, shakes or shingles from shingle wood is approximately one-half of the average recovery from shake blocks.

All fees, stumpage and royalties should reflect this difference." That was the note that I got from a meeting with them, and it would be the explanation that I have relative to that. Maybe the minister could comment on that, now that I've been able to give him the explanation.

Hon. D. Zirnhelt: Well, there may be more to it than we understand, so I would encourage the member to get that organization to supply us with the details. I'm sitting here thinking about 18 inches versus 24 inches, and we're charging the same amount, and people can make the best product out of it. Let them make that decision; we're charging so little that we don't think it makes much difference, but there are big conversion differences. If some cedar stands come in shorter lengths, and they can only be converted to shingles, and that's worth one-third of what the others are, maybe we should be charging less.

It's just the problem . . . . My director of revenue, who does all this black-box stuff with the stumpage system, doesn't know the problem, so please provide me with some details.

R. Coleman: I can understand that, because I've read reams of stuff on the stumpage system, and I don't know if anybody has ever quite figured it out. It seems pretty complicated to me.

There are three other points relative to salvage that I just want to make on behalf of the industry. This goes back to some of my earlier comments. One is: "The liability for violation of regulations must be the responsibility of the salvager, not the licensee." This is a statement made by this particular industry. The background to it is: "The licensee should not be expected to police small-scale salvage operations. The Forest Service should take on the responsibility and can protect the public through a bonding program.

Fines and penalties should be commensurate with the impact that small-scale salvage operations would have on forest resources." That's the background to my earlier question. I don't think you need to re-answer.

The second point goes back to being part of the allowable cut. The statement that was made to me is: "Salvage volumes should not be part of a licensee's allowable cut." Basically, the note that I have made, which is very supportive, says: "The licensee should not be punished for supporting cedar salvage operations. Salvaged volumes should not decrease a licensee's annual allowable harvest of prime or standing timber. Salvage should be additional to approved harvest levels, a bonus and incentive to support small-scale salvage." I'd just like to see what the minister's comments are on that particular piece of philosophy.

Hon. D. Zirnhelt: I take the point. But if we didn't charge an AAC against it, then there would be no incentive for the primary licensee to harvest it. We're now talking about split-

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ting the AAC into salvage and other. That's a big departure; it's very complicated, and I'm not sure if in the end it will result in more wood being made available. You still have to license the same land base twice. We're trying to avoid that and make it simpler. But we do have amendments to the legislation to allow a simplified forest development plan and, therefore, logging plans for salvagers. As we develop new tenure-type arrangements, new permitting arrangements, I think it will be easier for the log salvagers.

We intend to put more people in the small business program to deal with the salvage program, and I think it will ease the administrative burden, so that we can get the logs to those people who do create an awful lot of jobs.

R. Coleman: Obviously I'm not putting these forward as a position statement on one way or the other. It's just that when I met with the industry, these were issues that came to me, and I wanted to make the minister aware of them.

Back to the activation side. Basically, I'll give you the reasoning for the deactivation question and that was: "The new deactivation regulations are preventing salvagers' access to old non-active cutblocks. The value of the salvage cannot justify the cost of rebuilding the roads. If roads and bridges are removed, salvaging cannot take place. The solution to this industry is to require the completion of the salvaging plan before deactivation takes place." I would assume that that's in place now; that we have a salvaging plan as part of the plan before we deactivate it. I just want to be sure that that's the case.

Hon. D. Zirnhelt: That will be done this year for the small business program. It is also moving into the forest development planning of the major licensees.

R. Coleman: Obviously, given the meetings we had in the last couple of days with one of the major licensees, a lot of things are about to change in this industry as to how they do business. So it's going to be interesting times ahead.

One of the other issues relative to salvage was basically that . . . . I don't understand this, and maybe the ministry can explain it to me. The statement made to me was that old maps are not accepted for new salvage awards in old cutblocks. I wonder if you could just explain that to me.

Hon. D. Zirnhelt: Under the code, the map authorizes where you can harvest. The problem with salvage is that you're not given the permit for the whole of the block, because it may well be severely restricted to certain areas of that block. There has to be a specific map attached. It would seem to me that it's fairly simple to take the old map and put something in a line and submit it as a new map. But I don't know if it's more complicated than that.

R. Coleman: Before the minister creates policy on what the definition of a new map is and I go running off to the industry, maybe he'd like to check and see whether, if we put lines on an old map, we're going to call it a new map, so that this industry doesn't get confused after today's debates. Maybe you can just check and find . . . .

Hon. D. Zirnhelt: Yeah, the advice I have is that if it's possible to do it and be accurate enough for the purposes of holding the parties responsible as to where they're licensed to harvest, we do it. Beyond that, I can't comment on the adequacy. I take your point. It's an issue they've flagged with you, so there must be a problem beneath it somewhere.

R. Coleman: Just one last question on the salvage side. The industry had written and been in contact with the deputy minister relative to some of these issues, and they had asked for a salvage program contact person to basically deal with some of these issues. I'm wondering if that person was ever appointed or selected or identified to the industry.

[4:45]

Hon. D. Zirnhelt: There is a small business forester whose name is Jim David. He starts June 15, and he is the contact person.

R. Coleman: Just to go back for a minute to the electric-power generation project in the Fraser Valley, the industry wrote to the minister on this on October 15, 1996. Attached to it was an outline on wood waste in the Fraser Valley which gave an introduction to the problem, basically relative to the phasing out of the beehive burners. It outlined some of the background, which is basically that there are an estimated 350,000 gravity-packed units -- GPUs -- of wood waste residue being produced annually in the mills located in the Fraser Valley, from the Port Mann Bridge to Chilliwack.

They say that companies haven't ignored this issue, but there's no obvious solution to incineration that would leave a viable industry.

It went into a discussion about Fraser Valley power, the competitive power, and why support for wood-residue energy would take place. They identified a couple of things as being the reasons for that: the new Forest Practices Code, the beehive burners, cleaner waterways, clean air, reduction of greenhouse gas emissions, reduction of the need for transmission lines, etc. -- and also some revenues to government. I know that the minister gets tons of correspondence, and maybe, relative to the other document I mentioned earlier, I'll just give you a copy of this and then you can have . . . .

It was sent to you in October 1996. Maybe you could revisit the issue with the industry; that would be helpful to them, I'm sure.

I have a letter that deals with a tendering situation on shake and shingle, and I'd like to ask a couple of questions on it. I'll just read some of the letter to the minister and ask for a response. This is dated May 7, 1998.

"The Ministry of Forests tendered its first 'Enhanced Eligibility' or shake and shingle small business timber sale -- timber licence A58253. The tender was structured in such a way as to make it impractical, in fact almost impossible, for a small shake or shingle mill to bid on. First, the tender allowed only four weeks to make a proposal -- a short time for a brand-new category to be assessed. Second, the tender did not mention that shake and shingle mills were eligible to bid. Third, the Shake and Shingle Association was not informed of the tender, and therefore we were not able to inform our members.

Fourth, ministry staff were unable to confirm that all production after the blocks have been produced would be calculated as value-added. Fifth, the weighting was modified in such a manner that it discouraged instead of encouraged shake and shingle sector bids. And sixth, the size, upset cost and revenue threshold of the sale made it economically prohibitive."

The statement in this letter is that not one bid on the tender was received by the ministry. It goes on to state:

"I restate our position that today, more than ever before, the shake and shingle industry needs access to wood it can economically harvest. As other wood industry sectors curtail operations, our sector's ability to stabilize employment in the forest industry cannot be ignored."

It basically touches on the fact that they need to modernize, bid and build. I wonder if the ministry staff could comment on this particular tender relative to this letter that I've received. Given the six points, it gives me some concern as far as the tendering process and their access to fibre under this program.

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Hon. D. Zirnhelt: It's a new process, and it's set up in response to some of their concerns, so we're going beyond where we had originally undertaken to go with this sector. We have responded to that. They've had discussions with our small business section, and they have let us know that they're happy with the response. We're going to examine and address each of those points.

R. Coleman: So the industry has had the six points addressed, and you are going to go back and look at this tendering process so that it works better for them. Is that to be my understanding of your answer?

Hon. D. Zirnhelt: Yes.

R. Coleman: I think that pretty well covers the issues that are facing this particular industry. It would be interesting to see some of the stuff relative to the power generation plant and what have you. I think most of the background information is in the hands of the ministry. Most of their other issues deal with code issues and other things like that, which we're going to canvass later in estimates. I just wanted to sort of do a

summary and discussion of this particular industry and its concerns. I appreciate the minister looking at them. I will provide the minister with copies of those two documents, so he can take those and review them.

G. Abbott: I just want to advise the minister of where we're going to be going next in terms of the current-issues portion of this. I've got a couple of constituency-specific forest issues, which I think we can deal with relatively quickly. We'd appreciate doing that. The issues we'll be talking about in the relatively near future will be the aboriginal issues associated with forestry in B.C., compensation issues, non-FRBC silviculture issues -- that will be a very brief thing in advance of our discussions of that around FRBC -- and then I think we would proceed, at that point, into the state of the industry.

Before moving into those topics, the member for Peace River North has some specific questions around fire suppression in the Fort Nelson area, if I understood him correctly. The member for Cariboo North has questions with respect to a woodlot in his constituency. If we could deal with those specific constituency ones, then we could move along, in a methodical fashion, through the areas that I just mentioned.

R. Neufeld: I want to just ask some questions about fire suppression and its application across the province. As I understand it now, there's a contractor that deals with fire suppression, and it's also done in-house. It's not the way we used to do it, where we hired a bunch of people around the province; it's actually organized totally from within the ministry. Is that correct?

Hon. D. Zirnhelt: I don't have the people here who've got all the figures, but the vast majority is still in-house. There are a few contractors, as far as we know.

R. Neufeld: Does Conair do most of the fire suppression work for the province?

Hon. D. Zirnhelt: The information I have is that Conair provides the bulk of the aerial combat service.

R. Neufeld: What part of it does Conair supply? Does the Ministry of Forests have tanker bases that they actually own or lease at different airports across the province, and does Conair use those tanker bases? How is that process accommodated?

Hon. D. Zirnhelt: We didn't have a

schedule of these things, so I don't have the people available. If you want to give me the questions, I'll get the answers. We can try to arrange to have the personnel here, but it would take them some time to get here. Which way would you like to do it?

R. Neufeld: I will just leave it up to the minister. If he wants to get the right people here who can help with these questions, we might as well do it that way, rather than have me ask them and then try and get the answers back. I can do it at some other time; it doesn't matter. I can come into the House at any time when it's convenient for the minister to have the person here. That suits me fine.

Hon. D. Zirnhelt: I'll endeavour to have them here after the dinner hour.

J. Wilson: I've listened to the discussion on woodlots and how well we're doing in getting more woodlots out and this kind of thing. I have a constituent who has a woodlot that . . . . The ministry pulled his licence late last winter; he appealed it. Then they put the woodlot up for tender, and the thing is still under appeal. Now to me, this seems a rather heavy-handed way of doing business if you're trying to promote woodlots. To my knowledge, this woodlot has never had a problem. The individual who has held the contract with the ministry has honoured all of his commitments on that w