BCTS/FFT Reforestation Collaboration – March 2012 Thompson Okanagan Region Case study By Mike Madill, FFT FLNRO Thompson Okanagan Region And John Hopper BCTS, Kamloops Timber Sales Office

Description of Issue/Problem There is over 500,000 Ha’s of Pli leading stands (unharvested stands) in the Thompson Okanagan Region on which the MPB killed timber has deteriorated to the point where the log/fibre values are less than development and reforestation costs There is over 500,000 Ha’s of Pli leading stands (unharvested stands) in the Thompson Okanagan Region on which the MPB killed timber has deteriorated to the point where the log/fibre values are less than development and reforestation costs

Background Continued Salvaging of these stands provides fibre to industry Salvaging of these stands provides fibre to industry Revenue used to reduce or cover development costs Revenue used to reduce or cover development costs Overstory removal allows for effective reforestation Overstory removal allows for effective reforestation Reforestation of these stands will reduce the mid and long term AAC fall down Reforestation of these stands will reduce the mid and long term AAC fall down

FFT/BCTS Collaboration The Innovative Timber Sale Harvesting License and/or lump sum Timber Sales are the mechanisms being used to remove MPB killed overstories to allow for FFT funded planting to take place The Innovative Timber Sale Harvesting License and/or lump sum Timber Sales are the mechanisms being used to remove MPB killed overstories to allow for FFT funded planting to take place Prompt reforestation will reduce both the short and long term timber supply fall down Prompt reforestation will reduce both the short and long term timber supply fall down Disc Trenched Kamloops Block

FFT/BCTS Collaboration  FFT Staff evaluate each proposed area and approve only those areas which meet the FFT eligibility criteria BCTS staff manage the overstory removal. Revenue from the sale of Timber covers development costs BCTS staff manage the overstory removal. Revenue from the sale of Timber covers development costs BCTS staff manages contracts to identify and survey potentially eligible ground within BCTS operating areas BCTS staff manages contracts to identify and survey potentially eligible ground within BCTS operating areas

Small diameter high density MPB killed stands Grade 4 going to pulp mill, grade 6 ground for Hog fuel Photo of FFT FLTC in Kamloops 2010

Rivercity chipping Facility

Overstory Removal resulted in better growing environment for seedlings

Alternative reforestation strategies to over story removal includes underplanting We have experienced lower survival and reduced performance where seedlings have been planted below MPB killed Pine overstories We have experienced lower survival and reduced performance where seedlings have been planted below MPB killed Pine overstories FFT underplanting 2009

Cat crushing doesn’t provide the economics benefits of salvaging and as the crushed material decays it gives off Co2 FFT funded cat crushing blocks 2009

Accomplishments to date  Since 2009 in the Thompson Okanagan Region over 1,000,000 m3 (net merch*) of MPB killed timber has been salvaged to enable the planting of over 7 million seedlings on 4,000 ha’s * Total volume harvested and used as fiber for chips and Bio-energy is higher Photo of BCTS ITSL

Salvaging of the overstory provides both revenue to pay for the development of blocks, and provides jobs in the following areas: Development (layout, cruising, surveying etc) Development (layout, cruising, surveying etc) Road building Road building Harvesting (buncher/skidder operators etc) Harvesting (buncher/skidder operators etc) Trucking Trucking Manufacturing (milling, pulp mills, bio energy etc) Manufacturing (milling, pulp mills, bio energy etc)

Demand exists for grade 4, 6 logs in the Thompson Okanagan (Orphaned Pulp Mills) There is a demand for low grade fiber in the Southern Interior There is a demand for low grade fiber in the Southern Interior Sawmill curtailments have reduced Mercer (Castlegar) and Domtar’s (Kamloops) residual chip supply by 2 million m3/yr Sawmill curtailments have reduced Mercer (Castlegar) and Domtar’s (Kamloops) residual chip supply by 2 million m3/yr Chipping of low grade timber is making up the chip deficit Chipping of low grade timber is making up the chip deficit

Benefits of using BCTS as our delivery agent BCTS charges a flat 10% overhead BCTS management of the FFT current reforestation program in the Thompson Okanagan is saving the FFT program over $900K a year. John Hopper BCTS FFT Co-ordinator (left with foreman from Coast Range Silviculture June 2011 )

Example of checking and cracking

Kamloops FFT staff will only approve reforestation funding for those stands where the timber revenue (from the sale of the overstory) is insufficient to cover off development, BCTS Overhead and silviculture costs. Scotty Creek

What’s in it for Forests for Tomorrow Program Forecasted FFT current reforestation expenditures have been reduced by over $9,000,000 Thompson Okanagan. Reduction due to not having to pay for over story removal treatments and by using BCTS to deliver the FFT current reforestation program Forecasted FFT current reforestation expenditures have been reduced by over $9,000,000 Thompson Okanagan. Reduction due to not having to pay for over story removal treatments and by using BCTS to deliver the FFT current reforestation program The FFT dollars saved can used to reforest or space more area The FFT dollars saved can used to reforest or space more area Economies of scale results in lower per unit costs e.g. price/ seedling $.28/tree Economies of scale results in lower per unit costs e.g. price/ seedling $.28/tree FFT staff resources can be directed to reforestation and incremental activities instead of over story removal issues FFT staff resources can be directed to reforestation and incremental activities instead of over story removal issues

Over to John

Why BCTS needs FFT Harvesting MPB impacted stands has accounted for the majority of BCTS operations in the Kamloops Business Area since Harvesting MPB impacted stands has accounted for the majority of BCTS operations in the Kamloops Business Area since Over time the volume per hectare and piece size has decreased and the damage to the stands has increased. These damaged stands generally yield low bid prices on the open market. Over time the volume per hectare and piece size has decreased and the damage to the stands has increased. These damaged stands generally yield low bid prices on the open market.

Without FFT reforestation funding BCTS could not economically develop these stands and they would be left untreated. Without FFT reforestation funding BCTS could not economically develop these stands and they would be left untreated. This would have a significant effect on utilization of the dead Pli and future mid and long term timber supplies. This would have a significant effect on utilization of the dead Pli and future mid and long term timber supplies.

What’s in it for BCTS? The ability to limit loses associated with development and reforestation of low value/volume insect killed sales The ability to limit loses associated with development and reforestation of low value/volume insect killed sales Reduced number of no bids Reduced number of no bids Good stewardship Good stewardship Improved future timber supply for BCTS Improved future timber supply for BCTS A strategy to provide less expensive fiber to the emerging bio-energy market A strategy to provide less expensive fiber to the emerging bio-energy market

Is FFT paying for reforestation of ITSL’s a subsidy? Answer No BCTS/FFT ITSL’s and/or lump sum sales are competitively auctioned on the open market just like other BCTS TSL’s. In fact because sales are lump sum, stumpage is not adversely impacted by log grades.

Lump Sum TSL’s The total price for the TSL (total upset plus bonus) is determined at the time sale and is not affected by lumber grades. The total price for the TSL (total upset plus bonus) is determined at the time sale and is not affected by lumber grades. The lump sum upset price for FFT eligible TSL’s incorporates actual costs of development, access and may include overhead, but excludes silviculture. The lump sum upset price for FFT eligible TSL’s incorporates actual costs of development, access and may include overhead, but excludes silviculture. Cruising is completed to the same standards as other BCTS sales. Cruising is completed to the same standards as other BCTS sales. The bid reflects the actual market value of the wood profile and not is not determined at the scale. The bid reflects the actual market value of the wood profile and not is not determined at the scale.

What if Lump Sum TSL’s sell for more than total cost ? The current MOU states that if the bid price exceeds the total cost of development, silviculture and overhead (TCU) the TSL is not eligible for FFT funding. The current MOU states that if the bid price exceeds the total cost of development, silviculture and overhead (TCU) the TSL is not eligible for FFT funding. This can create problems with planning and budgeting as the TSL may meet all FFT eligibility criteria but sell for >TCU so it reverts back to BCTS reforestation obligations after sale date. This can create problems with planning and budgeting as the TSL may meet all FFT eligibility criteria but sell for >TCU so it reverts back to BCTS reforestation obligations after sale date.

BCTS PROPOSAL To create higher reliability in our planning we have proposed a 20% tolerance over TCU for FFT eligible TSL’s. To create higher reliability in our planning we have proposed a 20% tolerance over TCU for FFT eligible TSL’s. Individual TSL’s with sold rates >TCU but within 20% will remain FFT eligible providing the average sale price for all eligible TSL’s is below TCU. This is monitored by quarter and fiscal year. Individual TSL’s with sold rates >TCU but within 20% will remain FFT eligible providing the average sale price for all eligible TSL’s is below TCU. This is monitored by quarter and fiscal year. In fiscal 11/12 to date the average sale price is below the total cost estimate for all FFT eligible TSL’s with the 20% tolerance applied. In fiscal 11/12 to date the average sale price is below the total cost estimate for all FFT eligible TSL’s with the 20% tolerance applied. A process to amend the current MOU to include the tolerance is underway. A process to amend the current MOU to include the tolerance is underway.

BCTS/FFT PROCESS FFT criteria ( >70 Pli, >70% dead) is incorporated into preliminary block layout. FFT criteria ( >70 Pli, >70% dead) is incorporated into preliminary block layout. FFT ITSL surveys are scheduled and prioritized to obtain results prior to sale date (results are utilized to set rate). FFT ITSL surveys are scheduled and prioritized to obtain results prior to sale date (results are utilized to set rate). Packages are prepared for each eligible TSL for review and signing: Packages are prepared for each eligible TSL for review and signing: Reforestation Obligation letter. Reforestation Obligation letter. Eligibility Criteria for Rehabilitation checklist. Eligibility Criteria for Rehabilitation checklist. Completed FFT ITSL SURVEY and photos Completed FFT ITSL SURVEY and photos Lump Sum TSL Bid record. Lump Sum TSL Bid record. Interior Cruise Based Cost Calculation (fs1355). Interior Cruise Based Cost Calculation (fs1355).

FFT Reforestation Obligation Letter

Eligibility Criteria form

Survey

BCTS/FFT PROCESS (post) Once eligibility is confirmed status in Cengea Resources is updated to FFT. Once eligibility is confirmed status in Cengea Resources is updated to FFT. Operational FFT activities are combined with the BCTS program for economies of scale (stand alone contracts are not required). FFT units are coded out for payment. Operational FFT activities are combined with the BCTS program for economies of scale (stand alone contracts are not required). FFT units are coded out for payment. FFT Sowing requests and budgets are completed by BCTS. FFT Sowing requests and budgets are completed by BCTS.

Program Goals and Results First FFT funded BCTS administered work in Kamloops was 365 ha. of MSP in First FFT funded BCTS administered work in Kamloops was 365 ha. of MSP in In 2011 the Kamloops Business Area planted 2.5 million FFT trees and site prepared 1200 ha. In 2011 the Kamloops Business Area planted 2.5 million FFT trees and site prepared 1200 ha. The program will increase in 2012 to 3.4 million trees and 2100 ha. of MSP. The program will increase in 2012 to 3.4 million trees and 2100 ha. of MSP. In 2013 the program will peak at 5.1 million trees and 1600 ha. of MSP. In 2013 the program will peak at 5.1 million trees and 1600 ha. of MSP.

Questions? Area north of Cache Creek