N.B. receiving less than nothing on softwood pulpwood after Crown timber royalty changes

The New Brunswick government reset timber royalties as promised last month but not all charges to forest companies went up as the province has been suggesting, including to MLAs last week. 

In one case, royalties levied for cutting softwood pulpwood on Crown land have been slashed to levels so low the wood is now effectively being made available for less than free to companies that cut it.

Liberal finance critic René Legacy said that is a surprise to him, especially since MLAs on the legislature's public accounts committee put questions about timber royalties to the Department of Natural Resources and Energy Development just last week.

"We were in committee asking questions and there was no indication this was happening," said Legacy.

"We never seem to get the complete picture."

According to new regulations filed Aug. 30, the province reset what it charges forest companies to cut trees in publicly owned forests. Most royalty rates on most types of wood have increased but with exceptions.

Amounts the province charges forest companies for spruce, fir and jack pine pulpwood cut on Crown land dropped more than half in August from $7.59 to $3.40 per cubic metre.

Other softwood species used for pulp, like red pine, also fell to $3.40 per cubic metre but from a previous level of $5.50.

Royalty is now less than fee paid to companies

A royalty of $3.40 is too low to generate net revenue for government because of a $3.90 fee the province is required to return to forest companies on every cubic metre of qualifying wood they cut on Crown land. That includes all pulpwood.  

The "licence management service fee" is listed in regulations as "compensation for forest management expenses" that companies incur looking after Crown forests on behalf of the province. 

Because the management fee owed by the province to companies on every cubic metre of softwood they cut for pulp is now 50 cents higher than what the province gets back in royalties, it has become a net loser on softwood pulp that companies take on Crown land.

That amount varies annually but over the last five years companies have been cutting between 150,000 and 260,000 cubic metres of softwood pulpwood from Crown holdings.

The cut in royalty charges on softwood pulp was not mentioned by government forestry officials last week when Legacy and Progressive Conservative MLA Ross Wetmore both asked questions about the subject at the public accounts committee.

Chris Ward, assistant deputy minister of Natural Resources, told Wetmore simply that "higher timber royalty rates" in the province had taken effect.

'Looks to me like a quid pro quo'

Green Party Leader David Coon, who was also at the committee hearing, was also unaware that royalty rates on softwood pulp had been cut.

He worries that will force private sellers of softwood pulp to lower their own prices or lead forest companies to bypass private sellers in favour of accessing more softwood pulp from Crown land.

"It's dreadful. It's another big impact on woodlot owners," said Coon, who wondered if it was done to quiet criticism among forestry companies about rates increasing on other types of timber. 

"It looks to me like a quid pro quo."

Most softwood pulpwood in New Brunswick, including most of the softwood pulp cut on Crown land and by smaller woodlots, goes to J.D Irving Ltd.'s Sussex wood chipping facility. 

The company's vice-president of communications, Anne McInerney, referred questions about the royalty changes to the province.

In a written statement, the department said softwood pulp is a small percentage of wood cut in New Brunswick and that prices paid to private sellers of softwood pulp are already depressed with the lower royalty rate following that trend, not leading it. 

"The softwood pulpwood market has been relatively weak and the Department of Natural Resources and Energy Development has seen significant volume of material either left in the woods during harvest operations or used instead as roundwood biomass," said the statement.

"The Department expects this new rate to better reflect fair market value and result in better utilization of this resource."

The department also said other higher-value wood with higher royalty rates are cut at the same time as softwood pulp,  earning more than enough so "the Crown is never losing money."