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1518-1030 W. Georgia St. Vancouver B.C.

V6E 2Y3 Ph: 604 800 5990 Fax: 604 800 5987

Minister Doug Donaldson, July 26/19


Minister of Forests, Lands, Natural Resource Operations and Rural Development,
PO Box 227,
4345 Field St.,
Hazelton, BC, V0J 1Y0

Dear Minister Donaldson:


The BC Forest industry is suffering through an unprecedented period of challenging
markets, fibre shortages, export tariffs and financial losses. While many of the causative
forces pre-date your government's taking office, the recent decision to increase allowable
log export volumes in our operating area is yours alone. I am referring specifically to the
July 19 decision to increase the volumes of export logs allowed under Orders in Council in
the Northwest region. This legislation has been pending since July 2018 and so must be
viewed as a well considered statement of government's position and a striking conflict
with its stated objective "We will work with BC’s forest industry to find fair and lasting solutions
that keep more logs in BC for processing". This decision has profound implications for our
company; we are seeking an explanation for it and assurance that the government is serious about
its commitment to domestic wood products manufacturers.
Skeena Sawmills has been operating in Terrace since 2013 and has invested in the sawmill
business in an area where wood products manufacture had all but disappeared. The company
is entirely private and has demonstrated a firm commitment to re-establishing a viable
manufacturing base in this area. Skeena directly employs 150 people including 120 USW
members and a strong contingent of First Nations members. We have invested over $70 Million
in the sawmill, woodlands and most recently a new wood pellet plant. The areas timber is
notorious for its challenging timber quality and our strategy has been to apply new technology,
strong marketing and diversification to increase the value of the entire forest, including the lower
quality material. This is demonstrated by the construction of a wood pellet plant in 2019 to
utilize bark and sawdust, turning this former waste material into a valuable revenue stream. We
have formed working agreements with many of the First Nations in the area and have appreciated
their support for our business. Skeena also has become a major producer of softwood chips for
the BC Pulp industry. Our wood products are in demand in Asian markets for their quality and
are used in high value products like furniture. Skeena is now positioned to recapitalize our
antiquated sawmill, but we cannot do so without the assurance that adequate log supply is
available. We rely on purchasing timber outside our tenures for over 50% of supply and this
directly competes with the well-established log export business in the area.
The local sawmill and pulp-mill industry in the Northwest has become a byword for failure;
at one point there were three pulp-mills and six large sawmills in the area. By 2010 these were
1518-1030 W. Georgia St. Vancouver B.C. V6E 2Y3 Ph: 604 800 5990 Fax: 604 800 5987
all shuttered and the government of the day instituted OIC's to ease the administrative burden of
exporting when there was not a viable domestic market. The result was log exporting became
the dominant market for timber from the area and that situation continues to this day.

This chart demonstrates the scale of


exports in our operating area under
the previous export regulation. Raw
log exporting is the dominant end use,
despite an OIC limiting unrestricted
exports to 20%. The new regulation
doubles this to 40% and we expect a
concomitant increase in exports to the
detriment of local manufacturers like
Skeena Sawmills.

The recent changes to OIC’s (illustrated in the attached map) not only endorse the status- quo,
they reduce the motivation for tenure holders to support local sawmills. Both the letter and the spirit
of the Forest Act is clear; unprocessed timber is not to be exported from BC forests unless there are
exceptional circumstances. When there are local manufacturers who need the fibre, OIC’s that allow
between 40 % and 100 % unrestricted exports contradict both.
The largest tenure holder in the area is BCTS and with this increase to exportable volumes, the
government will in effect be the largest log exporter. This contradicts the “we are reducing log
exports” message the government is communicating to the public.
Export markets are only interested in purchasing high-quality material and so a corollary effect is a
reduction in log quality available to local manufacturers. This is exacerbated in our area where up to
40% of the standing forest is pulpwood unsuitable for sawmilling. BCTS sales will now allow 40 % of
the sawlogs to be exported, leaving the balance of low-grade logs for domestic users to contend with.
“Selling the best and keeping the rest” is no formula for a healthy and sustainable domestic industry.
Our company has shown commitment to building a sustainable industry in the Northwest and we
reasonably expect government’s support for our company and others like us. With the changes to
the OIC’s now in place, we cannot expect to have access to the timber required to continue with our
business. This also prevents us from attracting the capital necessary to modernize our sawmilling
facility to become more competitive. While we disagree with the it, the decision to increase the OIC
exemptions is made and we are asking for your help to support local manufacturers like Skeena to
continue to operate and invest in British Columbia’s domestic forest industry. We ask the government
to give immediate consideration to three areas:
1518-1030 W. Georgia St. Vancouver B.C. V6E 2Y3 Ph: 604 800 5990 Fax: 604 800 5987
1. Commit to an annual review of the log exports for the area.
Ensure log exports are carefully monitored and if the stated government objective of a
15 % reduction is not met; change the OIC’s before the five year expiration period.
2. Commit to prioritizing BCTS volumes for domestic use.
There are several viable approaches to this including excluding BCTS sales from the
OIC’s, establishing a category of sale exclusively for domestic users or allowing tenure
holders to exchange volumes without loss of bidding status.
3. Provide security for domestic manufacturers to access capital for modernization.
This can be done by declaring the area a special economic zone, a designation certainly
supported by the governments own analysis that claims 40 % of the harvest is
uneconomic without log exports. This would help motivate companies to invest in
manufacturing facilities in the area and can be done through existing agencies like BDC.

We are shocked and disappointed by the changes to the OIC’s particularly given the many
assurances we received through the review process that Government was committed to
supporting domestic manufacturing and investment. We are deeply concerned in our ability to
succeed as a business in this region as a direct result of this policy change and ask that you
consider our requests and confirm your willingness to support local sawmills by acting quickly on
our suggestions. We are prepared to discuss these with you at any time and look forward to
your reply.

Best regards

R.Keery,

Roger Keery, P.Eng.


President

cc. Honorable John Horgan, Premier of British Columbia; Honorable Ellis Ross, M.L.A. Skeena;
Mayor Carol Leclerc, City of Terrace.
1518-1030 W. Georgia St. Vancouver B.C. V6E 2Y3 Ph: 604 800 5990 Fax: 604 800 5987