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First Nation Opportunities in the Forest Sector

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Background

In 2003, the Ministry of Forests and Range (MFR) developed the First Nations Forestry Strategy to:

improve forest sector stability;

increase First Nation participation in the forest sector; and

address First Nation interests regarding ongoing forestry decisions.

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Background

In 2003, forest revenue was about $1.3B and government agreed to share 4% or $50M.

Forest revenue sharing was distributed on a per-capita basis to 172 eligible First Nations.

In 2009, forest revenues had declined to $300M. The original budget of $50M of forest revenue sharing was 16% of gross forest revenue.

In 2010/11, markets are starting to improve and forest revenues to the Crown are beginning to increase.

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Delivery of First Nations Forestry Strategy

2003/04, MFR starts negotiating Forest and Range Agreements (FRA)

FRA provides accommodation and contains quid pro quos for benefits

2005, Province enters into New Relationship and FRA becomes Forest and Range Opportunity Agreement (FRO)

2010, FRO replaced with FCRSA and the Ministry of Aboriginal Relations and Reconciliation took the lead on signing FCRSAs with First Nations

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Background

Changes to the previous program have been implemented to reflect emerging court cases, input from First Nation communities, and recommendations from the Minister’s Working Roundtable on Forestry.

The cornerstones are: 1. New revenue sharing model based on harvest activity

relative to individual First Nation territories – delivered in a new Forest Consultation and Revenue Sharing Agreement (FCRSAs);

2. Forest Tenure Opportunity Agreement – a new type of agreement to direct award tenures to First Nations; and

3. Annual Rent concessions related to the award of a First Nations Woodlands Licence.

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Replacement of FRA/FRO

FRA or FRO will be replaced by 2 stand alone agreements:

Previous FRA/FRO

Revenue Sharing Agreement

- forest revenue - consultation

Tenure Agreement

- FNWL- NRFL- FLTC

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Forest Consultation and Revenue Sharing Agreement (FCRSA)

The FCRSA contains:

A new revenue sharing model Consultation protocol (matrix) 3-year term, semi-annual payments (March &

Sept.) Annual performance conditions Public reporting requirements regarding

how much revenue sharing is received and how the funds are used

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Clarification on Reporting

There is no obligation for First Nations to provide FCRSA reports to the Province.

The intention of section 6 is to be transparent about the use of funds, including efforts to close the socio-economic gap.

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Clarification on Reporting

Three documents are required:

1. statement of community priorities

2. annually updated statement of community priorities

3. annual expenditure report These 3 documents “will be published by the

First Nation or its Designate in a manner that can reasonably be expected to bring the information to the attention of its communities and the public.”

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Forest Consultation and Revenue Sharing Agreement (FCRSA)

Annual Rent and stumpage must be paid in full for all licenses.

BC will not provide any revenue sharing if accounts are not in good standing or may use the revenue sharing payment to offset the account in arrears.

All expiring agreements will be re-negotiated as a new Forestry Consultation and Revenue Sharing Agreement.

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New Revenue Sharing Model

Principles Supports the recommendations of the

Working Roundtable on Forestry, recent court decisions and some First Nations to base revenue sharing on impacts rather than population.

Based on direct revenue from harvest activity in forest districts relative to individual First Nation traditional territories.

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New Revenue Sharing Model

Principles

Provides a floor payment that will support consultation.

Supports the Transformative Change Accord objectives to close the socio-economic gap.

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New Revenue Sharing Model

Transition Plan

In 2003, stumpage revenue was $1.3 billion.

In 2009, stumpage revenue was $0.2 billion.

Government has approved a transition plan for the introduction of the activity-based revenue sharing approach.

The transition plan allows time for forest sector to recover.

First Nations will benefit as forestry revenues recover in the future.

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Forest Revenue Trend Over Time

$0

$200,000,000

$400,000,000

$600,000,000

$800,000,000

$1,000,000,000

$1,200,000,000

$1,400,000,000

Stumpage and Annual Rent

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New Revenue Sharing Model

Features of new model

Activity based and market sensitive with 2 components:

1. A share of district forest revenues based on the traditional territory that overlaps the Timber Harvesting Land Base.

2. A percent of stumpage paid on direct award tenures that is tied to the expiring FRA/FRO.

Model is retrospective.

First component – based on the past 2 years .

Second component – based on the past year.

Calculations are done annually through the term of agreement.

Payments are made twice a year (Sept. and March).

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= 3% of the District Forest Revenue including: • Stumpage, Waste and Annual Rent B

Activity-Based Revenue Sharing Calculation (A x B+C)

= % of the traditional territory that falls within the timber harvesting land base (THLB) in District X and District Y.A

= 35% of the stumpage paid on the direct award forest tenure that is tied to the expiring FRA/FRO C

X

+

Note: If A x B is less than $35,000, the minimum value of $35,000 will be used instead.

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District X District Y

Hypothetical Example “A” –% Share of District

THLB

THLB

First Nation TT10% 30%

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Hypothetical Example First Nation Overlapping Territory

THLB

First Nation A

First Nation B FN A

FN B

Divided equally among FN A&B

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Transition Plan

Revenue Sharing Approach

2011/12 2012/13 2013/14 2014/15

Percent of Current Payments

59% 55% 50% 0%

Percent of Activity Model

50% 80% 100% 100%

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Hypothetical Example(AxB) First Nation District Forest Revenue Component

 

  

Forest District Revenue

(Stumpage, Waste, Annual

Rent)

First Nation Traditional Territory

within the THLB

Revenue Sharing

Percentages

First Nation Share of Forest Districts’

Revenue

District X $5,000,000 10% 3% $15,000

District Y $10,000,000 30% 3% $90,000

Total Share of Forest Revenue $105,000

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Hypothetical Example(C) Direct Award Stumpage Returned

Component

First Nation Direct Award Licence

Total Stumpage

paid on Licence

Revenue Sharing

Percentages

First Nation Share of Forest

Revenue

A12345 $123,456 35% $43,210

A35476 $56,789 35% $12,098

Stumpage Returned $55,308

Forest District Revenue $105,000

Total Revenue Sharing for First Nation(A x B) + C

$160,308

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Hypothetical ExampleTransition Plan

Revenue Sharing Approach

Annual Amount

2011/12 Transition

Percentages

Revenue Sharing

Payment

Annual Amount of Current FRA/FRO

$500,000 59% $295,000

Annual Activity Model Amount

$160,308 50% $80,154

Total Payment $375,154

Percent of current payments %75

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Payment Schedule

FRA/FRO payments will be paid through the last fiscal quarter in which the agreement expires.

Fiscal quarters end the last day of the month in June, September, December and March.

FCRSA payments will begin the following September (if the FRA/FRO expires before July 1) or March (if the FRA/FRO expires after July 1).

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Payment Schedule

FCRSA revenue sharing payments will be prorated in the first year, based on:

1. the last FRA/FRO payment and

2. the date that the FCRSA is signed.

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Payment Schedule

Example

FCRSA Full Annual Payment = $120,000

FRA/FRO Expires = May 2011

Last FRA/FRO Payment Paid = June 2011

FN Signs FCRSA = May 2011

2011/12 FCRSA payment = July 2011 – March 2012 (9 months)

Prorate = 120,000/12 = 10,000 x 9 months = $90,000 total

1st FCRSA payment =$45,000 by Sept. 30, 2011

2nd FCRSA payment = $45,000 by March 31, 2011

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Payment Schedule

Example

FCRSA Full Annual Payment = $120,000

FRA/FRO Expires = May 2011

Last FRA/FRO Payment Paid = June 2011

FN Signs FCRSA = October 2011

2011/12 FCRSA payment = Oct. 2011 – March 2012 (6 months)

Prorate = 120,000/12 = 10,000 x 6 months = $60,000 total

Only 2011/12 FCRSA payment =$60,000 by March 31, 2011

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Government Direction

Transition over the next few years from the current per/capita- to activity-based model.

Each year the amount of revenue sharing that is based on per/capita will decrease and the amount that is based on activity will increase.

Allow First Nations to adjust dealings with industry and government.

Obtain new agreements as they expire.

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Tenure Opportunity Agreements

Direct Award of Tenures will not be included within the revenue sharing agreement (FCRSAs)

FLNRO are responsible for Forest Tenure Opportunity Agreements (FTOA)

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Current Status

BC is obtaining FCRSAs as FRA/FRO agreements expire.

MARR assumed responsibility for FCRSAs in November 2010.

However, Forests, Lands and Natural Resource Operations (FLNRO) staff led discussions with First Nations with FRA/FROs that had expired on or before March 31, 2011.

FLNRO staff will continue to be involved regarding the forest consultation aspect of FCRSAs.

Existing forest tenures issued through FRA/FROs will continue.

FLNRO are still responsible for further tenure opportunities.

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To Recap...

Revenue sharing is being revised to reflect emerging court cases, input from First Nation communities, and recommendations from the Minister’s Working Roundtable on Forestry.

The current FRAs/FROs will be replaced by two separate agreements: A Revenue Sharing Agreement (FCRSA) A Forest Tenure Agreement (FTOA)

The cornerstones are: Activity based revenue sharing transitioning gradually

from being population-based to forest activity-based.

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To Recap...

FCRSA reports are to be published by First Nations for the information of community members and the public.

FCRSA payments will be paid in September and March.

Payments are prorated based on the date of the last FRA/FRO payment and the date the FCRSA is signed.