POLICY GUIDANCE SILVICULTURE 1SECURITY REQUIREMENT FOR NONREPLACEABLE LICENCES (REFERENCE

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NON REPLACEABLE FOREST LICENSES SILVICULTURE DEPOSITS

POLICY GUIDANCE: SILVICULTURE ^¹SECURITY REQUIREMENT FOR
NON-REPLACEABLE LICENCES

(Reference: C&E Bulletin Number 10 of July 31, 2001 and the
Update Dated April 8, 2003)

PREAMBLE:

The purpose of this update is to provide policy guidance to delegated decision makers (DDM) in making determinations related to the amount of silviculture security that a DDM may require the holder of a non-replaceable licence (NRL) to provide for the performance of an obligation to establish a free growing stand.

The Security for Forest and Range Practices Liabilities Regulation (SFRPLR) provides the minister or DDM authority to require the holder of a major non-replaceable licence, a woodlot licence or community forest agreement to provide for security for performance of the obligation to establish a free growing stand. This policy is intended to address the collection and return of security deposits for major non-replaceable licences. The decision to collect security deposits and the decision as to how much to collect should be based on an assessment of the level of financial risk to the government since holding back security has the purpose of protecting the financial interest of the government. Several decisions are required by legislation if the DDM decides to request security for performance of an obligation to establish a free growing stand. The DDM must give written notice of the requirement to provide security. The notice must contain the following information:

when the security must be paid;
the amount of security that is required; and
the form of security.

The Financial Act outlines the acceptable forms of acquisition.

The SFRPLR states that security is held until there is no further need for it. Normally, this is when the free growing obligation has been met, but does not exclude a partial refund at an earlier stage, such as after the licensee completes the regeneration delay declaration in the Reporting Silviculture Updates and Land Status Tracking System (RESULTS).

The last provincial guidance (2003) suggested that the DDM should request a minimum of 50 percent of the expected cost of establishing a free growing stand as security for the performance of this obligation, regardless of situations and circumstances. The guidance also provides advice on factors to be considered in determining the amount of security as well as the administration of the established securities. The MFR executive has recently approved a briefing note recommending an expanded range of silviculture security from 0 to 100 percent of the expected cost of establishing a free growing stand and recognized the need to update the existing policy guidance to reflect the current needs of the ministry considering situations and circumstances in the award of a tenure to which the SFRPLR applies.

There has been an increase in the number of non-replaceable forest licences (NRFL) awarded as a result of AAC uplifts to support the recovery of Mountain Pine Beetle affected timber. A significant number of NRFLs have also been awarded to First Nations as a result of Forest and Range Agreements entered into with the Province of British Columbia. Some new tenure holders are also facing a wide array of challenges ranging from the shift in the market pricing conditions to the lack of capacity and experience in managing a forest licence. This seems to indicate that there is a need for flexibility in determining the level of security the Crown needs to hold to ensure that silviculture obligations are fulfilled. Policy advice facilitating the use of discretionary flexibility will allow the DDMs to provide a foundation of economical viability for new entrants, while being mindful of the need to protect the financial risk to the government.

The purpose of this document is to:

provide a set of principles to be considered by DDMs when making silviculture security determinations in accordance with SFRPLR. These principles are designed to allow for the use of discretion while ensuring consistency in application;
provide a process map of the administration phases of the security;
provide examples of different regional approaches to determine the level of risk to the government, to give the DDM’s examples to consider when formulating their own decision criteria; and
provide an overview for staff on the difference between collecting a silviculture security deposit and taking on the silviculture obligation, where appropriate.

The present policy is an update to the briefing note and the C&E Bulletin Number 10, referenced above. Bulletin Number 10 is available at: http://icw.for.gov.bc.ca/hen/

Background:

The initial bulletin of 2001 outlined the legislative framework that governed the making of determinations by district managers (DM) and regional managers respecting the requirements for silviculture security for non-replaceable forest licences (short-term licensees with silviculture obligations that extend beyond the term of the licence). It also provided advice to the decision makers to assist them in exercising their statutory discretion.

The subsequent update in 2003 dealt with statutory changes in the way security determinations were to be made as a result of the introduction of FRPA and the replacement of silviculture prescriptions with site plans, which do not require DM approval.

PRINCIPLES TO CONSIDER:

^²The present policy is developed based on a principled approach aimed towards promoting consistency² while still allowing flexibility for DDMs to exercise their discretionary authority. The following general principles should be used by DDMs in developing the process of determining the level of security required:

Consistency of the determination process: Security determinations by a DDM need to follow a consistent process for the same type of licence and in similar circumstances. Consistency between districts is desirable, but may not always be feasible. Where possible, adjacent districts with common licensees should work together to develop processes for security deposit determinations in a way that is consistent and fair between districts.

Fairness: All licence holders are treated fairly by ensuring that a consistent risk assessment process, as determined by each DDM, is followed for each NRL. This may be achieved by consistently following the established steps of the business process suggested in Appendix 1. The financial risk assessments recommended to be used in Step 2 of the business process must consistently evaluate the same risk factors when determining the risk to the Crown.

Administrative process: Reduce the administration to a minimum necessary to ensure a smooth management of the security while minimizing the financial burden to the licensee and the administration effort of the Crown. Security should be collected as soon as is practicable without adding financial hardships to the NRL holder (i.e. do not wait until after harvesting to collect the deposit without acceptable rationale). The DDM should not release the entire security deposit until they are satisfied that there is no further need for the security. Partial release of security deposits is acceptable provided that the risk has been shown to have decreased (i.e. the licensee has demonstrated that part of the obligation has been met, for example, planting is complete or regeneration delay has been met). The DDM should follow a consistent process for the release of deposits.

Site conditions addressed: Take into account the particularities of each licence as it relates to site specific conditions to the extent known at the time of the determination (e.g. reforestation difficulties) and particularities related to the holder of the licence (forest management objectives for the area, performance history, corporate structure of the licensee, licence award type, etc.).

Financial capacity of the licensee and the financial risk to the government: Strive to strike an appropriate balance between the financial burden on the licensee and the financial risk to the government.

Acceptable risk to the Crown: It is acceptable for DDMs to assume risk to the Crown by not collecting the full 100 percent security deposit required to sufficiently bring every block to a FG state. One outcome of this policy is that in the event of default by the licensee, the Crown assumes the responsibility (but not the legal liability) to reforest the harvested areas. The Crown should hold enough security to be able to bring those areas where there is a threat to regeneration to a free growing state (while the DDM has the option to collect no deposit, they should consider the importance of ensuring that the Crown holds enough security in the event of a default). Where the DDM has assumed responsibility for establishing the free growing stand, risk is minimized and no deposit is required.

Effectiveness evaluation: The implementation of this policy should be evaluated within one year to assess whether determinations are being made in a manner consistent with this policy, and to identify areas for adjustment and improvement to the policy where necessary.

It is recommended that deviations from this policy be duly justified by DDMs and that rationales supporting determinations are kept on record. This policy attempts to provide broad guidance in making determinations without limiting the discretion of DDMs involved.

Note: As the policy allows DDMs to make determinations to collect anywhere between

0 – 100 percent of the expected cost of establishing a free growing stand, then it is expected that deviations from the policy will be rare.

PROCESS DISCUSSIONS:

Appendix 1 provides recommendations on steps to consider following in the administration of silviculture security.

The amount of silviculture security to be requested is determined based on the assessment of the level of risk to the government. Appendix 2 provides a number of examples of methodologies used to assess the level of financial risk and to determine the silviculture security associated with different levels of risk. Appendix 3 provides an overview of the difference between silviculture deposits, silviculture levies and silviculture allowances.

There are various approaches to the security process in the three forest regions. The examples provided in Appendix 2 can be used to guide the DDMs in developing a process. The working group recommends that some form of risk assessment be conducted in all situations where security is determined necessary. The risk assessment constitutes the basis for determining the amount, form and times of acquisition and release of the security following the principled approach described above. DDM’s are encouraged to correspond with the cited district or regional contacts if questions arising from any of the cited examples in Appendix 2 occur.

Appendix 3 provide an overview for staff on the difference between collecting a silviculture security deposit and taking on the silviculture obligation where appropriate. This was created to ensure a common understanding and application of these situations.

1 Security is the term used by the Security for Forest and Range Practices Liabilities Regulation referring to the silviculture security. Deposit is used by the Forest Act – Advertising, Deposits, Disposition and Extension Regulation referring to sums of money deposited with the government as a licence performance security.

2 Consistency aspects:

Individual – Individual DDM makes consistent determinations by using the same risk assessment factors in following the SFRPLR requirements
Collective – All DDMs make consistent determinations by using their discretionary authority within the limits of these principles and following the process map from Appendix 1.

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