1 First Nation Opportunities in the Forest Sector

Background 2 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.

Background 3 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.

Delivery of First Nations Forestry Strategy /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

Background 5 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.

Replacement of FRA/FRO 6 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

Forest Consultation and Revenue Sharing Agreement (FCRSA) 7 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

Clarification on Reporting 8  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.

Clarification on Reporting 9  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.”

Forest Consultation and Revenue Sharing Agreement (FCRSA) 10  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.

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. 11

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. 12

New Revenue Sharing Model 13 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.

Forest Revenue Trend Over Time 14

New Revenue Sharing Model 15 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).

= 3% of the District Forest Revenue including: Stumpage, Waste and Annual Rent = 3% of the District Forest Revenue including: Stumpage, Waste and Annual Rent B B Activity-Based Revenue Sharing Calculation (A x B+C) 16 = % of the traditional territory that falls within the timber harvesting land base (THLB) in District X and District Y. A A = 35% of the stumpage paid on the direct award forest tenure that is tied to the expiring FRA/FRO C C X + Note: If A x B is less than $35,000, the minimum value of $35,000 will be used instead.

District X District Y Hypothetical Example “A” –% Share of District 17 THLB First Nation TT 10% 30%

Hypothetical Example First Nation Overlapping Territory 18 THLB First Nation A First Nation B FN A FN B Divided equally among FN A&B

Transition Plan 19 Revenue Sharing Approach 2011/122012/132013/142014/15 Percent of Current Payments 59%55%50%0% Percent of Activity Model 50%80%100%

Hypothetical Example (AxB) First Nation District Forest Revenue Component 20 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$5,000,00010%3%$15,000 District Y$10,000,00030%3%$90,000 Total Share of Forest Revenue$105,000

Hypothetical Example (C) Direct Award Stumpage Returned Component 21 First Nation Direct Award Licence Total Stumpage paid on Licence Revenue Sharing Percentages First Nation Share of Forest Revenue A12345$123,45635%$43,210 A35476$56,78935%$12,098 Stumpage Returned$55,308 Forest District Revenue$105,000 Total Revenue Sharing for First Nation (A x B) + C $160,308

Hypothetical Example Transition Plan 22 Revenue Sharing Approach Annual Amount 2011/12 Transition Percentages Revenue Sharing Payment Annual Amount of Current FRA/FRO $500,00059%$295,000 Annual Activity Model Amount $160,30850%$80,154 Total Payment$375,154 Percent of current payments%75

Payment Schedule 23 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).

Payment Schedule 24 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.

Payment Schedule 25 Example FCRSA Full Annual Payment = $120,000 FRA/FRO Expires = May 2011 Last FRA/FRO Payment Paid = June 2011 FN Signs FCRSA = May /12 FCRSA payment = July 2011 – March 2012 (9 months) Prorate = 120,000/12 = 10,000 x 9 months = $90,000 total 1 st FCRSA payment =$45,000 by Sept. 30, nd FCRSA payment = $45,000 by March 31, 2011

Payment Schedule 26 Example FCRSA Full Annual Payment = $120,000 FRA/FRO Expires = May 2011 Last FRA/FRO Payment Paid = June 2011 FN Signs FCRSA = October /12 FCRSA payment = Oct – 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

Government Direction 27 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.

Tenure Opportunity Agreements 28 Direct Award of Tenures will not be included within the revenue sharing agreement (FCRSAs) FLNRO are responsible for Forest Tenure Opportunity Agreements (FTOA)

Current Status 29 BC is obtaining FCRSAs as FRA/FRO agreements expire. MARR assumed responsibility for FCRSAs in November 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, 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.

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.

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.