AN EXAMINATION OF THE FACTORS THAT LED TO THE PROVINCIAL WOOD SUPPLY COMPETITIVE PROCESS AND TENURE AND PRICING REFORM How did we get here?

HISTORY  Lumber, veneer and oriented strand board are all strong  Pulp and paper are volatile in the marketplace and mergers are rampant  Sawmill and pulp mill business alignments are critical  Hardwood markets exist for lumber, pulp and paper, veneer, chipboard and OSB ALL WOOD SUPPLIES ARE BEING TESTED Called it the War in the Woods

HISTORY 1998  ENGO’s are pressuring the Conservation government for more parks and protected areas  Wabakimi Provincial Park Expansion  Lands for Life  Forest sector fears the campaign will threaten current utilization levels

PAINFUL HISTORY Lumber, veneer, chipboard, OSB are all experiencing steady declines Energy and fuel prices continue to rise Delivered wood costs become more of an issue  Past pressures on supplies limit the availability and options for inexpensive fibre Softwood lumber trade dispute and countervailing duties Waiting for your neighbour to fold  Closer, cheaper wood

EVEN MORE PAINFUL HISTORY 2005  Banks limit financing  Markets crash in lumber, veneer, chipboard and OSB  U.S. softwood lumber quota and tariffs  New mill closure each month  Government agrees to form a Minister’s Council on Forest Sector Competitiveness Norampac Inc. Red Rock

POSITIVE HISTORY Minister’s Council was comprised of forest industry, government, ENGO, First Nation and municipal representatives Provincial Roads Funding Program  $75 million per year fund established in an effort to reduce delivered wood costs Forest Sector Competitiveness Secretariat  Prosperity Fund and Loan Guarantee Program Energy subsidies for pulp and paper mills  Allow companies to convert to co-generation and get off of the grid

LITTLE MORE HISTORY Pulp prices suddenly improve  Fourth quartile mills all around the world start to close  World pulp supplies are shrinking Northwest remains alive with the four biggest pulp producers operating Domtar Inc. Dryden

GREEN ASSISTANCE Green Energy and Green Economy Act and Feed-in Tariff Program  Pulp mills can produce their own power and sell the excess  Opportunity to sell green and buy brown Healthy pulp mills also need to realign hardwood supplies (or any underutilized species) to meet their cogeneration needs FIT + Black Liquor subsidies + high energy prices = Fast movement off of the grid

GREEN ASSISTANCE CONTINUED OPG announces plans to moves towards green energy production at their coal-fired generating stations  Proposal requires wood supply  Atikokan is in the lead with other plants to follow Helps meet political platform commitment to eliminate coal utilization OPG releases a Request for Expression of Interest to purchase wood pellets (FOB)  Solicited hundreds of proposals to supply OPG at various plants across Ontario

WOOD SUPPLY IMPLICATIONS Reduction in lumber, veneer, chipboard and OSB manufacturing caused a surplus of available wood supply  An opportunity for right wood to right mill realignments Many closed mills maintained the authority to harvest (or not harvest) wood supplies  Healthy pulp mills needed to realign their wood supplies  Capture the opportunity to lower costs and remain viable in the long term

IMPLICATIONS OF HOARDING WOOD

WHY DID WE NEED A WSC? 1. Government needs to meet commitment to clean fuels 2. OPG now needs wood supplies and majority of wood is encumbered by current SFL-holders 3. Pulp mills need to realign their wood supplies to pacify nervous investors and reduce wood costs into the future 4. Government needs to invigorate new businesses and maintain competitive facilities 5. Revenue associated with forest industry contributions to provincial coffers are at a historical low 6. Provide hope of a new industry in Ontario and demonstrate that the Province is open for business 7. Explore and attract new technologies for the utilization of Ontario’s wood supply

WHY DID WE NEED TENURE REFORM? 1. Forest sector is inundated with bankruptcies or CCAA protection 2. Bankruptcies resulted in SFLs being returned to Crown 3. Some companies closed their mills but maintained enough money to manage the SFL 4. Unencumber wood supplies to attract new technologies 5. Current tenure system allows companies to hoard wood in anticipation of market recovery 6. Need a system that encourages the sale of all available Crown timber 7. US lumber lobbyists continually suggest that the current pricing system in Ontario subsidizes sawmill operations

THANK YOU For additional information please contact: