[Federal Register: November 19, 2007 (Volume 72, Number 222)]
[Notices]
[Page 64991-64994]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr19no07-32]
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DEPARTMENT OF AGRICULTURE
Forest Service
Extension of Certain Timber Sale Contracts; Finding of
Substantial Overriding Public Interest
AGENCY: Forest Service, USDA.
ACTION: Notice of contract extensions.
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SUMMARY: On November 2, 2007, the Chief of the Forest Service
determined there is Substantial Overriding Public Interest in extending
certain National Forest System timber sale contracts for up to one
year, subject to a maximum total contract length of 10 years. Pursuant
to the November 2, 2007, finding, timber sale contracts awarded prior
to January 1, 2007, are eligible for extension and deferral of periodic
payment due dates for up to one year. This finding does not apply to
(1) contracts that have been or are currently eligible to be extended
under market related contract term addition (MRCTA) contract
provisions, except sales using the Hardwood Lumber index that were
awarded after December 31, 2005, (2) salvage sale contracts that were
sold with the objective of harvesting deteriorating timber, (3)
contracts the Forest Service determines are in urgent need of
harvesting due to deteriorating timber conditions that have developed
following award of the contract, or (4) contracts that are in breach.
To receive an extension, purchasers must make a written request to the
appropriate Contracting Officer. Purchasers also must agree to release
the Forest Service from all claims and liability if a contract extended
pursuant to the November 2, 2007, finding is suspended, modified, or
terminated in the future.
The intended effect of the Substantial Overriding Public Interest
finding and contract extensions is to minimize contract defaults, mill
closures, and company bankruptcies. The Government benefits if
defaulted timber sale contracts, mill closures, and bankruptcies can be
avoided by granting extensions. Having numerous, economically viable,
timber sale purchasers increases competition for National Forest System
timber sales, results in higher prices paid for such timber, and allows
the Forest Service to provide a continuous supply of timber to the
public in accordance with Forest Service authorizing legislation. See
Act of June 4, 1897 (Ch. 2, 30 Stat. 11 as amended, 16 U.S.C. 475)
(Organic Administration Act). In addition, by extending contracts and
avoiding defaults, closures, and bankruptcies, the Government avoids
the difficult, lengthy, expensive, and sometimes impossible process of
collecting default damages.
DATES: The determination was made on November 2, 2007, by the Chief of
the Forest Service.
FOR FURTHER INFORMATION CONTACT: Lathrop Smith, Forest Management
Staff, (202) 205-0858 or Richard Fitzgerald, Forest Management Staff
(202) 205-1753; 1400 Independence Ave., SW., Mailstop 1103, Washington,
DC 20250-1103.
Individuals who use telecommunication devices for the deaf (TDD)
may call the Federal Information Relay Service (FIRS) at 1-800-877-8339
between 8 a.m. and 8 p.m., Eastern Standard Time, Monday through
Friday.
SUPPLEMENTARY INFORMATION: The Forest Service sells timber and forest
products from National Forest System lands to individuals or companies
pursuant to the National Forest Management Act of 1976, 16 U.S.C. 472a
(NFMA). Each sale is formalized by execution of a contract between the
purchaser and the Forest Service. The contract sets forth the explicit
terms and provisions of the sale including such matters as the
estimated volume of timber to be removed, the period for removal, price
to be paid to the Government, road construction and logging
requirements, and environmental protection measures to be taken. The
average contract period is approximately two to three years, although a
few contracts have terms of five or more years.
Rules in 36 CFR 223.52 (Market Related Contract Term Additions)
permit contract extensions when the Chief of the Forest Service
determines that adverse wood product market conditions have resulted in
a drastic decline in wood product prices. Under market-related contract
addition procedures, the Forest Service refers to the following three
producer price indices maintained by the Bureau of Labor Statistics:
Softwood Lumber 0811 and Hardwood Lumber 0812 in the
Commodity Series, and Wood Chips PCU32113321135 in the
Industry Series.
The Softwood and Hardwood Lumber indices indicate a major downturn
in those markets began following a peak in September 2004 and was still
on a downward trend as of September 2007, with the relative Softwood
Lumber index decreasing by about 36 percent and the Hardwood Lumber
index decreasing by about 19 percent, during this time. While most
purchasers holding contracts with those indices have received or are
eligible to receive MRCTA, an anomaly in the wood
[[Page 64992]]
products markets and indices used in contracts in the Lake States area
and some other parts of the country has left many purchasers without
this remedy.
Section 472a(c) of NFMA provides that the Secretary of Agriculture
shall not extend any timber sale contract period with an original term
of two years or more, unless the purchaser has diligently performed in
accordance with an approved plan of operations or the ``Substantial
Overriding Public Interest'' justifies the extension. The authority to
make this determination has been delegated to the Deputy Under
Secretary of Agriculture for Natural Resources and Environment in 7 CFR
2.59.
Accordingly, based on current data, the Chief has made a finding
that there is a Substantial Overriding Public Interest in extending
certain sales for up to one year. This finding does not apply to (1)
contracts that have been or are currently eligible to be extended under
MRCTA contract provisions, except sales using the Hardwood Lumber index
that were awarded after December 31, 2005, (2) salvage sale contracts
that were sold with the objective of harvesting deteriorating timber,
(3) contracts the Forest Service determines are in urgent need of
harvesting due to deteriorating timber conditions that have developed
following award of the contract, or (4) contracts that are in breach.
In addition to extending contracts pursuant to the Chief's finding,
periodic payments will be deferred for up to one year on the extended
sales. To receive an extension and periodic payment deferral,
purchasers must make a written request to the appropriate Contracting
Officer. Purchasers must also agree to release the Forest Service from
all claims and liability if a contract is suspended, modified, or
terminated, after the contract is extended pursuant to the Chief's
November 2, 2007 finding. The text of the finding, as signed by the
Chief of the Forest Service is set out at the end of this notice.
Dated: November 2, 2007.
Joel D. Holtrop,
Deputy Chief for National Forest System.
Determination of Substantial Overriding Public Interest for Extending
Certain Timber Sale Contracts
The National Forest Management Act of 1976 (16 U.S.C. 472a(c)
provides that the Secretary of Agriculture shall not extend any timber
sale contract period with an original term of two years or more unless
he finds that the purchaser has diligently performed in accordance with
an approved plan of operations or that the ``Substantial Overriding
Public Interest'' justifies the extension.
As a result of continued drastic reductions in forest product
prices, there is a Substantial Overriding Public Interest in extending
certain timber sale contracts.
Background
On December 7, 1990, the Forest Service published a final rule (55
FR 50643) establishing procedures in 36 CFR 223.52 for extending
contract termination dates in response to adverse conditions in the
timber markets. These procedures, known as Market Related Contract Term
Additions (MRCTA), authorize extensions of timber sale contracts up to
one additional year when qualifying market conditions are met. When the
MRCTA procedures were established, experience indicated that the type
and magnitude of lumber market declines that would trigger MRCTA
generally coincide with low numbers of housing starts and are usually
indicative of substantial economic dislocation in the wood products
industry. Such economic distress broadly affects community stability,
the ability of industry to supply construction lumber and other
products for public use, and threatens maintaining plant capacity
necessary to meet future demands for wood products from domestic
sources. The Department has determined that a drastic reduction in wood
product prices can result in a Substantial Overriding Public Interest
sufficient to justify a contract term extension for existing contracts,
as authorized by the National Forest Management Act of 1976 (16 U.S.C.
472a(c)) and existing regulations at 36 CFR 223.115(b).
Following promulgation of the rule in 1990, the Forest Service
began tracking four producer price indices provided by the Bureau of
Labor Statistics as indicators of a drastic reduction in wood product
prices. Those indices were the Southern Pine Dressed, Douglas-fir
Dressed, Other Species Dressed, and Hardwood Lumber. Beginning in the
first quarter of 1994 through the first quarter of 1996, government
indices indicated a major downturn in the lumber markets throughout the
country was occurring, but only the Douglas-fir Dressed Lumber index
used in contracts in Washington and Oregon dropped sufficiently to
trigger MRCTA. Meanwhile, purchasers in other parts of the country were
facing defaults, mill closures, and bankruptcies but were not eligible
for MRCTA. To avert these problems, the Chief of the Forest Service
determined that it was in the Substantial Overriding Public Interest to
extend for a period of up to one year certain contracts that had not
received any MRTCA. The Forest Service also initiated a study of the
MRTCA procedures and indices to determine why they did not appear to
perform as expected. Findings in that study led the Forest Service to
adopt four different producer price indices from the Bureau of Labor
Statistics in May 1998; (1) Hardwood Lumber (SIC 24211), (2) Eastern
Softwood Lumber (SIC 24213), (3) Western Softwood Lumber (SIC 24214),
and (4) Wood Chips (SIC 24215). However, after December 2003, the
Bureau of Labor Statistics discontinued publishing the Western Softwood
Lumber index (SIC 24214), Eastern Softwood Lumber index (SIC 24213),
and Hardwood Lumber index (SIC 24211). At the same time the Wood Chips
index (SIC 24215) was renumbered as PCU32113321135. In January 2006,
the Forest Service published a notice in the Federal Register (71 FR
3409) adopting the Softwood Lumber index 0811 and the Hardwood Lumber
index 0812 to replace the three indices that were no longer supported
by the Bureau of Labor Statistics. The Forest Service continued to rely
upon the Wood Chips index, now numbered PCU32113321135, to gauge
certain market conditions. The three indices the Forest Service adopted
to gauge most market conditions, however, are not able to address
market conditions for all forest products, e.g. biomass. Additionally,
because the indices are national in scope, they may fail to address
drastic declines in local markets.
Market Conditions Leading to the November 2006, Determination of
Substantial Overriding Public Interest To Extend Certain Sales
The Softwood Lumber index 0811 began declining, after
peaking in September 2004, and with adjustments for inflation the
relative index had declined 47.9 points or 31 percent by September
2006. Between the third quarter 2005 and the third quarter 2006, there
were five consecutive calendar quarters where the declines were large
enough to trigger MRCTA. This was a substantially larger drop than the
one in the period between 1994-1996, when the index declined about 38
points or 21 percent. The period from 1994-1996 was also the last time
there were five consecutive qualifying quarters for MRCTA.
The Hardwood Lumber index 0812 also began declining, after
peaking in September 2004, and with adjustments for inflation declined
18.6 points or 14 percent as of September 2006. There
[[Page 64993]]
were three consecutive quarters beginning with the third quarter of
2005 through the first quarter of 2006, where the quarterly declines
were large enough to trigger MRCTA equal to one calendar year plus one
normal operating season. The Hardwood Lumber index continued to decline
in the second and third quarters of 2006, but the decline was not
sufficient to trigger MRCTA. Consequently, some hardwood purchasers
were expected to begin facing additional hardships as the MRCTA time
they previously obtained expired.
Between September 2004 and January 2006, the Wood Chips index
remained fairly static but was on a steady rise since then. The last
time the Wood Chips index had a qualifying quarter was the third
quarter of 1997.
As of November 2006, the MRCTA procedures on softwood lumber and
hardwood lumber sales were generally functioning as expected.
Additional contract time was being offered for qualifying sale, which
assisted purchasers by allowing more time to wait for markets to
recover or to spread out harvesting of high priced sales. But, as was
the case in 1996, there were exceptions.
For example, in the Lake States area, a combination of factors
contributed to a more drastic decline in forest product prices than was
occurring in other parts of the country and/or the producer price
indices were not triggering MRCTA. The predominant forest products
produced in that area are wood chips used in pulping for paper and
oriented strand board (OSB). Both the pulp and OSB sales used the Wood
Chips index which had not had a qualifying quarter for MRCTA since
1997. National Forest System timber sales in the Lake States area often
contain a diverse mix of forest products, which attracted strong
competition leading to relatively high bid rates. Problems began in
2005, when prices for both pulp and OSB chips started declining
sharply.
OSB is a building product with prices that tend to follow lumber
market prices. Because lumber market prices were declining
significantly across most of the country, contracts tied to the
Softwood Lumber index were eligible to receive MRCTA. But in places,
such as much of the Lake States region, many purchasers marketing OSB
material were not getting this relief because most of their contracts
were tied to the wood chips index which had not declined and was not
triggering market related contract term additions. Concurrently, while
lake states area pulp prices were declining national wood chip prices
were stable or increasing, so purchasers marketing pulp material were
not eligible for market related contract term additions. The principal
cause of this anomaly was due to the location along the great lakes and
Canadian border, where competition from cheaper imported wood chips was
driving prices down. As a result of these factors, purchasers in the
Lake States area were faced with high bid prices on their existing
contracts, low product prices, and no MRCTA to provide additional time
for markets to recover or to mix the higher priced timber with lower
priced timber for other sources. The MRCTA procedures were not
functioning as expected here.
In another example, the sale of biomass material has been
increasing in recent years with most of that material utilized for
generating electricity in co-generation facilities. A reliable index
for tracking this new product has not been found, so most sales of
biomass material also use the Wood Chips index. Energy prices can
differ substantially in different parts of the country and don't
necessarily follow the Wood Chips index. Consequently, in areas where
energy prices have drastically declined and purchasers are holding high
price timber sale contracts, they are not currently eligible to receive
a MRCTA because the Wood Chips index has not triggered.
The Government benefits if defaulted timber sale contracts, mill
closures, and bankruptcies can be avoided by granting extensions.
Having numerous, economically viable, timber sale purchasers increases
competition for National Forest System timber sales, results in higher
prices paid for such timber, and allows the Forest Service to provide a
continuous supply of timber to the public in accordance with the
Organic Administration Act. In addition, by extending contracts and
avoiding defaults, closures and bankruptcies, the Government avoids the
difficult, lengthy, expensive, and sometimes impossible, process of
collecting default damages.
Therefore, on November 2, 2006, the Deputy Under Secretary of
Agriculture for Natural Resources and Environment determined there was
a Substantial Overriding Public Interest in extending certain National
Forest System timber sale contracts for up to one year, subject to a
maximum total contract length of 10 years. Pursuant to the November 2,
2006, finding, timber sale contracts awarded prior to January 1, 2006,
were eligible for extension and deferral of periodic payment due dates
for up to one year. Contracts that were in breach, have been or were
currently eligible to be extended under MRCTA contract provisions, or
salvage sale contracts that were sold with the objective of harvesting
deteriorating timber were not eligible for extension pursuant to the
November 2, 2006, finding. To receive an extension, purchasers were
required to make a written request to the appropriate Contracting
Officer. Purchasers were also required to agree to release the Forest
Service from all claims and liability if a contract extended pursuant
to the November 2, 2006, finding was suspended, modified, or terminated
in the future.
2007 Market Conditions
Market conditions leading to the November 2, 2006, determination of
Substantial Overriding Public Interest have continued to decline.
Between September 2006, and September 2007, the relative Softwood
Lumber index dropped an additional 9.4 points bringing the total
decline since September 2004 to 57 points or 36.4 percent. Including
the third quarter of calendar year 2007, the Softwood Lumber index has
triggered for MRCTA, an unprecedented nine consecutive calendar
quarters, which is the longest sustained decline since the Forest
Service established the MRCTA procedures in December 1990. Between
September 2006 and September 2007, the relative Hardwood Lumber index
dropped an additional 7.5 points, bringing the total decline since
September 2004 to 26.1 points or 19.1 percent. But, although the
Hardwood Lumber index has steadily declined, the rate of decline has
not been sufficient to trigger MRCTA for sales awarded since January 1,
2006. Between September 2006 and September 2007, the Wood Chips index
continued an upward trend. In recognition of the seriousness of the
market problems, the State of Minnesota and some counties within
Minnesota have provided price relief to purchasers of their sales. The
U.S. Forest Service has no statutory authority at this time to provide
price relief but can offer additional contract time based on a
determination of Substantial Overriding Public Interest.
Determination of Substantial Overriding Public Interest
The Government benefits if defaulted timber sale contracts, mill
closures, and bankruptcies can be avoided over large geographic areas
by granting extensions. Having numerous, economically viable, timber
sale purchasers increases competition for National Forest System timber
sales, results in higher prices paid for such timber, and allows the
Forest Service to provide a continuous supply of timber to the public
in
[[Page 64994]]
accordance with the Organic Administration Act. In addition, by
extending contracts and avoiding defaults, closures and bankruptcies,
the Government avoids the difficult, lengthy, expensive, and sometimes
impossible, process of collecting default damages.
Therefore, pursuant to 16 U.S.C. 472a, and the authority delegated
to me at 7 CFR 2.60, I have determined that it is in the Substantial
Overriding Public Interest to extend for up to one year certain
National Forest System timber sales that were awarded prior to January
1, 2007. This finding does not apply to (1) contracts that have been or
are currently eligible to be extended under MRCTA contract provisions,
except sales using the Hardwood Lumber index that were awarded after
December 31, 2005, (2) salvage sale contracts that were sold with the
objective of harvesting deteriorating timber, (3) contracts the Forest
Service determines are in urgent need of harvesting due to
deteriorating timber conditions that have developed following award of
the contract, or (4) contracts that are in breach. Total contract
length shall not exceed 10 years as a result of this extension. For
those contracts extended pursuant to this finding, periodic payments
due after the date of this determination will also be deferred for up
to one year. To receive the extension and periodic payment deferral,
purchasers must make written request and agree to release the Forest
Service from all claims and liability if a contract extended pursuant
to this finding is suspended, modified, or terminated in the future.
Dated: November 2, 2007.
Abigail R. Kimbell,
Chief.
[FR Doc. E7-22534 Filed 11-16-07; 8:45 am]
BILLING CODE 3410-11-P