[Federal Register: November 13, 2006 (Volume 71, Number 218)]
[Notices]
[Page 66160-66162]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr13no06-25]
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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, 2006, the Deputy Under Secretary of Agriculture
for Natural Resources and Environment 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, 2006, finding,
timber sale contracts awarded prior to January 1, 2006, are eligible
for extension and deferral of periodic payment due dates for up to one
year. Contracts that are in breach, have been or are currently eligible
to be extended under market related contract term addition contract
provisions, or salvage sale contracts that were sold with the objective
of harvesting deteriorating timber are not eligible for extension
pursuant to the November 2, 2006, finding. 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, 2006, 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, 2006, by the Deputy
Under Secretary of Agriculture for Natural Resources and Environment.
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 2-3 years, although a few
contracts have terms of 5 or more years.
Rules at 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 about September 2004 and was still on a downward
trend as of September 2006 with the softwood lumber index decreasing by
about 31% and the hardwood lumber index decreasing by about 14% during
this time. While most purchasers holding contracts with those indices
have received or are eligible to receive market related contract term
additions, an anomoly in the wood 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 at 7 CFR
2.59.
Accordingly, based on a current study, the Deputy Under Secretary
has made a finding that there is a substantial overriding public
interest in extending certain sales for up to one year. This
determination does not apply to contracts that were previously extended
or that are currently eligible to be extended under market related
contract term addition provisions, to salvage sale contracts that were
sold with the objective of harvesting deteriorating timber, or to
timber sale contracts that are in breach. In addition to extending
contracts pursuant to the Deputy Under Secretary'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
[[Page 66161]]
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 Deputy Under Secretary's November 2, 2006
finding. The text of the finding, as signed by the Deputy Under
Secretary of Agriculture for Natural Resources and Environment is set
out at the end of this notice.
Dated: November 6, 2006.
Frederick Norbury,
Associate Deputy Chief for NFS.
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 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, authorize extensions of timber sale contracts up to
one additional year when qualifying market conditions are met. When
the market related contract term addition procedures were
established, experience indicated that the type and magnitude of
lumber market declines that would trigger market related contract
term additions 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 market related contract term
additions. Meanwhile, purchasers in other parts of the country were
facing defaults, mill closures, and bankruptcies, but were not
eligible for market related contract term additions. 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 market
related contract term adjustments. The Forest Service also initiated
a study of the market related contract term addition 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 3 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.
Recent Market Conditions
The softwood lumber index 0811 began declining after
September 2004 and with adjustments for inflation has declined 47.9
points or 31% as of September 2006. There have been five consecutive
quarters beginning with the third quarter 2005 through the third
quarter 2006 where the quarterly declines have been large enough to
trigger market related contract term additions. This is a
substantially larger decline than the one in the period between
1994-1996 when the index declined about 38 points or 21%. The 1994-
1996 period also was the last time there were 5 consecutive
qualifying quarters for market related contract term additions.
The hardwood lumber index 0812 also began declining
after September 2004, and with adjustments for inflation has
declined 18.6 points or 14% as of September 2006. There were 3
consecutive quarters beginning with the third quarter 2005 through
the first quarter 2006 where the quarterly declines have been large
enough to trigger market related contract term additions equal to
one calendar year plus one normal operating season. The index has
continued to decline in the second and third quarters of 2006, but
the decline has not been sufficient to trigger market related
contract term additions. Consequently, if hardwood prices do not
begin to recover soon, or if conditions for another market related
contract term addition do not trigger, some hardwood purchasers may
begin to face additional hardships as the market related contract
term addition time they previously obtained expires.
Between September 2004 and January 2006, the wood chips index
remained fairly static but has been on a steady rise since then. The
last time the wood chips index had a qualifying quarter was the
third quarter of 1997.
At this time, the market related contract term addition
procedures on softwood lumber and hardwood lumber sales are
generally functioning as expected. Additional contract time that has
been made available, and granted to purchasers who requested it, has
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 are exceptions.
For example, in the lake states area, a combination of factors
has contributed to a more drastic decline in forest product prices
than is occurring in other parts of the country and/or the producer
price indices are not triggering market related contract term
adjustments. The predominant forest products produced in this area
are wood chips used in pulping for paper and oriented strand board
(OSB), hardwood lumber, and a limited amount of softwood lumber. The
pulp and OSB sales use the wood chips index which has not had a
qualifying quarter for market related contract term additions since
1997. National Forest System timber sales in the lake states area
often contain a diverse mix of forest products which attracts strong
competition leading to relatively high bid rates. Problems began in
2005, when wood chip prices and demand declined sharply in response
largely to an increase in cheap imported chips.
Also, OSB is a building product with prices that tend to follow
lumber market prices. While lumber market prices have declined
significantly and the market related contract term addition policy
has been triggered for contracts tied to the lumber indices, no such
trigger has occurred for many of the sales in the lake states area.
That is because most contracts in the lake states area are tied to
the wood chips index, which has not declined, so those purchasers
have not been eligible for market related contract term additions.
Concurrently, lake states area pulp prices have been declining, but
since national wood chip prices have been stable or increasing,
those purchasers have not been eligible for market related contract
term additions. Due to their location along the great lakes and
Canadian border, competition from cheaper imported wood chips has
also adversely affected purchasers in this area. As
[[Page 66162]]
a result of these factors, purchasers in the lake states area are
now faced with high bid prices on their existing contracts, low
product prices, and no market related contract term addition to
provide additional time for markets to recover or to mix the higher
priced timber with lower priced timber for other sources. The market
related contract term addition procedures do not appear to be
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. But, 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 market related contract term addition because
the wood chips index has not triggered.
Determination of Substantial Overriding Public Interest
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, pursuant to 16 U.S.C. 472a, and the authority
delegated to me at 7 CFR 2.59, 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, 2006. This finding does not apply to contracts that
have been or are currently eligible to be extended under market
related contract term addition contract provisions, to salvage sale
contracts that were sold with the objective of harvesting
deteriorating timber, or to 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, 2006.
David P. Tenny
Deputy Under Secretary of Agriculture for Natural Resources and
Environment.
[FR Doc. E6-19102 Filed 11-9-06; 8:45 am]
BILLING CODE 3410-11-P