MAY 1996 · VOLUME 17 · NUMBER 5
E D I T O R I A L
MAY 1996 · VOLUME 17 · NUMBER 5
E D I T O R I A L
In a deal that makes the Russians who sold Alaska to the United States for $7.2 million in 1872 look like savvy negotiators, the U.S. Forest Service now sells the rights to log the 5.7-million-acre Tongass National Forest in southeastern Alaska to a Louisiana-Pacific subsidiary at a major loss.
With Louisiana-Pacific, supported by the U.S. Senators from Alaska, Frank Murkowski and Ted Stevens, demanding an extension of the contract that costs U.S. taxpayers millions, it is time for U.S. citizens to demand an end to Louisiana-Pacific's looting of the public till.
The Ketchikan Pulp Company, wholly owned by Louisiana-Pacific, has an exclusive, 50-year contract to log vast tracts of the Tongass, the largest remaining temperate rainforest in the world.
Since the 50-year contract guarantees the Louisiana-Pacific subsidiary uncontested access to its designated portion of the forest, there is no auction process to determine how much the logs the company cuts are worth. The contract therefore requires the Ketchikan Pulp Company to pay for the logs it takes out of the forest (a "stumpage price") based on a formula that is supposed to guarantee the company a fair but not excessive profit. In fact, the formula works spectacularly in Ketchikan Pulp's favor: from 1991 to 1994, the company paid approximately half as much for timber as did independent loggers working in the same area.
It gets better yet for the Louisiana-Pacific subsidiary: the company "pays" most of the stumpage price in "road credits" -- the estimated value of the logging roads it needs to cut timber. The Forest Service rationalizes that the public will use these roads to hike, hunt and fish -- in the areas the Ketchikan Pulp Company has clearcut -- and therefore accepts them as payment.
When cash payments only are considered, the Ketchikan Pulp Company paid approximately one-fourteenth the stumpage price of independent loggers ($6.95 per 1,000 board feet versus $97.09).
This super-discounted price is worse than just a giveaway of public assets; because the Forest Service spends millions building roads and otherwise preparing the land for timber cutting, it actually loses money on the timber sale. In fact, the Forest Service loses money on almost every national forest for this reason, but the losses at the Tongass are double those lost in any other national forest. Between 1992 and 1994, the Forest Service lost $102 million on the Tongass.
There are other, non-monetized costs associated with Louisiana-Pacific's operations. The Ketchikan pulp mill at which the company processes the timber is obsolete and was rated the second worst water polluter in the U.S. Northwest in 1993, the latest year for which Environmental Protection Agency data is available. The mill is also a major air polluter.
Last year, the Ketchikan Pulp Company pled guilty to one felony and 13 misdemeanor counts for intentionally dumping pollutants into Alaska's Ward Cove. The company paid $3 million in criminal fines and $3.11 million in civil penalties for hundreds of violations of the Clean Air and Clean Water Acts, and agreed to upgrade its facility.
To justify the investment in the facility upgrade needed to bring it into compliance with the law, Louisiana-Pacific -- the most profitable company in the U.S. forest products industry in 1995 -- says it needs an extension of its exclusive contract, which is scheduled to expire in 2004. Without an extension, the company says, it will have to shut down its mill.
That is a threat to which the federal government should not succumb, not least because the company has made similar empty threats in 1976 (the company itself subsequently called the threat a "publicity stunt"), 1983, 1984, 1992, 1993 and 1995.
Even if Louisiana-Pacific is serious about carrying out the threat, the government should not capitulate to the company's demands. Louisiana-Pacific has fed at the public trough through its subsidiary long enough, and done enough harm to the environment and public health; it certainly should not be rewarded for its past performance with further treasury-depleting subsidies.
In fact, rather than waiting almost another decade to reconsider the issue, the federal government should investigate immediate cancellation of the contract. The Forest Service formally notified the Ketchikan Pulp Company in a December 1995 letter that the company's criminal and civil pollution violations placed it in breach of its contract with the Forest Service. That material breach could provide the legal basis for canceling the contract, thus putting an end to Louisiana-Pacific's Alaska Heist.