ifc__dnr_log_storage_lease__dh__41309 by lsy121925


									                            ITEM FOR CONSIDERATION
                                    BY THE
                         BOARD OF PORT COMMISSIONERS

April 13, 2009


The Port has been working with the Department of Natural Resources regarding log storage
leases in the Port Angeles harbor over the last several years. The Port’s interest has been
to support the local timber industry and to ensure that cost effective waterborne
transportation remains a viable option for companies to get their product to market whether
that movement is inbound or out bound. Past log storage leases have been in the form of
either direct leases to tug operators and/or sub leases through Daishowa/Nippon. The Port
has monitored the situation as Nippon has attempted to terminate their existing harbor
area/log storage leases with the understanding that if necessary, the Port would step into
the role of a lessee with the Department of Natural Resources to protect the long term
interests of maintaining the capability of log storage as well as preserving the infrastructure
that has been established.

In early 2009, Nippon and the Department reached a settlement whereby Nippon
terminated their lease under a tolling agreement. The current tug company, Dunlap Towing
of La Conner, had been sub-leasing from Nippon, but has not been willing or able to
negotiate a suitable direct lease with the Department of Natural Resources. Port staff has
been working with the Department of Natural Resources to enter into lease with a separate
operating agreement with Dunlap and at one point had a tentative agreement in place
between the three parties and was prepared to seek approval by the Commission to enter
into a five (5) year lease with the Department of Natural Resources. At the last moment,
the Port was notified by Dunlap that because of the ongoing economic uncertainties, they
had decided to lay off its Port Angeles tug crew and they would not enter into any operating
agreement, especially with a commitment of five (5) years. The original 5 year lease as
proposed would have committed the Port to an annual rent of approximately $12,500 per
year along with ongoing maintenance of the area as well as a commitment to do a site
evaluation for wood waste at the end of the lease. The site evaluation which entailed sonar,
dives and mapping was estimated to cost between $35,000 and $50,000. It was
anticipated that the cost of the lease, maintenance and compliance evaluation would have
been recovered through the operating agreement with Dunlap. If no such agreement is
reached, then the infrastructure of buoys, piling and log booms would have to be removed

                                                                                       VI. A. 1
The local timber industry representatives have continued to solicit support from the Port to
move forward with a lease with the Department of Natural Resources despite Dunlap’s
latest business decision and have appeared before the Commission at previous meetings
and has also expressed their concerns to Commissioner of Public Lands, Peter Goldmark
when he visited Port Angeles in early March.

Staff has been continuing negotiations with Department of Natural Resources staff to find a
solution that would protect the infrastructure as well as ease the financial burden and
commitment a five-year agreement represents, in light of potentially no revenue to cover the
cost. If no activity took place, the financial impact would be somewhere in excess of
$100,000 to the Port.

Staff has negotiated a draft proposal that would allow for the Port to enter into a year to
year lease, with options to renew up to a total of five (5) years. As part of that proposal, only
during the first one year term, if the Port utilizes the area for no more than thirty (30) days
and the lease is not renewed, no close out compliance monitoring will be required. This
limits the Port’s potential financial liability to the $12,500 in the first year lease along with
some ongoing maintenance of booms. If the movement of logs picks up with a recovering
economy, then the Port can decide to renew the lease for an additional four (4) years and
seek financial payback from an operating agreement with a tug operator. If activity
rebounds, there should be suitable revenue to cover the cost of the lease and other
associated commitments. If, after one year there is no longer any interest or there is not
sufficient economic recovery, the Port can choose to terminate the agreement. The
proposal as presented would be retroactive to January 1, 2009.

The proposal has been negotiated in good faith by Port and Department of Natural
Resources staffs, but has not yet received approval by either the Port Commission or the
Office of the Commissioner of Public Lands. It does provide an option to limit the Port’s
exposure and maintain its efforts to support a struggling timber industry. It does however
come with some cost, that being the basic lease cost and some maintenance that may or
not be able to be recovered through operating revenues. The Department of Natural
Resources is willing to move the proposal along simultaneously with the Port Commissions
consideration. If the Commission is supportive of the concept, an agreement may be ready
for signature prior to the next Commission meeting.

Depending on the option chosen by the Port, there may or may not be any environmental
impact. If the Port chooses to move forward with a limited one-year lease agreement and
activity is less than 30 days, there will be no requirement for an environmental compliance
assessment. The improvements such as anchors and piling will become the responsibility of
the Port to remove at the end of a lease; however they may well have positive mitigation
value for other waterfront projects.

As part of the current proposal under consideration, the Port has already completed a
baseline survey to understand the status of the are to be leased. That baseline information
has been reviewed by an environmental consultant familiar with Port operations (Floyd
                                                                                    VI. A. 2
If the Port does not move forward with an agreement, then the Department of Natural
Resources will require that the previous lessee remove the infrastructure at which point any
future log storage activity will be subject to new permits and new regulations related to
anchor design and placement. A new log storage permit could take several months to be

Depending on the option, the fiscal impact could range from a minimum of $12,500 to well
over $100,000. There will be an effort to generate revenue to offset the costs, but in the
current financial climate that revenue could be problematic. On a positive note, if in one
year there is a recovery in the timber industry, there could be sufficient revenue to offset the
cost of longer term lease.

Staff recommends that the Commission approve the concept of a one-year lease with
options to renew up to a total of 5 years as outlined above. In addition, the Staff requests
that the Commission give authority to the Executive Director to sign such agreement if, in
the opinion of the Executive Director, such final document is consistent with what has been

                                                                                        VI. A. 3

To top