Language in Section 2(b)(3) states that KPC plans to make envi- 

 ronmental and operational improvements to its facility. Language 

 in Section 2(b)(4) states that 15 years is the minimum reasonable 

 contract extension period necessary to allow for amortization of 

 these improvements. The bill requires that the government con- 

 tinue a contractual relationship with KPC in order to assure that 

 investments made by KPC can be amortized. An arrangement of 

 this kind between the government and a private corporation to sub- 

 stantially reduce business risk associated with improvements made 

 to a private facility is, to say the least, unusual. We are concerned 

 that this may create a precedent. 



The bill contains provisions that are unclear, problematic, or sub- 

 ject to ongoing litigation. Section 2(a) contains problematic defini- 

 tions, such as definitions of the contract, the term mid-market and 

 proportionality. Language in Section 2(c)(2) concerning the sale of- 

 fering plan would effectively put the contract above the land man- 

 agement plan. Language in Section 2(c)(3) and 2(e) would put into 

 law volume requirements currently disputed in litigation. Lan- 

 guage in Section 2(c)(4) requiring that contract stumpage rates not 

 place the purchasers at a "competitive disadvantage to similar en- 

 terprises in the Pacific Northwest" is legally inexact and certainly 

 would lead to extensive litigation. Language in Section 2(c)(7) 

 would compromise the Chiefs ability to terminate the contract to 

 prevent serious environmental damage, serious damage to cultural 

 resources or should the contract be significantly inconsistent with 

 land management plans adopted or advised. These are provisions 

 that are common to all timber sale contracts. 



I would submit, Mr. Chairman, that through the revision of the 

 land management plan, we believe we will be better equipped to 

 assure the sustainability of resources reflecting sound scientific in- 

 formation and extensive public input once the revision process is 

 completed. We believe we will have better information on which to 

 base decisions about future long-term commitments to the timber- 

 related industries in Southeast once the negotiation process is com- 

 pleted. 



One of the significant factors to be taken into consideration in 

 any discussion with KPC related to contract extension is the pend- 

 ing litigation against the United States. KPC is currently pursuing 

 four claims against the United States, claiming approximately $350 

 million in damages. While KPC is suing the United States over the 

 interpretation of the provisions of the original contract and the 

 changes brought about in the Tongass Timber Reform Act, it is dif- 

 ficult for the Administration to consider entering into any new ar- 

 rangement with them. 



We would welcome a broad-based discussion of future timber in- 

 dustry opportunities in Southeast Alaska, as well as discussion 

 with KPC, but we object to the bill's attempt to circumvent the 

 planning process, the conflicts it creates with Tongass Timber Re- 

 form Act, and the manner in which it obligates the resources of the 

 Tongass to one company for one purpose only without a thorough 

 analysis and additional discussion of options. 



This concludes my testimony, Mr. Chairman. We would be 

 pleased to attempt to answer questions. Thank you. 



[Statement of James Lyons may be found at end of hearing.] 



