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Published on 4/6/2005 in the Prospect News Distressed Debt Daily.

Board blocks expanded Pacific Lumber logging in two watersheds

By Ted A. Knutson

Washington, April 6 - The (California) State Water Resources Control Board put an indefinite stay on a March 16 order by the California North Coast Regional Water Quality Control Board giving The Pacific Lumber Co. permission to expand logging on its acreage in the Freshwater and Elk River watershed to 75% from 50%.

The stay takes effect immediately. The Water Resources Control Board is likely to hold a hearing on whether to make the stay permanent in 30 days, according to an agency spokesperson.

Palco has contended it needs to expand its cutting authority to at least 80% to pay interest due July 20 on $750 million of timber notes and to avoid bankruptcy.

The state board's action came on an appeal of the regional agency's ruling by the Humboldt Watershed Council, the Environmental Protection Information Center and the Sierra Club.

In his ruling, State Water Resources Control Board member and hearing officer Richard Katz said there is persuasive evidence that expanded timber harvesting by Palco would result in substantial harm.

"The record contains ample evidence that flooding and other water quality problems have been exacerbated by clear-cutting in the drainage," said Katz.

The hearing officer chastised Palco for failing to cooperate with the Regional Water Quality Control Board in coming up with a plan to minimize damage from the logging.

While Palco said it could face bankruptcy if it cannot expand its logging, Katz contends in his report that "Palco's action(s) are the underlying cause of any financial problems it faces."

A Palco representative was unavailable for comment.


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