Graeme Wells, School of Economics and Finance, University of Tasmania. 28.01.11 3:57 am
Last Monday two of the strongest long-time supporters of the Gunns pulp mill ? Ms Giddings and Mr Green ? were installed as Premier and Deputy Premier.
It?s not clear whether Mr Kelty former ACTU boss, who has been given the job of sorting out the forestry mess, has started work. But it didn?t take long for the mill to get back onto the political agenda.
The following day, Ms Giddings expressed her support for the pulp mill development.
Alarm bells should be ringing.
Part of the ABC report of the interview is as follows:
?Tasmania?s new Premier has not ruled out the Government acting as a guarantor for the Gunns pulp mill project. Lara Giddings says the Government has learnt from its previous ?mistakes? in trying to get the controversial Bell Bay pulp mill project approved?1 It isn?t clear which ?mistakes? Ms Giddings is referring to but, in the interests of getting a better outcome this time round, it is worth revisiting the approval process.
I would argue that, in terms of the RPDC guidelines for economic analysis the case ? that Gunns? proposal is in the best interests of Tasmanians ? has never been made.2 Particularly in the present context, it is worth remembering that one of the RPDC requirements was that there should be an examination of ?any government supplied benefits that have or will be supplied to the proponent to make the project viable or reduce its risk exposure?.
Before the RPDC process was scuttled in 2007 a number of analysts, including Naomi Edwards3 and me, warned of the risk to taxpayers arising from the fragility of Gunns? financial model. Apart from the need for ongoing subsidies we pointed out that, in the Tasmanian political environment, the pulp mill would be ?too big to fail? and that, one way or another, taxpayers would be left carrying the can if the real world price of pulp continued its long-term downward trend and/or the Australian dollar continued to appreciate.
Gunns? economic consultants would have none of that sort of talk.
In his expert witness statement to the RPDC, Gunns? consultant Jon Stanford said:
?A number of submissions focus on the supposed financial risks of the pulp mill. My response to this is that it is difficult to see why this is anything other than a matter for Gunns and the company?s financiers. There is no obvious reason why government or the community generally has a legitimate interest in the projected rates of return of major industrial projects.
Obviously if the mill does not go ahead because of financial risks, or if it goes ahead and fails, then the projected economic benefits will not eventuate. I have undertaken a large number of economic impact studies of major investment projects and I have never included an analysis of project risks when evaluating and reporting the economic outcomes.?4
Consider also the ITS Global review, which then Premier Lennon commissioned to avoid tedious consideration of alternative arguments occasioned by public hearings. The reviewers from ITS Global were untroubled by the risk exposure of the mill or the possibility of risk being transferred to taxpayers. They simply asserted that, since the RPDC approval process had been ditched, the RPDC guidelines were ?defunct?.
Music to the ears of the proponents, no doubt.
Mr Kelty has the unenviable task of implementing the Round Table?s ?Statement of Principles?, which falls well short of suggesting a framework for the structure for Tasmania?s forest industry.
Almost certainly, further dollops of taxpayers? money will be required to implement his recommendations.
Before getting too far down the track perhaps he should check with the holders of the purse strings whether he should assume, as the premier does, the future industry should be built around Gunns? pulp mill proposal.
Why?
Because the other party to the current government arrangements ? the Greens ? took an alternative strategy to the last election. See:
Forest Transition Policy: HERE 5
The Greens? policy involved bailing out forest contractors and providing ongoing state taxpayer expenditure averaging $5m per annum to promote downstream processing in a number of smaller plants located in regional forestry towns.
More particularly, their policy did not involve Gunns? proposed pulp mill and it did not involve, as the premier?s statements might imply, government getting into the business of assuming risk on behalf of very large industrial undertakings.
If we really want to learn from past mistakes, as Ms Giddings suggests, then Mr Kelty?s recommendations should be open to serious public scrutiny and analysis well before the taxpayer is asked to sign the cheque.
1. ?New Premier backs pulp mill?, Posted Tue Jan 25, 2011 3:00pm AEDT. 2. See, for instance, 4. Naomi Edwards, ?Too much risk for the reward ? an analysis of the pulp mill returns to the people of Tasmania?, Submission to the Resource Planning and Development Commission, Submission by Naomi Edwards, September 2006. 4. Jon Stanford, Expert witness statement to RPDC, p.14 30 November 2006 5. Disclaimer: I am not a member of the Greens. I completed a consultancy contributing to their Forest Transition policy.
Alison Andrew, Examiner, Friday:
Gunns denies holding talks on plantation sales BY ALISON ANDREWS 28 Jan, 2011 01:00 AM
TASMANIAN timber company Gunns appears to be quietly preparing for a start on its controversial Bell Bay pulp mill early this year.
The company denied yesterday that it was involved in selling off its Tasmanian plantations.
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But it is believed that the company is keen to sell its plantations and lease them back to use the money for clearing more of its debt.
It would also mean that it would not have the ongoing expense of maintaining the plantations while it waits to make a start on the pulp mill.
The Gunns spokesman also declined to comment on whether finance had been locked in before Christmas for mill construction.
He said that when financial arrangements were completed, there would be an announcement to the Australian Securities Exchange, in accordance with compliance regulations.
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Gunns started to shed jobs and sell or shut surplus infrastructure late last year.
Gunns managing director Greg L?Estrange confirmed at the company?s annual general meeting in November that woodchip operations around the state would close.
He had already announced that the company?s last Scottsdale sawmill would close early this year adding to the loss of several hundred jobs.
Its wine, retail and other agricultural interests had been sold earlier in the year.
Mr L?Estrange told shareholders Gunns was confident that it was close to securing a joint venture partner for the pulp mill.
But at that stage he was depending on a sizeable government compensation package for the company pulling out of native forest harvesting as part of Tasmania?s forestry industry reforms.
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Full Examiner story HERE
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