Mill: doing the sums

Andrew Bent* An attempt to discover just how much Paul is paying John, based on contributions to: Your taxes at work: let’s add it up

It’s pretty clear that the level of subsidies is very high, particularly for an activity that generates so few jobs per $million invested, and that produces such small returns from valuable resources.

I CANNOT distinguish the subsidies provided for the pulp mill from other subsidies provided to loggers. Prices are also difficult to calculate because the government is keeping the figures relatively secret and because much of the cost relief goes totally unreported e.g. costs of roads and bridges.

It’s pretty clear that the level of subsidies is very high, particularly for an activity that generates so few jobs per $million invested, and that produces such small returns from valuable resources. ‘Valleywatcher’ (Your taxes at work: let’s add it up ) pointed out that just the water for the mill alone, at 26 Gl/yr, would be worth $2.6 bn/yr if it were cleaned to drinking standards and sold at 10c/litre, so that’s an interesting point of comparison.

Overall, the forestry industry appears to remove resources worth about 10 units and return about 1 unit in exchange, such a poor return that they need major subsidies to keep going. This is played out each time they chip a celery top/myrtle/blackwood tree worth $1,000 and produce about $100 worth of woodchips from it.

On rough estimates it is concievable that $360 million flows to Gunns every year, representing $1 million per day, every day every month every year for decades! $1 million a day is $2 per day for every man, woman & child in the state, or $3,600 yr from the 100,000 taxpayers.

Part of the reason this is all happening is probably due to the lack of reporting on the magnitude of the costs to the public, coupled with the division of subsidies into so many different categories, governments and portfolios. In addition the industry enjoys multiple exclusions from laws and regulations that apply to everyone else, thus their costs are significantly lower in any case. I’ve started a list at the end of my article.

I’ve tried to add in everything that I have listed to create a better picture of total subsidies.

Apologies to readers who reminded of things like ‘the Auspine deal’ etc but I’m afraid that without some ideas of the money, I haven’t been able to incorporate those ideas into this brief article.
The purpose of this article is to provide integrated information to start a useful conversation about the costs of these subsidies.

I therefore invite all readers with source referenced or logically derived figures/assumptions/calculations to advise TT so that we can make this list as accurate as possible and up to date and replace as many estimates as possible.

Because of the lack of transparency by governments I’ve had to make a number of assumptions about what each of the resources etc. are actually worth. In addition there are two major types of cost, direct costs and indirect, I’ve included estimated opportunity costs in indirect costs to try to keep the job relatively simple.

With those many caveats, here’s my best effort at figuring out what the total subsidies to Gunns actually are. I have not discounted them in any way as they do represent something close to the amount of money either being lost, foregone (no revenues collected) or provided directly to the industry.

I’ve allowed 200 t/ha as production from forests and plantations

Logging operations
• Logging roads and bridge building – ANNUAL $30 m (via Forestry Tasmania – estimate $30 m/yr)
• Road & bridge maintenance – ANNUAL $20 m (via local councils – estimate $20 m/yr)
• Forestry research & services – ANNUAL $15 m (Forestry Tasmania estimate $5 m/yr)
• Other FT services that benefit Gunns ($10 m/yr)
TOTAL ANNUAL THIS CATEGORY: $65 m per year

Resource supplies & transportation
• Trees from forests – ANNUAL $80 m lost value ($15/t ex Forestry Tasmania vs. est. value as carbon sink $35/t vs firewood $50 t. Est. Gunns needs about 4 million t/yr)
• Trees from plantations – No estimate ($32/t ex Forestry Tasmania vs cost $34/t Gunns prospectus)
• Plantation land acquisition and management – ANNUAL $80 m subsidy (MIS federal, about $3,200 ha, 25,000 ha/yr)
• Water used by tree plantations – ANNUAL $16 m (@ $32 Ml) (2Ml/ha/yr, assume plantation estate of 250,000 ha)
• Water proposed for pulp mill operations – ANNUAL $182,000 (at $7 diff/Ml) (26 – 40 Gl/yr, $25 Ml to Gunns vs. $32 Ml to Esk Water)
• Pine transported to Scottsdale $4m – $4 m one time cost
TOTAL ANNUAL THIS CATEGORY: $176 m per year
TOTAL ONE TIME: $4 m

Provision of infrastructures
• Railways – CAPITAL $120m (federal $120 m)
• Pipeline – CAPITAL $100 m (State govt $60 – 200m)
• E. Tamar Hwy upgrade CAPITAL $80 m (federal $80 million)
• W Tamar Hwy upgrade CAPITAL $60 m (federal $60 million)
Meander Dam construction component CAPITAL $16m (Gunns share 40% = $16 m)
• Maintanance of all of above est. at 5% of capital per year
TOTAL ONE TIME COSTS: $376 m
TOTAL ANNUAL MAINTENANCE, @ 5% $19 m

Project promotion, planning and review
• Pulp mill promotional bus ONE TIME COST $1m (est $1m)
• Pulp mill taskforce ONE TIME COST $6 m (est $6m)
• Federal grant for IIS development ONE TIME COST $5m State grant for IIS development ONE TIME COST $6 m
• RPDC costs ONE TIME COST $3m ; (fed/state estimate $3m)
• MLC pulp mill tour ONE TIME COST $70,000 (7 MLCs, est. $10,000 ea)
• Gunns lobbyists fares/expenses to lobby MLCs ONE TIME COST $50 k ($50,000)
• Sweco Pic ‘assessment’ ONE TIME COST $.5 m
• ITS Global assessment ONE TIME COST $.3 m
TOTAL ONE TIME COSTS: $19 m

Direct grants to logging industry
• CFA and other federal grants (estimate total $1 bn over 10 years, used avge $100m/yr) Average cash subsidies about $100 m per year
TOTAL ANNUAL COSTS: $100 m

Damage
• Health effects of overspray (unknown costs)
• Health effects of toxins in drinking water (unknown costs)
• Deaths/illnesses from microparticulates (unknown costs)
• Property devaluation – @ 20% ONE TIME LOSS TO COMMUNITY $4 bn (80,000 houses @ $250,000) at 20% loss = $4 bn
• Loss of agricultural production ANNUAL LOSSES OF > $1 bn/yr (450,000 ha produces $2.5 bn inc downstream proc) so another 200,000 ha of plantation would cut income by over $1 bn per year)
• Loss to tourism @ 10% of total ANNUAL LOSS $100,000 Tourism worth about $1 bn/yr to Tasmania

TOTAL LOSSES ONE TIME $4 bn

TOTAL ANNUAL LOSSES $1.1 bn

Annual costs estimated at $360 m
One up capital costs (so far) $399 m
Annual opportunity costs to community >$1.1 bn
One time losses (property prices) $4 bn

Costs to public of preparing submissions
600 submissions – $200 – $5,000 each (unknown total)

Exemptions that give forestry a massive edge over all other industries competing for the same resources
Exempt from
• Land Use and Planning Act
• Environmental Protection Act
• Freedom of Information Act

Public services that Lennon government has said they cannot afford include:
Health, Public Housing, education services, Disability Services, Road & Rail funding, the Environment, Nature Conservation e.g. the Devil tumours, Macquarie Island, Chytrid disease in frogs, protecting threatened species like Orange-bellied Parrots etc.

Abbrev
Ml = Megalitre (1,000,000 litres)
Gl = Gigalitre (1,000 Ml)
Est. = estimated
Ha = Hectare
diff = Difference (as between two values)
bn = billion
m = million
k = thousand
avge = average

*”Andrew Bent “ is a Tasmanian writer who examined the contributions with the aid of an analyst. He/She wishes to remain anonymous. The real Andrew Bent was a 19th century Tasmanian journalist.