Tasmanian Times

Economy

Södra’s profits at risk

TONY SADDINGTON TAP into a Better Tasmania

Södra’s profits at risk should the Swedish company decide to invest in Gunns’ pulp mill planned for the Tamar Valley, Tasmania

The community through its organisation TAP into a Better Tasmania has pointed out a significant and undisclosed risk to Södra’s bottom line should the company decide to invest in Gunns’ pulp mill planned for the Tamar Valley, Tasmania.

Spokesman for TAP Into Better Tasmania, Mr Tony Saddington, said that “It is unlikely that Gunns has pointed out their dependency on direct and indirect government subsidies because Gunns has neither reported on these in its Integrated Impact Statement nor report the subsidies in their books”.

“Given the scale of these subsidies, their potential loss to Gunns and forestry in Tasmania poses a significant risk to the future value of Södra’s investment as the global financial downturn forces governments to look for ways to cut back on expenditure.” he continued.

Mr Saddington said that “Governments are coming under increasing pressure as a result of the global financial crisis to reign in spending, recoup costs and reduce subsidies in the face of backlash from voters who are increasingly angry with the loss of essential services”.

“The dependence on subsidies means that neither Gunns nor Södra can guarantee the future bottom line profitability of the proposed pulp mill. Professional business consultants have advised us that the most responsible decision for Södra is to wait until the scale and type of subsidies is clear and the risks clarified,” he continued.

Mr Saddington said that “The profitability of Gunns Ltd has long been artificially propped up with a wide range of taxpayer subsidies and a cash subset of forestry related subsidies have also been identified in an independent study by economist Graeme Wells”, (http://oldtt.pixelkey.biz/images/uploads/WELLS_ECONOMIC_REPORT.pdf).

TAP estimates subsidies for the pulp mill project and forestry to include losses to other businesses and the community of more than $3.1bn, one time diversion of taxpayer dollars of $399m (so far) and ongoing subsidies of $360m/year (http://tapvision.info/node/435).

TAP Into a Better Tasmania was not included in Södra’s recent investigation of Gunns’ project but has written to the CEO of Södra Mr Leif Brodon outlining the investment risks.

Mr Saddington said “The scale of many subsidies is not precisely known as there has been no socio-economic and environmental analysis of the pulp mill proposal or an analysis of cost side of a cost-benefit study. Neither has there been a risk assessment to Australian Treasury standards of the pulp mill project.”

Consultant Sweco Pic’s assessment of the project “does not include … noise emissions, impacts on surface or estuarine waters, effects on flora and fauna, transport implications and social and economic effects, and does not include construction impacts and does not include impacts from off-site infrastructure development such as raw water supply pipeline, effluent pipeline or quarry” (p12 Assessment of the Gunns Limited Bell Bay Pulp Mill Against the Environmental Emission Limit Guidelines, 25 June 2007)

There is considerable community disquiet about the assessment of the project with only 26% agreeing with the Government’s fast-track process, 64% disagreeing and 10% unsure (8 August 2007 EMRS statewide poll. (See http://tapvision.info/node/413).

Also, 26 of 27 opinion polls conducted from 2005 to the present show a majority of Tasmanians and Australians are opposed to a Gunns’ pulp mill in the Tamar Valley. Only one poll in George Town near the proposed pulp mill, showed majority support (53% to 47%) in February 2008.

Web www.tapvision.info

Appendix

Whilst it has not been possible to produce precise figures for all subsidies to Gunns and the forestry industry, it is clear that the level is very high. The global financial downturn and a decline taxpayer in funded support poses a significant risk to Södra’s future bottom line.

Some opportunity costs and subsidies for forestry and the proposed pulp mill include:

1. Logging operations (research, building and maintaining roads, bridges). Greater than $65m/yr.

2. Resource use (free water use by plantations, transportation subsidies for heavy truck traffic). $176m/yr.

3. Provision of infrastructure (rail, pipelines highway upgrades). One time costs = $376m, annual cost = $19m/yr.

4. Pulp mill project promotion, planning and review. One time costs = $14m.

5. Direct government assistance to logging industry (plantation establishment schemes, favourable loan agreements, economically inefficient pricing policies, taxation policies and direct and indirect financial assistance) over past 10 years = $632.8m. See Graeme Wells report at (http://oldtt.pixelkey.biz/images/uploads/WELLS_ECONOMIC_REPORT.pdf)

6. Indirect costs (health impacts on communities, losses to 2600 tourism and related businesses in Launceston and the Tamar Valley, loss of agricultural land to plantations, losses to 77 fine food and winery related businesses in the Tamar Valley, risks to Bass Strait fishing industry). Largely unknown but exceeds $1.1bn/yr.

7. Carbon trading losses ($165m/year).

8. Electricity subsidies (to Gunns and major contract users in the wood processing sector). Unknown.

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7 Comments

7 Comments

  1. Mike Cassidy

    June 17, 2009 at 2:01 am

    Thanks Sven #3 for critiquing the numbers of the George town elector poll. However, your point that the results are not accurate misses the impact of the undecided votes on the final result expressed as on a &#xye;s and &#xno; basis.

    In the poll, 36.03% had not made up their mind or were unwilling to express an opinion by voting.

    The proportional redistribution of the 36% group on a two answer preferred basis results in 53% in favour to 47% against (when rounded off) as reported in TAP’s media release.

    These numbers were chosen to portray as best as possible the preferences of George town electors.

    It would be interesting to see numbers adjusted for double voting.

  2. Mike Adams

    June 15, 2009 at 10:16 pm

    Sodra’s media release was the best news we’ve had for months.
    We have an environmentally responsible company – Swedish as well,- with all that implies as a highly civilised society, effectively telling Gunns Ltd and by implication the Tasmanian State government and opposition that they are grossly out of order and acting like primitives.
    it would be a pleasure to have Sodra have the same influence over our pollies as Gunns has.

  3. Tony Saddington

    June 15, 2009 at 7:28 pm

    Thanks Sven. Your sharp eye picked up the finer details.
    All has now been corrected and resent with apologies to Sodra’s CEO.

  4. Factfinder

    June 14, 2009 at 5:23 pm

    You made some very valid points here Garry Mander #1
    Re: FSC
    http://www.fsc.org and http://www.fscaustralia.org
    The Forest Stewardship Council (FSC) is an international non-profit, multi-stakeholder organization established in 1993 to promote responsible management of the world’s forests. Its main tools for achieving this are standard setting, independent certification and labeling of forest products. This offers customers around the world the ability to choose products from socially and environmentally responsible forestry.

    Q & A:
    What changes do FSC rules require foresters to make?
    The FSC Principles and Criteria describe how the forests have to be managed to meet the social, economic, ecological, cultural and spiritual needs of present and future generations. They include managerial aspects as well as environmental and social requirements. In fact FSC rules are the strictest and FSC’s social and environmental requirements the highest.

    The 10 principles and 56 criteria form the basis for all FSC forest management standards. Based on these 10 principles, the FSC has developed further rules (called policies or standards) that further define and explain certain requirements stipulated in the 10 principles.

    Here is a summary of some of the points the FSC Principles and Criteria require. Many of the points listed below will appear almost basic – but in many places, even these basic requirements are not fulfilled. This is where FSC can have the biggest positive impact.

    <> Prohibit conversion of forests or any other natural habitat
    <>Respect of international workers rights
    <>Prohibition of use of hazardous chemicals
    <>Respect of Human Rights with particular attention to indigenous peoples
    <>No corruption – follow all applicable laws
    <>Identification and appropriate management of areas that need special protection (e.g. cultural or sacred sites, habitat of endangered animals or plants)

    Can all plantations seek FSC certification?
    No. Only plantations established before the FSC Principles and Criteria were agreed to in 1994, or established on degraded lands (reforestation) or substituting agricultural uses can be certified to FSC standards. This is currently being reviewed in the FSC Plantations Review.
    —-
    Who decided that FSC should certify plantations and how was that decision made?
    After much debate, the FSC membership recognized that there is a continuum of conditions between natural forests and plantations, varying from very diverse and complex natural systems to simpler man-made plantations.

    In 1995, the FSC membership voted a majority of 98% in favor of adopting Principle 10 for plantations – in addition to Principles 1-9 for plantation management. As with all FSC membership voting, it must have a majority vote in each sub-chamber: social, environmental and economic members for North and South.
    —-
    What exactly are plantations?
    Plantations are forest areas that lack most of the principal characteristics and key elements of native ecosystems, which result from the human activities of either planting, sowing or intensive silvicultural treatments.

  5. Sven Wiener

    June 14, 2009 at 4:29 pm

    That 2008 George Town Council pulp mill elector poll result has been misquoted. Rather than 53% in favour to 47% against as reported in this article’s TAP media release, the result was actually 52.3% in favour of the pulp mill to 47.7% against:
    http://www.electoral.tas.gov.au/pages/Media/PDF/LG/08GT_EP_Result.pdf

    So more accurately presented as 52% to 48% and the difference for interpretation could be highly significant when the overseas audience has little other background regarding the pulp mill saga and is concerned with that “the majority has the final say”.

    I would have thought TAP would get that right in what they present to the public both in Tasmania and in Sweden.

    Perhaps TAP could have pointed out too that 10% of George Town Council electors are those on the General Managers Roll. These include some George Town Municipality residents who will have had two votes in that elector poll, most notably a large number of business owners in the township of George Town who generally are very keen to have the pulp mill go ahead.

    So the “even a narrow majority has the final say” argument is further undermined by the fact that the result isn’t for a one-person-gets-one-vote competition.

    Mercury newspaper Chief Reporter, Sue Neales’ assessment at the time, of “George Town is a divided town on the pulp mill issue” seemed very much spot on.

  6. Sven Wiener

    June 14, 2009 at 3:44 pm

    Not sure why the Sodra CEO’s surname keeps being misspelled in TAP’s media releases. I don’t think this would be a good look. I ask TAP to please get this right as foreigners seem particularly sensitive to misspelling of their names. I presume the error was from Tony Saddington who is quoted in the media release though possibly it was instead from TAP’s Mike Cassidy who does a lot of drafting of their media releases.

    Unfortunately TAP email mailing list subscribers are now being asked in a TAP emailout today (Monday 15June2009), to replicate this mistake in their emails to the Swedish media. I would encourage them to be a bit more thoughtful and correct the spelling of Mr Broden’s surname.

    Even if accents above letters are missed out, the reception by Sodra staff and management will be far better with that small attention to detail. The Swedish media might even presume that if TAP members are that inattentive to simple details, that further information from them about the pulp mill is also poorly thought through or that they don’t really care whether its truthful.

  7. Gerry Mander

    June 14, 2009 at 1:42 pm

    There are one or two other factors that do not appear in Gunns reports and are particularly apposite.

    Sodra wishes to apply environmental standards to the investment in this mill and only wish to use TCF processig on plantation timber. They are probably not aware that the plantation timber in question has been acquired by the destruction of native forests and conversion to e.nitens under the stewardship of Forestry Tasmania and that currently the PAL Act is gobbling up viable farming land and depopulating rural areas for this purpose.

    Under their environmental standards, do the also aquiesce to the levels of chemical spraying that are applied here in Tasmania, where in Europe, many of these chemicals used are banned?

    Tasmania is a very small island and to construct one of the largest pulp mills in the world on such a diminutive area can only have disasterous consequences for the future eco-health of the place.

    Do they also realise that Gunns recently sold off a considerable amount of its SA plantation holdings to finance its current debt obligations, but this is only a hedge, as there is a buy-back clause attached that will cost them at least $200 million in a couple of years from now.

    And finally, are they aware that the big cash cow for Gunns will continue to be the destruction of Old Growth at reckless prices for woodchip export to Japan? It is not possible to separate the two sides of this business without a drastic reconstrucion of the company, and to only buy into one arm of the company and ignore the other is not exactly environmentally friendly?

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