Economy
Forestry: We were warned …
Tom Ellison, then finance writer for The Examiner, raised the alarm bells about Forestry Tasmania’s dismal performance in 2006. He wrote then (excerpt):
Forestry Tasmania appears to be failing in its corporate objectives
When Forestry Tasmania was corporatised in 1995, the intention was to place the organisation on a more commercial footing with a view to driving better returns from the State’s 1.5 million hectares of publicly owned forests.
With a mandate to manage the forest estate for optimum community benefit, Forestry Tasmania also has a stated aim of improving profit performance and returns to its shareholders, the Tasmanian public.
But if the fine print in last week’s State Budget is an indication, Forestry Tasmania is failing in its own corporate objectives.
According to the Budget papers, Forestry Tasmania will return just $1 million in dividends to the State Government in 2006-07 — a massive fall from the $7.8 million expected to be paid in the current year.
Tom recalls that the reaction from Forestry Tasmania, through senior manager Hans Drielsma, was to refer to his warning bell as a `thinly veiled opinion piece.’
The full comment:
With a mandate to manage the forest estate for optimum community benefit, Forestry Tasmania also has a stated aim of improving profit performance and returns to its shareholders, the Tasmanian public.
But if the fine print in last week’s State Budget is an indication, Forestry Tasmania is failing in its own corporate objectives.
According to the Budget papers, Forestry Tasmania will return just $1 million in dividends to the State Government in 2006-07 – a massive fall from the $7.8 million expected to be paid in the current year.
A collapse in demand for export woodchips is being blamed for the profit slump, which sees taxpayers benefit from a return of less than 0.15 per cent on the $700 million value of Tasmania’s publicly owned forest estate.
Forestry Tasmania hasn’t publicly released a detailed profit outlook for the year ahead, but if the trend of the last few years is continued, things don’t look promising.
In 2003, the organisation recorded an operating profit of nearly $20 million.
A year later, the result had fallen to $16.5 million, and in 2005 Forestry Tasmania booked an operating result of just $13.5 million, with dividends and tax equivalents of more than $9 million paid to Government coffers.
The Government’s forecast of a $1 million dividend is a signal that Forestry Tasmania’s internal projections for the coming year are not optimistic, and a massive fall from last year’s $13.5 million profit is likely.
While the organisation has publicly recognised the difficult export woodchip market, the downgrade could also point to problems with Forestry Tasmania’s softwood joint venture Taswood Growers, which has been embroiled in an increasingly hostile argument with South Australian company Auspine about a long-term supply deal for pine sawlogs.
Auspine has accused Rayonier, the manager of the joint venture, of refusing to continue negotiations for a supply agreement, to replace the current contractual arrangements which expire at the end of 2006.
Rayonier has defended its position, saying it remains keen to finalise a contract that provides commercial benefits for both parties.
But the $100 million Taswood Growers joint venture isn’t adding a lot of value to Forestry Tasmania at the moment.
Last year, the contribution to revenue was $22.3 million, but expenses amounted to $20.7 million, leaving a modest profit contribution of $1.6 million.
Given that the quantity of pine harvested has fallen since 2005, there seems to be strong chance that Rayonier is struggling to manage the softwood resource profitably.
The woes of the forestry sector must be concerning both State and federal governments, who have pumped hundreds of millions into the industry in the past few years in attempts to generate employment and capture the attention of a voting public who increasing view old- growth logging with suspicion.
There are growing concerns that the latest attempt at reform, the $250 million Tasmanian Community Forest Agreement, will fail to revitalise the industry and will do little more than provide financial subsidies to businesses that have progressively been cutting staff numbers for more than a decade.
The TCFA has been touted in some circles as the saviour of the forest industry, but rescue packages are not new, and Forestry Tasmania has also been a substantial beneficiary of the Government’s generosity over the years.
Michael Field’s minority Labor Government wrote off some $272 million in Forestry debt in 1990, in a move that probably saved Forestry Tasmania from insolvency, but also added to the pressure on an already debt-laden Government sector.
Just last year, Forestry Tasmania picked up $12 million from the Tasmanian Community Forest Agreement. And every year the organisation collects compensation funds flowing from results of the Helsham inquiry, which wound up nearly two decades ago.
Despite ongoing Government intervention and financial compensation measures aimed at boosting employment and increasingly productivity in the sector, Australian Bureau of Statistics data shows that job numbers in Tasmania’s resource industries, including forestry, continue to decline.