Forests Minister Bryan Green and FT boss Bob Gordon
A URS report into Forestry Tasmania is projecting cash losses. Forestry has sold an income-generating asset, retired debt and they have had a reduction in their interests costs. They were income-generating assets, so they have an underlying cash issue and that is what the URS report is showing – if nothing is done about it. The fact that they may have a small amount of debt or be net-debt free is not the issue for them. The issue is their revenues from operations are insufficient to cover both their commercial costs and their non-commercial obligations.
Government businesses
3.1 Forestry Tasmania –
Mr GUTWEIN – Treasurer, you have said that of that $37 million in 2012-13 we have $2 million for the community service obligation for firefighting, $10 million which will be the equity injection back into FT, which is the GST from the sale of the softwood asset and then you have $35 million set aside. Is that to cover things like redundancies?
Ms GIDDINGS – No, it’s a contingency fund for the time being to assist us to deal with the pressures that are on that business. They are suffering the same way as the general forest sector because of the downturn in forestry, so without the sales going through on the woodchips that impacts on our business.
Mr GUTWEIN – I am just trying to get an understanding of what that $35 million will be used for. We know that Bob Gordon said last Thursday that as far as he and the other directors were concerned they were trading solvently and he didn’t believe they would need that money, so what is it going to be used for? In your mind, what is it there for?
Ms GIDDINGS – In my mind, it’s there to assist us with the pressures on that business that we know are there and the independent reviewers, URS, have advised us that they certainly believe we need to have some contingency funds set aside because the problems that have been faced in the forest industry and other businesses are reflected in our own business and we want to ensure that should there be the need to deal with those pressures in FT that we have the ability to do so. This is a contingency fund and up to that amount might be required, but it is all going to be premised a lot in terms of the outcomes of the independent review of FT, which is only a couple of weeks away now. There is not much detail I can provide you with.
Mr GUTWEIN – What is difficult to comprehend here is that FT’s directors have to take into account whether they believe any material change might occur to FT’s business and, as a result, under the GBE Act they have to notify the government if they were expecting there to be any significant impacts or shocks to the business. Bob Gordon said very clearly they have not done that and they can trade solvently for the next 12 months, so it begs the question, what are you expecting is going to occur as a result of the URS report that FT’s directors currently do not know?
Ms GIDDINGS – The URS advisers have advised us that we need to put aside contingency funds on their analysis of the markets and what is happening in forestry in the wider industry. My hope is that we will not need to use them; they are contingency funds, but there is that review process underway now. The alternative was to not put any contingency funds aside and then have to come back to parliament to approve other expenditure should that be required. This is an instance of where we are trying to ensure that we allocate funds that we have been advised are likely to be required by an independent reviewer. If they are not required they won’t go to FT. Let me be very clear that these funds are sitting in Finance-General, they are not being sent across to FT for expenditure, so if FT doesn’t need them it won’t get them.
Mr GUTWEIN – Your cabinet colleague Mr McKim has said that this will definitely not be prop-up money, it will be wind-up money in regard to whether or not these funds can be utilised for operational purposes. Do you see them being used for operational purposes?
Ms GIDDINGS – We are waiting for the strategic review from URS to provide us with recommendations as to the way forward with FT, and they will present their report, but as is normal practice, we will look at that report and come up with our own view on the evidence that is presented to us and I will then wait for Treasury advice as to how to progress. There is a whole process to be gone through yet, but until we have received that advice it’s not something I can really comment on further.
Mr GUTWEIN – Can you ever recall a time – I must admit I certainly can’t and I looked for one – where the directors of one of your government businesses have not raised issues or come to Treasury or you requesting assistance, yet you pre-emptively have allocated money within the budget on the basis that you think they will need it?
Ms GIDDINGS – Well, we have received that advice through the independent consultants who are reviewing the operations of FT in the context of what is happening globally. On receiving that advice we have done the appropriate thing and acted on that advice to put aside contingency funds, but they may well not be required.
Mr GUTWEIN – Have you spoken to Forestry Tasmania about that advice?
Ms GIDDINGS – Yes.
Mr WALLACE – The directors have approached Treasury about their financial position.
Mr GUTWEIN – Since?
Mr WALLACE – This has been ongoing for several months.
CHAIR – When you have Bob Gordon as a director –
Mr WALLACE – Can I clarify what I think Bob was saying – all I have done is read? It really depends on what assumptions you are making and the Auditor-General report last year pointed out a range of issues, particularly the non-commercial costs of FT. So if you are working on the assumption that the state is going to pick up those non-commercial costs, wherever they might sit – the land management, reserve land management costs, et cetera, he may have been referring simply to the commercial revenues of FT. I do not know in what context he made those comments but the cash position of FT is under strain, it has been for several months, and the URS report projected cash deficits if nothing was done. Prudent and transparent budgeting required us, once we knew of the magnitude of these things being estimated by an independent consultant, which was consistent with FT’s current trading position, then it was appropriate to reflect them in the budget but the action the government takes in relation to its issues will come out of the process, as the Treasurer says, considering the URS report when we get it and looking at what can be done.
CHAIR – Just taking that information and talking about FT’s trading at the moment, if we take the information as provided here that if nothing changes from where we are now, there will be a contingency required. If I take that same logic and apply it backwards, and I know that very little has changed for Forestry Tasmania in terms of sales in the last 12 months – the exit of Gunns was 12 months ago, their sawlog sales are down, the woodchip sales have dried up and they have sold six or seven shiploads worth of logs, if that. So their revenues have declined dramatically and so has their employment. Have you been advised as to how Forestry Tasmania is travelling this year and what the bottom line for Forestry Tasmania is for this year? If it is negative is the amount that is in the budget of $3 182 000 to cover off any loss, and/or any of those external costs you talked about earlier? If there is a loss this year, how would that be funded?
Mr WALLACE – I am not aware of their estimated loss, the directors haven’t indicated to me what their 30 June loss might be but we have been closely monitoring them because of their need and their debt facility with Tascorp. These estimates are derived from the URS independent modelling, which shows that if no action is taken, these are the estimated cash deficits they might have in the future.
CHAIR – Can you explain why we have $37 million for 2012-13 year, backing off to $27 million beyond that? Is there an unexpected backlog or something that needs to be funded?
Mr WALLACE – So you are asking for reconciliation between the $35 million and the $47 million.
CHAIR – They actually receive $47 million.
Mr WALLACE – The total is $47 million, which is $10 million for the softwood plantation and $35 million. The $2 million is for firefighting.
CHAIR – Forget the $2 million for firefighting, the $35 million is partly from the softwood sales?
Mr WALLACE- No, $35 million is the contingency we’ve estimated.
CHAIR – So you are saying the money they had received from the softwood sale is what the company is – does it have a line of credit, is that what their –
[6.45 p.m.]
Mr WALLACE – I am just noting that of the $47 million there is a one-off equity contribution of $10 million being made to them, which is a return of tax payable by FT as a result of their sale of the softwood venture.
Mr GUTWEIN – They actually get $10 million regardless?
Mr WALLACE – Yes, but they have already paid that to us.
Mr GUTWEIN – I am just trying to get an understanding where the FT directors sit in all of this. The secretary has said that he is not aware of what Forestry Tasmania’s financial position will be at the end of this financial year?
Mr WALLACE – That is correct. I think what I said is that I do not remember or know – I think the question was what their estimated loss would be? I do not know what that is. Treasury may know that and they may have communicated it to us, but I do not personally know what it is.
Mr GUTWEIN – Right. I am just trying to understand the logic that is going on in regard to this decision making that has put $110 million into the budget. Last Thursday, and Bob Gordon regardless of whether he had a view about the CSO or their operational budget, he was quite clear when he said they were trading solvently and that he did not expect that they would need this money in the coming financial year. That was my recollection of his comments.
The Secretary of Treasury has just indicated that he himself – and perhaps we can get some enlightenment on whether other people in Treasury are – was not aware of what Forestry Tasmania’s end of year position would be. Surely, if the URS report before government is so concerning that as a government you need to put in $110 million over the forward estimates on making Forestry Tasmania aware of that information and informing the directors, then surely Bob Gordon’s position last Thursday would not have been that we do not think that we will need the money.
Ms GIDDINGS – I hope he is right that we don’t, but I am not sure that that is going to be the case and this is about being responsible and ensuring the contingency funds are there rather than having to come back to parliament and ask for that money to be included in addition to the budgets. We are trying to say that we have a risk that we are aware of and we are trying to account for that risk in the budget so we do not need to come back to parliament.
Mr GUTWEIN – When were the directors briefed and made aware of all of the information that you, as a government, have in front of you?
Mr WALLACE – What do you mean, in relation to the area –
Mr GUTWEIN – In relation to the URS reporting and government’s thinking around the fact that you needed to put $110 million into it? When did the directors of Forestry Tasmania have that explained to them?
Ms GIDDINGS – I don’t know in terms of when they had that explained to them.
Mr GUTWEIN – Have they had it explained to them?
Mr WALLACE – No, but they have seen the URS financial model.
Mr GUTWEIN – They have not, firstly, been given the courtesy of government going to them as a board and saying, ‘We hold information here that is really quite damning in regard to what your financial’ –
Mr WALLACE – Sorry, I know you are not aiming to do this but it is a misrepresentation of a set of things. When I am talking about what their end-of-year financial position is that is a combination of –
Mr GUTWEIN – But I was not talking about –
Mr WALLACE – Just hang on a sec – of revenue shortfalls and asset revaluations so I do not know what their estimated profit or loss is, but we monitor their cash position on a monthly basis and as a result of that there have been several discussions over the last 12 months between myself and the chair of the board and the CEO about that cash position. The URS report took an independent view of their current and projected future situation and came up with a set of numbers and they were put into the budget as a contingency. If no action is taken these are the cash losses that were projected.
Mr GUTWEIN – I have one last question on that.
CHAIR – Sure. I am trying to follow the logic that is going on.
Mr GUTWEIN – Based on the URS report of what they forecast their cash position might be in future years, you put $110 million into the budget. When did you sit down and brief the directors of FT and bring them up to date with your thinking on this?
Mr WALLACE – Sorry, that is why I think there has been a misrepresentation here. FT had been involved in providing information to URS and they did get access to the model. They have seen the model and the estimates. There is no issue about lack of common understanding of the cash position.
Mr GUTWEIN – If there is no misunderstanding, why do you have Bob Gordon, as a director, saying publicly last week that he does not believe they need the money?
Mr WALLACE – It depends on what assumptions he is using.
Mr GUTWEIN – Perhaps the assumption is that he provided URS.
Mr WALLACE – This is a very valid comment and I have a copy of his transcript and I do not interpret it literally, in the way that other people did. If he is assuming that, based on the Auditor-General’s report last year, the government will fund non-commercial activities of FT, he would have a view about solvency and there are a couple of different concepts. There is solvency and there is going concern status. He would have a view that would mean that is a valid comment.
Ms GIDDINGS – I would refer to that transcript of Bob Gordon who says in a direct quote, ‘But if you are a government and you are being prudent, you would make a contingency or insurance policy available if something unexpected happened’. He has said that if you were prudent, you would make a contingency.
Mr GUTWEIN – If something unexpected happens.
Ms GIDDINGS – Yes, that is right and that is what we are working our way through. URS have advised us that we may need contingency funds to deal with unique pressures that are occurring in the forest industry, as we speak.
CHAIR – Using my same logic, working backwards –
Ms GIDDINGS – They are, in terms of the whole URS report, which is there to explain why those circumstances are being felt and we have that in terms of them confirming the market challenges that are being faced.
Mr GUTWEIN – Did the directors ask you for this money?
Ms GIDDINGS – URS advised us through the work that they were doing that we should put in the contingency measures and I am pleased to say that Bob Gordon himself recognises that it is a prudent thing for government to do.
Mr GUTWEIN – If something unexpected happens, like what, you lock up 572 000 hectares?
Ms GIDDINGS – No.
CHAIR – It seems that if we are making a contingency, which is sensible, of around $25 million for each of the forward years on a do nothing basis, therefore, the do nothing basis is predicated on what is going on at the moment and going back a bit. Would it not be unreasonable to assume that Forestry Tasmania is likely to make a loss of up to $25 million this year?
Ms GIDDINGS – I am not going do assumptions. They are losses but –
CHAIR – You are appraised on a monthly basis of where their current financial position is. The do nothing basis suggests they are going to need an injection of $25 million a year, over and above everything else, excluding their non-commercial activities.
Mr GUTWEIN – The $35 million is next year, Tim. At the end of the next financial year, not this financial year.
CHAIR – Yes, but the do nothing basis has to be based on something, which is the current experience.
Mr GUTWEIN – I cannot believe there is a Green who is so interested in the financial support for FT. I think it is fantastic.
CHAIR – I am vitally interested in our public finances and I wonder whether I am drawing the wrong conclusion in suspecting that Forestry Tasmania may, this year be losing $2 million or more a month?
Mr WALLACE – I think that question is more appropriately directed to the scrutiny committee hearings about FT. We are not far from the end of the financial year and their final financial result is a combination of things. It is a combination of their cash position and the other non-cash items, including things such as valuations.
CHAIR – I am thinking of the operating loss situation.
Mr WALLACE – This contingency, the $35 million rates of 2012-13, is a forward picture by URS which FT has had the opportunity to look at and have not raised concerns about the estimates.
CHAIR – They think it is reasonable.
Mr WALLACE – They have not raised concerns about the estimates. They had the opportunity to look at them.
Mr GUTWEIN – They have had the chance to look at what?
Mr WALLACE – Because URS, the independent review, is basing its estimates on a range of information, including information provided where FT has the expertise. FT has had an opportunity to look at the financial model estimates that are being developed and have not raised concerns about it.
Mr GUTWEIN – Are there not expectations on directors? Does that raise issues in your mind about FT’s directors and them discharging their responsibilities?
Mr WALLACE – No.
Mr GUTWEIN – If we have a group of people in Treasury and the government who are putting aside $110 million because you think they are going to require it and you are factoring it into the budget, cheered on by the Greens, which is extraordinary, and the directors themselves have not put up their hands. How are they discharging their responsibilities as directors?
Mr WALLACE – That is not what was said. The obligations on directors under the GBE Act and the Forestry Tasmania Act are clear and the things that get triggered in relation to solvency under those acts have not happened. What has been the case has been ongoing dialogue to a greater extent than we have with other businesses because of the market problems.
Mr GUTWEIN – It is not just solvency, is it? There is going to be a material impact on the business and they have to bring that forward don’t they? I am sure that is written in the GBE Act?
Mr WALLACE – The dialogue between Treasury and Forestry Tasmania has been entirely appropriate and sensible, and they have co-operated to provide information into the URS report. They have been provided with their financial model estimates. We are talking about the future. We are not talking about this year, and on the basis of those numbers the government has decided on Treasury advice, to put it in contingency, which is $35 million the first year and $25 million after that on a do nothing scenario. If you did not do anything, this is cash that may need to be provided to FT based on that financial modelling.
We do not have a copy of their final report and the government has not considered it, and the government has not considered the actions that will need to be taken to make sure that we do not have to spend that money.
Mr GUTWEIN – Treasurer, you envisage this money will be spent on operational funds –
Ms GIDDINGS – Until we get the report we do not know that we will be spending any of it. What is important to note is that you seem to have your head in the sand about the problems in the forest industry and believe that tearing up the IGA will mean it all goes away. Yet our own business is under pressure because of the changes in the forest industry. Our own business has had to cut their own costs and Mr Gordon mentions this in his discussions with Leon Compton where he said, ‘We have gone from 540 employees down to less than 340.’
You do not have such a dramatic decrease if you are not having to cut your costs because there are changes around you in the industry. The URS report that was released earlier, the stage 1 report, a public document, outlines the significant shifts that are happening in the forest industry. A significant contraction of traditional Japanese woodchip markets and a stronger preference for plantation resource, reduced prices and volatility in the Chinese woodchip markets, the high Australian dollar that has weakened export competitiveness, the cheaper competition from plantations in Thailand, Vietnam, South America, and the exit of Gunns has had a big impact on their business. Against all the opposition of the opposition we have been able to settle some of those disputes between Gunns and FT through the IGA process, which has helped to get some of the debts that were argued about settled, and closure there. There is a lot going on in forestry, which FT is affected by and I commend them on the fact that they have reduced their costs significantly. What we have is other advice to say that you need to have contingency funds put aside because the changes that are occurring in the forest industry are not going away. They are not going away. The high Australian dollar is not going away
Mr GUTWEIN – Has cabinet received the URS report yet?
[7 p.m.]
Ms GIDDINGS – No, we have not as yet.
Mr GUTWEIN – Do you have a final yet or a draft of the final?
Mr WALLACE – We have a draft but we do not have the final yet.
Mr GUTWEIN – What timeframe are you looking at?
Ms GIDDINGS – We are hoping within the next couple of weeks that we in government will be presented with the final, which will then go to cabinet. We need time to analyse the final report from a government perspective and for Treasury to provide cabinet and me with advice as to whether or not we should be agreeing with the recommendations put forward. We do not agree with every independent piece of work, we look at it and then determine whether or not we agree with those recommendations.
Mr GUTWEIN – I am presuming Forestry Tasmania will have an opportunity to provide input on that.
Ms GIDDINGS – My understanding is that they would have an opportunity in that process. They have been consulted through the URS report as well – we ensured that that happened – as well as other stakeholders of interest in this process.
CHAIR – I am sure we would hear if they were not being consulted. I am a little out of touch, but is Forestry Tasmania operating with a letter of comfort at the moment?
Ms GIDDINGS – Yes, it is.
CHAIR – What is the level that applies at the present point in time?
Mr WALLACE – It is $40 million.
Mr GUTWEIN – Have they drawn down any of that?
Mr SULIKOWSKI – They did draw down some but all the debt has been repaid, except for $11 million. Out of the joint venture proceeds they have repaid debt.
Mr GUTWEIN – So they are basically debt-free, apart from the $11 million?
Mr SULIKOWSKI – Yes, apart from the $11 million, which will be retired from the equity contribution later this year.
Mr GUTWEIN – So they will be debt-free?
Mr SULIKOWSKI – Later this year, yes.
CHAIR – But they will still have an unfunded superannuation liability, will they not?
Mr SULIKOWSKI – Yes.
3.4 Government businesses –
Ms GIDDINGS – I do not want there to be a view permeating across the desk that somehow FT’s problems are solved because of that issue around being able to pay off debt through the sale of an asset. It might be worthwhile Martin explaining why we still have concerns in terms of the cash basis.
Mr WALLACE – Obviously the URS report is projecting cash losses. Those cash losses occur. They have sold an income-generating asset, retired debt and they have had a reduction in their interests costs. They were income-generating assets, so they have an underlying cash issue and that is what the URS report is showing if nothing is done about it.
The fact that they may have a small amount of debt or be net-debt free is not the issue for them. The issue is their revenues from operations are insufficient to cover both their commercial costs and their non-commercial obligations.
Ms GIDDINGS – It is prudent to have contingency funds.
Mr GUTWEIN – Good old FT, they are in safe hands with you lot.
Ms GIDDINGS – They are much safer than in your hands, as you continue to deny there are even problems in the forest industry.
• TNC emergency meeting to consider ongoing involvement in the Tasmanian Forest Agreement process
The Tarkine National Coalition board will meet on Friday in an emergency session to discuss whether to suspend it’s continued support for the Tasmanian Forest Agreement process following continuing sabotage by the Tasmanian government.
“While having the utmost confidence in the ENGO negotiators, and in the goodwill of the Forest Industry representatives at the table, the actions of the Tasmanian Government seriously compromise the capacity of those negotiators to reach an agreement that can give a lasting solution to the issues in the Tarkine,” said Campaign Coordinator, Scott Jordan.
“Tarkine National Coalition has been one of the strongest supporters of the Tasmanian Forest Agreement, but it is becoming increasingly clear that the Tasmanian Government is not affording due respect to the process and is working to undermine the outcomes possible for the Tarkine, and that the Federal Government is turning a blind eye to the increasing attacks on the integrity of the process”.
To restore confidence in the process, the TNC calls on the Tasmanian Government to:
• Implement a moratorium on granting of new mine leases and minerals exploration licences,
• Revoke the invalid mine lease awarded to Venture Minerals at Stanley River, and
• Commit to facilitating good faith discussions between representatives of the mining industry and conservation groups regarding tenure issues in the Tarkine (as an adjunct to the Tasmanian Forest Agreement .
And the federal government to:
• Ensure that the integrity of the Tarkine is maintained during the above process through the immediate application of an Emergency National Heritage Listing.
