Pictures: Matt Newton http://www.matthewnewton.com.au/Commercial/People/1/
The spotlight is shining on the collapsed Gunns, its former chairman John Gay, and the Tasmanian Government’s machinations to secure a pulpmill at all costs.
But the pivotal role of successive Commonwealth Governments remains in darkness. Unravelling the part the Commonwealth Government has played in the saga is essential for resolving Tasmania’s forest conflict and – because there is nothing unique about Gunns or Tasmania – Australia’s forest conflict.
Aiming that spotlight on the Commonwealth Government’s role will illuminate why the entire Australian forestry industry remains in crisis and the policy framework needed to resolve the mess.
John Gay likes collecting. From the mid 1980s, as managing director of the newly ASX listed Gunns, Gay took the company through near-exhaustive Tasmanian sawmill acquisitions.
Gay bought into native forest (hardwood) sawmilling just as large areas of Commonwealth Government-subsidised softwood sawlog plantations came on stream Australia-wide.
Out-competed by an economically superior product, Australian native forest sawmilling went into terminal decline; today producing around one-third the amount when Gay started buying up big. In every state, rather than hearing a normal good news industry structural change story, environmentalists were blamed for the native forest job losses.
Neither the Commonwealth Government nor the foresters and industry players (who had so adroitly lobbied Prime Minister Robert Menzies for the plantation subsidies in the late 1950s) have claimed the glory of Australia’s softwood plantation program.
Today, softwood plantations account for 85% of Australia’s sawn timber production, 95% of its wood panels production and 80% of the wood used to make Australian paper. (For more information, read here and here).
While jobs-laden sawmilling dominated the public debate in Australia’s forest wars, from a business perspective the profits lay elsewhere, in native forest woodchip exporting.
The exporters rarely reported their profits but we can gauge them from the financial reports of the Nippon-owned operation at Eden NSW. Leaving aside the losses the company made in the first few years after start-up in 1970, its after-tax profit on equity (the money it invested in the business) averaged 34% per annum for the next 30 years.
Engineering such fabulously high and durable profits requires the facilitating hand of government. They depended on the Japanese paper industry’s preference for resource security over cheap wood; the willingness of Australian state governments to let their forestry agencies sell cheap wood from public native forests (thus creating a huge chasm between the wood chip selling price and the cost of production); and an indifferent Commonwealth Government.
Gay found a way into the native forest woodchip honey pot in the mid 1990s. Under controversial circumstances, Gunns received its first Commonwealth woodchip export licence from the Keating Government in 1994 and proceeded to acquire every Tasmanian native forest woodchip export operation.
From then on, Gunns was cemented in conflict, joining the rest of Australia’s native forest woodchipping sector.
The push-pull factors of softwood plantation sawmill competition and high woodchip export profits drove Australian forestry into ever more intensive woodchip-driven logging.
By the early 2000s, Tasmania, East Gippsland and NSW’s Eden region were export-woodchipping between 80 to 90% of the public native forest log cut under the imprimatur of the Commonwealth Government via Regional Forest Agreements that outsourced environmental standards to financially pressured and fundamentally conflicted State Governments.
State governments barely cover their native forest wood production costs and regularly make losses on these “businesses”. This is the context for understanding Australia’s forest conflict.
Gunns enjoyed slightly over a decade of fabulous profits exporting native forest woodchips, but the seeds for its collapse were planted from the start. By the early 1990s, government funding to expand Australia’s softwood plantation estate effectively ended. There was, however, nothing stopping industry from planting more if they believed their own lobbyists’ upbeat market rhetoric. The industry and its lobbyists keep advancing all sorts of arguments to keep the plantation investment risk glued to the public purse.
The Commonwealth facilitated tax-minimising plantation managed investment schemes (MIS) to fill the planting vacuum. The schemes were backed by a coalition of interests: opportunistic accountants, financial service providers and ratings agencies; forestry industry lobbyists, wood buyers and forestry consultancies; and local governments and individual state and federal members of Parliament.
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First, they should understand that forestry, in Australia and globally, is not a high growth industry with unrealised potential if those pesky environmentalists would just go away. It’s time to put a ring around Australia’s plantation sector and build a strategy of consolidation and processing industry competitiveness based on market reality.
Fundamentally, this requires the Commonwealth Government resisting industry lobbying for yet another round of plantation subsidies, this time requiring $600 million for a “pilot phase” for up-front carbon sequestration payments. Without market discipline, the plantation industry will never settle into providing sustainable wealth and jobs in rural manufacturing centres.
The ongoing contraction in native forest logging, borne from the plantation competition, is much more than a good news industry structural change story. It presents Australia with a major opportunity to offer our native forests to the global climate change challenge. Old and unlogged forests are significant carbon stores and letting previously logged native forests regrow without logging them again is a highly efficient strategy with a multitude of interrelated benefits for biodiversity, water and carbon sequestration.
Opposing this are proposals, waiting in the wings, to again intensify native forest logging for bioenergy, wood pellets for domestic electricity production or export to feed overseas power stations.
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Read, the rest, with full links, on The Conversation here
ABC picture
• L’Estrange tells: Gay shares sale inappropriate
By CALLA WAHLQUIST, court reporter
Oct. 4, 2012, 11:12 p.m.
IT was inappropriate for former Gunns chief executive John Gay to sell 3.4 million shares in the company while its profits were plummeting, even if he was motivated by a health issue, former managing director Greg L’Estrange has said.
Mr Gay, 68, has pleaded not guilty to two counts of insider trading for allegedly selling the shares for $3 million in early December 2009, two months before Gunns released a half-yearly update that showed a 98.7 per cent drop in profits.
Gunns went into administration last week.
Speaking at a preliminary proceedings hearing for the trial at the Launceston Magistrates Court yesterday, Mr L’Estrange said he was not told of Mr Gay’s decision to sell the shares until after the sale had gone through.
The court heard that Mr L’Estrange told an officer of the Australian Securities Investment Commission in an interview last year that he thought the sale was inappropriate given what was happening in the government at the time.
He told Mr Gay’s counsel, Phillip Priest, QC, that he understood Mr Gay had some health concerns at the time but did not know the extent of them.
“Would that have affected your view, even on compassionate grounds, given the man had prostate cancer and had been told to put his affairs in order?” Mr Priest said.
“I would have thought it was inappropriate,” Mr L’Estrange said.
Mr Gay is alleged …
Read the rest, The Examiner here
First published: 2012-10-05 05:14 AM
• Business Spectator: Ex-Gunns chief unloads on company’s culture
Published 9:11 AM, 5 Oct 2012
Former Gunns Ltd chief executive officer Greg L’Estrange has slammed the corporate culture at the collapsed timber group, and said trying to improve it was a “nightmare”, according to media reports.
Mr L’Estrange told a court hearing that in his time at the group, Gunns lacked transparency and did not comply with its own policies, and his hardest task was seeing proper procedure followed.
”It’s not a company with a culture of complying with policies,” Mr L’Estrange said, according to Fairfax Media.”Transparency was the most difficult part of my job.”
He also said Gunns’ monthly financial management report constantly lacked ”standard forward forecasting methodology”.
Last week, Mr L’Estrange was sacked by the receivers put in charge of Gunns.
The receivers, KordaMentha, retained other senior managers pending a review of staffing while they search for a buyer of Gunns’ $2.3 billion Tamar Valley pulp mill.
Gunns was placed in receivership last month, after the Tasmanian timber company failed to secure funds to keep the company going, putting more than 600 jobs at risk.
Mr L’Estrange made the comments while giving evidence in a preliminary hearing against former Gunns chairman John Gay.
Mr Gay has pleaded not guilty to two counts of insider trading after he sold of 3.4 million shares in December 2009, according to The Australian.
Mr L’Estrange said he did not approve of Mr Gay’s actions.
“It was my personal view that it was inappropriate,” he said.
http://www.businessspectator.com.au/bs.nsf/Article/Ex-Gunns-chief-unloads-on-companys-culture-pd20121005-YRS72?OpenDocument&src=edbyo&ir=4
