Mike Bolan
Investors are right to be concerned for a number of important reasons: 1) All mill performance information has come from the people selling us a pulp mill 2) State government failures of due process mean that there has been no complete independent checking of mill performance promises3) Proposed returns are low for the level of risk and given Tasmania’s ‘clean, green’ image, superior returns could easily be achieved from a different investment profile 4) Many existing industries already rely on the same resources that the government wants to allow Gunns to dominate (water, forests, land and roads) and already deliver better returns in money and jobs without destroying or degrading those resources.
MATTHEW Denholm’s recent article ( Gunns investors having doubts ) highlights that institutional investors are having concerns about the pulp mill proposal.
Investors are right to be concerned for a number of important reasons:
1) All mill performance information has come from the people selling us a pulp mill
2) State government failures of due process mean that there has been no complete independent checking of mill performance promises
3) Proposed returns are low for the level of risk and given Tasmania’s ‘clean, green’ image, superior returns could easily be achieved from a different investment profile
4) Many existing industries already rely on the same resources that the government wants to allow Gunns to dominate (water, forests, land and roads) and already deliver better returns in money and jobs without destroying or degrading those resources.
1) Gunns has no experience in pulp mills nor do they have pulp mill experts on their board. They do have a team of Finnish ‘consultants’ who are answering queries and helping Gunns to make their submission. The problem is that it is Finnish company Poyry who is trying to sell us a $2 billion pulp mill. It might be true that they’re part of a pulp & paper cartel (Botnia, Andritz, Sweco etc) that collaborates loosely to allow each company to engage in a 10 – 20 year sales cycle without disruptive competition, but Poyry is clearly the lead company in this one. Most people realise that Poyry is most unlikely to distribute information that might impede a sale and consequently a prudent investor would seek independent confirmation of the supposed benefits, and would test the economic and other information for accuracy and completeness. To date there has been no independent confirmation or testing of Gunns/Poyry’s claims apart from various problem alerts being raised through the RPDC. When it was concluded that Gunns was critically non-compliant with the RPDC process, Gunns ‘withdrew’ from the process stating project time pressures that have since turned out to be false.
2) By ‘outsourcing’ the state approval to a member of the pulp & paper cartel, the state government virtually guaranteed a result that was biased in favour of acquiring a pulp mill. By ignoring the concerns of thousands of Tasmanians they ‘threw out the baby with the bathwater’, losing any possibility of understanding legitimate concerns and their impacts on Tasmania. Instead the government chose to rely on an ‘economic appraisal’ that uses computer software that cannot take into account the impacts on other industries and communities. It’s clear that when government sits on the side of the sales team, everyone is exposed to risk because there is no ‘due diligence’, only a process driven by people with various conflicts of interest.
3) A $2 billion dollar investment is a lot of risk, particularly as it is in one single item (a pulp mill) that relies heavily on there being a constant supply of wood in an environment where water is becoming scarcer, fuel prices could increase markedly and export markets are due to be flooded with timber products as huge plantations in ‘world scale’ countries become available.
4) Tourism, food production and fishing are already providing superior returns to Tasmanians, offering tens of thousands of jobs per billion invested and a variety of income profiles that protect Tasmania’s economy from world market changes. Being able to feed ourselves is a key strategic capability that we could lose if we keep converting our food production areas to tree plantations in order to get a taxation benefit for a wealthy few. Hotels, resorts and food production are all significantly better investments than pulp wood. The value of water put onto a hectare of plantation trees for the life of the trees (minimum 15 years) would be worth more than the trees themselves. Investors in tree plantations will discover that they’ll only have one buyer for their trees and that buyer will be facing massive international cost pressures. Even at current rates, pulp wood plantation investors are looking like losing at least ½ of their investment when they sell. Pulpwood is currently going at between $10 – $20 per tonne at the lot, with plantations only producing (optimistically) 150 tonnes per hectare, investors can’t expect much over $3,000 at best in return for their $7,000 investment. This doesn’t look like a quality investment at all.
All in all, investors appear to be much better off to invest in a 21st century project like tourism, food production or software development rather than something that takes over a decade to pay out and that traps the investor into one corporation’s competence in a field that is totally unfamiliar to them.
I commend Roger Hanney’s excellent review on Online Opinion of the process and other issues to caring readers: Pulp the other one
