Forestry Tasmania s Secret Sawmill - Tasmanian Times

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					Forestry Tasmania's Secret Sawmill

Forestry Tasmania were questioned in Parliament yesterday after it revealed that the
company had secretly spent $3.3 million of taxpayer's money to buy the Southwood
sawmill.

The state-owned company assisted a Victorian company to purchase the mill from Gunns
but when the company they assisted defaulted on the loan, Forestry Tasmania was left in
control of the mill.

When Forestry Tasmania's managing director Bob Gordon was questioned if they bankrolled
the company and put them in a position where they were unable to repay their loan almost
immediately Gordon conceded, "I suppose you could say that we didn't do a very good job
on the due diligence".

"We did have a letter from the Commonwealth Bank assuring us that the money was
available to the proponent for both that and another deal they were proposing and we've
relied on the written assurances of the Commonwealth Bank," said Gordon.

Gordon went on to defend the purchase this morning, on 936 ABC Hobart's Statewide
Mornings program, saying that if the mill had shut down then the IGA process would have
fallen over and jobs would have been lost.

"If that mill had shut there would have been substantial unemployment in the Huon
and most of our contractors would have gone broke," said Gordon.

Gordon said that the Minister was supportive of the mill staying open and that Forestry
Tasmania was "an independent body that makes commercial decisions based on our
commercial judgement".

When asked about Forestry Tasmania going into direct competition with sawmills and
rumours they are effectively monopolising the quality of logs they receive at their mill,
Gordon said it was "absolutely rubbish".

Transcript:

http://blogs.abc.net.au/tasmania/2012/10/bob-
gordon.html?site=hobart&program=hobart_mornings

Leon Compton: Mr Gordon, good Morning

Bob Gordon: Good Morning Leon.

LC: And so why is FT loaning money to saw mill investors, effectively acting as a bank?

BG: (Sigh & pause) … Well, to go back a step Leon, when Forestry Tasmania in conjunction with John
Holland developed the Southwood-Huon and Southwood-Smithton wood processing sites, the
objective was to maximise the value out of the forests. And what’s happened in practices is a whole
lot of wood which was previously pulp wood is now processed by Ta Ann. Right… and in building
those sites Forestry Tasmania became the industrial landlord of those sites. And the processing
facilities that were located on those sites are on Forestry Tasmania land so we are the landlord for
Ta Ann, for ahhm… what’s now the Neville Smith Timbers mill and for a merchandising yard . And
when Gunns announced their exit from native forests… out 18 months ago; they announced they
were shutting the Southwood-Huon saw mill at very short notice. The clauses in the lease agreement
said that if Gunns ceased to operate the mill then they had a short period of time to remove the
equipment and what was left became Forestry Tasmania’s as the landlords’ [property].

Ahhm… that would not have been a very satisfactory outcome given that all of the parties, including
the ENGOs – the Statement of Principles and the various processes that have been going on for the
last 2½ years – agreed that the Southwood-Huon saw mill was a critical piece of infrastructure for a
new forest industry. Remembering that this Southwood-Huon saw mill is the most modern in the
State; it’s capable of sawing with very high precision regrowth and plantation material. And its,
ahhm... products are, ahhm… readily accepted on the market place.

LC: If it’s so… if it’s so effective, why couldn’t Gunns find somebody to buy it when they were
desperate for cash?

BG: You have to ask, ahhm… Gunns that. It’s not the only asset that Gunns had for sale. The obvious
other one was Triabunna [woodchip mill]; and well know what happened with Triabunna, where
Green groups have effectively shut it permanently. It’s unavailable for saw mill residues; it’s
unavailable for, ahh… anyone else to use it. And that has had a severe impact on local communities;
on harvesting contractors; on saw mills and on Forestry Tasmania.

LC: Bob Gordon, it still raises questions though about why FT is actually loaning money to sawmill
investors, and effectively acting as a bank?

BG: Sigh… well you could argue that we [FT] ahhm… we did that when we established the
Southwood-Huon site. Ahhm… FT and John Holland had a joint venture; we put the capital into the
site because there was obviously substantial, ahhm… efficiencies by having, you know, one water
treatment; one water supply; one electricity supply. And as each of the proponents came on the site
they paid a substantial amount of money in order to establish on the site. And that was the whole
concept; and that was first floated and agreed by the Government in 1998; it took about 4 years to
get planning approvals (chuckles).

Ahhm… the first sawmill which was built by Neville Smith Timbers – which is the same saw mill;
which we are now talking about – was established not long after that [2002]. Neville Smith Timbers
then sold all of their sawmill assets to a company called ITC… who then was taken over by another
company called Elders… ahhm, and then eventually Gunns, ahhm... purchased the saw mill. And
fortunately [or did he say unfortunately - a Freudian slip!], and for whatever reason, Gunns decided
that they were going to exit the valued added end of the forest industry and as a result shut the mill.

Now that mill is really important, ahhm… particularly to the southern communities. Ahhm… it
generates over $60 million a year in wealth for that community. Ahhm… the dry mill which is where
they dry and plane and mould the timber into finished products at Mowbray in Launceston is
completely dependent on its supply of timber from that [Southwood] saw mill site.

LC: If it’s so dependent, why couldn’t private capital be found, to bank roll the mill?
BG: Well, there was private capital that was, ahhm… purported to be available. We checked out the
proponent [Del Vista]. Unfortunately, for a whole range of, ahhm… … reasons, that proponent was
unable to, ahhm… complete the deal.

LC: Ok, ok and then… and then, you did your due diligence on a company that you bank-rolled into
buying the… the operation?

BG; Correct and to put it… (interrupted)

LC: And, you did that so badly that the company couldn’t repay its loans almost immediately.

BG: Well, I suppose you could say we… we, ahhm… we didn’t do a very good job on due diligence.
Ahhm… we did all that we could… interrupted

LC: Because the deal fell over within months.

BG: We did have a letter from the Commonwealth Bank, ahhm… assuring us that the money was
available to the proponent. Ahhm… for that and another deal they were proposing and we’ve relied
on the written assurance of the Commonwealth Bank that the funds were available… checking on
the company… (interrupted).

LC: But, Bob Gordon can you explain to people now… this looks like another example of here why
Forestry Tasmania is getting involved in what is effectively taxpayers’ money and at a time when you
were making significant losses, in backing operating that go into direct competition with private saw
mill operators just up the road. I mean, private saw mill operators, we have heard from them this
morning - not from them- but in the industry, that as soon as you [FT] became involved in owning
this saw mill that the quality of log being delivered to other saw mills in fact diminished in quality.
People were starting to suspect that you were preferring you own [mill] because you had an equity
stake in it.

BG: Ahhm... that’s complete rubbish Leon. I’m not sure who said that, but it’s obviously someone
who know anything about the way ahhm… allocation and, ahhm… harvesting works. We are a
hands-off landlord; we’ve be the landlord for Ta Ann and this saw mill for at least 10 years and we
don’t shy away at all from what we’ve done. Ahhm… if that mill had shut, then the IGA process
would have fallen over. If that mill had shut, there would have been substantial unemployment in
the Huon. Most of our contractors would have gone broke; Ta Ann would have shut. Ahhm… we
have done what the Minister asked us to do. Ahhm… October last year [2011] is when we had a
strategic meeting with him and he asked for us to make sure that a couple of key infrastructures
could be kept operating.

Now as it happens we’ve leased the mill and we’re completely hands off from it to Neville Smith
Timbers who are operating it and that mill, as I said, has saved the jobs of the workers not only at
that mill but also at the dry mill at Launceston. So I don’t apologies or… (interrupted)…

LC: When, will the terms of that lease be made publicly available?

BG: Well, again this is a commercial enterprise; we don’t make the terms of every individual contract
public. I don’t believe Aurora makes, you know, your electricity bill public. We’re an independent
body; that has a separate Board that makes commercial decisions based on our commercial
judgement. Ahhm… the Minister was supportive of that mill staying open. Ahh… he was given at
least 7 briefing notes over the period of time … the commercial… (interrupted).

LC: When did he get those briefing notes… when was the first time he got the briefing notes. When
was the first time you tell the Minister that you intended to buy this mill?

BG: Ahhm... we informed the Minister, I think it was in April [2012] that the original proponent was
unable to complete the transaction. Ahhm... we informed him that we were dealing with Neville
Smith Timbers, as the potential landlord. And by the way Neville Smith Timbers would have
preferred to purchase the site, but under the current uncertainty that exists in the industry - for a
range of reasons - they were not prepared to, ahhm… (pause) … to complete that purchase. Ahhm…
they’ve still got the option to purchase under the same terms & conditions over the next 2½ years.
And we’d expect them to do that when the current uncertainty is lifted. But, we don’t resile
[definition: to spring back; to recoil] at all from doing what we’ve done to protect the integrity of the
agreements that were reached by the parties to the Statement of Principles. We don’t resile at all
from taking commercial action to keep our business running and saw millers and contractors. And as
part of the arrangement we were paid a large amount of money from Gunns Ltd – which was in
dispute – that was part of a negotiation. And as it’s now turned out, that amount of money would
not have been paid if we had waited a few more months when Gunns had gone into receivership. So
we believe that… (interrupted)…

LC: When will you be selling this saw mill in the private market, so it can compete as others do; with
each other… in the private sphere?

BG: It’s competing exactly the same as anyone else. It’s paying the same cost of capital as anyone
else is paying. It’s actually paying a price above many other saw mills, ahhm… for its logs.

LC: We would need to see the lease arrangement to know the terms under which it was operating,
would we not?

BG: Well, I’ve just told you what they are, Leon! I’m not going to release commercial contractual
arrangements between Forestry Tasmania and any of its customers. Ahhm… we’ve released, as you
know, the Ta Ann contract; we released the Gunns, ahhm… pulp mill contract because they were
major, ahhm… issues. Of course we left out the pricing information because that’s ‘commercial-in-
confidence’. But we don’t resile at all from making sure that this mill was able to continue operating.
That the other people that rely on this mill – on the $60 million of revenue that it generates –
ahhm… was still available to the Tasmanian community.

LC: When will it be back on the market?

BG: The owners… the current leaseholders have an option to buy any time in the next 2½ years. We
would hope that they would purchase it quickly but really that is really a judgement that they’re
making about the level of uncertainty that exists in the forest industry at the moment.

LC: Ahh... you told the Minister in April about this investment, but when did you actually invest in
the mill?
BG: Ahhm… the specific question you asked: when we told him about, ahhm… FT effectively owning
the mill? [LC: Um- ummm] He was aware of the ahhm… the approach that we were taking back in
about October last year. He encouraged us to look for alternate owners and operators of the mill
after Gunns had shut it. And he was kept informed on a general basis – because it’s not appropriate
again, for a GBE or a State company to, ahhm… discuss with the Minister the detail of commercial
dealings. But he was fully supportive of having this mill operating. And as I said… as were all the
signatories of the Statement of Principles.

LC: And how is the mill going at the moment in terms of that connection through the forest value
chain and its role in suppling sawn timber quantity… and also Ta Ann? How is it going at the
moment… in terms of its performance?

BG: The mill was operating two days after this lease agreement was signed; it’s ramped up to almost
full production in the last 3 months; it’s producing high quality timber all of which is value-added at
Mowbray in Launceston for flooring, ahh… furniture; a whole range of value-added products. And
it’s managed to fill what was going to be a substantial hole in their [NST] timber supply with the exit
of Gunns from native forest saw milling; which meant there was a huge hole in the market which
otherwise could not have been filled.

				
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