Wednesday, 27 July 2011

The road to nowhere

It didn’t take long for interstate friends to offer commiserations following Monday’s Q&A.

No wonder you guys are in a mess. Is she really the Premier?

It’s actually not as bad as it appeared, I patiently explain. It’s far worse.

Even if by some miracle the $276 million buys peace for our time then what?

It’s been barely 3 weeks since the Auditor General indicated that Forestry Tasmania will need an equity injection of $200 to $250 million to survive. Where’s that coming from? Why isn’t it discussed at the same time at the peace deal?

Then there’s the downstream investment required. The last FFIC report, for instance, put the cost of an engineered strand lumber plant at $225 million, generating annual direct income of $290 million and using 550,000 tonnes of plantation hardwood each year.

Good idea but where’s the money coming from? Dennis Rogers and the TDB?

Banks are remaining on the sidelines. The FEA restructure deal, a pragmatic solution to the MIS mess where the interests of growers, shareholders and creditors were to merge in one entity looks to have fallen over, so it’s back to the drawing board for FEA’s Voluntary Administrator.

The forest industry couldn’t even organise to buy Triabunna, an integral part, we are forever being told, of the entire forest industry in the South. Even from the backwoods it was pretty obvious that Gunns needed cash in a hurry to pay redundancies and loan commitments so it was no surprise when a cash offer trumped a couple of bumbling bushies.

Perhaps some funds will come from the $120 million earmarked for regional development, despite the scepticism from respected think tanks like the Grattan Institute about the efficacy of such spending in regional areas.

Maybe it hinges on the State’s Economic Development Plan which Ms Giddings keeps threatening to release but never does. Or is Professor West going to develop another Plan, this time to include forestry?

Meanwhile a retired forester hits the airwaves to remind us that FT adds $111 million to Gross State Product each year. At least it did 3 years ago. But so what? Poker machines add twice as much.

Unprofitable negative cash flow businesses still add to GSP, but as I’ve pointed out on other occasion their contributions are of a transient nature and conveniently disguise the fact that assets are gradually being eroded as a result of the continuous losses.

Losses have to be funded somehow. They’re not painless.

All participants in the debate need to get it through their thick heads that FT will not survive in its current form without lots and lots of Government money and it should at the epicentre of the public debate.

Given the Feds have already offered $276 million, and given FT’s track record of using part of the $140 million in TCFA money to fund ordinary operations, it is extremely unlikely that more funds will be forthcoming. You won’t catch Heath Shaw having a bet.

The State Government will have to sort out FT without the help of the Feds. There’ll be no more after the $276 million. Better make sure it’s used effectively.

The Greens haven’t addressed the issue of life after FT. Nor has the Opposition. Peter Gutwein at last year’s GBE scrutiny hearings didn’t ask one probing question about FT’s parlous state after 3 years of reports to that effect by the Auditor General.

Neither the Greens nor the Liberals have given any thought as to how the industry will be funded in the future——from operations, from loans or from equity? And more importantly from whom?

Without understanding the cash flows of the industry any proposal is just a stab in the dark. Public policy makers have failed badly. The peace offering is at best a partial political solution. Under no circumstances will it be sufficient.

The Auditor General had the first draft of his FT report ready over 2 years ago. Had it publicly appeared then, reform of FT may have been possible. But the period since has seen FT’s situation worsen to such an extent that it’s only a matter of time before the life support machine is switched off.

When are we going to hear about life after FT and how it will be funded?

Of course, not until the Strategic Review Stage 1 completes in October 2011?

We’re not talking about a few school closures and a few million dollars. The Auditor General has said up to $250 million may be needed, well beyond the State Government’s means.

Even then there will be no processing industry to take over to add any more value.

No amount of soothing words and calls for leadership from the Premier can hide the fact that she is hopelessly out of her depth, badly advised, fending off the lynch mobs and desperately trying to search for scapegoats.

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