FT's wilful deception

It’s rare to find oneself in agreement with Minister Bryan Green as occurred the other day when referring to FT he said “the unprecedented challenges facing Forestry Tasmania have been underlined by its financial result….. further substantial losses had been predicted for Forestry Tasmania….. the reality is that in these circumstances Forestry Tasmania is not financially sustainable in its current form…”

That’s a pretty unequivocal statement, little room for doubt there, although a little understated as you’d expect from the responsible Minister.

FT is completely and utterly insolvent and only trading with assurances of Government support, without which Directors would have been unable sign the solvency declaration that it could pay debts as and when they fall due.

It’s been an awe inspiring gold medal winning performance.

FT is fortunate euthanasia is yet to be legalised.

The commentary accompanying FT Annual Report didn’t exactly assist with understanding how FT works from a financial perspective. Nor have any of the numerous combatative media releases over the years assisted readers in any way to understand FT’s business.

Trying to make sense of what has happened rather than accepting silence, inaction and apologia from Government and the gobbledegook from FT is the first challenge.

Let’s start from the beginning.

Losses after tax

The headline loss for 2011/12 was $27.6 million. This is sometimes referred to as the operating loss and is an after tax amount.

The overall loss, including non-operating amounts, again after tax, was $71 million.

Losses before tax

Tax in the case of a loss is a funny concept for non accountants to understand. In the case of a profit, quite clearly tax will reduce a profit to an after tax amount.

Why is there tax in the case of a loss?

It’s only a book entry to reduce the loss, reflecting future tax savings as a consequence of the loss carrying forward and reducing tax on future income.

The amount of the tax on this year’s loss is not paid but rather is treated as an asset, a deferred tax amount. It is available to be offset against future income tax expenses, if and when profits are made. Repeat, ‘if’ and ‘when’.

Losses create a deferred tax asset. It may sound dodgy but it’s pretty kosher. The asset however only has a value if future profits are likely.

Losses before tax are much simpler to understand and in FT’s case a more realistic headline figure to shout from the rooftops. Losses for 2011/12 were $40 million (operating) and $101 million (overall).

Operating and non-operating losses

Lest it be said that the distinction between operating and non operating profit is just an esoteric accounting argument, it must be stressed that it is crucial to understanding FT, as there has been a tendency to lump amounts into non-operating expenses, ostensibly outside the control of FT, as part of the fabrication that FT is the unfortunate victim of events beyond its control.

More crucially is that an incorrect allocation of expenses may also suggest that FT’s gross profit, the operating profit before overheads, in other words the forest revenues less the direct costs such as harvesting, freight, other direct selling costs etc may even be negative. More on this later but first a bit more background.

Included in non operating amounts were a loss on the trees previously part of the softwood Joint Venture ($17.3 million), a net fall in the value of remaining trees ($4.3 million) and adverse movement in the value of the unfunded superannuation liability ($44.2 million).

Cash flow

The sale of the JV softwood assets for $78 million was expected to pay loans to Tascorp of $41 million but as of 30th June 2012 $11 million was still owing. And the cash in the bank was only $12 million at that time.

From a cash flow viewpoint there was an operating cash deficit of $27 million. In evidence to the Leg Co committee looking at FT in 2011, FT disclosed operating cash flow needed to be a $20 million surplus each year, in other words a turnaround of $47 million is needed in each and every future year.

An operating cash flow surplus is needed to pay for capital amounts, plantations, roads etc and for loan repayments.

Whilst all the TCFA grants have been received, much has been used to keep FT afloat. There is $30 million still to be spent as required on TCFA plantations but with operating cash deficits and only $12 million in the bank and with further borrowings unsustainable, divine intervention was required. The Budget fairy duly delivered.

Overall cash flow showed a $3 million surplus, but after removing the one off items such as payments to Tascorp, and the receipts from asset sales, redemption of the remaining investment set aside to pay future super benefits, the $11.5 million of IGA money, and removing the cash received from the discontinued softwood JV, the adjusted cash flow deficit was $63 million, giving some idea of the underlying cash flow strength of this financial behemoth.

The Government has set aside $110 million to fund FT’s cash flow deficit over the next 4 years, but if things continue like 2011/12 it may be needed in the next 2 years.

The forest estate

The entire forest estate including plantations owned by FT fell further in value to $209 million.

The breakup of the forest estate is $148 million for trees, $116 million for roads and a negative $53 million for land.

Land with working forests and plantations are assessed to have a nil value and special timber zones and reserves have a negative value. In other words, the latter cost more to look after than they earn in revenue. The negative value of $53 million is recorded as a liability for ‘non commercial forest zones’.

Are losses an asset?

Losses carry forward and reduce future income tax. The effects of the carry forward loss are termed a ‘deferred tax asset’ and are included as an asset on the balance sheet, but only if there is a likelihood of profits against which the carry forward losses will result in reduced income taxes in the future.

If future profits are unlikely then a deferred tax asset should not be recorded.

Incoming FT Chairman Mr Annells should be across the correct treatment of deferred assets as another State owned company under his tutelage Tas Rail doesn’t bother with recording such assets as future profits are unlikely. Its losses are much less than the gargantuan efforts of FT.

FT’s assets are therefore overstated by $20 million being the tax on this year’s losses recorded as a deferred tax asset. FT’s equity is consequentially lower by $20 million.

FT’s diminishing equity

As it is, FT’s equity is only $77 million. All retained earnings have gone and FT is fast devouring the equity contributed by us, the shareholders. Of the $234 million contributed only $77 million is left, arguably only $57 million if the deferred tax asset is reversed. It must be remembered the contributed equity is only those amounts contributed as equity when assets were originally transferred to FT for safe keeping. It does not include TCFA grants for instance which end up as revenue not as equity contributions. Even if retained earnings resulted, they have since disappeared.

FT’s equity would have vanished completely if different assumptions were used to calculate the value of the forest estate. The status quo was assumed to continue; 163,000 tonnes of sawlogs, 265,000 tonnes for Ta Ann and 1.4 million tonnes of pulpwood and export peelers. As stated above this implies a forest value of $209 million.

However were it assumed that all logging would cease in 572,000 hectares, the value of the forest estate would have fallen by a further $119 million to only $90 million. The split up presumably would have been $116 million for roads, and guessing, maybe $100 million for trees and say a negative $126 million for the forest reserves and special timber zones. Essentially the land is worthless, according to FT’s Directors, and the roads are worth more than the trees. Such is FT’s estate. It presides over roads with a greater value than its trees.

Lack of segment reporting

FT took no notice whatsoever of concerns expressed by the Auditor General and the Leg Co Committee inquiring into FT’s financial performance, that FT’s accounts as presented do not allow a reader to ascertain the contributions made to the bottom line by different segments of FT’s business. It is all lumped together. At a time when the State is at a crucial fork in the road, is it unreasonable to expect the Board of FT to present a set of accounts that adequately explains the separate contributions of native forests and plantations? But alas…...

Revenue from forest sales, excluding the discontinued softwood JV were only $78 million for the year. Payments to contractors ($50 million) and other sales costs ($7 million) totalled $57 million. If all the contractor expenses relate to harvesting and cartage to mill door or wharf, remembering that roading and replanting contract work is already excluded, the gross profit from forest sales, essentially the stumpage sales, is only $21 million.

It is likely that contracting expenses will include costs attributable to non-commercial forest zones (total $5.3 million) On the other hand there’s an overhead expense labelled ‘freight’ with a figure of $7 million which is difficult to conclude is other than a direct cost of sales. So the gross profit from forest sales, revenue less direct cost of sales, essentially the stumpage sales may be as low as $20 to $25 million.

This is what is needed to pay overheads including employee costs on 300+ employees.

That’s why FT’s operating profit is a large negative number.

What happened to the IGA money?

Forest sales revenue received a much welcome boost from the IGA payment of $11.5 million as it appears to have been included. But where?

To go back to 30th June 2011 there were $39 million in debtors of which $11.7 million was listed as impaired. In other words, the debtors had been included as revenue, but the impaired amounts treated as an expense.

About two thirds of the debtors related to Gunns. We know this from Mr Gordon’s briefing note to the Government dated 29th July 2011 discovered by Elise Archer MHA pursuant to a RTI request. Gunns owed FT $27 million in July 2011 and much of it was in dispute. Most of the impaired amounts in the accounts at 30th June 2011 probably related to Gunns.

But $10 million of the impaired 2010/11 amount was reversed in 2011/12 according to Note 36 in this year’s financials. But where does the reversal appear? As an adjustment to last year’s expense? Nope. As revenue? Yep, that’s where it is ‘cos it can’t be found anywhere else?

The IGA amount of $11.5 million was in reality a part payment of a debt due by Gunns by the Government out of IGA funds to FT in order to help FT’s woeful cash flow.

When the amount was received by FT instead of the reversal being treated as an expense adjustment it was once again included as revenue. Whilst this doesn’t affect the bottom line, it does mean revenue is overstated, and more crucially it means gross profit from forest sales in 2011/12 is overstated, possibly by a factor of two. The amount has been included twice as revenue, once in an earlier year when the debt was raised and again in 2011/12 when the debt was paid.

FT’s receivables

FT seems to attract bad payers.

Or maybe bad payers attract FT?

In any event a further $8 million of debts were impaired (ie written off as an expense) during the year 2011/12. Whether this relates to Gunns or not is uncertain, but the impaired debtors represent a significant 25% or $8 million of the total debtors of $32 million due at 30th June 2012.

Drug dealers have a lower % in 90+ days.

When practiced on a scale as FT does, it’s stretching the English language a little to describe as ‘true and fair’ a system which includes amounts as revenue when a debt is raised, then treats it as an expense when impaired, and includes it once again as revenue if the impaired amount is eventually paid. Such is FT. Slavish adherence to transparency has never been a priority.

Mr Gordon’s briefing note to the Government referred to above also observed that “Forestry Tasmania has formed the view that Gunns’ financial problems are overwhelming and may soon lead to the appointment of a receiver by its secured creditors”. Given this accurate prognosis surely FT didn’t allow Gunns any more credit after the slate was wiped clean following the IGA raid? Maybe not? We have since learnt the Southwood sawmill was a payment in lieu of a $3.3 million debtor? Surely there wasn’t more owing by Gunns? It certainly begs the question as to who owed FT the $8 million in doubtful debts at 30th June 2012 even after FT had taken possession of the Southwood sawmill.

A total of $11 million in shaky debts when gross profit was even less is quite alarming.

Losses from the softwood sale

The sale of FT’s Joint Venture interest in the State’s 46,000 hectare softwood estate was headlined to bring in $78 million. The book value of the trees was $87 million, but other assets with a book value of $5 million were also sold. The $78 million was the total amount paid including $4.5 million in stamp duty, normally paid separately and in addition by a purchaser. FT only ended up with $71 million in cash and the loss on sale was $17 million. It wasn’t labelled ‘loss on sale’, instead it was called ‘reversal of accumulated increments realised on sale of softwood joint venture’, just another example of mangled English making it nice and easy for lay readers to understand.

The reversal of accumulated increments was treated as a non operating expense, but realistically it is more akin to an operating expense. If one were to close a store and sell all the stock below book value, it wouldn’t be treated as a non operating amount but rather as an operating expense. For all intents and purposes the loss from the softwood trees had the character of an operating loss and should have been included as such to make the figures more realistic.

Are tree and road costs non-operating expenses?

Treating all movements in tree values as non operating amounts by an entity whose primary business is the management of trees gives a misleading operating profit figure.

If one sells stock in a store the costs of stock sold reduces operating profit. Why not account for trees in the same way, when a coupe is flattened, then an amount is attributed as the cost of sales when calculating the gross profit?

Similarly if trees are hit with fire or insect attack is that not an operating expense akin to losses from despoiled stock?

Conversely when increase in value occur due to growth and good management operating income increases.

However if the value of trees vary because of changes in the discount rate, the interest rate used to convert the future net income from trees to a present value lump sum, then this arguably is a non operating amount, something outside the control of FT.

In short if trees are felled and sold, damaged or burnt, or grow whether by good luck or good management then the amount should be treated as operating expenses and/or revenue. But if the value of trees changes because of changes in interest/discount rates then that is a non operating amount.

To date FT treats all changes in the value of trees as non operating amounts, quite nonsensical for a tree manager.

The Auditor General found that over the 16 years of his review into the financial performance of FT released in 2011, there was $75 million reductions in tree values that were treated as non operating amounts. For the 16 year period operating profits were only $201 million in total. FT has since admitted it incorrectly excluded certain superannuation expenses from operating profit which would have meant operating profit was only $154 million in total, but only $79 million if trees were accounted for as operating rather than non operating amounts. That’s a 60% reduction. Only $5 million of operating profits on average, not $13 million as reported originally by FT, with none whatsoever in the last 5 years. That’s a big difference and should be on the table when the future of FT is being discussed.

But it probably even worse than that. The Auditor General in an April 2009 draft of his report into FT’s financial performance stated that “Without stronger financial performance, investment in roads and plantations over the past 15 years will not yield future benefits to Forestry and arguably should be expensed rather than capitalised.”

In the case of roads, when new coupes are planned the roading costs are capitalised, added to the asset ‘roads’ in other words and gradually depreciated over time. But if there are no enduring benefits with the benefits, if any, accruing when the coupe is levelled, arguably when the coupe is levelled, the expenses should be written off, not simply as an operating expense but as a direct cost of sales. This will impact on the gross profit from forest sales as well as operating profits. Currently an amount of depreciation of roads is treated as an operating overhead. Expensing as it is incurred will mean the expense is a direct cost rather than an overhead.

After coupes have been harvested tidying up and replanting costs are incurred. Should these be capitalised too because of expected future benefits, or should they be expenses against the revenue from clearfall as just another cost of sale because any enduring benefits are suspect? Probably the latter if one were a conservative accountant.

And then there are the most expensive plantations in the world, the 16,000 hectares of plantations planted with $90 million of TCFA money. The Auditor General is suggesting that rather than capitalising the outlays they should be written off immediately because of the unlikelihood of future benefits. This will reduce operating profits even further.

A blowout in unfunded superannuation

The most superficially alarming aspect of FT’s latest financials is probably the least concerning. The unfunded liability has increased by one third from $122 million to $166 million. That it is roughly equal to the value of the forests FT is currently managing is of some concern. That the annual costs of paying benefits to ex-employees out of current income when operating cash flow is in chronic deficit is of further concern. But the fact that future benefit payments haven’t changed much and the huge increase in the unfunded liability has been brought about by a dramatic drop in interest rates, means the jump in the unfunded liability as recorded in the financials is of lesser worry.

A week ago the Treasurer’s Annual Financial Report was released for 2011/12. The General Government too recorded a one third increase in the unfunded superannuation liability. But in a new table in the report it was disclosed that the undiscounted (nominal) benefit payments over the next 50 years or so hasn’t increased, in fact there’s been a slight decrease, but the discount rate used to convert the stream of future outlays to a present value has fallen. If the discount rate used to convert a stream of future payment to a present value lump sum falls, then the value of the lump sum rises. Think about it, if you knew you were entitled to certain amounts in the future, they are worth more to you in present value terms if interest/discount rates are low. With high inflation a future amount has less value in present value terms. That’s why the amount of an unfunded liability may jump about, it’s not because the pattern of future outlays has altered it’s just that the discount rate used to convert a stream of payments to a single lump sum present value amount has changed.

It is likely that FT has followed the same pattern as the General Government in 2011/12, in that the rise of the unfunded liability does not mean there has been a rise in future benefit payments (the costs of servicing the liability in other words), and that is what is important to FT.

How does FT value trees?

Whilst on the matter of converting future streams to a lump sum present value it may be instructive to look at the way FT values its forest estate.

Most people are probably more familiar with how a commercial rental property is valued. The rule of thumb is to apply a discount or capitalisation (cap) rate to the annual rental. Say rents are $100,000 pa and the cap rate is 10% the property is worth $1 million. With a cap rate of 5% the property is worth $2 million. In other words the rents times the inverse of the cap rate gives the value, which might sound a bit perplexing but when you work back the other way it makes sense, the value times the cap rate (or rate of return) gives the rental return.

The rule of thumb is really a proxy method for discounting future revenue into a single net present value figure.

Conceptually valuing a forest is the same as valuing a commercial rental property. FT values its estate (land roads and trees) as a single integrated asset. It estimates future net revenue (revenue less all the management costs) and then converts the future stream to a present value using a chosen cap rate (10% was selected in 2011/12. The value thus derived is then split between land roads and trees. The working forests have a nil land value and the reserves and special timber zones are recorded as a liability representing the present value of costs in excess of revenue from those areas.

If working forest were grown on leased land then the leasing costs would be included in management costs thereby reducing net revenue in the future and the consequent net present value of the forest estate. Excluded from management costs in this instance is an imputed land rental charge which to quote the Notes to Accounts “is not included on the basis that the land value recognised in the Statement of Financial Position (meaning the Balance Sheet) is deducted from the valuation and recorded separately.” But that land value is zero.

In other words FT reckons the land used for all working forests including plantations is worthless and it’s not going to take it into account when valuing the forest estate. There’s a disturbing element of circularity in this approach that may well lead to erroneous values being attributed to the trees and incorrect rates of return that not only affect FT but have ramifications for the entire industry. Sustainable resources from a quantity perspective are one issue but the wider question of a sustainable industry from an economic and accounting viewpoint is not even being considered. If it were the current participants in the IGA talks are scarcely the people to adjudicate.

Gross profits and operating profits

All the above is not an esoteric accounting exercise but rather an attempt to understand what comprises FT’s operating profit figure, what has been included and what , conveniently or otherwise, has been excluded.

The inescapable conclusion is that FT’s operating loss is far worse that the headline figures of $28 million after tax or $40 million before tax. It is likely to be much closer to $60 million, after allocating amounts to cover the costs of trees sold and the costs of roading and replanting and omitting any tax amount as it is largely irrelevant in FT’s case.

Even more catastrophic is the likelihood that the gross profit from forest sales is negative. Revenue less the direct costs of getting the product to market adjusted further for the misleading inclusion the IGA grant was probably negative for 2011/12. Not to mention the fact that 25% of debtors included in that figure are impaired.

When businesses suffer a downturn, revenue and margins may fall leaving gross profit unable to cover the fixed costs or overheads of the business. Growing the business even if margins remain the same will increase gross profit and lead to overall profitability.

But if the gross profit is negative growing the business may mean growing the loss and falling further even behind. It’s superficial silliness to assert that all that is required is a bit of growth. It’s not always that simple. It may well be that it’s not a question of scale. A negative gross profit is a real challenge.

Restructure or not?

It’s difficult to know exactly what and when things went bad with FT.

The Auditor General tried for 3 years to report on the problems with FT but each time his draft sat in the FT’s in-tray awaiting comment until finally the third edition saw the light of day in July 2011. The AG was of the view that another $200 to $250 million of funds from Government was needed to continue with the current level of plantation development.

Mr Gordon, FT’s Managing Director gave a different view of FT’s position when in December 2011, barely11 months ago at an Estimates hearing in answer to the unlikely tag team of Messrs Gutwein and Booth he said:

“So we said, ‘Okay, let us model a scenario where the future looks like the volumes in the IGA.’ We then ran a series of scenarios to sell the softwood joint venture and we assumed that we would get our reserve price for it or keep the softwood joint venture. We also looked at a series of other scenarios about when we could harvest our plantation assets. Again that depends on basically whether they end up being sliced, peeled or sawn. Under those scenarios FT has an operating profit and retained earnings sufficient to retain cash in the business, pay tax and a dividend for each of the next 25 years.
We also included the very significant reductions in operating costs that we have done in the last three years, from 540 staff to 340-something today. We have factored in the other savings we have made in terms of roading costs and a whole range of other things. When you take into account substantially reduced income, as we have modelled, compared with cutting 300 000 cubic meters of sawlog we are still in a position where we can return a profit, a dividend, pay taxes and maintain a cash balance necessary to have some capacity for investment in new activities and to pay our way.”
To repeat “...........we are still in a position where we can return a profit, a dividend, pay taxes and maintain a cash balance necessary to have some capacity for investment in new activities and to pay our way.”

Imagine everyone’s surprise when $110 million was allocated in the 2012/13 budget in May 2012 over a 4 year period to assist FT. Was it for more plantation development? Or to help close down FT as the Libs suggested?

Mr Hodgman and Mr Gutwein were entitled to rely on Mr Gordon’s earlier statement that FT didn’t require further funds and diverting the $110 million became the cornerstone of their Roadmap to Recovery.

Subsequent Budget Estimates hearings in May 2012 confirmed that FT’s situation was dire and the $110 million was needed just for FT to survive.

It will be interesting in Estimates this year when Messrs Gutwein and Booth quiz Mr Gordon about his statement a year ago in the light of subsequent events. At first glance Mr Gordon appears to have misled Parliament.

The Liberals have been left with a dilemma, if they have to fund their Plan without the benefit of the diverted FT funds it will become a Roadmap over the Cliff for the State and if they fail to give money to FT (or to a restructured version) then FT will also find itself in roadrunner airspace.

No announced changes as yet by the Libs, just a repetition of the glib promise to grow the forest industry rather than shut it down. Given the enormity of the cash flow problems that can only be solved by more Government funds, whether it’s restructured or not, the Liberals have decided upon public policy based on little other than the loaves and fishes parable.

Confirming the problem

The predicament facing FT outlined in the 2011/12 financials is further confirmed by the quantity data in an Appendix which accompanied the 2011/12 financials.

Low grade export peelers were sold in 2011/12 for $40 delivered to the wharf. Don’t believe me? Look at page 7 in Appendix 2 157,321 tonnes of low grade export peelers with a wharf delivered price of $6,292,840. That implies $40 per tonne exactly. The previous year it was $85.Any other shipping costs hidden elsewhere in the financial a/cs? The $7 million worth of freight costs perhaps? What were the harvest and cartage costs? $40? More? How much did FT make? No wonder private growers were screaming by being undercut by a GBE whose wages were fully underwritten by the Government? How does this behaviour reconcile with national competition policy? My understanding of competitive neutrality is that government businesses need to ensure where services compete or potentially compete with the private sector any advantage arising solely from their government ownership be removed unless it’s in the public interest, and prices need to be set as if they were privately owned and are fully cost reflective. How does FT stack up? Is that why most of the Directors have found a way to the exit door, with Mr Hampton having to orchestrate a hissy fit to try to deflect blame to others once it dawned upon him that the mess he’d been appointed as Chairman to tidy up was the same mess that he as Director had helped create?

But I digress. Getting back to the data tables, pulp wood had a mill door price of $54. What’s the stumpage price? $14? With only 315,000 tonnes that’s only $4.7 million less all the other direct sales costs mentioned above which probably makes it negative. Ta Ann domestic peelers were sold for $62 at the mill door. This implies a stumpage price of $22? But with only 372,000 tonnes that’s only $8 million before other direct costs not to mention the overheads. Not much better than pulpwood.

Non commercial activities

Included in the headline operating loss of $40 million is a figure of $5 million worth of expenses related to the management of non commercial forest zones. This is not all of the so called Community Service Obligations. There are others including research and a whole host of activities that FT to its credit undertakes as part of its obligations under the Forestry Act which Treasury don’t regard as activities requiring reimbursement as CSO’s over and above their statutory obligations.

As an aside FT can accurately track the cost of managing non commercial zones, so it would be an easy matter to give more accurate details about the direct costs of sales.

In the public discussion about FT’s future, ancillary roles such as firefighting are being elevated to primary functions to justify FT’s continued existence. Sophist argument surface all the time, clear falling can be justified on health and safety grounds for instance, now firefighting is the raison d’être for the continued existence of FT in its current form. Sure they are ancilliary matters of concern, but they shouldn’t be allowed to wag the dog.

Employee costs

To date we’ve only looked at the direct costs which are used to calculate gross profit. The overheads which reduce the figure to an operating profit figure principally include employee expenses. In 2011/12 employee expense including superannuation totalled $26 million, about what one would expect for 320 employees at the public service average of $80,000.

Whilst not changing the bottom line it is likely that some employee costs are direct costs incurred in forest sales rather than indirect overheads, meaning the gross profit is even worse.

Coincidentally the employee costs at current staff levels will be roughly equal to the amount of assistance proposed by the Government. The implied reality is FT, as presently operated will incur operating cash deficits over the next 4 years equal to employee costs. Without Government assistance it won’t generate any profits to cover even $1 in wages. Even St Vinnies workers generate enough profits to enable a small wage to supplement their Centrelink benefits.

How come Mr Gordon wasn’t offered life tenure?

Concluding observations

The direct cost of sales, are so high in the forest extraction business as currently operated by FT that the stumpage returns are increasingly dwarfed by the costs to get the timber to market.

The business is a ridiculous anachronism in its current form.

It is not evident from reading any FT report of late, the Auditor General’s report into FT’s financial performance or even the URS Report how the business is going to turn around the cash flow by $40 to $50 million pa. The URS report received by the Government may have contained this information but the publicly released version had all the relevant numbers blacked out and the important Data Appendices completely missing. Only the initiated and those sworn to secrecy are able to see the figures explaining the crisis in public policy gripping this State for 30 years, and then it will be expected that all of us will meekly accept whatever is decided.

Feudalism was more democratic.

What were the parameters used by URS in formulating their undisclosed model with the secret conclusions? Were they the same as used by Mr Gordon when he seriously misled Parliament in December 2011? Or the one’s that led to the chronic cash deficits as revealed at Budget time? Was it the oversight by URS that caused a revision in FT’s forward estimates? Since 2008 when the Auditor General started the ball rolling with a closer look at FT it has taken 4 years for the Government to finally admit that FT is in more trouble than Burke and Wills.

FT responds with an appallingly opaque document in the form of its Annual Report which on close inspection reveals that FT has dug an inescapably large hole for itself.

The URS option 2 will hopefully take most of the forests away from FT which then can be handed back in tranches over 5 year periods like VicForests, say, to manage for production and regeneration, or maybe tendered out for others to manage.

Whether the sawlog quota becomes 130,000 tonnes or 150,000 tonnes, the way FT conducts its business and charges for its product will have to undergo radical change. Even if a quota is agreed tomorrow it will be only a tiny step on the way to a sustainable forest industry.

Departing FT spinner Mr (Ken) Jeffreys colourfully described the wheels of Government as being clogged with a green slime. In FT’s case the inhibitor is more likely to be wilful deception and crass incompetence. This is a company that will on present indications extend its operating loss and negative operating cash flow to a record 10 years, has received cash grants of $223 million from the Feds over the last 15 years, is hopelessly insolvent without Government backing, gave away its softwood assets because it ran out of money, pawned its motor vehicles, spent TCFA grants designed for plantation establishment and maintenance to keep afloat, has superannuation liabilities in excess of the value of the trees it was given to manage and was paid to establish, has undercut private competitors possibly in breach of national competition rules, misleads Parliament, requires consultants to pinpoint future problems, has lost all the capital entrusted to it and hides what little information it is mandated to release in deliberately unhelpful and misleading Reports.