Hydro praying for rain

There was more than a hint of Donald Rumsfeld’s maxim of ‘known unknowns’ when new Chairman Grant Every-Burns spoke of challenges facing Hydro Tasmania:

“The corporation is impacted by the well understood uncertainty around carbon pricing, renewable targets and rainfall variability. We are able to predict with certainty that the Hydro will be impacted for some years into the future.”

Hydro Tasmania appeared before a House of Assembly committee two weeks ago.

Scrutiny hearings often produce more heat than light, but amongst the wearisome adversarial exchanges was some useful information.

FT and the Economic Regulator

The Government’s willingness to breach the spirit of national competition policy by its use of State resources to prop up Forestry Tasmania whilst imposing austerity on broader sections of the Tasmanian community has struck a discordant note with many of the affected.

If prices charged by Forestry Tasmania were required to fully cover costs then it would be required to cease its unprofitable native forest harvesting.

A willingness by the affected to pursue remedies and solutions has precipitated this note.

Competitive neutrality complaints are handled by the Office of the Tasmanian Economic Regulator (OTTER) pursuant to the Economic Regulator Act 2009 .

A breach of competition policy?

The Forestry Tasmania scrutiny hearing left no doubt that its survival depends on selling more native forest woodchips at higher prices.

Filling the void left by Gunns’ departure and venturing into the space currently occupied by private woodchippers and exporters is not without public policy problems, notably a need to adhere to national competition principles.

Getting government funds into Forestry Tasmania is more than simply a question of a choice between deficit funding and equity transfers.

The principle of competitive neutrality applies to government businesses competing with the private sector, and ensures that 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.

FT: Will it make a profit?

“Will it make a profit?”

“Indeed it will....“was the unequivocal reply.

FT’s District Forester was in no doubt when answering  an ABC reporter's question about the proposed clear felling of a 68 hectare coupe of 60 year old native forest regrowth at Lapoinya in North West Tasmania. The full ABC report can be found HERE.

After a few years of losing $20 for each tonne of timber chopped down and sold has FT found a way to make a profit?

Why Bob Gordon had to go?

The seemingly pointless inquiry investigating the sale of the Triabunna mill to Graeme Wood and Jan Cameron in July 2011 rather than to Ron O’Connor and the Aprin Group has brought to light a lot of correspondence and emails , now all accessible on the inquiry website .

Not much we didn’t already know.

One exception was a letter (reproduced below) from Treasury Secretary Martin Wallace to the Department of Economic Development Secretary Mark Kelleher dated 16^th June 2011 which revealed a little more detail on the failed Aprin deal and maybe why Bob Gordon's retirement occured a little earlier than otherwise planned.

Forestry Tasmania: Nothing has changed

The first thing that strikes when leafing through Forestry Tasmania’s (FT’s) Annual Report for 2013/14 is that the Directors have hardened their view that profits in the foreseeable future are unlikely.

Australia’s addiction to private debt

Macrobusiness.com have just posted a crackerjack article on the misreading of the Australian government budget emergency  and the errant path they have elected to follow.

 

"A perennial and divisive issue in politics and economics today is the matter of public debt. It is commonly asserted that rising public debt threatens the economy and needs to be reined in. Governments are often portrayed as ‘irrational’ actors when they incur a fiscal deficit, causing unnecessary inflation and interest rates to rise by borrowing to meet the shortfall.

Private sector lending is supposedly ‘crowded out’ by lifting the cost of money and limiting access to a finite lending pool by government actors. A large stock of public debt and chronic deficits are considered economically harmful, due to increasing the interest payment burden on taxpayers. A centrepiece of the Abbott government’s economic policy platform is its strident warnings about growing public debt: Australia’s ‘budget emergency’.

This specious claim remains unchallenged, for commentators are generally unfamiliar with the long-term trends in debt and its composition. This analysis fills that void by examining the long-term trends in public, private and external debt. Unsurprisingly, the conclusions arrived at are diametrically opposed and differ sharply to those stemming from the established political and economic narrative."

The last of Shree

Shree Minerals’ problems are pretty evident from a glance at the 2014 financials issued late in September 2014.

Hydro Tasmania's rivers dry up?

The recent Budget confirmed Hydro Tasmania’s uncertain future.

After the unprecedented financial success of the past two financial years 2012/13 and 2013/14, Hydro’s earnings are projected to plummet.

Returns to government lag profits by a year and hence payments from Hydro for the current year 2014/15 will be based on the record profits expected to be announced next month when Hydro releases its 2014 Annual Report.

But thereafter the future is bleaker.

Budget reality

 

Most of the post budget responses have sadly failed to come to grips with the budgetary problems confronting this State.

Maybe the following graph will highlight the situation.

 

The first Liberal budget is similar in approach to Lara Giddings’ first budget . Cash on hand at that stage was almost $1 billion, but the outlook wasn’t great.

A cash deficit of over $300 million was predicted for 2011 budget with cash surpluses thereafter. This is shown by the red line.

However during Ms Giddings tenure, cash continued to run down to $362 million (excluding any temporary borrowings) by 30th June 2014. This is shown by the green line.

Enter Mr Hodgman.

The recent budget even if all measures are successfully implemented on time, will continue the cash drain until there won’t be anything left in four years time. See blue line.

With scarcely any cash in the final year of the forward estimates, the government hasn’t provided for any interest payable. It will be a masterful cash flow management achievement to run a $5 billion budget without a cash buffer or a line of credit. No more internal borrowings or money shuffles will be possible if there's no cash.

The cash run down is despite:

·       Special dividends from MAIB of $100 million and Hydro Tasmania of $75 million which assist the government cash flow by simply increasing the debt of government businesses.

·       Cash savings of at least $50 million per annum by not having to fund superannuation for the 7,500 existing employees who are members of the defined benefits fund.

·       Based on past experiences there are negligible chances of achieving forward estimates, forever framed using heroic assumptions.

This is a plan that won’t work. To say that more work needs to be done is a chronic understatement that gives the plan credit which it doesn’t deserve, and lulls people into thinking that a bit of tweaking is all that is required.

We have an unsustainable system that all plans from all parties over the past 5 years have failed to address.

Listening to legislators debate the budget leaves little doubt that the State government is almost beyond salvation.

Unfunded superannuation not the biggest problem

Judging by the budget reactions, there is still a common misconception that one of our biggest budgetary problems is the unfunded superannuation liability for government employees.

If there is one issue in the Budget the government addressed it was the unfunded superannuation liability for members of the now closed defined benefits scheme.

Liberals' missed opportunity

Either there wasn’t a budget crisis or the government is yet to find a solution.

After five months at the crash repair shop, the budget that emerged is little different to the previous model.

If anything it’s worse.

Selling public monopolies

The campaign to sell public assets continues, in Tasmania's case the electricity assets, maybe MAIB , the water assets although they're owned by Councils, and who knows what else.

 

The Age’s Michael West wrote a crackerjack article at the weekend re the NSW government’s plan to tender out operations of Manly ferries to a monopoly provider.

Triabunna: Cognitive capture:and the failure of public policy

 

Submission to Inquiry into the Triabunna woodchip mill

 

The committee is to be commended for delving into this period of public policy.

If lessons can be learnt and processes, checks and balances established we may be able to avoid a repetition of the disastrous lost decade for Tasmania.

More than any other event the hurried sale of the Triabunna mill suggests the insolvency of the previous owner at that time, yet public policy makers and their masters, the willing or unwilling victims of cognitive capture turned a blind eye to the obvious and further delayed the inevitable.

The relentless pursuit of a policy objective come hell or high water has proved to be an extremely risky strategy not only for the beleaguered residents of Triabunna but for all Tasmanians.

Carbon losses

 

 

There are few who will suffer immediate losses from the removal of a price on carbon as much as the Tasmanian government.

Cash for Cadbury

   

It’s difficult to envisage a less deserving case for $16 million of government assistance than Cadbury. The amount is equivalent to one month's operating cash surplus which in the last year was all remitted to the parent company. The parent company only has to defer one month's cash grab and government assistance won't be needed.

Poverty of the progressives

The Federal Liberals' budget rationale is based on the widely held myth that government spending is financed by taxes and should a reckless government spend more than it raises in taxes then loan funds will be required from the private sector which will not only diminish the capacity of the private sector to create jobs and pay wages but will impoverish our children and grandchildren by burdening them with loan repayments that can only be met by higher taxes.

We’ve heard it a thousand times - the incessant Goebbels inspired  drum beat of the rationale of our current predicament.

But it’s not only the Liberals and those on the Right who believe it, but the so called progressives and those on the Left also believe it.

Maybe the latter are prepared to run government deficits for a bit longer and for government borrowings to be a bit higher, but essentially there’s not much difference between the two.

Just like the nuanced differences between Margaret Thatcher and Tony Blair, lost already in the sands of time.

Gunns' clearing sale

The dissipation of Gunns’ forest estate continues.

Korda Mentha, Gunns’ Receivers in control of Gunns’ secured assets, don’t say much. It’s not a requirement except when they need a favour.

PPB Advisory, Gunns’ Liquidator overlooking the whole show reveal a little  more because they’re charged with winding up Gunns’ MIS schemes and preventing Korda Mentha from grabbing the MIS trees for their clients. As a consequence they update growers with regular, and quite helpful explanations of the progress of the wind-up and how much is being received from asset sales and spent by lawyers accountants and consultants in the fee smorgasbord.

Understanding macro accounting

 

The broken promises and shameless lies of the recent Federal budget are easily justified if one accepts the  argument of the Liberal Member for Lyons.

“Just like the millions of Australians it represents who all have to live within their means, this Government believes that our country has to be financially responsible for the sake of our children and grandchildren.”

Sounds plausible?

One problem however. It’s false.

Sophistry at best. Another lie at worst.

Tax model is failing

THE Tasmanian Government’s budgetary problems are simple – it is essentially a service deliverer spending more than it is receiving.

Borrowings would be imprudent as there’s not enough to pay interest.

The past four years’ excess spending has been funded with amounts intended for other purposes, mainly funds in advance from the Federal Government such as the $290 million received to redevelop the Royal Hobart Hospital.

The GST, lauded as a growth tax until 2008, raised funds at a faster rate than overall economic growth and seduced state governments to expand their programs.

Shree staggers

Winter is a wild and woolly time down the West Coast of Tasmania.

Even bleaker for those not getting paid as expected.

Shree Minerals announcement to ASX was a carefully worded attempt not to scare the horses too much.

Shree stated : “While the company believes recent iron ore price declines are not reflective of medium term fundamentals and expects demand to continue to grow in the Asian markets, it is taking steps to optimise costs in the prevailing market conditions.”

Essentially what they’re saying is they’ll be able to pay their way if prices pick up.

Other than announcing they’d struck gold with another source of funds that’s all they could have said.

Apart from shareholders, working capital has been provided by Frost Global who have agreed to advance working capital to be repaid at the rate of US$500,000 each time Frost Global receives a shipload of ore

The last thing Shree, or Frost Global would want right now is an insolvency administration taken over by the creditors.

Shree: Another mining accident waiting to happen?

 

  

The almost daily reports about falling iron ore prices and the chatter about the effects on junior miners has shone the spotlight on Shree Minerals’ Nelson Bay River iron ore mine on Tasmania’s West Coast, as it battles to stay afloat.

Trying to understand what’s happening is best with knowledge of Shree’s recent history.

Ta Ann's last handout

 

Is this the last handout?

Last July one of the countless pre election promises made by Kevin Rudd was $7.5 million to help Ta Ann Tasmania (TAT) build a new plywood mill.

Relying on endemic amnesia amongst voters, the shameless local member elected at the same time as Kevin Rudd’s brief reappearance thankfully ended, last week was able to proudly announce that he had secured the $7.5 million handout for TAT.

TAT, it was claimed will contribute $8.3 million towards the construction of the $15.8 million facility in Smithton.

That’s a bit of an overstatement as $5.7 million is due soon, also from the Australian Government, as final settlement of the $26 million for surrendering 108,000 m³ of its annual wood supply as per the Tasmanian Forests Agreement.

So TAT will only have to find $2.6 million.

The Smithton plant go-ahead came hard on the heels of the release of TAT’s 2013 financial statements (its financial year ended on 31^st December) as well as that of the ultimate holding company, Ta Ann Holdings Berhad, listed in Malaysia.

The reports offer an intriguing look at how the group operates.

MIS last rites

Reports suggest New Forests has bought Gunns’ assets (not including the pulp mill site and permits) for $330 million.

In all likelihood this means Gunns’ land plus the trees growing on the land. Some of the trees however belong to MIS investors and joint venture partners.

Court proceedings have been underway for some time to get court approval for the amount to be split to the tree growers.

It won’t all end up with the hedge funds or whoever now owns Gunns’ bank debt.

Joint venture partners will get some and some will go to the MIS growers. Korda Mentha also will undoubtedly clip the ticket.

Privatisation: Broader issues

Privatising public assets is back on the agenda with Treasurer Hockey reigniting the discussion with his offer to State governments of a bonus if they sell remaining public assets and spend proceeds on new much needed infrastructure.

The Mercury ran an opinion piece on April 7^th from one of its resident op ed writers Hodgman has to sell off assets  urging Will Hodgman to sell assets and  ditch the leftist, big government view of the world as a necessary precondition to reviving Tasmania.

The privatisation debate has been around for a while but nothing new was presented on this occasion.

The economic blogosphere is full of bloggers trying to come to grips with the causes of the GFC. At the heart of this discussion are the matters of money, debt, and the role of government and hence is of particular relevance to the issue of privatisation.

Reality bites: Part 2

Two days ago Minister Harriss announced the way forward for the Tasmanian forest industry by creating a new class of reserve for 400,000 hectares of native forest destined for World Heritage protection designed to allow selective logging of special species whilst continuing to receive funds to compensate for the extra costs of reserve management.

Support for the Minister’s proposal has, so far, been a little underwhelming even from the main industry body FIAT.

The Mercury found a pocket of support:

Reality bites

It was only a matter of time before the incoming State government started backing down on its forest policy promises such as ripping up the forests agreement and ceasing funding Forestry Tasmania (FT).

The emotive term ‘ripping up the TGA’ suggests the Tasmanian Forests Agreement Act will be repealed. This is, and always has been, unlikely.

Even the latest announcement of changes to the classification of 400,000 hectares doesn’t imply the Act is being repealed or ripped up.

Entitlements and ransoms

Reports about the end of the age of entitlement are greatly exaggerated.

Hobart’s Mercury newspaper reported Deal close on $38 million Hobart International Airport bonanza

Describing the handout as government assistance to upgrade vital public infrastructure masks the reality that it’s a bailout of a private company brought to its knees by the rapacious behaviour of the airport manager Macquarie Bank.

SPC Ardmona asked for $25 million from the Australian government for factory upgrading in addition to $25 million from the Victorian government and $90 million from its own coffers. The financial strength of SPC’s parent Coca Cola Amatil was a factor in the Australian government’s refusal to accede to SPC’s request.

The assistance offered the Hobart Airport will comprise the bulk of the funds required for the airport upgrade and overlooks the ability of managers to raise funds elsewhere, not to mention turning a blind eye to events which necessitated the bail out.

Winning was easy

Winning was easy.

Henceforth it gets a whole lot harder, addressing the issues conveniently overlooked by all parties during the election campaign, not just looming problems with Hydro Tasmania, Forestry Tasmania and TT Line but the overwhelmingly crucial matter of government budgetary sustainability without a fallback position on the horizon.

Tripartite consensus at last?

The most compelling thing about the Liberals’ fiscal strategy just released is that it may signify the dawn of a new era of consensus.

Mid year prognosis

The Premier’s Mid Year update revealed an unsustainable budget position. No policy prescriptions were offered. Likewise Mr Hodgman’s plan, offers no solutions. The government plans to spend more in 2013/14 as a % of operating revenue than it did in 2012/13. The forward estimates reveal cash deficits in the future. The government hasn’t detailed how future deficits will be funded. The government is unlikely to meet any of its key performance indicators (KPIs) over the next 4 years. Nor has it announced any policy changes to help satisfy KPIs in the future. Mr Hodgman’s plan offers no comfort as 97.5% of outlays are the same as those of the government. He has refused to issue his revised costings following the Premier’s update. Both parties intend to spend an unacceptably low amount on infrastructure. Even with the most important election in a generation the Libs are yet to publicly announce their KPIs, their fiscal strategies, as required. Electors are being presented with alternative plans, neither of which will lead the government onto a sustainable pathway.

The Mid Year Report: What to look for

Premier Giddings releases the Mid-Year Financial Report later today. The following are five things to look for:

1.      For 2013/14 do government’s cash outlays still exceed cash inflows? How long will this continue?

2.      The government survived 2012/13 by cutting the capex budget. Does the revised budget for 2013/14 include further downward revisions of capex amounts (infrastructure, roads etc)? How long can this continue?

3.     As the Auditor General confirmed yesterday, the government has survived by internally borrowing amounts received for other purposes, the Royal Hobart Hospital for example. Does the Mid Year update confirm a rise in the level of internal borrowings?. What is the expected figure as at 30^th June 2014.

4.     When will we be able to start repaying the internal borrowings? In other words when will cash receipts exceed cash outlays?

5.     Have the capex outlays relating to the Royal Hobart Hospital ($500 million+) been rescheduled? Or is the upgrade still on track?

The Hodgman plan: Will it work?

 

Will Hodgman’s future plans are at last coming under a little more scrutiny.

The coming election, we are told, is a once in a generation event, a turning point for Tasmania.

The Liberals have, to their credit, unveiled a plan in each of the past few years in response to the government’s budget.

The latest plan titled a Plan for a Brighter Future issued in May 2013 contained the Libs’ plans for 2013/14 and the next 3 years of the forward estimates.

The plan is based on the governments’ budgets for those years. In essence the Libs are planning to cut outlays by about 1% and redirect about 1.5% of wasteful spending to other initiatives.

That’s all.

It’s sometimes touted the Libs have identified $500 million worth of savings. But that’s the four year total. Each year it’s about $125 million.

The government have no plan, we are told. Only the Libs have, a fully costed plan, a once in a generation change to fix the Labor Green Budget mess.

Will it work?

Mill shortfall

 

 

The plantation feedstock shortfall for the proposed pulp mill is still not widely understood.

Just consider the following, first a quote from Martin Ferguson’s recent Review of the Tasmanian Private Hardwood Plantation Estate and second an extract from the last detailed presentation given by Gunns.

Desperate times

When Gunns first entered voluntary administration 15 months ago it seemed as if the secured creditors (the banks) would get most of what they were owed. It didn’t much matter if the pulp mill permit was worthless; there was enough value in Gunns’ other assets to ensure the banks were repaid.

Creditors and shareholders wouldn’t get anything. KordaMentha the receivers in control of most of Gunns’s assets acted for the banks and didn’t care about others: growers, creditors, the people of Tasmania. Their mission was to ensure there was enough in the pool to cover their fees and to pay the banks.

But with every passing day throughout the insolvency administration period the banks’ shortfall has been increasing.