Will Minister Harriss outlast FT?

Resources Minister Paul Harriss’ performance at Forestry Tasmania’s scrutiny hearing last Friday will do little to muffle  calls for his removal.

It was a shocker.

A bad day was assured when Mr Harris’ opening address referred to 470,000 tonnes of peelers being supplied to Ta Ann for 2014/15.

What?

The actual figure was 144,000 tonnes just below the contracted amount.

How could a Minister get it so wrong? How could a Minister with the lightest load in Cabinet make such a mistake reading from a prepared statement?

The Minister again talked about the massive turn around in ‘comprehensive income’ from a loss of $43 million in 2013/14 to a profit of $31.7 million, shown elsewhere to be a mirage.

 A few minutes later Chairman Annells corrected the record:

“It shows a remarkable turnaround........ from the board's point of view, it is interesting,....... but does it have any real significance?  None whatsoever.”

Hopefully Minister Harriss won’t pursue this line of spin in future.

The crux of FT’s problems is that is sells its products too cheaply, a point that even long time forestry supporter  Ivan Dean, the Member for Windemere is finally grasping.

Mr Dean asked:

“However, my question was - and I understand the chairman to have said that the product itself that you are selling, the contracted timbers and native forest timbers, even plantation timbers, are not provided any profit to Forestry Tasmania at all ........ (t)hat side of the business is not returning a profit and is barely covering costs, or is not covering costs, including transport and all of the other costs associated ......”

Mr Harriss responded from his bubble:

“Bob made it very clear at the commencement of his answer that with the high-quality saw log there is profit and with peeler provision, profit.”

Mr Annells didn’t say anything like that.

What he actually said was:

“What it does not provide is any surplus to actually meet the other overheads in the business. We are not adequately receiving, from high quality sawlog, or from peeler logs, and certainly not from pulpwood sales, sufficient profit to underpin the rest of our business - our salaries, wages, rents, et cetera”

That’s pretty clear. FT is not generating enough from product sales to cover costs. And it’s been that way for over 5 years.

So how will selling the hardwood plantations help?

FT confirmed they’ll own about 55,000 hectares of hardwood plantations after FT assumes control of the 14,000 hectares of Gunns’ MIS plantations growing on its land.

About 20,000 hectares are pruned plantations which FT hope to retain to supplement sawlog supply after 2027.

That leaves 35,000 hectares of unpruned plantation available for sale.

After all this time Minister Harriss still talks about ‘scoping’, the new word of the month, which means trying to work out what they’re worth and how to split up the estate into saleable lots and which bits can be chipped soon without contravening national competition rules. The average  age of the hardwood plantations is 13 years so many of the unpruned can't be too far away from a trip to the chipper. It would be a little remiss if FT repeated its folly by allowing someone else to profit from chipping our trees.

FT has a pretty good idea how much timber is there. Valuers assess the estate every year.

The Annual Report says on average its hardwood plantations had 149 tonnes of timber per hectare at balance date.

Applying the average to potential sales of 35,000 hectares gives about 5 million tonnes. New Forests/ Forico bought timber from Gunns’ MISs at an estimated $8 per tonne. The FEA MIS  timber estate sold for an estimated $5 per tonne.

Applying these figures gives a sale price between $25 million and $40 million, which will barely cover the deficit which will accumulate while Mr Harriss scopes the sale and proceeds with disposal.

One gets the feeling FT knows the likely proceeds and knows the Harriss plan won’t save it, but has no option but to play along.

FT is a sitting duck. The government has ensured that FT is a distressed seller as it is fast running out of time.

Distressed sellers rarely achieve premium prices.

Kerry Finch, Member for Rosevears summed up the feeling of most:

“In respect of the plantation industry, I am not getting a positive vibe about this process - the plantations, the handling of them, the selling of them.”

In any event, then what?

How will subsequent deficits be funded,

One of the reasons for the slight improvement in revenue this year was increased woodchip sales from Burnie, which Minister Harriss has indicated will transition to the private sector.

Then what?

Members were finding it difficult to determine how and when FT was likely to make a profit. Mr Harriss continued his gobbledegook by saying:

“We are talking about long-term contracts with Forestry Tasmania's customer a la sawmills for high-quality sawlog. Those prices are subject to review during the process of the contracts being in place. Most of those contracts do not expire until 2027.”

It’s difficult to know exactly what was meant by ‘prices being subject to review during the process of the contracts being in place’ (oh for a return of Queen’s English....!!) but the fact that most contracts for sawlog supply do not expire for 12 years suggests that FT will find it difficult to raise prices and hence make money from the only products it has to sell.

Member for Hobart Rob Valentine asked a pretty intelligent question to the effect that one reason Minister Harriss was able to claim a profit was that the liability for unfunded superannuation fell , and one reason for that was some employees were transferred to DPIWE following restructure of some of FT’s land portfolio.

Mr Valentine was 100% correct, transferring employees to another department reduces the liability for unfunded superannuation, which makes FT’s bottom line look better which enables Mr Harriss to crow a bit more.

The FT brains trust failed to understand, or at least acknowledge, Mr Valentine’s valid point that bottom lines can be easily improved by shuffling employees back to where Finance-General  (part of Treasury) picks up the tab for unfunded superannuation.

Mr Finch was on the money when he asked about the dissolution of a Joint Venture (JV) with Gunns. FT agreed to pay (unpaid at 30^th June) an amount to acquire 100% of the JV.

He was told:

“In the balance sheet it is $5.7 million which we have recognised, and on the other side of the coin we essentially have control of all of the trees in the joint venture and those have come through to increase the value of the forest valuation”.

I’m not sure Mr Harriss understood that he was being white anted by FT management.

In other words by merely agreeing to buy more trees FT was able to increase the value of the forest estate which enabled Minister Harriss to blab about a miraculous turnabout.

Mr Finch then asked about FT undercutting private forest growers and whether this was a breach of national competition policy.

Mr Harriss was either way out of his depth or opted to feign ignorance.

The Chair Mrs Taylor, Member for Elwick chipped in:

“CHAIR - That is related to the question isn't it?  If Forestry Tasmania will sell it at a cheaper price, they are going to buy it from Forestry Tasmania as opposed to buying it from a private land owner?

Mr HARRISS- Forestry Tasmania operates in that commercial environment just like any other role.

Mr DEAN - We have previously heard that they were not recovering sufficient from their sales to cover all of their costs.

Mr HARRISS- No, we heard earlier today, based on the detail reality from the annual report, that it is a positive.  We heard that two or three times during the day.

Mr DEAN - But we heard also from the chairman that the cost recovery for the product you are selling is not sufficient to cover all of the costs that are related to that business of selling the timber, getting it to the areas and so on.

Mr HARRISS- That is the nature of getting Forestry Tasmania's commercial operations onto a sustainable footing for the future.

Mr DEAN - That adds to this issue.”

Then came the piece de resistance from Mr Harriss:

“Forestry Tasmania operates clearly in that commercial market space without any advantage over private growers. ........ I do not know whether Bob or Steve have anything to add to that. I do not accept that Forestry Tasmania participates against national competition processes.”

Neither Mr Annells nor Mr Whitely offered to save Mr Harriss.

It was plainly a ridiculous assertion to say that that FT being propped up by the government doesn’t provide advantages to FT contrary to national competition policy. After all that’s why they’re ceasing the export of woodchips?

Mrs Armitage, member for Launceston, quizzed FT guys about their remuneration packages.

Her questions were misdirected.

She should’ve asked the Minister whether he deserved his Ministerial salary after such an inept performance.