Monday, 21 August 2023

STT's forest valuation charade


Publicly owned commercial native forests as operated by Sustainable Timbers Tasmania P/L (STT) are perpetual assets managed for the benefit of future generations.

Yet when STT values its forests every year it values the estate as a single rotation crop. Which is a patently absurd assumption for a perpetual asset where replanting is mandatory.

This is the loophole that allows STT to pretend to be sustainable. Replanting costs are excluded when determining the expected net proceeds which forms the basis for a forest’s value.

Saturday, 19 August 2023

Hydro & Aurora Energy: Onerous contracts


Power Purchase Agreements have been used to assist developers of renewable energy projects. These notes explain how Hydro Tasmania and Aurora Energy account for these agreements and how accounting standards allow much of the relevant detail to escape the reporting net.

Included also is a closer look at how Hydro’s sale of a majority share in its windfarms was only possible due to a generous Power Purchase Agreement by Hydro effectively guaranteeing to pay the purchaser’s debt over the term of the agreement.

Finally there’s a note outlining how the assumption of sunk costs are used by renewable energy promoters to give a rosy view of individual projects. For instance, a windfarm developer needn’t consider the costs of Marinus because it’s a sunk cost however large.  A recent article is cited describing how sunk cost trickery understates the costs of renewable energy projects.

Friday, 4 August 2023

STT revisited

 Most people hoped we’d heard and seen the last of them.

But then a bell rang, and out they came, like the travelling troupers from Harry Paulsen’s Touring Stadium.

The forest fighters were back, determined as always to ignore recent events if it didn’t suit their narrative.

The spark that re- ignited the fire was the decision of the Victorian government to halt native forest logging. It was described as a Dan Andrews stuff up, as the actions of an anti-forestry government, but that shows a wilful ignorance of the financial unsustainability of native forest harvesting in general and VicForests in particular, where the final nail in its coffin were the massive 2020 bushfires.

Monday, 24 July 2023

Borrowings: La Trobe Uni and the lessons for UTAS


La Trobe University (LU) today announced its intention to raise funds via a Green Bond issue following in the footsteps of UTAS Green Bond raising of $350 million in the 2022 year.

The amount to be raised is not known at this stage and is irrelevant for the purpose of this note which is to have a quick look at the requirements/restrictions for LU to raise money in this manner and provide the current Leg Co Committee looking into UTAS with information which may assist their deliberations.

What lessons are there for UTAS?

Thursday, 20 July 2023

UTAS: In more trouble than Burke and Wills?


UTAS is in more trouble than Burke and Wills.

The UTAS Council meeting on 27th April 2023 discussed the 2023 financial forecast. The minutes, reproduced below, make bleak reading.

The Council “discussed the challenging conditions facing the University in 2023” and proceeded to discuss ways “to generate a positive EBITDA in the coming years.” What that implies is that current projections must show negative EBITDAs.

The acronym EBITDA stands for Earnings Before Interest Tax Depreciation and Amortisation, essentially the cash earnings before interest and depreciation (NB UTAS doesn’t pay tax). It’s a standard measure of the cash available to service borrowings and to pay for capex amounts (new buildings say).

UTAS’ EBITDA in 2022 was $30.9 million. To be in negative territory in 2023 reveals an alarming downturn.

A business might break even from a profit perspective, but adding back depreciation and interest gives a figure for cash earnings.

If UTAS has negative cash earnings, it can only survive by running down its investments or borrowing more. Even if capex spending is zero, it means UTAS is borrowing to pay interest. Ouch.

Running down investment and borrowing more was the plan for financing the Hobart move. Without that UTAS survival changes would be greater as universities traditionally have a larger buffer of cash and investments than most in the private sector.

The minutes suggest future challenges will start to be addressed in October. This highlights the nature of UTAS’ business. Whilst others might be able to implement changes more rapidly, UTAS is tied to the cycle of the academic year. It’s going to have to live with cash haemorrhaging for the rest of 2023 and hope things can be put into place post October to take effect before the 2024 academic year.

The 2022 Annual Report reflected “(t)hese past three years have been among the most challenging our University has ever faced.”

It’s going to get worse. Far worse.

Wednesday, 19 July 2023

UTAS: The State government's role Part 2


(Apart from the three introductory paragraphs, this blog was sent as a supplementary sumission to the Legislative Council’s Inquiry into Provisions of the University of Tasmania Act 1992.)

Maybe it was a coincidence or maybe it was intended. UTAS dumped a huge cache of documents and minutes on its website which related to its intended move into the Hobart CDB just days after the Legislative Council inquiry met with Treasurer Michael Ferguson on the 6th July 2023, thereby resticting the sorts of question he would otherwise have faced, essentially about  the role of the State government in UTAS’ affairs.

The data dump can be found HERE.

Pursuant to sec 7(2) of the UTAS Act the Treasurer needs to give UTAS approval before it undertakes any borrowings.

The previous blog on this site explored some of the issues around UTAS’ borrowings following the Treasurer’s brief appearance, what it means for the State governemnt and we as Tasmanians, and what the Treasurer knew/didn’t know/should have known/ignored about UTAS.

This blog attempts to fill in some of the missing pieces of the puzzle gleaned from the new information in the public domain.

Monday, 17 July 2023

UTAS: The State government's role


The following are comments which formed part of a supplementary submission to the Legislative Council Inquiry into the Provisions of the University of Tasmania Act 1992 following Treasurer Michael Ferguson’s appearance before the Committee on 6th July 2023

The Treasurer’s brief appearance highlighted some of the relevant issues relating to the State Government’s role. The issues canvassed here include:

·        Ownership and/or control of UTAS’s assets

·        The reason for Sec 7(2), the need for UTAS to obtain the Treasurer’s approval before borrowing.

·        Borrowing like arrangements: service concession deals.

·        Borrowing like arrangements: other.

·        The University of Wollongong (UOW) experience: A cautionary tale.

The notes were prepared to assist the Committee understand the financial issues facing UTAS. They were prepared before the massive data dump by UTAS of documents, Council minutes etc relating to UTAS proposed relocation to Hobart CDB which occurred after the Treasurer’s Committee hearing, which conveniently meant the Committee was unable to chase up some interesting leads about funding the CDB move and what it may mean for UTAS, the state government and for all Tasmanians. An up coming blog will cover the more interesting revelations.