Thursday, 25 November 2021

Basslink for Sale Chapter Two


The Basslink sale saga continues.

Since the Basslink for Sale post back in September the mooted sale to APA has been abandoned, and Basslink P/L (BL) is now under the control of Receivers and Managers (KPMG) appointed by BL’s banks.

Back in late October BL still hadn’t managed to refinance its existing bank loans as required. The sale to APA had fallen through. The final straw was when Hydro Tasmania (HT) and the State government finally ran out of patience with BL for non-payment of amounts awarded against them following legal action in the wake of 2016 interconnector outage and announced they were going to start legal action to recover amounts owed.

It was a Mexican standoff. The banks wanted their money. Creditors were getting impatient. BL’s owners didn’t want to contribute any more. BL was insolvent.

Tuesday, 23 November 2021

STT and the unsustainable sustainability myth


Tasmania’s forestry industry is world-class and sustainable “said Resources Minister Barnett when releasing the 2020/21 Annual Report for Sustainable Timbers Tasmania (STT),

There’s a useful rule when trying to assess the financial sustainability of any company: Beware if profits are only achieved with book entries.

That’s certainly the case for STT, our publicly owned forest company. It reported another small profit for the 2020/21 year, the fourth in succession. Without book entries and government grants however it would have been another loss, a pattern that has been occurring for a long time.

Another useful rule says beware if there aren’t underlying cash surpluses from operations. STT claim there are but that’s only because it doesn’t include all relevant ones. Replanting and roading costs are treated as capital outlays. For three of the past six years, including 2020/21 net operating cash including roading and regeneration costs has been negative.

As a general proposition for most businesses operating cash is usually more than book profits. Most of the difference is usually explained by book entries such as depreciation.  If the opposite is occurring, where book profits exceed operating cash as it often does with STT, alarm bells should be sounding.

Friday, 19 November 2021

VicForests heading downhill fast

 It is difficult to understand how VicForests’ can describe its latest loss of $4.7 million as ‘a sound result’.

A closer look at the VicForests’ Annual Report for 2020/21 suggests a different description may be warranted.  Forest revenue of $85 million was similar to the previous year, but after production costs of $70 million the stumpage value of harvested timber was the lowest ever at 17.9 per cent of revenue or $15.3 million, which was scarcely enough to cover roading and regeneration costs of $13.5 million, let alone employee costs of $19 million and overheads of $12 million. A lifeline of $21 million from the Government was needed for VicForests to continue as a going concern.

Thursday, 2 September 2021

Basslink for sale?


By any measure 2020 was annus horribilis for Basslink P/L, the owner of the existing Bass Strait interconnector, currently operated by Hydro Tasmania.

Basslink’s recently released annual financial report for the calendar year 2020 revealed its battle-scarred balance sheet after unsuccessful legal battles arising from the 2015/16 cable outage.

In December 2020 Basslink was forced to write off $30.8m which it claimed Hydro owed. The debt write-off related to whether the cable outage was a force majeure event. After taking six months to repair the cable, Hydro maintained because it was unavailable for half the year, the agreed monthly fee upon resumption should be reduced by the availability adjustment factor. Basslink argued the cable fault was an Act of God, a force majeure event, and hence the adjustment factor didn’t apply, and the full fee was payable. The arbitrator didn’t accept God was involved and found in Hydro’s favour. 

The arbitrator was also needed to resolve other disputes between Basslink and Hydro and between Basslink and the State government in respect of the cable failure. In the latter case the arbitrator awarded the State government $46.7 m including costs and interest. In the former case Hydro was awarded $26m, with costs yet to be decided. Basslink has raised a provision account which suggest another $30.9m may become payable. That’s a total of $103.6m Basslink will have to pay Hydro and the government.

Gutwein's grand delusion


The Budget papers elicited a memory of an Irish joke which I’m sure you’ve all heard. In answer to a tourist seeking directions to Dublin, the local responded: ”Well Sir, if I were you, I wouldn’t start from here”.

If we are to move to a better place, we shouldn’t be starting with the latest budget delivered by Premier Gutwein. The narrative is awfully misleading. “Last year we leveraged our strong balance sheet to support our community and underpin our economy”, the Premier said. ‘Leveraged’ is right, we borrowed more. ‘Strong balance sheet’ is wrong ‘cos it’s not. The State government’s net assets are no greater than the combined net assets of local governments. Because government businesses are inextricably entwined with the rest of the government sector, one needs to look at total State sector when passing judgement on our supposed strength.  The State’s total assets, including those of government businesses will be $37 billion by 2025. There will be $9 billion of cash and investments (mainly Tascorp and MAIB) and $28 billion worth of land, buildings, infrastructure etc. But there will be $28 billion of liabilities including borrowings of $11 billion and unfunded superannuation of $10 billion Net financial liabilities therefore will be $19 billion. As Saul Eslake recently observed, relative to our size this is larger than all other States and territories except for Northern Territory. Premier Gutwein always likes to draw attention to our low borrowings, our net debt, compared to other states. This is deliberately misleading. It’s our total financial liabilities that’s the relevant metric.

Wednesday, 18 August 2021

Future Gaming Mega profits


Stage 2 Public consultation August 2021


The inescapable nagging question that needs to be answered is why does an industry with as few redeeming features as the gaming industry receive gold star government assistance?


Monday, 26 July 2021

Future Gaming Market reform: A windfall for pubs.


Everyone including Federal Hotels accepted the reality that the days of its money making machine Network Gaming were numbered. With the exclusive license to run electronic gaming machines EGMs due to expire in 2023, assuming the government has given Federal Hotels the requisite 5 years notice, pubs and clubs were eying off a bigger share for themselves. Both parties, Federal Hotels and THA representing the pubs, cobbled together a proposal in 2017 for a new division of the spoils which the Government has adopted and rebranded as Future Gaming Market reform.

At the time, on 18th August 2017 Federal Hotel’s boss Greg Farrell told a Parliamentary hearing:

“The Vantage Group's viability would be enhanced as a result of this, as would every other licensed hotel and club. The average value of a Tasmanian hotel and club, post 2023, on this basis, would improve by about $1.5 million. That has been our model and it has been independently verified.” (Note: The Vantage Group is part of Federal Hotels with 12 EGM pubs and 21 bottle shops under the 9/11 banner).

A couple of points. Greg talked about the ‘average value’ and how it will ‘improve’. That pre-empts the question, what is the current situation? And how will the proposed changes impact the value of pubs?