It would be brave to say no

Of small comfort in the crazy world of Tasmanian forest politics is that Lewis Carroll would have felt right at home.

“But I don’t want to go among mad people,” Alice remarked. “Oh, you can’t help that,” said the Cat, “we’re all mad here. I’m mad. You’re mad.” “How do you know I’m mad?” said Alice. “You must be,” said the Cat, “or you wouldn’t have come here.”

Finally we have a Tasmanian forest peace deal and a bill to go before state Parliament next week. The treaty of Versailles didn’t take 30 months, unlike this forests agreement. So what’s in it—and what will it mean for the flailing industry?

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.

Gunns the morning after

It will probably be 6 months before Gunns’ Voluntary Administrator (VA) presents his full report to creditors (the Second Report) which will reveal once and for all the mess that has been created. At that time there will be a recommendation to ...

• Hand the company back to Directors (unlikely),or

• Enter into a DOCA (Deed of Company Arrangement) where stakeholders agree to haircuts to keep the Group going. This is unlikely due to the complexity of the Group, or

• Liquidate the Group (most likely)

Electricity.... a perspective

 

Restructuring electricity companies

The discussion about power prices and the restructure of the State’s electricity sector often neglects the crucial role of the sector as a fiscal contributor to the overall State sector.

The affairs of the parent company, aka the General Government (GG), are usually discussed separately to the affairs of its subsidiaries, the wholly owned GBEs and State Owned Companies (SOCs) which together comprise the Total State sector.

The survival of any entity is inextricably linked to its net operating cash flow, in other words the cash revenue less the cash operating cash outlays.

The GG’s net operating cash flow for this year 2012/13 is expected to be $154 million. If one disregards capital grants the net operating cash flow for GG is only $45 million.

Included in GG’s operating cash is $233 million of dividends and income tax equivalents from the GBE/SOCs and also $34 million in guarantee fees, also paid as a consequence of the competitive neutrality requirements of national competition policy. Almost all these payments are from the three electricity companies for they are the only profitable ones (apart from MAIB) and their borrowings comprise 89% of all GBE/SOC borrowings upon which guarantee fees are based.

Without these payments from GBE/SOCs the GG’s net operating cash flow would be a negative $222 million. This is after payments for unfunded super liabilities but before capital and infrastructure payments, the latter this year budgeted to be $524 million, of which some, but certainly not all, will come from capital grants of $109 million, asset sales of $40 million and unspent capital grants from prior years.

GBE/SOC contributions are pretty important for GG.

The second coming is more likely

Is Gunns likely to be a takeover target?

Highly unlikely. A takeover implies assuming all the contingent liabilities as well, the ATO debts, class actions liabilities etc. A buyer would need to be extremely desperate or badly advised to venture into that spider’s web.
 

If desperate buying assets and leaving the liabilities behind may be preferable.

Joining the dots

‘Twas the announcement by Gunns on 1st July that further write-downs of its forestry assets were needed in the current environment that has shed a little more light on the problems confronting the Tasmanian forest industry.

The announcement gives a little more context to the going concern deliberations currently occupying the minds of both Gunns’ and FT’s Directors.

Tasmania's decisions

Matthew Denholm’s short opinion piece in the latest Weekend Australian on Tasmania titled ‘Governance, the economy and culture need a total overhaul’, was a welcome addition to the discussion about our future.

It was a short piece so it would be unfair to criticise the lack of supporting arguments but there were three points which warrant a comment.