Will Hodgman

Premier of Tasmania



29 April 2015

Paul Harriss, Minister for Resources

Ministerial Statement: Review of Forestry Tasmania

**Check against delivery**

The road ahead in forestry has challenges to negotiate, but the opportunities are vast and the Government is committed to clear the way for private investment and private enterprise to rekindle a new spirit of progress in our forest-based economy.

We want not just Forestry Tasmania, but the entire forest industry, to stand on its own two feet.  We strongly believe that the forest industry can - and will - grow into the future without the need for ongoing Government financial support.

Changing the way Forestry Tasmania operates will underpin this transition.  In the future, the Government sees FT focussing on what it does best - growing trees, managing public production forests, and selling the logs which provide the raw material for our current and future processing industries.

This Ministerial Statement outlines a pathway forward for Forestry Tasmania as an essential element in stabilising the industry.  It is important to note that decisions on FT’s operating model are in-principle only at this stage and designed to inform detailed discussions with industry and other stakeholders.

A final decision by Cabinet will be informed by the outcome of those stakeholder consultations, which will take place over coming months.

The Government is committed to ensuring that Tasmania’s forest industry makes the most of the growth opportunities ahead.

FT Review

Madam Speaker, one of the commitments of the Government to grow the forest industry was to ensure a sustainable future for Forestry Tasmania.

Forestry Tasmania has been hit with the GFC, the collapse of Gunns, and the Tasmanian Forest Agreement.

FT has recorded consecutive operating losses which have progressively worsened over recent years, despite significant Government funds to support them.

In fact, in 2012-13 and 2013-14, the two years following the signing of the TFA, the total amount paid to Forestry Tasmania from the budget was nearly $100 million.

The Government has stopped this support to FT from the budget, instead providing for a $30 million equity transfer from TasNetworks to allow the time for a complete review and rethink of the way FT operates.

 In September last year the Treasurer and I announced that the Government would work with Forestry Tasmania to review the business and put it on a pathway to long-term sustainability.

We established a Steering Committee to oversight the review with representatives from Treasury, Forestry Tasmania, and the Departments of State Growth and Premier and Cabinet.

We set some clear objectives for the review:

to examine the most appropriate options to deliver economically viable and sustainable forest management and wood production outcomes for the State

To consider the Forestry Tasmania operating model, commercial arrangements and constraints and the impact on its financial performance

To identify options for the short term to limit the losses and consider the current and future role of Government in the public production forests.

We also established some clear parameters for the review based on our commitments to Tasmanians. 

This included our rock-solid commitment to grow the industry and create employment – particularly in regional areas. 

And it also included our commitment to end the reliance of Forestry Tasmania on support from the Budget for its commercial operations at the expense of front line Government services.

Review Process

The Steering Committee in preparing advice for Cabinet was supported by independent commercial advice provided by Deloitte. 

Both Deloitte and the Steering Committee made a number of key findings, including:

  • Forestry Tasmania’s current business model will not provide a long term financially sustainable approach to manage and make commercially available Tasmania’s production native forest resources;
  • the current operating model has not delivered a profit for many years;
  • The current model exposes Forestry Tasmania … and therefore the Government … to significant financial risk through direct exposure to international residues markets and currency movements;
  • There is an opportunity to support the transition to a financially sustainable operating model by capitalising on some of the value in Forestry Tasmania’s hardwood plantation estate; and
  • Forestry Tasmania’s operating model needs to be changed to improve the bottom line.

These findings were assessed by the Government against over-riding public interest criteria:

The need to encourage and expand private sector investment in the Tasmanian forest industry as the central element of our policy commitment to grow the industry – the future of the industry must be in the hands of the private sector;

The need to receive an appropriate financial return from the public production native forest;

The need to ensure the appropriate environmental, social and cultural management of public production native forests; and

The need to maintain access to our public native forests for multiple uses.

Decisions

Based on that assessment, the Government has made a number of strategic decisions.  These are:

Forestry Tasmania will continue to operate as a Government Business Enterprise – the Government is not intending to roll FT into a Government department or ‘blow it up’;

The Board will be supplemented by a representative from Treasury to help maintain momentum from the review and support the transition process;

There will be no change to the legislated requirement to make available a minimum of 137,000 cubic metres of high quality sawlog each year;

We will not create sovereign risk by over-riding FT’s commercially negotiated contracts;

Forestry Tasmania’s activities in future will be focussed on growing trees, managing land and selling wood to domestic customers - responsibility for export sales and value added products will transition to the private sector;

The Government will, through an Expression of Interest process, look to the private sector for an industry-led solution to the lack of an effective southern residues outlet - be it for export or on-island use; 

The existing financial support to industry for transport of southern residues will be phased out in conjunction with the development of an industry-led southern residues solution;

The Government also will encourage private sector participation in the proposed laminated wood facility in the South.

Southern Residues Solution

Madam Speaker, finding a solution to the southern residues problem remains a key to rebuilding the forest industry and a key priority for the Government.

However, it is not in the interests of the industry or of the Tasmanian community for Government to compete with the private sector in areas where private enterprise, private capital and private expertise are well equipped to do the job.

The Government is confident that an industry-led solution through an Expression of Interest process will be in the best interests of the industry and of Tasmanian taxpayers.

While details of the EOI process are still to be finalised, I can indicate that any expression of interest which is based on use of Macquarie Wharf in Hobart will need to be presented on the basis that there will not be a woodchip pile on the wharf and that processing will occur offsite. 

The Government will be looking for innovative proposals that minimise visual impact on the waterfront and minimise impact on traffic through the city.

Stakeholders - including industry stakeholders, the Macquarie Point Development Corporation and the tourism industry - will be further consulted as part of the Government assessment of submissions.

It is important to note, however, that the Government does not intend to restrict the Expression of Interest process to fibre exports.  I have said previously that wood fibre or any other unimproved exports are a second-best option to local processing and value-adding and local jobs.

The Ministerial Advisory Council is investigating residue solutions as it develops the growth plan for the industry.  The purpose of that investigation is to identify potential options to add value to harvesting and processing residues from both native forests and plantations. 

In the meantime, the Government encourages any business with a viable plan for on-island processing of residues to put it forward through the EOI process for consideration.

FT Restructure

Madam Speaker, the Government also has made an in-principle decision to restructure Forestry Tasmania’s operating model.  We want Forestry Tasmania to be focussed on growing trees and managing land, and contracting for wood supply to the private sector.

As part of this change FT will be required to optimise opportunities for private sector participation in bringing timber to market.

The Steering Committee has noted that change on these lines may have wide-ranging industry impacts if not undertaken carefully.

This is why I want to again emphasise that the decision taken by Government is in-principle at this stage for the purposes of indicating the Government’s preferred direction, and a final decision will be informed by detailed discussion with key stakeholders, including FT customers.

I will lead a consultation over coming months to inform a final decision on the details of the new operating model and the nature and duration of the required transition period.

We are very conscious that we need to engage industry and other stakeholders in the detailed timing, nature and structure of this process.  We intend to engage the broad representation of the Ministerial Advisory Council and other relevant stakeholders in this consultation.

FT Staff

The public debate which has surrounded forestry issues in Tasmania over many years has created great uncertainty for staff at Forestry Tasmania.

This Parliament and the people of Tasmania owe a great deal to the dedicated staff of FT who have maintained their professionalism and commitment to an outstanding level of forest management despite all of that uncertainty.

It is an unfortunate fact that if FT is to be put on a long-term sustainable footing, it will need to be smaller and more efficient, increasingly focussed on its core business and more commercially agile. 

I am not in a position at this time to provide a precise figure on the level of reduction.  Forestry Tasmania will determine the final organisation structure and staffing numbers to fulfil its ongoing obligations. Staff and their representatives will be fully engaged in this process.

It would be remiss not to highlight the fact that, as activities are transferred from Forestry Tasmania to the private sector, there will be new employment opportunities in those businesses which take up the opportunity.

Funding the Transition

It is obvious that it will take time for Forestry Tasmania to return to a sustainable operating position and in the meantime there is a need to provide an interim financial solution.

The Government has given careful consideration to how this can be achieved, cognisant of the need to cease funding the commercial operations of Forestry Tasmania from the Budget at the cost of front line service delivery.

The advice of the Steering Committee and the consultants is that Forestry Tasmania’s hardwood plantations provide a saleable asset with the potential to generate significant revenue in the immediate term.

Any sale will need to be assessed against the requirement to maintain contractual wood supply obligations and against any potential impact on forest management certification.

There will be a detailed due diligence process over the next few months, led by Forestry Tasmania, to determine the nature, scope and timing of the plantation divestment and how it can be structured to deliver the maximum value within any sawlog supply and other constraints.  Key in this regard will be potential off-take arrangements covering the sale, use of Future Potential Production Forest land, and the contribution of the private forest estate.

Sale proceeds will be used to fund transition costs as Forestry Tasmania moves into a sustainable commercial position.

Pending the completion of the sale process, Forestry Tasmania will be authorised to increase borrowings to fund its operations in 2015-16 and 2016-17.  These borrowings will be repaid from proceeds from any plantation sale.

Conclusion

Madam Speaker, these are complex and difficult issues which remain to be resolved.  Forestry Tasmania’s commercial challenges have built up over time.

Transitioning Forestry Tasmania to a sustainable financial position and an organisation more keenly focussed on its core business of growing trees and managing land will take time and require the private sector to have confidence in the enduring nature of this approach.

The Government remains strongly committed to our forest industries and convinced that they can again contribute much more substantially to jobs and our economy than has been the case in recent times.

Madam Speaker, I table this Ministerial Statement together with the advice of the Steering Committee, which has been appropriately redacted to remove material which is commercial in confidence.



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