Peter Gutwein

Premier of Tasmania

29 April 2015

Paul Harriss, Minister for Resources

Securing the future of Forestry Tasmania

The Hodgman Liberal Government was elected to rebuild Tasmania’s forest industry.

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.

We all know there is a lot more to be done, but the Government is committed to growing the economy and creating employment, and the indicators show that we are heading in the right direction.

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 perfect storm, the three Gs - the GFC, the collapse of Gunns, and then finally, the Greens/Labor government and the Tasmanian Forest Agreement.

At the time when Gunns withdrew from native forest harvesting, the forest industry and Forestry Tasmania needed careful support from the Government. Instead the TFA retired more than 150,000 cubic metres of sawlog production, halved Forestry Tasmania's production forest, and forced significant write-downs to Forestry Tasmania's balance sheet.

As a result, Forestry Tasmania 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.

As promised, the Hodgman Liberal Government has stopped this support to Forestry Tasmania 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 Forestry Tasmania operates to put it on a pathway to long-term sustainability.

We established a Steering Committee to oversee 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; and
  • 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.

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.

From these findings, 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 Forestry Tasmania into a Government department or ‘blow it up’ as some scaremongers have suggested;
  • 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 Forestry Tasmania’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;  and
  • The Government also will encourage private sector participation in the proposed laminated wood facility in the South.

 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.

The Government therefore 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 Forestry Tasmania 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.

It is important to note that decisions on Forestry Tasmania’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 stakeholder consultations, which will take place over coming months.

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.

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

Tasmanians 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 Forestry Tasmania 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. 

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.

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. 

Forestry Tasmania is in the business of selling trees, what we are proposing is that they bring forward the sale of some of those trees. 

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.

These are complex and difficult issues which remain to be resolved.  Forestry Tasmania’s commercial challenges have built up over time and have not been seriously tackled by Government previously.

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.

It is in the interests of everyone employed in the forestry and related industries – and indeed in the interests of all Tasmanians – to put politics aside and to implement an enduring sustainable future for FT as a key element of growing the industry.

We have already taken steps to strengthen the industry after it was decimated by Labor and the Greens.

Our legislation to rebuild the Forest Industry was approved by both Houses of Parliament and has put a halt to the lock-up of forest resources which had been going on relentlessly for 40 years.  With more than half of our entire state already protected, we have turned back the tide of history by converting land previously earmarked for Future Reserves into Future Potential Production Forest land.

Parliament also has approved new laws to protect Tasmanian workers from protesters who seek to make a point by damaging or destroying the livelihoods of others.  As we promised before the election, the Government has made sure that Tasmania has the strongest laws in the country to protect workers' rights, while ensuring the right to free speech and legitimate protest have been protected. The position is now crystal clear: everyone is entitled to have a say, but people can't stop others from earning a living in the process.

We have established a Ministerial Advisory Council to bring key groups together to help grow the industry and create jobs in regional Tasmania.

And after two out of every three jobs in our forest industries disappeared over the five years to November 2013, we have saved jobs and saved money through commonsense amendments to the Sawmill Assistance Program initiated by the previous administration.  Instead of paying sawmillers to lay off their workers, decommission their mills, shut up shop and walk away, we have secured the future for at least 50 employees, avoided downstream impacts on dozens more, and saved almost $2.5 million of taxpayers’ money in the process.

Make no mistake, this 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.

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