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Garrett’s pulp mill approval and sovereign risk: baloney?

By Peter Henning - posted Friday, 30 January 2009

When Federal Environment Minister Peter Garrett cloaked his approval of nine of the outstanding 12 planning modules required for Gunns to build and operate a pulp mill in the Tamar Valley by requiring more detailed hydro-dynamic modelling for the disposal of waste in Commonwealth waters in Bass Strait, he made it clear that Gunns could start construction at Bell Bay whenever they chose to do so.

The main argument he used was that he was not in a position as Minister for the Environment in the Rudd Government to overturn any decisions made on the matter by the former Minister (Malcolm Turnbull) in the Howard government. He had rehearsed his lines to repeat the mantra, well - repeatedly - that he was bound by Turnbull’s decisions and had to faithfully fulfil his predecessor’s arrangements to the letter.

Garrett explained that his reasons for being bound were based on legal advice that any variation from Turnbull’s approval process (which allowed Gunns to construct the mill prior to approval of all the planning modules) could lead to Gunns taking their own legal action against the federal government for compensation.


He suggested, as strongly as he was able, that the basis of Gunns’ claims could be around “sovereign risk issues”. We in Tasmania have already been introduced to the notion of sovereign risk agreements between Gunns and government. The Lennon government had a sovereign risk agreement which guaranteed Gunns $15 million of taxpayers’ money if there were changes to wood supply agreements for the pulp mill, which Gunns could not be bothered renewing towards the end of 2008. Peanuts. Why bother.

But let us see what sovereign risk means, in simplified terms, as defined by a reputable legal firm. “By its nature, a sovereign risk event can only occur after a project has commenced. Commercial or project outcomes negotiated with government prior to the commencement of a project are not instances of sovereign risk” (Minter Ellison lawyers).

So you there you have it. Has Gunns started its project yet? Garrett says they can start construction any time. Is “construction” the start of the project, or does the “start” mean something else? If so, what?

If they haven’t started the project yet, doesn’t that mean that Garrett’s statement (that he would be exposing the federal government to a compensation claim if he varied Turnbull’s approval) is utter baloney?

Furthermore, does it not mean that Garrett is actually attempting to facilitate a compensation claim by Gunns in the event that they might wish to do just that? To put it in simple terms, if sovereign risk can only occur after a project has commenced, Garrett has provided the green light to Gunns to seek compensation in the future by stating unequivocally that they can begin construction whenever they like under the terms of the approvals he has now granted for 13 of Turnbull’s 16 modules.

Goodness knows why the mainstream media hasn’t picked up on the legal definition of sovereign risk, and the legal distinctions between sovereign risk and regulatory arrangements, because there have been precedents set in the meanings of these terms by Australian courts.


So what exactly has Garrett done to help Gunns?

There is a possibility that he has done much more than most of us have hitherto realised.

I have already argued in an earlier article - Tasmania: Look Away! - that Garrett has provided Gunns with cover for over two more years for its continued posturing about seeking finance. They have been given extra time to pursue joint-venture partners if and when more favourable economic circumstances emerge, or to sell the whole project to foreign interests, and they have been gifted an indefinite period to avoid adding the $100 million (their stated amount) already spent to their balance sheet.

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First published in the Tasmanian Times on January 22, 2009.

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About the Author

Peter Henning is a former teacher and historian. He is a former Tasmanian olive grower, living in Melbourne.

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