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The black hole

By Mike Bolan - posted Monday, 29 September 2008


Their IIS (Integrated Impact Statement) missed serious risks, including the risks of over-leveraging and sensitivity to critical variables like rainfall and political change, thus exposing Gunns to serious business problems.

It now seems that the concept was for mill profits to result from other people making losses by picking up much of Gunns costs and risks - a.k.a. cross subsidies which would give our forestry industry the appearance of being a real business, rather than a highly subsidised basket case.

In other words, the way that “industrial forestry” is able to be “sustainable” is with government approval to pass their costs and risks onto other people and businesses.

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Taxpayers and investors

Andrew Bent has estimated the scale of subsidies provided to forestry by taxpayers which amounts to over $200 million per annum currently and would jump to about $350 million per annum if Gunns pulp mill goes ahead, due to the extra resources required.

John Lawrence’s article brought out the failure of tree MIS (managed investment schemes), which is a taxpayer subsidised program to convert land to tree plantations “in perpetuity” - for ever.

“Investors” pay about $9,000 in total for a hectare of Gunns woodlot project. When the wood is harvested after (say) 13 years, a further 9 per cent of the sale price is due as rental for the land and sales commission.

“Investors” claim their costs off their tax, so the taxpayer pays about $3,000 per hectare, or a total taxpayer cost for 260,000 ha of $780 million over 15 years - another huge bonus to forestry who don’t have to use their own money or take any risks themselves.

Given the payout risks, investors are rightly asking “is this a scheme or a scam?”

Is profit likely?

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For simplicity I’ve focused on pulpwood (E.nitens) and used an average growth rate of 15 tonnes/hectare/year (CSIRO) which, in 13 years, means 195 tonnes of timber. Gunns agrees to pay a minimum of $33.88/tonne for plantation timber which leads to a sale price of about $6,600 per hectare - a loss of $3,000 per ha. “Investors” take all of the risk but may insure - at extra cost.

Gunns makes no commitment about tonnage per hectare so the final amount paid may will depend on Gunns unaudited declarations of yield.

N.B. The 15 tonnes per hectare growth figures that I’ve used come from CSIRO scientists and the typical growth rates reported (e.g. John Lawrence) and from a few plantation owners.

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First published in The Tasmanian Times on September 22, 2008.



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About the Author

Mike Bolan is an independent complex systems and business consultant. Mike worked for the Tamar valley community and others to prepare materials for the RPDC in which he spent about a year visiting Tasmanian communities, businesses and individuals to learn the impacts of forestry operations and the implications of a pulp mill on them. The lessons learned from that period are still relevant today and are used in this story, which is told to inform not to gain income.

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All articles by Mike Bolan

Creative Commons LicenseThis work is licensed under a Creative Commons License.

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