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

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.

They have been given more time to find a solution to the problems associated with building a pipeline from Trevallyn dam to the Bell Bay site, and to build arguments for extra tax-payer subsidies.

They have been given time to see where the Bartlett Government’s dip into the federal infrastructure fund helps logging-transport arrangements to Bell Bay and the upgrading of the Bell Bay port itself.

Is it coincidental that the extension to Gunns until March 2011 to complete hydro-dynamic modelling comes after the next federal election, which has to be held, at the latest, before the end of January 2011? This gives the Rudd Government flexibility over time leading up to and after the federal election to see how they should play the mill issue to the greatest electoral advantage to them.

However you look at it politically, the extension of time to Gunns is a win-win outcome, for Gunns and for the Rudd Government. It has nothing to do with Garrett wanting hydro-dynamic modelling for effluent disposal in Bass Strait, because that was always going to be required under the terms of EPBC Act, but it has everything to do with providing political options, not just to fit the electoral cycle, but also to fit the rapidly deteriorating economic situation.

I have said it before on numerous occasions, and I will say it again. The push is on for the use of the Rudd infrastructure funds to fund Gunns’ mill. Forget about infrastructure in health and education. Forget about investment in alternative energy which is the only hope for Australia in the long term.

Let me put it as baldly as I can. If in fact it is true that Gunns can seek compensation if Garrett varies Turnbull’s approval conditions as he claims, just answer this. How can the Rudd Government even consider introducing an ETS for carbon without risking exactly the same sovereign risk claims from every company that has negotiated with governments and is likely to be affected by that legislation? I’m talking about companies involved in projects that already exist, not those, as is the case with Gunns, that haven’t even started.

If I am wrong about this, I want to know why and I want to know how. If the fourth estate can’t ask these basic questions and explore the underlying issues involved in this, then they need to be exposed for their failure as well.

As for the people of Tasmania, it’s absolutely simple. We have no Obama, no political leadership which is willing or capable of understanding even the fundamental tenets of representative and responsible government and governance.

If this is a sovereign risk issue as Garrett claims, where is the democratic equity in that notion for the people of the Tamar Valley? What does sovereign risk mean to you if you have a house, a business, a property, a vegetable garden, a fishing enterprise, a respiratory illness? Can you claim sovereign risk due to a government agreement with a corporation to establish a pulp mill at Bell Bay if you happen to be adversely affected?

Be assured that sovereign risks do not apply to people, just as the PMAA-PMP deliberately excludes them from consideration. But then, the CSIRO report about effluent disposal in Bass Strait has never been made public either, has it?

So what does sovereign risk mean to you?