CHAPTER 2
Introduction
Background to Wool International Limited
2.1 Wool International (WI) was established by the Commonwealth Government
in December 1993. This body succeeded the Australian Wool Realisation Commission
in managing and selling the wool stockpile and repaying the commercial debt,
which is guaranteed by the Commonwealth Government. [1]
2.2 The Wool International Act 1993 provides for WI to have a number
of functions in addition to the actual sale of the wool stockpile. These functions
included encouraging the development of a viable international wool futures
market and the provision of services to the Australian wool market. However,
in June 1997 the Act was amended to narrow the tasks of WI to “ …
selling the stockpile, elimination of debt and returning surplus funds to
wool growers.” [2] These changes took effect from 1 July 1997.
Size of stockpile and its reduction
2.3 The official wool stockpile accumulated as a result of the policy of
purchasing wool to support the wool reserve price scheme. As a result of falling
wool prices after the scheme was put in place the stockpile steadily grew
from negligible levels at the beginning of the 1989-90 wool season to reach
a peak of approximately five million bales in 1990-91. [3]
However, since that season the size of the stockpile had been reduced to just
over one million. [4]
Wool International
2.4 Wool International is a statutory authority established by the Commonwealth
Government under the Wool International Act 1993. Its mission was to
sell the official wool stockpile, subject to certain conditions (outlined
below), and to undertake these sales in a manner which maximised the net return
to the Australian wool growing industry from sales of new, as well as stockpile,
wool.
2.5 From 1994 to 1996, Wool International was required to sell wool from
the stockpile according to a fixed schedule. A new, more flexible, wool stockpile
disposal schedule was introduced with the Wool International Amendment
Act 1996. That Act required Wool International:
- to dispose of all of the stockpile wool by 31 December 2000
- to impose lower and upper caps on its quarterly sales of stockpile wool
of 90 000 and 350 000 bales per quarter, respectively, and
- to retire the debt associated with the stockpile by the end of 1998.
2.6 In the Second Reading Speech for the Wool International Amendment
Act 1996, the then Minister for Primary Industries and Energy noted the
target date set for the final repayment of the debt associated with the stockpile.
The Minister said that, when repayment of the debt was achieved, the Government's
debt guarantee arrangements would also end and that this underlined the Government's
view that it needed to continue to withdraw from the industry to allow the
industry to determine its own future direction.
2.7 In March 1998 the target date for repayment of the wool stockpile debt
was extended for up to six months.
2.8 In October 1998 the Government announced its decision to:
- legislate to freeze sales from the stockpile, and
- privatise the wool stockpile from 1 July 1999.
2.9 On 21 December the Wool International Amendment Bill 1998 was
enacted to officially freeze sales of wool from the stockpile until the end
of June 1999, when Wool International is to be replaced by a private company,
WoolStock Australia Limited.
2.10 The liabilities of Wool International in December 1998 were $212 million,
with a value of net assets of $471 million.
2.11 An estimated increase in interest rate payments of at least $21 million
from December until July 1999 has been reported. The current stockpile represents
about one quarter of annual production in the past. Production in 1998 was
at a long-time low, and is expected to decrease further over the next five
years.
WoolStock Australia Limited
2.12 Following enactment of the Wool International Privatisation Bill
1998, the Government now proposes the creation of Woolstock Australia
Limited under the Corporations Law.
2.13 The proposed new corporate structure has the following major characteristics:
- a trust is to be set up, TrusteeCo, which will hold all units of equity
in Wool International, prior to the date on which Wool International becomes
WoolStock Australia Limited
- shares in WoolStock Australia are to be distributed to registered equity
holders, including TrusteeCo, according to unit holdings in Wool International
- conditions applying to units in Wool International (such as charges) are
to be transferred to WoolStock Australia shareholders
- the issues of shares will not attract Capital Gains Tax
- units of equity issued under the Wool International Act 1993 after
the conversion, in respect of wool tax payed by a person in the course of
carry on a business, will be treated as income derived from the carrying
on of a business of primary production
- Commonwealth guarantees in respect of amounts owing by WoolStock Australia
Limited, where the obligations were incurred before the conversion from
Wool International to WoolStock Australia Limited, and where an obligation
has not been varied after the conversion time without the written consent
of the Minister who administers the Financial Management and Accountability
Act 1997, are to be continued
- costs incurred by WoolStock Australia for the purpose of marketing, administrative
and financial management cannot be treated as tax deductions, and
- a constitution for WoolStock Australia is to be approved by the Minister
before acceptance. Two issues to be covered in the Constitution are:
- the Chairman of the Board and an additional two directors are to be appointed
by the Minister. These three people then appoint the other members to the
Board, following consultation with the industry, and
- up to $3 million, approximately 0.6 per cent of the estimated net value
of the stockpile, can be used for the purpose of investigating and sponsoring
new business activities.
Footnotes
[1] Wool International Annual Report 1997-98,
Wool International, Melbourne, October 1998, p. 10.
[2] Wool International Annual Report 1996-97,
Wool International, Melbourne, October 1997, pp. 10-11; see also Wool International
Annual Report 1997-98, Wool International, Melbourne, October 1998, p.
10
[3] Department of the Parliamentary Library, Bills
Digest No. 18 of 1997-98, p. 1.
[4] Transcript of interview on radio program PM,
4 August 1998; see also Evidence, Wool International, p. 1.