Additional comments by Senator Xenophon
Introduction
1.1
This Senate inquiry was a valuable opportunity for those directly
affected by the South Australian Government’s proposal to forward-sell
rotations of Forestry SA plantations to express their concerns regarding the
economic, social and environmental impacts such a proposal will have on the
Green Triangle region of South Australia.
1.2
The Committee’s recommendations for the timely release of the ACIL
Tasman Regional Impact Statement relating to the forward sale proposal and the
release of all relevant information held by the South Australian Government
should be initiated as soon as possible.
1.3
The Committee's recommendation that the South Australian Government
should implement a comprehensive public consultation process if it chooses to
further pursue the proposed forward sale of its timber assets should also be
adopted.
1.4
The absence of any comprehensive public consultation prior to this stage
is a serious and fundamental flaw in the South Australian Government’s approach
and should be condemned. Such a significant decision which will have a major
impact on the State and should be made with more respect and transparency for
those who will be most affected.
1.5
Any forward selling of South Australia's timber assets will have a
significant impact on the Green Triangle with regards to the economy – both at
a regional and state level, on economic development, jobs and the social fabric
of the community.
1.6
It must be emphasised that, should the Committee’s recommendations be
ignored by the South Australian Government and the proposal proceed without an
open consultation, information and engagement strategy, the South East of South
Australia will be severely affected, with flow-on effects for the entire South
Australian economy.
Likelihood of job losses in the South East
1.7
The forestry and associated timber industry in the South East of South
Australia contributed approximately $2.8 billion to gross regional product
(GRP) in 2009-2010, which equates to nearly 20% of the total GRP.[1]
1.8
Further, the industry directly supports approximately 3600 jobs - 10-12
per cent of total employment in the region.[2]
In addition, the multiplier effect will likely result in an additional 2 to 3
indirect job losses.[3]
1.9
From the evidence provided to the Committee, it is apparent that there
is considerable concern these industry-supported jobs will be placed at risk
should the South Australian Government proceed with the forward-sale of FSA
plantations, given the refusal of the State Government to discuss which, if
any, conditions will be placed on the sale.
1.10
Mayor of the City of Mount Gambier, Steven Perryman, Mayor of the
District Council of Grant, Richard Sage, and Mayor of Wattle Range, Peter
Gandolfi, are concerned that without conditions being placed on the sale, a
buyer is under no obligation to process the plantations in the region.
1.11
In a recent joint statement from the three Councils, Mayor Perryman
stated:
“If the State Government proceeds with a forward sale, in as
little as 16 years every log harvested from our state owned forests could be
exported out of Australia for processing leaving no logs for our local mills,
and no jobs for our local community.”[4]
1.12
In appearing before the Committee, Mayor Sage emphasised the Councils’
concerns:
Councillor Sage—On the likelihood of regular job
losses, we had a community impact assessment undertaken by Dr Bob Smith. In it
he described 2,100 direct jobs and almost 1,000 indirect jobs in the lower
south-east region will be affected as a result of the unrestricted sale of
ForestrySA estate. By 2027-28 the purchaser would have the option to sell 100
per cent of the logs outside the south-east region. There is the potential by
2020-21 for around 40 per cent of the logs from ForestrySA softwood estates to
be exported, reducing the wood base manufacturing jobs in the south-east area.
The community and the three councils are strongly of the view that the
combination of strong revenue streams from ForestrySA to the South Australian
government, and the commitment to regional processing and jobs, provide strong
support for the continuation of the current ownership arrangements of
ForestrySA.[5]
1.13
Mayor Gandolfi appositely summarised the impact the forward sale would
have on the region during his appearance before the Committee:
“...it will have a devastating impact on our local communities.
Three and a half thousand jobs are at risk - or 20 per cent of our region’s
workforce. To put this in context, this would be like Adelaide losing 80,000
jobs.”[6]
1.14
Questions about the certainty of supply of softwood in the future are
already undermining community and corporate confidence, with Australia's
largest integrated hardwood and softwood forest products company, Gunns
Limited, warning it would be forced to divest from the area if various
conditions were not applied to the sale.
1.15
In his submission to the Inquiry, Gunns General Manager David Ford
stated:
“Without any of these conditions applied to the sale, Gunns
would be in a position where it would not have the confidence to invest in its
processing facilities in the Green Triangle.”[7]
1.16
Mr Ford also expressed little confidence that such conditions would be
applied to the sale, suggesting that the State Government had not bothered to
engage key stakeholders in an open consultation process:
“The approach adopted to date by the State Government on this
issue has been unprofessional and has created a lot of unnecessary angst that
could have been avoided with a transparent and consultative process”[8]
1.17
As a result of these factors, Mr Ford concludes:
“The Green Triangle region is currently not considered to be
a region that provides confidence in capital investment in processing
facilities.”[9]
1.18
From the evidence provided to the Committee, it cannot be emphasised
strongly enough the potential the proposed sale has to undermine the core of
this regional economy.
Attitude of the South Australian Government
1.19
The South Australian Department of Treasury and Finance, Forestry SA and
Department of Primary Industries and Resources SA declined the Committee’s
invitation to attend the public hearing in Mount Gambier.
1.20
In his submission to the Inquiry South Australian Treasurer, the Hon
Jack Snelling MP, argued “... this is a matter for the South Australian
Government, as the asset owner, and the South Australian Parliament is the
appropriate forum for these matters to be debated.”[10]
1.21
However, that comment blithely ignores that in the event of the proposal
proceeding with associated severe job losses, the Commonwealth Government will
be responsible for picking up the pieces from the wreckage this policy with
create – including the welfare and associated benefits payable.
1.22
Further, the Commonwealth will see a decline in tax receipts for the
loss of jobs and economic activity.
1.23
The Treasurer stated that an extensive consultation process was already
underway to investigate the economic and social viability of the forward sale
proposal, with the State Government appointing independent economics consulting
firm, ACIL Tasman, to conduct a Regional Impact Statement (RIS). Mr Snelling
indicated:
“Consultants have begun an comprehensive consultation process
with key stakeholders including local councils, timber industry
representatives, key unions and chambers of commerce”[11]
1.24
However, there was concern by those appearing before the inquiry that
ACIL Tasman lacked an intimate knowledge of the timber industry and therefore
may not be able to produce a comprehensive report:
Senator XENOPHON—Are you satisfied that ACIL Tasman
has expertise in dealing with the timber industry? It is quite a specialised
field.
Councillor Perryman—No, I am not. The same lack of
understanding and knowledge of the timber industry in South Australia was
evident in the questions that were being asked in that first reconnaissance
trip that they undertook back in February. I was quite alarmed at some of the
questions being asked, in particular by the consultant. One of them was, ‘In a
worst-case scenario for us as a community, if a full, unencumbered forward sale
occurred, what was the community planning for its plan B?’ My response to him
was that I was not aware that a community had to have a plan B when plan A had
worked so well for over 100 years. I said that perhaps he should go and see the
Treasurer or the Premier and ask them what plan B is for the south-east.[12]
1.25
In his appearance before Committee, Mr Ian McDonnell, co-owner of
sawmilling business NF McDonnell and Sons, questioned the neutrality of ACIL
Tasman, suggesting that the RIS was being prepared so the State Government
could justify the sale of its timber assets.
“I do believe and will say strongly that the RIS, in my
opinion, was something that was put together by the government just to tick the
boxes in this process. I do not believe for a minute that it was done with any
genuine regard for the southeast region or the industry down here.”[13]
1.26
Further, Mr McDonnell suggested that ACIL Tasman’s consultation thus far
had been incomprehensive:
“When I asked them about who they were going to talk to, I
was told not just industry people but other people in the town. I suggested the
president of the chamber of commerce, other major retailers, car dealers,
hardware dealers—those sorts of things. They replied by saying that they did
not really think that was necessary; they have national modelling to do that sort
of thing.”[14]
1.27
Jason Howse, State Manager of the Timber and Building Materials
Association, also raised questions of the independence of the RIS, when asked
to recall details of his meeting with ACIL Tasman consultants:
CHAIR—Did you get the impression that he was there to
justify the government’s decision rather than analyse it?
Mr Howse—Absolutely. Actually, that is probably a good
way to put it. We were there to ask him questions, and he was just asking us
questions about how it would affect us as an association.[15]
1.28
This sentiment was supported by Rodney Evins, President of the Hardware
Association of South Australia:
Senator XENOPHON—Sure. I understand that. So what
confidence do you have in the ACIL Tasman process?
Mr Evins—As I indicated earlier, they are justifying a
means, and I believe that they have been employed and their brief would be, ‘We
are selling the plantations—the forward rotations in the south-east—and we want
a report to give us a green light.'[16]
1.29
Given the Treasurer has indicated that the ACIL Tasman RIS will be the
key factor in determining whether the State Government will sign off on the
forward sale proposal[17],
it is understandable that there is considerable concern that the decision to
forward sell has already been made.
1.30
The decision of the South Australian Government not to participate in
the public hearing of this Committee Inquiry shows a lack of respect for the
concerns of the community and those who will be affected by any forward selling
of timber assets.
Conditions of the sale
1.31
While the specific figure the State Government is hoping to recoup and
the model for the sale of its assets has been deemed commercial-in-confidence,
a number of witnesses expressed concern throughout the public hearing that the
assets would not be sold for even close to their actual worth.
1.32
Dr Jeremy Leech, who appeared before the Committee in a private capacity
but has a extensive background in the forestry industry, suggested the value of
the asset
“Consultants that I have been talking to will put the value
somewhere probably at $600-650 to perhaps $700 million but it depends very much
on the amount of room that people have got to move, which depends on the
contract. As you know, no-one really knows the model they are going to use.
Every time you put a constraint on the potential buyer, you are going to drop
the value to that buyer.”[18]
1.33
Dr Leech also drew comparisons to the sale of Queensland’s forestry
assets to Hancock in 2010:
“I remind you that Queensland sold their plantations for $600
million to the Hancock Group and it is in the Productivity Commission report
that it was worth, according to them, $1.4 billion. So they sold it for roughly
50 per cent.”[19]
1.34
Dr Leech continued:
“My point is that the government in Queensland wanted the
money, or so it would seem. I do know of a company that were quite happy
bidding about $700 or $800 million. Obviously I cannot name them. But they did
not bid because there were so many constraints put on the sale that they just
opted out of the bidding process.”[20]
1.35
The theory that the State Government will put minimal restrictions on
the sale in order to gain the best price possible was a concept discussed
during the public hearing:
Councillor Perryman—If the South Australian government
wants the best price it can get from the sale of the asset, it would be looking
to sell it with minimal conditions.[21]
1.36
As has been discussed extensively, an unconditional sale, while
potentially enabling the State Government to obtain the best sale price, will
have dire effects on a number of areas.
1.37
The CFMEU raised concerns relating to the maintenance and enhancement of
privately managed plantations in its submission to the inquiry:
“A major risk to the maintenance of softwood processing jobs
in Australia is the low rate of replanting of harvested wood plantations and
their expansion. The private sector does not have a good track record of
establishing or expanding softwood plantations.”[22]
1.38
These concerns were echoed in an independent Community Impact Statement
prepared by Dr Bob Smith, a resource economist:
“The private sector does not have a positive record of
re-establishing and/or expanding long-rotation softwood plantations. Over the
last decade the areas of softwood plantation in Australia has stagnated at
around 1m hectares. The SA Government has recognised this risk and has
facilitated FSA, in addition to re-establishing around 1,900 hectares of
harvested areas, planting an additional 700 hectares per annum to create
additional resources.”[23]
1.39
Without conditions of re-establishing plantations placed on the sale, a
private investor could potentially choose to fell the forest and not invest any
further in replanting. This would invariably decimate the forestry industry in
the region and lead to the job losses discussed previously.
1.40
Further, should water licences be included in the terms of the sale, and
there is speculation that the water itself be worth more than the timber
assets.
1.41
In an extreme scenario suggested by Dr Leech, a private investor may
even conclude that it is beneficial to immediately clear-fell the land and make
money from selling the associated water licences:
“... If you consider almost an absurd, extreme strategy, a
company could come in and buy the forest, let us say they might even decide to
pay $750 million. If they could sell the water rights on that for, say, $400
million and clear-fell the whole of the forest and if the ForestrySA value is
about $670 million, which is, if you like, an immediate liquidation value, then
they could sell the whole of the forest for $700 million and say, ‘We’re not
going to replant it and now we can sell the water rights on that.’ Therefore
they would get $1.2 billion. These are the sorts of figures. I am not
suggesting that is likely to happen but it would mean that you would decimate
the forest industry and you would certainly not have the sawmill industry or a
utilisation industry.”[24]
1.42
Dr Leech even suggests that in some circumstances, the value of the
water and carbon rights could be worth more than the forest itself.[25]
1.43
It would be incredibly short-sighted of the State Government not to
consider this as part of its forward-sale proposal.
Fire Management
1.44
Under current arrangements, Forestry SA comprehensively manages fire
protection and fire-fighting activities in the state-owned timber assets.
1.45
During their appearance before the Committee, Mayors Sage and Gandolfi
indicated that the Treasurer had suggested the CFS would be responsible for
managing any future forest fires should the state-owned assets be sold.[26]
1.46
However, as the Chair suggested, “...for volunteer fire-fighters—all the
good local volunteers—there is a lot of difference between putting out a grass
fire that is running and a forest fire.”[27]
1.47
Further, as indicated my Mayor Gandolfi, there is considerable concern
that the CFS lacks the resources to be able to be able to provide comprehensive
fire protection to approximately 94 000 ha of South Australia's state-owned
plantations:
Councillor Gandolfi—Certainly, from my informal
discussions with those involved with the CFS, I know they are very concerned
that they would have to take responsibility for the operations that ForestrySA
currently undertake when it comes to firefighting and suppression. In the
summer season of 2009-10, ForestrySA manned our fire towers for I think 97
days.
Senator BACK—Volunteers?
Councillor Gandolfi—No, this is ForestrySA. These are
the sorts of roles that ForestrySA currently do. I think a lot of it comes down
to just a clear fact that the state government is unaware of its role, and that
is a concern. I think it needs to be raised and highlighted that these current
practices of ForestrySA do need to continue. You cannot expect volunteers to
sit in firetowers for three months.[28]
1.48
It is of grave concern that the State Government seemingly expects the
CFS to manage fire protection independently, and may choose to place no
conditions relating to fire management on any potential private investor.
Conclusion
1.49
The South Australian Government’s decision to forward sell its timber
assets has clearly been made with little real consultation with key
stakeholders in the Green Triangle region.
1.50
There is considerable concern that few, if any, conditions will be
placed on the sale (and there is a concern that any conditions may not be
enforced), as it is strongly suspected that an unconditional sale will yield
the best price for the State Government.
1.51
However, an unconditional sale raises serious concerns about the
long-term viability of the forestry industry in the South East and the impact
on jobs, the economy and the region.
1.52
There is concern that the South Australian Government will not consider
the actual value of its assets, in terms of the value of water licenses and
carbon credits, and in relation to the constant source of revenue the asset
provides as discussed extensively in the Chair’s report.
Recommendations
Recommendation 1
That the South Australian Government not proceed with the
forward sale of its timber assets.
Nick Xenophon
Independent Senator for South Australia
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