CHAPTER 4
Provisions of the Bill - Privatisation of Wool International
4.1 When the then Commonwealth Minister for Primary Industries and Energy announced on 15
October 1998 the freezing of sales from the wool stockpile Mr Anderson also announced the
privatisation of Wool International with effect from 1 July 1999. Mr Anderson stated that WI would be
replaced by a private shareholding company with shares allocated on the basis of individual equity
entitlements in the wool stockpile. The company would take over all the assets and liabilities of WI. [1]
4.2 In evidence to the Committee, Dr Bob Richardson, Chief Executive Officer with Wool International,
of Wool International explained to the Committee ownership of the stockpile:
It is not the unit holders who own the stockpile. The unit holders' units entitle them to
participate in a surplus once the debt has been removed and the stockpile has been sold
and Wool International declares an interim distribution. All their units entitle them to at
present is to share in that surplus. That is a right that they now have. [2]
Proposed process for privatisation of Wool International
4.3 The Government's current proposal for privatisation of WI was described in this way by the Chief
Executive of the Office of Asset Sales and IT Outsourcing, (the OASITO) Mr Mike Hutchinson:
The basic policy of the government, as I understand it, there are still matters to be settled
by government, is that Wool International will be put into private ownership and therefore
there will be shareholding in the company. Whether it is an equity holding, or whether it is
some other form of equity interest, will depend upon the detailed studies. There are some
fairly complex tax issues associated with the conversion of the present equity holdings
into straight shares. [3]
4.4 In describing the general role of the OASITO in the proposed privatisation of WI, Mr Hutchinson
gave the Committee the following description:
The role of the Office of Asset Sales, in a conventional privatisation of a government
enterprise, is to secure the sale in accordance with objectives to be established by
government for the benefit of the budget. This is somewhat different because the
objective of the office is to secure the divestment of Wool International from the
Commonwealth, but not with the proceeds being for the benefit of the government. The
objective is to separate Wool International from the government.
The processes are broadly the same. They consist of a due diligence to ensure that all the
relevant issues have been identified and that all the Commonwealth's current and ongoing
risks are identified and managed. They consist of the assessment of alternative structures
and processes to execute a transaction that will lead to the outcome. That will include
consideration of alternative structures for the successor entity to Wool International and
consideration of all the legal, commercial, constitutional and taxation issues associated
with the transition from the present statutory form to the commercial form that will then
be independent of government. We proceed by the appointment of consultants who will
largely execute the studies and the transaction under our supervision. [4]
4.5 The Committee was concerned to raise with the OASITO the proposed mechanics of the
privatisation process, and particularly the question of whether the process was to be one of 'privatisation'
or 'de-mutualisation'; a distinction that had arisen during the course of the Committee's hearings. Mr
Hutchinson told the Committee the distinction between the two processes was as follows:
Privatisation is taking an asset which belongs to the government and transferring it to the
private sector. A few fairly obvious examples have been undertaken in the past which
have been politically controversial. Taking the ownership of the Australian National Line,
which is perhaps less controversial, and placing it in private sector hands is a
privatisation.
The assets of Wool International are not effectively owned by the government. The
financial interest of those assets is owned by the equity holders, and demutualisation is
essentially a process whereby assets which are held in common are distributed into assets
that are held individually, but the ownership is not necessarily transferred. That was
effectively what was done with AMP when the mutual ownership of the assets of AMP
by the policy holders in common, many of whom are in this room, I suspect, was
changed into the ownership of shares by the policy holders individually, and they were
therefore tradeable and divestible individually rather than only on a common basis.
Mr Hutchinson - We have used the word `demutualisation' simply to distinguish it from
a privatisation in order to make it quite clear that the proceeds, if any, of the transaction
would not accrue to the government but would accrue to the entitlement holders. [5]
4.6 Mr Hutchinson said the practical arrangements for conducting the privatisation of WI are to be as
follows, with - subject to the enactment of appropriate legislation - an effective completion date of 30
June 1999:
The management process of privatisation consists essentially of a steering committee that
is in the process of formation which will largely consist of officers from my agencies,
officers from the Department of Agriculture, Fisheries and Forestry and senior
representatives and the advisers we are on the point of nominating, reporting to the two
ministers involved,that is, the Minister for Finance and Administration and the Minister for
Agriculture, Fisheries and Forestry. That will be the overarching management framework
for the process.
The project teams and that structure would work in consultation and liaison with the
board and management of Wool International. In the event that the government proceeds
with the mooted appointment of an interim or transitional board towards the new entity,
we would also work in consultation with that board as it moved into the position to take
over the subsequent responsibilities that would be assigned to it by the transaction. [6]
4.7 In the course of discussions with all witnesses at the Committee's hearing, the question of
responsibility for the costs of WI privatisation arose. Mr Hutchinson of OASITO told the Committee
that, on present estimates, this cost would be approximately $4 million, and is to be borne by WI:
The decision that the cost of the demutualisation will be met by Wool International is a
policy decision of government taken, I believe, on the grounds that the demutualisation
was to the benefit of the equity holders in Wool International and that therefore it was
appropriate that they should meet the cost. My riding instructions are to keep that cost to
an effective minimum. [7]
4.8 The estimate of costs of $4 million was further detailed by Mr Hutchinson, particularly in view of
assertions made in the wool industry that costs would be substantially higher:
At a very early stage in discussions with our colleagues from the Department of
Agriculture, Fisheries and Forestry, when the scope of the project was unclear and
consideration was being given to a much wider range of options, much higher costs were
in mind. When it became clear that the transaction was to be limited to the simple transfer
of the ownership and responsibility for, in Senator Forshaw's analogy, the trust, from the
government to the private sector, some of those higher cost options which had to do with
commercial developments that might now occur downstream have now been taken off
the table. Our figure that is on the table is $4 million.
Mr Hutchinson - Barring the creativity of some stamp duty assessors in some states,
yes. [8]
4.9 The Wool Council of Australia stated in its submission to the inquiry that:
The Wool International Amendment Bill 1998 proposes under Section 22ZG (1) (b) to
shift the full cost burden of the demutualisation process from the Government to the
woolgrowers.
WCA believes this is unacceptable. The Government has chosens a certain policy
direction and is seeking to terminate its role in selling down the wool stockpile, therefore
it is only fair and appropriate it pays its own way in achieving this objective. This section
referred to should be amended accordingly.
The Council is especially concerned at the potential for a major cost blow-out and
believes Australian woolgrowers should not be exposed to this risk. [9]
4.10 The NSW Farmers' Association argued that given the Commonwealth Governments decision to
freeze the wool stockpile “against the advice of industry and the additional costs this will impose upon
wool growers, a strong argument exists for Government to contribute to cost borne in the demutualisation
process.” [10]
4.11 Comment to the Committee on the proposed privatisation was generally favourable, though it was
clear that grower and producer representative groups considered that the costs of privatisation should be
met by the Government, rather than by the WI equity holders. [11]
Justification for privatisation of WI
4.12 A major justification put forewoard by the Commonwealth Government for privatising Wool
International was the level of equity held in it by growers. In announcing the privatisation of WI Mr
Anderson advised that:
Equity in the stockpile is now significantly higher than the wool debt, even at today's
depressed prices, so there is no justification for ongoing Government involvement in its
management. [12]
4.13 Mr Anderson also commented that the privatisation of WI would “… satisfy calls for the stockpile
to be managed on a purely commercial basis by a private sector board responsible solely to its
shareholders.” [13]
4.14 Mr Paul Sutton, Director of the Domestic Wool Section, with the Department of Agriculture,
Forestry and Fisheries - Australia (AFFA) told the Committee that the approach preferred by the
Government on consultation with WI equity holders is that:
...… there will be opportunities for the alternative business plans that some industry
groups are known to be developing and that there will be opportunities for the
proponents of those proposals to interact with both an interim advisory board, which I
think Mr Hutchinson referred to, and also the advisers to the Office of Asset Sales and
Information Technology Outsourcing. Through that process, we believe there will be
opportunities for the constitution of this new entity or trust or whatever it is to
contemplate a range of possible business activities of the new entity once it is created
after 1 July next year. The government's intention is not to attempt to resolve those
issues, indeed not to be involved in the discussion of those matters, but rather to ensure
that the demutualisation occurs in such a way that the board of the new organisation can
develop a business plan and implement it after 1 July of its own volition, not one that has
been influenced by government.
Senator O'BRIEN - Other than by the government having set up the interim body that
makes the decisions?
Mr Sutton - That is correct. But I understand that the intention is that that will be a
private sector board, in essence, and that board will be accountable to its new
shareholders as of 1 July next year, and both its business plans and that board's very
existence will be in the hands of the shareholders. [14]
4.15 AFFA's role in supporting the proposed privatisation process is:
...… to support the minister, to support the industry in terms of its interaction with the
interim board, to support the minister in his appointment of an interim board, and to
support the interaction between that interim board and the advisers to the Office of Asset
Sales and IT Outsourcing. It is not a role of directing outcomes in any way at all; it is
purely to ensure that they have an ability to put forward their proposals clearly so that
they are understood and can be contemplated by the final arrangements,or not be
excluded by the final arrangements agreed by the government,to the maximum extent
possible.
Senator O'BRIEN - ,Has the department engaged, or will it engage, consultants to do
work on the privatisation process?
Mr Sutton - We have sought funding so that if there is a need for a limited amount of
additional expert support for an interim board we may be able to assist. Mr Hutchinson
referred to a cost of $4 million for the demutualisation; that was the cost from the Office
of Asset and IT Outsourcing. There will probably be an additional cost of about
$500,000 to meet the costs of that interim board. We will need to make provision for
meeting the costs of that interim board: travelling costs and some expert advising costs.
[15]
Justification for privatisation of WI
4.1 A major justification put foreword by the Commonwealth Government for privatising Wool
International was the level of equity held in it by growers. In announcing the privatisation of WI Mr
Anderson advised that:
Equity in the stockpile is now significantly higher than the wool debt, even at today's
depressed prices, so there is no justification for ongoing Government involvement in its
management. [16]
4.1 Mr Anderson also commented that the privatisation of WI would “… satisfy calls for the stockpile to
be managed on a purely commercial basis by a private sector board responsible solely to its
shareholders.” [17]
4.16 The Tasmanian Farmers and Graziers Association warned suggested that unless the privatisation
process was in place by 1 July 1999 the whole wool industry could be plunged into “chaos, as the entire
debate on the stockpile management may be re-ignighted”. [18] This is a situation that the Association
believes should be prevented at all costs.
4.17 The Pastoral Group of the Victorian Farmers Federation stated that it is supportive of privatisation
of the wool stockpile provided it meets two criteria, namely:
- it established a commercially viable entity; and
- each WI unit holder is given the opportunity to participate or withdraw from any planned
privatisation or de-mutualisation. [19]
4.18 The Wool Council of Australia told the Committee in evidence that it “strongly supports the moves
towards privatisation and the opportunities that it brings.” [20]
4.19 During the Committee's public hearing held on 27 November 1998 several witnesses expressed the
view that growers had to be given the opportunity of becoming shareholders in the new privatised body
or being paid out. The NSW Farmers' Association stated that:
… it is totally unacceptable to us that growers be compelled to become ordinary
shareholders in a company that is attempting to build a sustainable, long-term trading
business. Growers should be able to choose whether they want to receive their equity in
cash payments or become shareholders in a business venture. Growers should have
access to a prospectus of that business venture. [21]
Call for consultation
4.20 In a submission to the inquiry from the Victorian Farmers' Federation District Council, Wool
Committee, Hamilton, Victoria a call was made to amend the Wool International Amendment Bill to
ensure that equity holders in Wool International be consulted as a “… prerequisite to the planning and
implementation of measures directed at the registration of a company under the Corporation Law to take
over its assets and liabilities.” [22]
4.21 It is the view of the Wool Committee that the privatisation of the wool stockpile should not be
forced upon WI equity holders without majority support and that adequate consultation concerning this
issue has not taken place. [23] The Wool Committee stated:
We do not believe the consultation process alluded to on page 7 of the Explanatory
Memorandum to the Bill can be regarded as adequate as we have no evidence as yet of
having been consulted either formally or informally about the privatisation proposal, other
than the short notice given immediately prior to the October election. [24]
4.22 Another submission from the Hamilton District Council noted that the first information which equity
holders had that the wool stockpile was going to be privatised was the “ … amendments passed in the
lower house of Parliament …. [25] This submission went on to state: “There has been no formal
consultation with the industry as a whole.” [26] The Council considers that the proposed transfer of WI's
assets to a corporation “tramples the rights of the holders of the equities in the scheme” because:
No consultation has taken place with wool growers as a body or of equity holders
seeking either their views upon or whether or not they give their consent to the disposal
of the underlying assets. [27]
4.23 The Tasmanian Farmers and Graziers Association in its submission to the inquiry argued that: “It is
essential that woolgrowers that do not wish to participate in a venture post de-mutualisation be allowed
to withdraw their equity.” [28]
Criticism of privatisation
4.24 The Hamilton District Council noted that if WI is privatised the new company would have to deal
with its assets in a commercial manner which may not be in the interests of individual equity holders. The
Council was concerned that control of the assets would fall into the hands of the larger equity holders
whose interests may be inconsistent with those of smaller holders. [29] According to the Council in the
past:
…. the existence of the stockpile has been dealt with on a political basis and not a
commercial basis. To now deal with it on (a) commercial basis solely, ignores its genesis
and the subsequent dealings with it. To now impose a commercial obligation, solely, upon
the holder of the stockpile, will create difficult imperatives. [30]
4.25 The Hamilton District Council is critical of the Commonwealth Government's decision to privatise
WI claiming that:
… the Government has had such an intrusive role since the creation of the independent
stockpile …. the Government is now abandoning its responsibility in the circumstances of
a difficult political issue, and seeking to hide behind commercial expedience to provide a
rationale for its abandonment of equity holders. [31]
Committee concerns regarding the proposed privatisation of Wool International
4.26 The Committee has highlighted in this discussion the approach that the Government is taking to the
proposed privatisation of WI.
4.27 During discussions on the Bill, it became clear that grower and /producer groups remain very
concerned at several yet undecided factors in the process which could affect the cost and final
distribution of WI equity or assets. For example, Mr Gooch, President of the Wool Section of the
Western Australian Farmers Federation, highlighted to the Committee concerns over the transfer of
ownership of WI assets (the stockpile, principally) and the possibility that equity holders could choose to
'opt out' of the new entity, placing strain on it. [32]
4.28 In addition, the Committee was continually aware during the course of the inquiry that there are still
extant a number of offers from private sources to purchase the stockpile. Several of these offers have
been well publicised and need, in the Committee's view, further examination and exploration. The
Committee considers that the Parliament should - as soon as possible - be aware of the scope and nature
of these possible bids for WI and what the implications they may have for the privatisation process now
underway.
4.29 Accordingly, the Committee recommends in Chapter 6 of this report that the following reference be
made to this Committee by the Senateas follows:
That the following matter be referred to the Rural and Regional Affairs and Transport
Legislation Committee for inquiry and report
Responsibility for costs
4.1 The Tasmanian Farmers and Graziers Association stated that the costs related to the privatisation of
Wool International should not be carried by woolgrowers. The Association argues that since it is the
actions of the Commonwealth Government that have led to the tradeable value of grower's equity in WI
being halved it would be unfair to expect them to now pay for the privatisation of WI. [33]
4.1 The Wool Council of Australia stated in its submission to the inquiry that:
The Wool International Amendment Bill 1998 proposes under Section 22ZG (1) (b) to
shift the full cost burden of the demutualisation process from the Government to the
woolgrowers.
WCA believes this is unacceptable. The Government has chosen a certain policy
direction and is seeking to terminate its role in selling down the wool stockpile, therefore
it is only fair and appropriate it pays its own way in achieving this objective. This section
referred to should be amended accordingly.
4.1 The Council is especially concerned at the potential for a major cost blow-out and believes
Australian woolgrowers should not be exposed to this risk. [34]
Footnotes
[1] Media Release from John Anderson, Minister for Primary Industries and Energy, 15 October 1998.
[2] EvEvidence, Wool Section, Western Australian Farmers Federation, p. 42.
[3] Evidence, OAS, p. 48.
[4] Evidence, OAS, pp. 47-8.
[5] Evidence,OAS, p. 49.
[6] Evidence, OAS, p. 49.
[7] Evidence, OAS, p. 51.
[8] Evidence, OAS, p. 52.
[9] Submission, Wool Council of Australia, p. 5; see also Evidence, Wool Council of Australia, p. 10.
[10] Submission, NSW Farmers' Association, p. 5.
[11] See , +Submission, The Tasmanian Farmers and Graziers Association, pp. 1, 2; see also
Submission, United Graziers Association of Queensland, Sheep and Wool Council of Queensland, p. 3;,
Submission, Wool Council of Australia, p. 5; Evidence, Wool Council of Australia, p. 10; Submission,
NSW Farmers' Association, p. 5; Evidence, NSW Farmers' Association, p. 32.;e.g, Evidence, WAFF,
p…; NSWFA, p…; VFF, p….; Wool Council, p….
[12] Media Release from John Anderson, Minister for Primary Industries and Energy, 15 October 1998;
see also House of Representatives Hansard, 12 November 1998, p. 185. Dr Bob Richardson of WI
gave an explanation to the Committee to how the value of the stockpile is calculated, see Evidence,
NSW Farmers' Association, pp. 33-34.
[13] Media Release from John Anderson, Minister for Primary Industries and Energy, 15 October 1998.
[14] Evidence, DAFF, p. 55.
[15] Evidence, DAFF, p. 57.
[16] Media Release from John Anderson, Minister for Primary Industries and Energy, 15 October 1998;
see also House of Representatives Hansard, 12 November 1998, p. 185. Dr Bob Richardson of WI
gave an explanation to the Committee to how the value of the stockpile is calculated, see Evidence,
NSW Farmers' Association, pp. 33-34.
[17] Media Release from John Anderson, Minister for Primary Industries and Energy, 15 October 1998.
[18] Submission, The Tasmanian Farmers and Graziers Association, p. 1.
[19] Submission, Pastoral Group, Victorian Farmers Federation, p. 7.
[20] Evidence, The Wool Council of Australia, p. 8. The Committee received expressions of support for
privatisation from several sections of the wool growing industry during the inquiry, see Evidence,
Western Wool Growers, Pastoralists and Graziers Association of Western Australia, p. 36.
[21] Evidence, NSW Farmers' Association, p. 32.
[22] Submission, Hamilton Victorian Farmers' Federation District Council, Wool Committee, p. 1.
[23] Submission, Hamilton Victorian Farmers' Federation District Council, Wool Committee, p. 1.
[24] Submission, Hamilton Victorian Farmers' Federation District Council, Wool Committee, p. 2.
[25] Submission, Hamilton Victorian Farmers' Federation District Council, p. 1.
[26] Submission, Hamilton Victorian Farmers' Federation District Council, p. 1.
[27] Submission, Hamilton Victorian Farmers' Federation District Council, p. 2.
[28] Submission, The Tasmanian Farmers and Graziers Association, p. 2.
[29] Submission, Hamilton Victorian Farmers' Federation District Council, pp. 2. 3.
[30] Submission, Hamilton Victorian Farmers' Federation District Council, p. 2.
[31] Submission, Hamilton Victorian Farmers' Federation District Council, p. 3.
[32] Evidence, Wool Section, Western Australian Farmers Federation+WAFF, p. 41.
[33] Submission, The Tasmanian Farmers and Graziers Association, pp. 1, 2; see also Submission,
United Graziers Association of Queensland, Sheep and Wool Council of Queensland, p. 3..
[34] Submission, Wool Council of Australia, p. 5; see also Evidence, Wool Council of Australia, p. 10.