Tues, July 5: ABC Online: Greens MP to front the privileges committee: The Tasmanian Parliament’s powerful Privileges Committee has been asked to investigate how confidential information was leaked from the office of the Greens MP, Kim Booth.
TT, June 20: In full: Forestry Tasmania deals revealed in explosive ‘In-Camera’ revelations:
HOUSE OF ASSEMBLY SELECT COMMITTEE ON SCOTTSDALE SAWMILLS, LAUNCESTON 3/6/11 (L’ESTRANGE)
CHAIR - Would you like to answer that question that Ms White asked with regard to the debt?
Mr L’ESTRANGE - The reconciliation goes roughly to $15 million, of which $9.8 million is a take-or-pay claim for 2008-09.
CHAIR - Is that for the pulpwood supply agreement?
Mr L’ESTRANGE - Yes. In the absence of any other processes, our view is that it is $2.2 million.
Ms WHITE - That’s a big discrepancy.
CHAIR - Sorry, is it $15 million overall?
Mr L’ESTRANGE - Yes, overall, including the current month’s.
CHAIR - So your total in terms and outside terms is $15 million -
Mr L’ESTRANGE - Yes.
CHAIR - and of that, $9.8 million is a take-or-pay claim?
Mr L’ESTRANGE - Correct.
CHAIR - You were saying that $2.2 million is what you feel is the figure, but is that overall or just of the $9.8 million?
Mr L’ESTRANGE - Of the $9.8 million it should be, in our view, $2.2 million.
Mr GUTWEIN - And that’s in dispute at the moment with FT?
Mr L’ESTRANGE - Yes.
Mr GUTWEIN - So that leaves about?
Mr L’ESTRANGE - About $5 million. If you take away the take-or-pay claim - you start off at $15 million, take away the $9.8 million, that’s $5 million, say.
Mr GUTWEIN - And out of the $9.8 million, you think that’s roughly $2.2 million?
Mr L’ESTRANGE - On the documentations of the contract, not subject to any other processes that we would use to mitigate.
Mr GUTWEIN - So there’s $15 million outstanding and of that, $9.8 million is take-or-pay -
Ms WHITE - What does that mean?
CHAIR - That you have to pay for it whether you take it or not. If you have an agreement to supply, if you don’t take it you still pay.
Mr GUTWEIN - Of which you’re saying that out of the $9.8 million you only owe $2.2 million?
Mr L’ESTRANGE - We believe, in the absence of any other processes, just on volumes and coupes and so forth, it should be $2.2 million.
Mr GUTWEIN - So you just need a lot of wood to justify the $9.8 million?
Mr L’ESTRANGE - There is a whole range of reasons for their views to, shall we say, an interpretation to get to the $9.8 million that we fundamentally disagree with.
CHAIR - But that would be on the basis of the $2 a tonne extra than the international price?
Mr L’ESTRANGE - That’s mainly around the volume calculation.
Mr GUTWEIN - Of the $9.8 million, you think $2.2 million is real, which then leaves the $5.2 million.
Mr L’ESTRANGE - Roughly that’s a current month and we believe they have overcharged us $5.4 million for China volume.
Mr GUTWEIN - So that comes off the $5.2 million when you add it to the $2.275 million, take $5.4 million and that leaves roughly the $2 million you’re talking about?
CHAIR - I certainly don’t have that clear in my mind at this stage.
Mr L’ESTRANGE - If you said, ‘Take the take-or-pay out of it’, you have $15 million - and that’s relatively high-level simple - take $10 million off it for the take-or-pay, so that leaves $5 million outstanding on the current monthly trading with FT.
CHAIR - Overdue, over terms?
Mr L’ESTRANGE - No, that’s within current. The $15 million is the total indebted because they have just sent us the reconciliation of their accounts.
CHAIR - In other words, you are current anyway so the total, whatever it is, in your current terms with FT you are not overdue at all, there is just that dispute over the $9.8 million.
Mr L’ESTRANGE - Correct.
Mr GUTWEIN - And you were saying but then it is the -
Mr L’ESTRANGE - Of the $5 million, if you say it, we believe they have overcharged us $5 million as well.
CHAIR - On what basis have they overcharged you the $5 million?
Mr L’ESTRANGE - Because under our China contract sales they keep sending us plantation wood and invoicing us and sending us Japanese wood and invoicing it to the Japanese rate and not the agreed rate and then they are also overcharging us against the agreed rate, so it is a large, messy dispute on that as well.
CHAIR - That could end up in some form of commercial arbitration or something?
Mr L’ESTRANGE - On both issues, yes.
CHAIR - FT apparently have $40 million outstanding.
Mr L’ESTRANGE - And the $15 million is our total indebtedness on their reconciliation that they sent to us as at 30 April. What I say is knock on someone else’s door.
CHAIR - Yes, so stop hassling Gunns.
Mr FERGUSON - There is $25 million elsewhere.
CHAIR - The other might be jacked up, too, might it? Maybe they have disputes as well, if you are saying it is $40 million and in your case they are saying it is $15 million.
Mr GUTWEIN - We are in camera. Who do you think owes the other $30 million?
Mr L’ESTRANGE - There are only two other major customers - sorry, unless there are disputes over quotes. I am only speculating.
Mr FERGUSON - You should have asked Bob Gordon last fortnight.
CHAIR - We can bring him back.
Mr GUTWEIN - Bob did say, I think, not last fortnight but the fortnight before, that there was $40 million outstanding with a large amount of that owed by one public company.
CHAIR - It could be Ta Ann or someone else, too. But you don’t know or if you do, you are not prepared to say?
Mr L’ESTRANGE - The only other customers are export customers.
CHAIR - I guess it would be okay to ask this in camera rather than putting it on the record - if you want to put it on the record, we could go back out of camera - in regard to that Artec is now becoming a competitor of Gunns for sale of export chipping you talked about just before. Do you think that the terms that Artec get their wood on is identical to the terms that Gunns get it on?
Mr L’ESTRANGE - No.
CHAIR - I presume that means that they are getting it on better terms than yourselves?
Mr L’ESTRANGE - That would be our view.
CHAIR - This is quite a serious thing, in my view anyway, with regard to FT being a publicly owned corporation and we have heard already from you before in this committee that they have affected your business by effectively not quoting on equal terms and other things. How is it that the Artec deal is affecting Gunns? How is that the terms are not on like terms? What is the deal that they get that you don’t?
Mr L’ESTRANGE - I am not sure of their credit terms but we understand the delivered cost is lower than ours for like product.
CHAIR - Why would that be? Is there some reason that you could offer the committee that FT would give a competitor of yours the stuff at a lower price?
Mr L’ESTRANGE - We would also have the view that we have the highest delivered log costs in the State as well, even though we are the biggest customer.
CHAIR - That is for sawlog or all product?
Mr L’ESTRANGE - Sawlog products.
CHAIR - So it is both sawlog and chip log?
Mr L’ESTRANGE - To that particular outlet, yes.
CHAIR - Can you give us a reason that that would be the case? You have not offered a higher price presumably.
Mr L’ESTRANGE - No, but it is an interpretative of in the sawlog case a statewide contract. We have a statewide delivery zone, so all the long hauls go to Gunns and all the short log goes to the competitors of Gunns.
CHAIR - That’s what Forestry is doing now. What difference per cubic metre would that be making to the delivered cost?
Mr L’ESTRANGE - On a delivered price?
CHAIR - Yes.
Mr L’ESTRANGE - Probably in the 10 per cent range.
CHAIR - And that’s for both sawlog and chip log?
Mr L’ESTRANGE - No, not for chip log.
CHAIR - What about the chip log?
Mr L’ESTRANGE - On average probably 5-6 per cent.
CHAIR - That’s a pretty significant disadvantage to operate under.
Mr L’ESTRANGE - Yes.
CHAIR - Have you brought that to FT’s attention?
Mr L’ESTRANGE - Yes.
Mr GUTWEIN - Over what period of time has that been happening?
Mr L’ESTRANGE - The statewide contract has been there for a period of time - it’s in the 918 contract.
Mr GUTWEIN - When you say the 918, that equates to -
Mr L’ESTRANGE - The 917 is the 1.5 million tonnes of native and plantation. The 918 is the excluded areas and the sawlog allocation.
CHAIR - Can you give us a reason why they would be offered better terms?
Mr L’ESTRANGE - I think they had a differentiation strategy.
CHAIR - Can you expand that?
Mr L’ESTRANGE - Perhaps Gunns had too much volume in the sawlog market.
Mr GUTWEIN - So they’re using it as a market mechanism?
Mr L’ESTRANGE - Yes.
CHAIR - So you’re saying that sawmills were provided sawlogs of the same quality at a lower rate because FT had a strategy to differentiate and try to get another customer up or they wanted to punish you or -
Mr L’ESTRANGE - All of the above.
Mr FERGUSON - Is it anything to do with Gunns wanting to retreat from their native sector, in your opinion?
Mr L’ESTRANGE - This has been in place for a while. Our direction hasn’t been looked on favourably by the native forest sector.
CHAIR - Which is FT, effectively?
Mr L’ESTRANGE - Yes.
Mr FERGUSON - Except that somebody has just reminded me that the contracts were in place prior to Gunns making that decision to exit natives, so that doesn’t quite explain it.
Mr L’ESTRANGE - Yes.
CHAIR - It seems counter-intuitive that any business would have a major customer of the size of Gunns - setting aside anything people may or may not like about Gunns - from FT’s point of view and from what you have said you are within your credit terms and there didn’t seem to be an issue with regard to your not paying, arguing with them or whatever, but suddenly you have this evidence that the awarding of the softwood contract was suspect - at least in your mind - and now we hear that you’re paying more for your wood right across the board. It seems extraordinary that a major customer of the business would be treated that way.
Mr L’ESTRANGE - I certainly wouldn’t be able to deal with Bunnings on that basis.
Mr GUTWEIN - The 918 contract for the sawlogs, what tenure does that have?
Mr L’ESTRANGE - That replicates on tenure terms the woodchip supply contract of 20 years.
Mr GUTWEIN - So that would have been initially written up post -
Mr L’ESTRANGE - About 2005-06.
Mr GUTWEIN - So not under your tenure as chair?
CHAIR - Most of those contract expire in a couple of years?
Mr GUTWEIN - Was it a fault of the previous administration that they didn’t bargain hard enough or they took what they were given or -
Mr L’ESTRANGE - I think they focused on the supply, on the pulp mill. I think the issue is about trying to come up with enough flexibility in the resource to provide the resource flows to match mills, but it has certainly been interpreted and executed not to Gunns’ advantage.
CHAIR - Can you offer a reason why there has been some point in the relationship such that it just caused a change in terms of the way you have been treated?
Mr L’ESTRANGE - I think the consolidation that happened in 2000 and 2001 where Gunns acquired both North Forest products and Boral at the time; I am not sure whether that was a popular move from a Forestry Tasmania point of view. I would say that they would have been looking to provide other options since then.
CHAIR - You said yourself that you could never behave like that as a supplier to Bunnings, for example.
Mr L’ESTRANGE - They would take their business away.
CHAIR - That is what one would think but you have no choice in your case because Forestry has all the wood.
Mr L’ESTRANGE - The only choice we have got is what we have just exercised.
CHAIR - Obviously it has been a contributing factor to your exit from those sectors of the industry; is it the absolute cause?
Mr L’ESTRANGE - No, not the absolute. As I said earlier, our shareholders and our equity debt providers gave us a clear message that your business model as a public company does not work if you are involved in native forest. You can have a view or whatever about it but when that proposition is put to you -
Mr GUTWEIN - But over time that arrangement has been detrimental to your shareholders, for the company itself and its opportunities. At 10 per cent you cannot compete on that basis.
Mr L’ESTRANGE - You can’t.
CHAIR - Wouldn’t that be predatory pricing under the ACCC’s regulations? They are providing it at favourable rates to your competitor. Have you looked at that?
Mr L’ESTRANGE - There is a whole range of issues in the basket and we will wait to see how things are resolved.
CHAIR - So they made some sort of resolution that a whole lot things might end up in a court case or not directly over those issues with predatory -
Mr L’ESTRANGE - There is a whole range of issues there - even certification. You can agree or disagree with certification but we strongly advocate that to be able to market the product appropriately you need dual certification as a prerequisite of operating in the global commodity market, particularly woodchip markets. That message certainly has not been responded well from the forest owner. Absolutely if you do not have that certification then Japan is closed to you.
Mr GUTWEIN - Setting aside views on the pulp mill and the process, with what occurred at Scottsdale and the decision there, with what you have just told us now in regard to your treatment by FT effectively over a decade, and the general machinations of the industry more broadly to arrive where we are today, there is a case almost made that at some stage there needs to be some form of broader commission of inquiry into what has occurred structurally in regard to the timber industry in this State over the last decade or so.
Mr L’ESTRANGE - There are certainly many lost opportunities. If you look at the creation of the hardwood plantation estate in this State, I think the Federal Government has contributed $500 or $600 million to create 50 000 hectares, the most expensive plantation in the world’s history.
CHAIR - Which ultimately means you don’t have a snowflake’s chance in hell of getting an industry that is going to survive if it relies on public money to put it in in the first place.
Mr L’ESTRANGE - Yes, that’s my view; the Government has done its job on the plantation. There is a different role in natural forests and that is a public agenda and a resolution that has to be made. On the plantation estate, other than getting proper tenure and returns for the State, they should get out of it.
CHAIR - Greg, we came into camera to discuss the issue of the debt level. We have talked about other things that I think would be good for them to be available for the public record for debate et cetera, do you have any objection to what you’ve told us beyond what’s specifically refers to the debts with Gunns being part of the Hansard transcript that’s published?
Mr L’ESTRANGE - My preference is that discussion the competitive pricing should not go into the public domain, if that was possible.
CHAIR - Anything is possible, because we understood that we would let you go into camera and it is the prerogative of the committee to determine whether or not to keep it out of Hansard. We could determine to put it in, but I wouldn’t suggest that and I am not suggesting it because we did say we would take it in camera. If there is anything there that you don’t want put out into the public domain, it’s not my intention to try to do that.
Mr FERGUSON - Chair, can I make a suggestion that we provide Mr L’Estrange with the transcript and give him the opportunity to make it clear which of his comments should be kept in camera, given that everything we’ve just said was on the basis that it would be private.
CHAIR - Are you happy with that, Greg?
Mr L’ESTRANGE - Yes, that’s good.
CHAIR - Do you want to add anything before we finish?
Mr L’ESTRANGE - On the softwood side, which I think this was about, I think the State has an opportunity and a threat and it needs to be addressed - not from Gunns’ perspective but from a holistic perspective. We need a solution to this so that the industry has the proper structure to go forward.
CHAIR - Given the economies of scale that currently exist in Tasmania - and imagine for some reason that the modern mill at Bell Bay didn’t exist or it had worn out, say, in 10 years’ time - do you think there is much point in trying to create a softwood structural timber industry in Tasmania given the lack of differentiation and the global competition, particularly from the Northern Hemisphere over the next whatever and the high dollar? Is it realistic?
Mr L’ESTRANGE - It’s going to be more difficult in the longer term. The sawmills are relatively undifferentiated in the world and it comes down to whether we believe that demand for softwood globally will grow and whether we can grow them competitively here to address the market. It’s a simple question: how good can we grow softwood here, and to a scale that enables us to be competitive?
CHAIR - At the moment, with the modern mills, the volumes and their unit cost of production overseas, I notice you’ve dropped your wholesale price of 90-35 framing, for example, to about $1.64 - it hasn’t been that for 10 years or more, I don’t think - obviously the reason you’ve done that, apart from wanting money, is that there is other stuff coming in from Europe and that’s about the price that it is coming in - Baltic pine and all sorts of things.
Mr L’ESTRANGE - It is. Stora Enso lost the US market with the housing downturn there and they have switched a proportion of their capacity into Australia.
CHAIR - Yes, and it’s always been the case that our market can be used as a dumping ground for some of that stuff anyway. Getting back to that question, is it wise, in your view, to even contemplate trying to create something that has such skinny margins and is subject to the vagaries of international trade in the long term? Would we be better off growing broccoli, for example?
Mr L’ESTRANGE - Again, if you were in the beetroot industry you would have been disappointed in certain parts of Australia in the last week as well, so it comes back to the same issue. You have to be competitive. There is no place to hide in most products now. Broccoli, tourism - they’re all competitive - so we have to have the right product offer to enable us to compete.
CHAIR - Thank you very much, Greg. I have to remind you that what you’ve said today is protected by parliamentary privilege but once you have walked outside, if you repeat
something that may be slanderous, privilege does not attach to it at that point in time.
You can refer them to the Hansard, though.
THE WITNESS WITHDREW.
Earlier on Tasmanian Times: Hansard error: The explosive revelations
First published: 2011-06-20 04:28 AM