The Tasmanian Government has not investigated the financial risks of the mill to the State and documented the subsidies. The economic viability of the pulp mill has not been tested in public.
The financial risks arising from the proposed pulp mill could have a significant impact on all players involved, foreign bankers, land owners, the public, local businesses, the government and Gunns itself.
1. Summary of risks to Swedish company Sodra's bottom line from investing in Gunns’ planned pulp mill
A. The incomplete assessment of the pulp mill and forestry means that many subsidies are undisclosed. This is because there has been no:
- socio-economic and environmental analysis of the pulp mill proposal;
- analysis of the cost side of a cost-benefit study;
- risk assessment to Australian Treasury standards of the pulp mill project;
- assessment by Sweco Pic of noise emissions, impacts on surface or estuarine waters, effects on flora and fauna, transport implications and social and economic effects, nor construction impacts, nor impacts from off-site infrastructure development such as raw water supply pipeline, effluent pipeline or quarry.
B. The profitability of Gunns Ltd is artificially propped up with a wide range of taxpayer subsidies. These include ongoing subsidies of $360m/year and one time diversion of taxpayer dollars of $399m (so far). If the pulp mill proceeds, estimated losses to other businesses (tourism, fishing, fine foods, wineries, agriculture) and the community will be more than $3.1bn.
C. The global financial downturn will force governments to look for ways to cut back on expenditure including subsides.
D. Should Södra invest in Gunns’ planned pulp mill, their future profits are at risk from the removal of subsidies. The most responsible decision for Södra is to wait until the scale and type of subsidies is clear and the risks clarified.
E. Södra’s has specified three key conditions regarding investing in a pulp mill - Forest Stewardship Council certification, environmentally friendly bleaching technology (totally chlorine free preferred), and 100 per cent plantation forest to be used. However, Gunns’ planned pulp mill does not have FSC certification, will use chlorine dioxide and partly consume wood from native forests. Gunns has chosen to site the mill away from its major plantations in the North-West and near North-East native forests. It has also secured a 20-year agreement with Forestry Tasmania to be supplied with wood from native forests.
See undisclosed risks to Sodra (uploaded June 2009)
2. Landowners to carry risks of Gunns' pipeline (added September 2008)
A plain English guide to Gunns' contract offer was prepared by a Melbourne lawyer for landowners who have been approached by Gunns' negotiators to purchase rights to install a pipeline across their land. The purpose of the 1m diameter pipeline is for transferring water from Lake Trevallyn to the planned pulp mill across private land.
The question of who bears the risk from a pipeline rupture is clouded by Section 11 of the Pulp Mill Assessment Act which prima facie blocks any capacity for landowners to seek compensation from Gunns.
The bottom line is that it seems the landowner is being offered a short term, once off financial benefit, for long term financial detriment and long term inconvenience and risk. See pipeline risks - legal advice.
3. Risk assessment of Gunns’ pulpmill, pipelines and transport of chemicals (June 2008)
Gunns have not provided a risk assessment in their Integrated Impact Assessment of hazardous chemical transport, of the pulp mill generally or of pipelines carrying water and waste. UK regulations now requires a risk assessment for the transport of all hazardous chemicals. The cost of doing a risk assessment is not onerous but the cost of not doing so could be very significant. A range of risks must be considered in building and operating pipelines such as those listed in risk assessment.
4. Gunns' pulp mill sums - who pays? who loses? (April 2008)
This paper is an attempt to identify and quantify the subsidies paid to Gunns and the logging industry in Tasmania. It was compiled by Andrew Bent drawing upon broad community input via the online newspaper www.tasmaniantimes.com and was edited by TAP.
In summary, taxpayer funding diverted to support pulp mill and logging amounts to a one time capital cost of $399m (so far) and ongoing costs of $360m/yr. If the mill operates for 30 years, the total is $11.2bn. It is pretty clear that the level of subsidies is very high, particularly for an activity that generates so few jobs per $million invested, and that produces such small returns from valuable resources.
Overall, the forestry industry appears to remove resources worth about 10 units and return about 1 unit in exchange, such a poor return that they need major subsidies to keep going. This is played out each time they chip a celery top/myrtle/blackwood tree worth $1,000 and produce about $100 worth of woodchips from it.
Read more at Gunns' pulp mill sums - who pays? who loses?
5. Competitiveness of Gunns Ltd's mill continues to fall while government subsidies rise April 2008
Naomi Edwards FIA FIAA FNZSA, prepared this personal research paper. She concludes that:
•The cost of building the Bell Bay pulp mill is too high
•Bell Bay fibre costs will be US$227/t compared to US$103/t in Brazil
•Input cost forecasts from Gunns are not credible
•Government continues to subsidise mill but for how long?
•Comparisons with the Aracruz pulp mill are flawed
Read more at Competitiveness falls while subsidies rise
6. Summary of financial risks (2007.)
Report prepared by TAP.
Gunns Ltd and the Tasmanian Government both trumpet the economic benefits of an anticipated $6.7 billion boost to the state economy with 1617 new jobs from construction and 292 jobs long term. However, by counting only benefits and ignoring costs, the economic studies of the proposed pulp mill by Gunns and the Tasmanian Government fail basic due diligence tests. The economic report prepared for Gunns by Allens Consulting Group failed to meet Australian Treasury guidelines for economic appraisal. In addition, the Tasmanian Treasury Department has not investigated the risks of the mill to the State and the economic viability of the pulp mill has not been tested in public.
This analysis draws together the more significant financial risks arising from Gunns' proposed pulp mill.
Read more at Summary of financial risks
