Gunns' pulp mill sums - who pays? who loses?

This paper is an attempt to identify and quantify the subsidies paid to Gunns and the logging industry in Tasmania. Drawing upon broad community input via the online newspaper , it was compiled by Andrew Bent  and edited by TAP.

Summary of findings

1. Taxpayer funding diverted to support pulp mill and logging
One time capital costs = $399m (so far)
Ongoing taxpayer funding support = $360m/yr
Cost if mill operates for 30 years = $10.8bn (30 years x $360m/year)
Total over 30 years = $11.2bn

2. Costs to the community
Property prices - one time losses = $2bn
Opportunity costs to community = more than $1.1bn/yr
Total over 30 years = $35bn

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. It has been pointed out that just the water for the mill alone, at 26 GL/yr, would be worth $2.6 bn/yr if it were cleaned to drinking standards and sold at 10c/litre, so that’s an interesting point of comparison.

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.

Reliability of the estimates

Because of the lack of transparency by governments it has been necessary to make a number of assumptions about what each of the resources etc. are actually worth. In addition there are two major types of cost: direct and indirect. Estimated opportunity costs have been included in indirect costs to try to keep the job relatively simple.

It is not possible to distinguish the subsidies provided for the pulp mill from other subsidies provided to the logging industry in Tasmania. Prices are also difficult to calculate because the government is keeping the figures relatively secret and because much of the cost relief goes totally unreported e.g. costs of roads and bridges.

This is a due to the lack of reporting on the magnitude of the costs to the public, coupled with the division of subsidies into so many different categories, governments and portfolios. In addition the industry enjoys multiple exclusions from laws and regulations that apply to everyone else. Thus their costs are significantly lower in any case.

With those many caveats, this list is the best effort by the public in figuring out what the total subsidies to Gunns actually are. They have not been discounted in any way as they do represent something close to the amount of money being lost, foregone (no revenues collected) or provided directly to the industry. There are no complex formulae or economic costs eg. discounted cash flow, just a listing and totalling of everything going to forestry.

While some people when writing in the Tasmanian Times have included such things as the “Auspine Deal” in their list of subsidies it has not been possible to incorporate some of these suggestions without an idea of the moneys involved.

The production from forests and plantations has been calculated on the basis of an estimated 200 tonnes per hectare per year.

One-sided legislative support for forestry interests

Government exemptions give forestry a massive edge over all other industries competing for the same resources. Forestry industries are exempt from the:

  • Land Use and Planning Act
  • Environmental Protection Act
  • Freedom of Information Act

Public services that the Lennon government has said they cannot afford include:

  • health
  • public housing
  • education services
  • disability services
  • road & rail funding
  • the environment
  • nature conservation e.g. the devil tumours, Macquarie Island, chytrid disease in frogs, protecting threatened species like orange-bellied parrots etc.

The subsidies

1. Logging operations
Building logging roads and bridges via Forestry Tasmania - $30m/yr (est).

Maintaining public roads and bridges via local councils - $20m/yr (est).

Forestry Tasmania research and services that benefit Gunns - $15m/yr (est).

Diesel fuel rebate of 18% of their fuel costs – unknown.

Subtotal for logging operations
Annual cost = greater than $65m/yr.


2. Resource supplies & transportation
Lost value from forest trees - $80m/year. ($15/t ex Forestry Tasmania versus an estimated value as carbon sink of $35/t and as firewood at $50/t. Gunns plans to use about 4 million tonnes/yr).

Trees from plantations - no estimate. ($32/t ex Forestry Tasmania versus cost of $34/t in Gunns’ prospectus’).

Federal government Managed Investment Scheme subsidy for plantation land acquisition and management - $80 m/year. (About $3200/ha at 25 000 ha/yr).

Water used by tree plantations - $16m/yr. (Plantation estate of about 250,000 ha uses 2Ml/ha/yr more than native forest or grassland at a value foregone of $32/ML)
Water from Lake Trevallyn proposed for pulp mill operations - $182 000/year. (Gunns to use 26 – 40 GL/yr but at a cost of $7/ML cheaper than Esk Water; $25 ML to Gunns versus $32 ML to Esk Water. Note; the value of irrigation water is around $100/ML.)

One time cost of pine transported to Scottsdale - $4m.

Subtotal for resource supplies and transportation:
One time cost = $4m;
Annual cost = $176m/yr.


3. Provision of infrastructure
Federal government railways - $120m capital.

State government pipeline (to be confirmed) - $100 m capital. (Estimates vary from $60m to $200m).

Federal government East Tamar Highway upgrade - $80m capital.

Federal government West Tamar Highway upgrade - $60m capital.

Meander Dam construction component - $16m capital. (Gunns 40% share of total cost).

Maintenance of infrastructure listed above - $19m/yr (at 5% of capital per year).

Subtotal infrastructure:
One time costs = $376m;
Annual cost = $19m/yr.


4. Project promotion, planning and review
Pulp mill promotional bus - $1m. (Est one time cost)

Pulp M    ill Taskforce - $6m. (Est one time cost)

Federal grant for IIS development - $5m. (One time cost)

State support for mill suppliers - $2m. (One time cost)

Federal/state RPDC costs - $3m. (Est one time cost)

MLC pulp mill tour - $70 000. (7 MLCs at est of $10 000 each. One time cost)

Gunns lobbyists fares/expenses to lobby MLCs - $50 000. (One time cost)

Sweco Pic ‘assessment’ - $500 000. (One time cost)

ITS Global assessment - $300 000. (One time cost)

Subtotal project promotion, planning and review
One time costs = $14m.


5. Direct grants to logging industry
Community Forest Agreement and other federal grants - $100m/yr. (Estimated total over 10 years of $1bn, ie. an average $100m/yr.)

Subtotal for logging industry grants
Annual cost = $100m/yr.


6. Damage and losses to communities and tourism

Health effects from overspray - cost unknown.

Health effects of toxins in drinking water - cost unknown.

Deaths and illnesses from micro-particulate pollution - cost unknown.

Costs to public of preparing submissions 600 submissions – cost unknown. (Est of $200 to $5,000 each).

Property devaluation suffered by community - $2bn. (One time cost, 40 000 houses worth an average of $250 000 each at 20% loss = $2bn).

Loss of agricultural production - $1bn+/yr. (Food production including downstream processing from 450 000 ha is worth $2.5bn/year so conversion of another 200,000 ha to plantations would cut income by over $1bn/year).

Loss to tourism - $100m/year. (10% of total Tasmanian tourism industry worth about $1bn/year).

Subtotal for damage and losses to communities and tourism:
One time costs = $2bn;
Annual cost = $1.1bn/yr.


7. Carbon trading losses
Carbon trading losses - $165m/year. ($30/t x 5.5 mt/year).

ML = Megalitre (1000 000 litres)
GL = Gigalitre (1000 Ml)
mt = million tonnes
ha = Hectare
bn = billion
m = million