Shares in the financially struggling Tasmanian timber giant Gunns remain suspended ahead of Monday’s profit announcement and the ongoing clifftop poker around exiting old-growth logging and financing the $2.3 billion pulp mill.
Gunns CEO Greg L’Estrange released this feisty statement yesterday effectively calling on the Giddings government to get its act together and thrash out an appropriate compensation agreement. After all, if fishing licences and water licences get bought back, why shouldn’t logging licences?
The various players in this saga have been all over the place. For starters, Julia Gillard flew to Tasmania for the ALP state conference two weeks ago and did another of her half-baked announcements when there really was nothing to announce.
Claiming a historic $276 million support package was a bit odd when there was no agreement with Gunns, the only corporate player of note in the Tasmanian industry.
After the saga of half-baked announcements about the East Timor and Malaysia solutions, you would think the PM would write a note to herself to stop being so media obsessed. Then again, a distraction from the carbon tax debate was needed.
Rather than paddling like mad to secure the specifics of a deal after the PM made public something that was of great importance to Gunns shareholders, Lara Giddings then went on holidays for a few days.
The Gunns board was left with no option but to suspend the stock and next thing you know there are these rumours that the company is going broke and will never trade again.
The Greens, of course, don’t want Gunns to receive a cent from the taxpayer. The Liberal opposition has gone public claiming Gunns would get $106 million, the Giddings government is talking $23 million and the truth is probably somewhere in the middle.
Like any difficult reform, ending old-growth logging in Tasmania will and should cost money.
Gunns have long-term contracts to slaughter pristine forests and could very well have sold these entitlements to a global giant such as Asia Pulp & Paper.
Instead, they’ve offered to exit in good faith but are now getting pushed around by all and sundry.
Even the bureaucrats from Forestry Tasmania went on radio claiming Gunns somehow owes the government $25 million. L’Estrange was forced to set the record straight in this ASX announcement on Wednesday.
WA Premier Colin Barnett is absolutely right that Tasmania should not be allowed to turn itself into one great national park and sit back relying on ever greater subsidies from the mainland.
A pulp mill that is 100% supplied by plantation timber is an absolute no-brainer for Tasmania.
However, poor old Gunns grossly mismanaged the process under former CEO John Gay who has been bitterly sulking in silence since getting fired in May last year.
The soaring Australian dollar and volatile pulp prices have challenged the economics of the project and consumer boycott campaigns against potential financiers such as ANZ have also been quite effective.
This partly explains why Gunns shares have plunged to 20.5c before the trading suspension — a far cry from the pre-GFC peak of $3.65 reached in late 2007.
These days Gunns is only capitalised at $174 million yet is saddled with $660 million of debt.
Whilst the Greens are hoping it goes broke and the pulp mill is never built, the Tasmania Liberals and Labor should get together and ensure the company receives reasonably compensation for exiting old-growth logging that helps Gunns get the pulp mill off the ground.
A figure of between $50 million and $80 million would be appropriate.
One interesting player in all this is Gillard’s former long-term partner Michael O’Connor, who has been a key participant in negotiations as the national secretary of the CFMEU.
The CFMEU and the ETU have played the industrial game quite brutally over Victoria’s giant desalination plant with outrageously generous pay deals, restrictive work practices and regular industrial action that has contributed to Leighton Holdings dropping close to $500 million on the project.
Given that Leighton subsidiary John Holland is the proposed builder of the pulp mill, O’Connor and his militant mates have a responsibility to ensure the same thing doesn’t happen in Tasmania.
Gunns shareholders have already suffered enough and now that taxpayers are poised to effectively help finance the pulp mill, the unions should show some restraint to help make the economics work for what would be the biggest private investment in Tasmanian history.
*Stephen Mayne owns 10 Gunns shares and on Sunday will be giving a free lecture at the University of Tasmania Launceston campus about Gunns, corporate governance and Australia’s economic performance. Details on the UTAS open day here.