The Auspine Scottsdale Saga

The Auspine – Scottsdale Saga

A report on the closure of Auspine’s Scottsdale Mill

By Geoff Law, June 2010

Synopsis

In September 2004, the softwood sawmilling company Auspine said that forestry workers displaced if oldgrowth forests were protected could be employed in the softwood sawmilling industry.

This statement was at odds with the views of Gunns, the Tasmanian Government and the Forest Industries Association of Tasmania at the time, all of which supported further logging of oldgrowth forests. Within four years, Auspine had lost its bid for a long-term contract to plantations necessary for its operations; it had been 100% taken over by Gunns; one of its two Scottsdale sawmills had been shut down with the loss of 120 jobs; and Auspine’s court case against Forestry Tasmania over the allocation of the pine resource had been discontinued by the new owner, Gunns.

The company which had been awarded the long-term contract for the pine resource in dispute was Forest Enterprises Australia (FEA). When the contract was announced, FEA did not have a sawmill capable of processing the pine logs in question, but was said to have a more competitive long-term business plan than that of Auspine. Little more than two years after commencing operations at its new pine sawmill, FEA entered voluntary administration. In April 2010, its CEO was sacked and in May its sawmill was put up for sale.

The Auspine saga raises questions over decisions by government and the accountability of Forestry Tasmania and its joint ventures.

The Federal and State Governments appear to have discriminated in favour of FEA and against Auspine in the allocation of industry-development grants. FEA received $7 million for development of a sawmill and over $200,000 for treating pine products. Auspine received $585,000 for subsidised transport of pine logs – but only after the controversial resource allocation was made. This was part of a one-year ‘rescue package’ in which logs from remote, dispersed plantations were allocated to Auspine. This contrasts with the much more generous grant to FEA for the purposes of establishing long-term infrastructure.

The disputed resource – pine plantations on State Forest in north-east Tasmania – are owned by a joint venture with 50% Forestry Tasmania ownership. Forestry Tasmania’s Managing Director, Bob Gordon, was part of the board of directors that allocated the long-term contract on the resource to FEA instead of Auspine. Under the Forestry Act, Forestry Tasmania is obliged to consider local employment when allocating resources. However, Mr Gordon told a Parliamentary inquiry that his responsibility as a director on the board of the joint venture was to the joint venture, and that, despite his involvement, Forestry Tasmania played no part in the controversial Auspine/FEA decision. Auspine’s attempt to test this in the courts was scuttled when Gunns took over Auspine.

This has left a cloud over Forestry Tasmania’s accountability regarding decisions covering large tracts of public land and the resources on that land. 42% of Forestry Tasmania’s plantations are under joint ventures or lease arrangements. If Mr Gordon’s testimony to the inquiry is correct, Forestry Tasmania officers need not be constrained by the Forestry Act when allocating resources from this land. This is an erosion of the ability of Tasmanians to hold to account those who manage public resources.

Meanwhile, the Auspine/FEA decision has caused significant adverse impacts in Scottsdale. The details of and reasons for the decision are concealed behind commercial-in-confidence barriers. Approximately 120 direct jobs have been lost, and local-government representatives have told a parliamentary inquiry of a legacy of uncertainty, suspicion and distrust in the town, with concern about whether the decision was fair, legal or objective.

The details of the Auspine Saga appear to justify an investigation by Tasmania’s new Integrity Commission. The Commission should assess the commercial reasons for the decision; determine whether decisions about resources managed under Forestry Tasmania joint ventures are made in a transparent, accountable and effective manner; whether there was discrimination against Auspine because of its statements about oldgrowth forests in 2004; whether there was discrimination in favour of FEA by decision makers and, if so, whether that discrimination was legitimate; and how to ensure that future decisions about public resources are made in a fashion that does not invite suspicion of hidden agendas and ulterior motives.

The Auspine Saga

The recent woes of a little-known forestry company have once again raised serious questions about the way in which decisions about Tasmanian timber resources are made. Trading in the shares of Forest Enterprises Australia (FEA), a publicly-listed company that processes and exports wood from the Tasmanian port of Bell Bay, was suspended on 24 February 2010 after the company failed to renegotiate a loan of about $200 million with its financiers.[1] Earlier, the company’s share price plummeted to 4.5 cents after suffering a $14.1 million half-yearly loss.[2] On 14 April 2010, FEA announced to the Australian Stock Exchange (ASX) that it had gone into voluntary administration.[3] On 19 April, the company’s receivers sacked CEO, Andrew White, along with 22 other employees.[4] And in May 2010, a major asset of FEA, its Bell Bay sawmill, was put up for sale.[5]

Yet FEA is the same company which, in early 2007, was granted resources needed by another company, Auspine, for its two large pine sawmills in north-east Tasmania. At the time of the resource allocation, FEA did not even have a mill capable of processing the disputed resource. Auspine, on the other hand, was already employing over 300 people. The highly controversial decision generated outrage in the local community, mystified many observers, led to suspicions of hidden agendas, and eventually caused the closure of one of the Auspine sawmills with the loss of 120 jobs. A Parliamentary inquiry into the decision heard questions of conflict of interest involving a former Deputy Premier and criticisms of a lack of accountability and transparency by Forestry Tasmania.

Supposedly, FEA was granted the contract over the disputed timber because its business model was more ‘competitive’ than that of Auspine. [6] On 4 May 2010, however, FEA’s receiver said that the company’s “… business model was unable to fund its existing cost base”. [7] The official reasoning for removing Auspine’s resource base – and putting over a hundred forestry workers out of a job – was now in tatters.

Given the controversy, criticisms and suspicions that surrounded the Auspine decision, it’s worth looking at the saga in detail.

In 2004, Auspine was a publicly-listed softwood sawmilling company which owned one Tasmanian sawmill based at Scottsdale which employed about 150 people. Auspine’s sawmill coexisted with another softwood sawmill at Scottsdale of comparable size and employment run by Frenchpine, whose main product consisted of more specialised timber products used for joinery.

The resource relied on by both mills consisted of some 46,500 ha of plantations of Pinus radiata in north-east Tasmania. These pine plantations had been established by the state on State Forest for the purposes of job creation in north-east Tasmania. However, in 1999 the status of those plantations changed. After privatisation of 50% of the plantation resource (not the land), a joint venture was established between Forestry Tasmania and Grantham Mayo van Otterloo (GMO), a Boston finance company.[8]

The resultant joint venture, called Taswood Growers, engaged yet another company, Rayonier, to manage the plantations. Decisions about the use of wood from those plantations were now to be made according to a complex arrangement between Forestry Tasmania, GMO and Rayonier.

In August 2004, the Australian Prime Minister, John Howard, called a federal election and on 3 September raised the issue of logging in Tasmania’s oldgrowth forests. He said:

I would like to see – and I think most Australians would like to see – an end to the logging of old growth forests, but it must not be at the cost of throwing hard-working Australians and their communities on the scrapheap.[9]

Auspine entered the debate, saying the company could employ forestry workers displaced from oldgrowth logging if it were given the necessary resource security to enable investment to occur. Auspine’s Chief Operating Officer, Andrew Jakab, said the softwood industry could invest up to $450 million to expand and upgrade its operations. This would have involved significant expansion of Scottsdale’s softwood sawmilling operations. The Australian newspaper quoted Mr Jakab as follows:

Mr Jakab said the state’s softwood industry stood ready to invest hundreds of millions of dollars in new plant and technology however it could not do this with the short-term contracts being offered by Forestry Tasmania, the 50% plantation owner. ‘We are being drip-fed resource. Forestry Tasmania represents a monopolistic supplier – the industry has no choice (but) to take what it is given.’ He said Forestry Tasmania allowed the export of whole logs for quick profits when better management would enable more value and more jobs to be created in Australia.[10]

On 22 September 2004, Jakab appeared on the front page of the Hobart Mercury complaining that he could not get a meeting with Premier Paul Lennon to outline Auspine’s expansion plans. “We have not had a very good response from the Premier,” Mr Jakab is reported as saying.[11] It was only after this publicity that a meeting was arranged.

Auspine’s stance on oldgrowth forests was in direct contrast to that of other major players in the Tasmanian logging industry, including the Forest Industries Association of Tasmania, Timber Communities Australia and Gunns, all of which were urging both major political parties not to change the Tasmanian Regional Forest Agreement (RFA).[12]

This division within the Tasmanian timber industry was brought into sharp focus when Gunns’ executive chairman, John Gay, was reported in the Mercury as having made a statement saying that Auspine’s comments “have been extremely damaging to themselves and to their future in Tasmania”.[13]

In December 2004, less than two months after the federal election, it was reported that Gunns’ retail outlets were no longer stocking or promoting Auspine products. It was reported that Gunns’ catalogue of early September 2004, before Auspine’s comments were made, featured the Auspine logo, whereas the catalogues of October and November did not. Jakab was quoted saying that no explanation had been given for Gunns’ move, but that it was a “remarkable coincidence” that the decision came immediately after Gay’s warning.[14]

In May 2005, the Tasmanian and federal governments signed a Supplement to the RFA. The new agreement protected certain areas of oldgrowth forests and provided over $210 million for the forestry industry, including funds for new hardwood plantations, for intensifying forest management, for new forestry roads and infrastructure, for country sawmills, for public relations and for training. Of this package, only $10 million were allocated to the softwood industry.[15] This seemed miserly treatment of an industry keen to expand its operations by using non-contentious plantation resources. It suggests that even the state and federal Governments themselves had not been appreciative of Auspine’s foray into the oldgrowth debate.

In mid-2005, a tendering process for the north-east pine plantation resource owned by Taswood Growers was initiated by Rayonier.[16] Shortly afterwards, in October 2005, Auspine purchased 100% of Frenchpine. With both of the state’s big softwood sawmills located in the heart of the plantation resource, and with over 300 people employed in regional Tasmania, Auspine’s claim for a long-term contract for the pine resource seemed compelling. The timber company which had pursued a direction compatible with protecting oldgrowth forests appeared to have a prosperous, job-creating future which could set an example to other parts of Tasmania’s logging industry.

But there were other claims on the pine plantations Auspine so desperately needed.

Taswood Growers, the owner of that resource, and Rayonier, the manager, were engaged in the lucrative trade of selling softwood logs on the export market. Taswood Growers’ Mr Ian Jolly, in March 2007, would tell a Parliamentary inquiry that the export market “is so much more attractive to us financially than the domestic market.”[17] Forestry Tasmania – being a joint owner of Taswood Growers – was a beneficiary of these whole-log exports.

And in late 2005, there came an additional major player with a potential interest in the northern Tasmanian softwood resource – Gunns’ pulp mill. Previously, Gunns had indicated no interest in softwoods for the mill. However, in May 2005 Gunns changed its project scope to include softwood as part of the resource.[18]

Gunns' draft Integrated Impact Statement (IIS), released the following year, said that softwoods would comprise 10% of the overall input – that is, up to 400,000 m3pa, a significant quantity for a small state with limited and dispersed plantations of softwoods. The IIS was silent on the source of softwoods for the pulp mill; they were simply lumped in with plantations (most of which provide hardwood). Gunns said its wood could flexibly come from three sources – its own land, other private land, and State Forest.[19]

In September 2006, the stakes were raised when another player entered the bidding process.[20] Forest Enterprises Australia (FEA) owned and operated a woodchip-export mill and a small softwood milling operation at Bell Bay, some 72 kilometres by road from Scottsdale. It announced its intention to construct a major new softwood mill based on the same resource that Auspine’s sawmills relied upon. According to contemporaneous sources, FEA’s proposed mill, after construction, would employ about 100 workers – some 200 fewer than employed by Auspine.[21]

So there were now four major players interested in consuming large quantities of northern Tasmanian softwoods: Auspine with its expansion plans; FEA which did not have a major pine sawmill; Taswood Growers with its log exports; and Gunns. In theory these were different categories of logs, with Gunns after pulpwood, Auspine after much higher-grade logs, and Taswood Growers exporting a variety of qualities. But in practice, the lines between different grades of log are fuzzy and fluctuate according to demand and supply.

Meanwhile, Auspine’s negotiations with Rayonier had dragged on. They had even been suspended in March 2006, due to the imminent state election. Auspine expressed frustration in an open letter published in the Examiner in March 2006. The open letter complained that Auspine had been negotiating for a long-term contract for six years without success; that Auspine was prepared to pay a higher return than Rayonier could achieve on log exports; that Rayonier had rejected seven offers from Auspine and Frenchpine without making ‘a single commercial counter offer containing fair market prices’; and that Auspine was prepared to submit its offers to independent assessment. The open letter also expressed concern at the export of ‘hundreds of thousands of tonnes of sawlogs’ by Rayonier over ‘recent years’. It ended with the catch-cries of ‘Log Security = Job Security’ and ‘Exporting Logs = Exporting Jobs’.[22]