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The Gunns board has a lot to thank mill protestors for

By Mike Bolan - posted Tuesday, 2 October 2007


The Tasmanian forest industry has done well for itself over the last 20 years. It has been able to gain the ear of government, convince state and federal governments to exclude them from many of the laws that the rest of us have to live by, and hand over well over $1 billion in subsidies of various kinds in the last decade. They’ve benefited from federal MIS (managed investment schemes) wherein taxpayers help fund their growth of plantations and deliver sufficient profits from that activity to buy more land as it becomes available.

The longer term trouble with these kinds of cosy arrangements is that they make subsidised companies lazy, disconnect them from the free market and cushion them from the results of poor decision making. While other industries like agriculture and fishing respond to the free market and are highly regulated by government, forestry is heavily subsidised, deregulated and cushioned from the rigours of the market and therefore has easily been able to win the competition for scarce resources like forests, water and land.

During the entire period of the pulp mill “approval” process, Gunns has acted as if their success were assured. They’ve put up an absurdly positive economic case that has directed attention away from difficult areas like wood supply and impacts on other industries rather than trying to inform by covering all risks and exposures.

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When the RPDC (Resource Planning and Development Commission) found them to be “critically non-compliant”, Gunns “withdrew” from the process and the state government created a new, easy path for their mill that was “evaluated” by a pulp mill supplier who would benefit from the project proceeding. The trouble is that independent reviews are important to project proponents themselves because they alert the company to risks and threats that they, themselves, may have missed. This is particularly true when they are marching to someone else’s drum, for example being sold a large industrial plant.

To many, Gunns' actions appear consistent with their self interest. Set up for more subsidies, lots of secrecy about the proposal and its impacts and almost no independent review, the Gunns board might well have felt that this was a battle that they could, and probably would, win. In this, they were encouraged by their “consultants”, Poyry, who have spent years putting the pulp mill sale together. Note: most of the $2 billion investment will go to Poyry while other companies like Sweco and Andritz will also get chunks at Poyry’s pleasure.

Meanwhile, global events have been busy catching up. Not only are world supplies of pulp set to quintuple over the next few years, but Gunns’ costs are set to become highly unpredictable as oil prices start to climb in response to greater global demand, countries become concerned about “peak oil” and the US threatens to nuke Iran. At the same time rainfall patterns are placing Tasmania in drought status, threatening not only the growth rates of Gunns’ plantations, but also Australia’s last reliable “food bowl” in Tasmania.

These factors, coupled with the “benefits only” consulting that informed the IIS (integrated impact statement), has left Gunns exposed to making a purchase from Poyry from which it may never recover.

An astute company would listen to its critics to determine whether their criticism had merit. Instead, Gunns and the forest industry has formed a “chorus line” where they all repeat the pro mill-anti Green mantra regardless of the merits of any criticism. This polarisation effectively isolates them from important ideas and alternatives - a situation that serves Poyry’s interests.

While the company is waiting for an approval for their mill from the federal government, the US dollar is collapsing as that country moves towards recession; global credit availability is drying up; and Bush-Cheney are repeating the same mantras that took the US into Iraq, this time against Iran. Pundits are claiming that if the US does attack Iran, oil could double or triple in price, a result that would wreck Gunns’ fuel intensive business in a few weeks and leave them with millions of dollars stuck in unaffordable planting and harvesting equipment.

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Tasmania’s rapidly drying climate is not only stunting plantation growth, it is placing serious pressure on our food production systems, made significantly worse by the vast area of plantations drawing massive amounts of water out of our catchments through their long roots and thereby lowering water tables. No government is going to tolerate growing trees while its population starves so the tree MIS would be early, and popular, targets. Without MIS subsidies, Gunns' business will suddenly assume major additional costs that were not factored into their IIS. If the trees don’t grow fast enough, they’ll be forced into our native forests again but access and transport costs are increasing as they’ve “cherry picked” the cheapest coupes and are now forced into harder to reach locations. Their contractors are facing huge additional costs without any certainty of compensating income.

From a strategic business point of view, Gunns' board should be thanking the various groups that have criticised their proposal and reviewing their threats and exposures more completely. Their best business course is to look seriously at more lucrative, stable and diverse business models than locking their company into an investment in Finnish engineering for the next couple of decades.

Smart company boards are looking to remain flexible in the face of a potentially chaotic future. There’re many other lines of business that are compatible with Gunns' operations that would be substantially less risky and significantly more lucrative than buying Poyry’s pulp mill.

The 128 scientists who propose further studies might not be “green opponents” as stated by Gunns, they might instead be well informed experts with opinions that are worth hearing. Community and business groups might not be “misinformed” or “extremists” but rather people saying something that the company could turn to advantage. Formal planning and review processes might not be a useless impediment to business but rather a means of identifying risks and threats that are important for us all to help us avoid making terrible mistakes.

Overall, it might be better for the forestry industry to start listening to different viewpoints and working with communities to create a better future for everyone, instead of constantly engaging in adversarial battles that reinforce old prejudices and expose their industry and others to new risks.

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First published in the Tasmanian Times on September 24, 2007.



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About the Author

Mike Bolan is an independent complex systems and business consultant. Mike worked for the Tamar valley community and others to prepare materials for the RPDC in which he spent about a year visiting Tasmanian communities, businesses and individuals to learn the impacts of forestry operations and the implications of a pulp mill on them. The lessons learned from that period are still relevant today and are used in this story, which is told to inform not to gain income.

Other articles by this Author

All articles by Mike Bolan

Creative Commons LicenseThis work is licensed under a Creative Commons License.

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