WE KNOW someone’s being deceived when politicians describe buying a $2 billion pulp mill from Scandinavia as ‘an investment in Tasmania’. It’s just a matter of working out how….
We’re confronted with the weird reality that the Rann government needs to buy water (1) on the open market, placing them in competition with other governments and acting to increase the price of water to everyone.
Following the water story, we learn that the long term average in the Murray is 780 Gl. Tracking back to concerns about water use by tree plantations, we recall that each hectare uses 2 - 4 Ml/yr of water over and above agricultural cropping. With over 2 million hectares around Australia that’s over 4,000 Gl, more than enough to cover our needs.
How did it come to this? How can we be so short of water that governments have to use our money to buy it?
Let’s take a look at how this may have all come about…
Large corporate sales, particularly those involving multiple millions or billions of dollars, often take over a decade to complete. With a massive prize at the end for corporate suppliers, salespeople will do whatever it takes to get the sale, after all a 1% commission on a billion dollar sale is worth getting!
The first stage is qualification – making sure that the potential customer has the money, influence and capability to actually make the purchase. If a customer is not qualified, they are either abandoned or ‘facilitated’ to a stage where they can make the purchase.
The qualification step is best carried out by offering a consulting service so that the putative client pays for ‘impartial’ advice, while the company collects all the information it needs to check out the situation. When governments are involved, that also means engagements by those governments, often facilitated by the target customer. The consultancy can then recommend programs that suit the industry of choice using economic and populist arguments to support their case.
Bob Hawke committed Australia to planting 1 billion trees to reduce salinity among other things. Scandinavian pulp & paper mill supplier Poyry’s consulting arm was active in Australia at the time and recommended to governments that it build a huge plantation estate. It also argued for ‘world scale’ pulp mills, particularly in Tasmania. These arguments were couched in consulting reports to governments and offered ‘balance of payments’ advantages.
Their effectiveness can be seen in the echoes of politicians like Wilson Tuckey who argued that Tasmania should become the ‘plantation state’. The idea solved a whole load of problems by eliminating the need for costly rural services, removing communities and building up the scale of Gunns. It also played directly into Poyry’s sales cycle.
Since the topic was trees, the implementing industry had to be forestry, so governments believed that it was important to support that industry in order to achieve their policy goals.
Poyry also consulted to the forestry industry itself, recommending a range of actions that would enable the industry to build itself to a greater size – objective – sell pulp and paper mills. It was a classic, big system, sales cycle.
To gain commitment, industry figures were flattered (you have a world class operation here), solutions to problems were offered (you can get support for plantations from Green groups who want you out of native forests) and the notion of ‘industrial forestry’ was pressed onto all concerned.
Industrial forestry produced wood chips – a low value, undifferentiated commodity that could be produced with minimal effort. The benefits included reduced investments (no sawmills or driers etc needed), reduced costs (no foresters, no skills, shift risks to contractors), while increasing income through increased volume by processing what would otherwise be rejected. The downside is that it’s undifferentiated – customers have no real way to demand Tassie chips over chips from anywhere else, so value adding opportunities are pretty much limited to pulp and paper. Perfect from Poyry’s viewpoint.
In 1996, lil’ Johnnie drabs into power, a small man anxious to look big. The Poyry sales machine swings into action and shows how Australia can join world markets in the pulp business, deal with salinity, and set people free financially by offering the opportunity to invest in tree plantations – the MIS was born as was Plantation Vision2020 – a plan to create over 3 million hectares of plantations in Australia. All promoted by Poyry at their various conferences and strategic planning sessions – all offering huge benefits to the forestry industry and increasing the chances of a mill sale by Poyry.
The forest industry was provided with numerous advantages, including allowing them to judge their own cases (violates principles of natural justice) and being self regulating (Clayton’s regulation). The industry quickly took advantage of every opportunity which created huge community divisions. None of it mattered – Poyry had dealt with objections to mills all around the world. As long as political and government decision makers could be relied upon for support, they could ram the whole program through.
At around the same time, the A team was formed, a group of forestry supporters who penetrated green and protest groups with a view to collecting information and distorting protest agendas. This was like a ‘fifth column’ designed to disrupt protest and give advantages to forestry.
In parallel with the A team program, forestry interests supported political candidates at the Council and other levels. The deal was – we’ll help you get elected if you support our agenda. Loyalty was sealed with ‘investment deals’ that included plantations that would help pay for the candidate’s superannuation.
In these ways, forestry influenced public decision making bodies to advance their own interests. This can be seen in the federal forestry department agenda which reads…‘DAFF’s goal is to assist our forestry industry to grow, improve and capitalise on new opportunities…’
Where would that ‘growth’ come from? From the only places possible - our farms and forests.
Distorting the free market
During the 2020Vision process, various subsidies by taxpayers were conceived and paid out. Tree MIS offered over $3,000 per hectare in taxpayer subsidies to the MIS operator, who got all of their cash up front. Investors paid an additional $3,000 to $6,000 per hectare for a total of between $6,800 and $9,000 per hectare. MIS companies were allowed to make yield claims that turned out to be wildly exaggerated. Real yields and wood prices led to investors and taxpayers losing most of their money – with overall MIS costs to taxpayers alone being reported at $6 billion (2).
Why did they invest? At least because of the tax incentive which allowed them to deduct their costs from their tax bill, and because a tax incentive implies a government imprimateur.
There was no market for the trees. Neither were there any rules about restrictions on where land should be converted to plantation.
Both Labor and Liberal supported the program, as did many environmental organisations. All with the best of intentions – all in line with Poyry’s sales cycle.
Questions and concerns were all deflected by politicians – which of them wanted to admit that government might be creating a monster? Who could afford to alienate party revenue raisers who relied on portions of tax subsidies finding their way back into party donations?
There was money for everyone.
It’s reported that Gunns even paid the Poyry team to sell the mill to themselves. Classic stuff. When you can get the client to hire you for your advice – they’re likely to believe what you tell them because they’ve paid for the advice!
Many believe that Gunns didn’t understand any of it – they have no experience with pulp mills whatsoever. That was good for Poyry because Gunns and the state government were both far too macho to admit ignorance.
It was a perfect opportunity for the sales team – flattery and trips around the world – sign here.
A bridge too far
Unfortunately for the industry, things didn’t pan out as planned. The initial ‘teaser’ of a mechanical mill was quickly abandoned for Poyry’s preferred option – an in-stream chlorine dioxide mill that was in use nowhere else and that posed major environmental risks if anything went wrong. Rumour has it that the mill was a reject that they were anxious to sell.
The RPDC process turned out to be a little too rigorous for Poyry’s liking, and it became clear that Gunns didn’t have the wood supply (see CSIRO and Beca Amec reports to RPDC) and that their plans wouldn’t meet RPDC requirements. RPDC officials turned out to be too honest and were quickly pressed to resign. The new Chairman, Christopher Wright similarly turned out to be too keen to obey the law and was quickly sidelined when Gunns pulled out and the government agreed to a truncated process, ie. one that left community needs and socio-economic impacts out of any consideration.
Approval was quickly obtained by ‘outsourcing’ it to a member of the Poyry mill consortium Sweco Pic. Special laws were written to accelerate the mill’s approval and deny Tasmanians any effective rights of appeal, leaving local residents unprotected.
Unfortunately for Gunns, by the time they were ready to sign papers, a debt crisis was rapidly overtaking everyone. Too much debt and the banks got nervous. Gunns had over $1 billion in debts via the ANZ and had to sell off plantations and raise capital. Borrowing another $2 billion to buy a pulp mill became very unlikely and Poyry went home. Boo hoo.
Chaos, costs and controversy
So here we are, back at the present day, with a credit crisis that’s wrecking world trade and causing widespread bankruptcies. Gunns shares have sunk to below $0.90c as investors flee indebted companies.
Governments are in trouble for money – having wasted some $6 billion on plantations that may never yield a real return. Thousands of investors will lose money, while taxpayer systems like health and education have lost $6 billion in foregone tax income.
Our catchments are losing 5x or more the annual flows in the Murray and government’s must now buy water – some of it owned by the same MIS companies who were cashed up with taxpayer money.
Their demand will increase water prices to us all.
Over 2 million hectares of land has been converted to trees in perpetuity – many of those trees fast growing pulpwood that will rot quickly if not harvested. Many MIS operators have lost money and will not be able to maintain their plantations.
Catchment losses have impacted farmers in many areas, cutting agricultural production and income. Conversion of farms to plantations has cut income to rural communities, while log trucks and logging activities have deterred tourists, again cutting rural income.
Division and hostility have characterised much of the political scene – with parties supporting pulp mills before their impacts were understood. People were left on their own by government to defend their properties and their livelihoods while their tax dollars were used to spruik the mill and pay for a pro-mill government task force.
Whole industries like tourism, recreation, fishing and agriculture were under threat as their needs were ignored along with everything else in a rushed state process.
People’s freedoms and equality were all compromised as governments changed laws, sought advice from individuals with conflicts of interests, ignored taxpayers and industries and created even more special conditions to help forestry achieve its goals.
All this is made easy by Australia’s multiple independent governments that are like a Swiss cheese for other groups to penetrate and influence. There is almost no co-ordination between governments, between levels of government or even within governments. Instead governments and their departments compete for funds and power.
We know that big corporates like Poyry are going to use standard sales cycle tactics to sell products. We know the tricks, We can figure out the risks. But our system of government is totally unable to protect itself, or us, from the ravages of any collateral damage created by our responses to such sales initiatives.
We’re seeing the same kind of debacles arising with the emissions trading scheme. Big polluters getting big payouts, renewables industries being disadvantaged, government devoted to supporting what’s already there rather then redesigning our systems for a better future.
Let’s hope the Rudd0 can figure all this out and keep his hands out of our pockets when it comes to pulp mills. Until he does expect to read in the news about water, land, farms, food, community and other distress all created by our governments’ inability to co-ordinate their own priorities and actions.
Will he do it?
Watch this space.
Mike is a complex systems consultant, change facilitator and executive and management coach.
Note. The author welcomes constructive comments and new information that adds to our understanding of these matters.
We know that big corporates like Poyry are going to use standard sales cycle tactics to sell products. We know the tricks, We can figure out the risks. But our system of government is totally unable to protect itself, or us, from the ravages of any collateral damage created by our responses to such sales initiatives. We’re seeing the same kind of debacles arising with the emissions trading scheme. Big polluters getting big payouts, renewables industries being disadvantaged, government devoted to supporting what’s already there rather then redesigning our systems for a better future.