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In recent weeks there have been persistent newspaper reports that Gunns will be compensated for exiting state forest contracts.

For example, the Australian Financial Review (11 August, p.20) reports that ‘Industry sources believe Gunns could receive as much as $200m in compensation for exiting those contracts as well as for infrastructure and roads’.

I’m not a lawyer, but the various wood supply contracts on Forestry Tasmania’s website appear to indicate that it is unlikely that much, if any compensation should be payable. Maybe better legal advice will correct my misapprehensions.

There are two contracts between Forestry Tasmania and Gunns; the Long Term Pulpwood Supply Agreement (LTPSA) and the Sawlogs and Other Supply Agreement (SOSA).

Take the LTPSA first.

This contract was signed on 20 December 2007.  It provides for the annual sale of 1.5 million tonnes of pulpwood and up to 200,000 tonnes of veneer logs to Gunns. The contract provides details of pricing, areas of supply, maintenance and ownership of roads and so on. Pricing was provided in the draft contract but deleted from the public version of the final contract.

Importantly, Clause 3 of the contract covers the expiry date for it, and conditions under which the parties may terminate the contract. 

Clause 3(i) provides one of those conditions. In the first version of the LTPSA, this sub-clause said that the contract could be terminated if ‘the construction of the pulp mill has not commenced by 30 June 2008’.

On 17 June 2008, this clause was amended from30 June 2008 to 30 November 2008.

On 28 November 2008, two days before the expiry date, the clause was further amended from 30 November 2008 to 30 November 2010.

It is difficult to believe that construction of the pulp mill will have commenced by 30 November 2010, if it ever does.

In that case, Forestry Tasmania can terminate the contract.

It would be a breathtakingly cynical exercise if Forestry Tasmania were to agree to a further extension only to have Gunns claim compensation for surrendering its rights under the contract.

Now turn to the SOSA

This contract was also signed on 20 December 2007. It provides for the supply of high quality sawlogs, veneer logs and biomass from Forestry Tasmania to Gunns. The annual quantities and prices have been deleted from the public version of this document.

The relevant part of the contract is clause 3. As in the LTPSA, it provides conditions under which either party may terminate the contract, and in 3b(ii) it states that the contract may be terminated if ‘construction of the Pulp Mill has not commenced by 30 June 2008’.

On 17 June this date was extended to 30 November 2008.

It appears, from the information available on the Forestry Tasmania Wood Supply Agreements website, that this date has not been extended, in which case Forestry Tasmania can exercise its right to terminate the contract in 180 days.

Again, there appears to be no case for Gunns to seek compensation for surrendering its rights under the contract.

I’m not a member of the round table which is undertaking negotiations regarding the future of Tasmanian forestry. Those negotiations are our best chance so far to negotiate a transformation of Tasmania’s forest industry. 

At the same time, we should be wary about back door deals for ‘compensation’ which are really a back door way of recapitalising Gunns balance sheet.

Declaration of interest: This article has been written in my capacity as an independent analyst. In December 2009/January 2010 I did contract work for the Greens on their Forest Transition Policy.

Elsewhere ...
Zoe Edwards, Examiner:

Forestry deal imminent

11 Aug, 2010 08:31 AM

A DEAL to solve Tasmania’s decades-long forest conflict - including a decision on the Tamar Valley pulp mill - is imminent.

The deal is understood to include in- principle support for the need for a pulp mill in the state, an industry restructuring package and an end to almost all native logging.

Conservation groups and forestry industry representatives have met frequently over the past three months to broker the deal.

Both are tight-lipped on specifics to ensure the process is not compromised and no one will say if a deal will be announced before the August 21 federal election.

About 100 forestry contractors met behind closed doors in Launceston yesterday for a briefing on the negotiations.

Tasmanian Forest Contractors Association chief executive Ed Vincent said later that contractors had shown support for the position put forward at the negotiations.

He said a number of possible outcomes had been outlined.

Mr Vincent would not comment on whether the agreement would support the Tamar Valley pulp mill.

“The association’s position is that we support a pulp mill,” he said.

National Association of Forest Industries chief executive Allan Hansard also refused to detail specifics but said both sides of the negotiating table had to make concessions.

“There is a real willingness to get something agreed because we want some certainty in the industry and to set the foundations for the future of the industry in Tasmania and enable it to grow,” Mr Hansard said.

“Plantations are part of that, a new processing facility is definitely part of that.”

Environmental groups have also presented parts of the deal to stakeholders they are representing in the talks but yesterday would not be drawn on how the agreement was tracking.

Mr Hansard said negotiations were not being rushed by the federal election.

“The primary objective is to make sure we get it right,” he said.

Massive federal funding would be needed to fund an agreement to get industry out of high-conservation value forests and into certified plantation timber.

Prime Minister Julia Gillard has endorsed negotiations between forestry industry representatives and environmental groups and said she would consider financing a restructuring of Tasmania’s forestry industry.

In his recent visit to Launceston, federal Opposition Leader Tony Abbott said he supported the forest industry.

“But for the Howard Government, I think its pretty clear that the forest industry would have died in Tasmania,” he said.

The Wilderness Society, Environment Tasmania and the Australian Conservation Foundation are representing the environment movement in the negotiations while the National Association of Forest Industries - whose members include Gunns Ltd, Forest Industries Association of Tasmania and Elders Forestry - and the Construction, Forestry, Mining and Energy Union are among industry delegates.

Story HERE