Thursday, December 8, 2011

Forestry Tasmania is a Mess - Tony McCall writes for the Examiner

Read article in The Examiner

Buck must stop with forestry management

FORESTRY Tasmania is a mess.
A once-proud organisation retains significant high-level skills, administrative and silviculture management capacity, research and product development at its district level.
But its management regime needs to be finally held to account for its failures.
This is the challenge for state cabinet.
Next week's Government Business Enterprise hearings wrap up our parliamentary year.
GBE hearings are significant opportunities to test the capacity of GBEs and State-Owned Corporations to meet their legislative requirements under enabling legislation.
In the case of GBEs, the 1995 Government Business Enterprises Act was a significant reform intent on delivery outcomes that included:
- A clearer commercial focus for GBEs.
- Greater accountability for financial performance.
- Increased return on investment from each GBE.
- Payment of financial returns to the state.
- Improved services to clients and consumers.
Two GBEs have been anchors of Tasmania's political economy for generations - Hydro and Forestry Tasmania.
In 2011 their futures could not be more of a contrast against the outcomes outlined above. Both GBEs should be well-placed in a post-carbon economy but only Hydro has a financial and asset competitive advantage that might allow it to reap future benefits and opportunities on behalf of Tasmanians.
FT represents one of the least attractive aspects of Tasmania's political culture, building relationships of dependency on the back of monopoly power over our public forest estate.
Ironically, FT is a protected political species, despite the compelling evidence for reform.
These observations are informed by the Auditor-General's Special Report No. 100 examining the financial and economic performance of FT (July 2011) and Vol. 3, Report of the Auditor-General No. 5 of 2011-12 in part examining government business enterprises.
FT has immediate financial challenges - its cash flow had collapsed to $9.4 million on June 30.
FT is operating with a financing cash deficit of $9.7 million.
The Auditor-General notes: ``It is not sustainable for FT to generate negative cash from its operating activities.''
FT at board level appears to consider its ``going concern basis'' to be largely dependent on ``letters of comfort'' from government to reassure markets and the ever-present expectations - up until now - that the state government will provide ongoing support and adequate resources to allow continuation of operations.
The Auditor-General notes that in relation to the appropriateness of adopting the ``going concern basis'' his ``audit opinion is not qualified in respect of these matters''.
There appears to be a dispute over the liquidity of FT.
FT did not offer a dividend return in 2010-11, nor in the previous three years. Its negative cash flow is unlikely to allow it to continue plantation development.
Its equity has crashed from $548 million in 2008 to $147 million in 2011. Its return on assets in 2010-11 was 0.2 per cent against a benchmark of 5.2 per cent.
FT's management has a tendency to be arrogantly dismissive of criticism and deflect blame for its failures - it's someone else's fault. This is a Tasmanian government disease.
I paraphrase the sage analysis of the Auditor-General's July Report (page 3): ``Between 1994 and June 2010, FT's business and funding model did not keep pace with changes in its operating environment.'' Surely, it is too late to continue to invest in a failed FT.
Dr Tony McCall is a senior research fellow in the Institute for Regional Development and a lecturer in the School of Government, University of Tasmania

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