Letter to Swedish firm Sodra about significant and undisclosed risks from investing in Gunns' pulp mill

12 July 2009
CEO Mr Leif Brodon
Södra, Skogsudden, 351 89 Växjö
Fax: 0470-891 85
Email info@sodra.com

Re: Significant risk to Södra’s bottom line from investing in Gunns’ planned pulp mill, Tamar Valley, Tasmania.

Dear Mr Brodon,
We write to point out a significant and undisclosed risk to Södra’s bottom line should the company decide to invest in Gunns’ pulp mill planned for the Tamar Valley, Tasmania.

It is unlikely that Gunns has pointed out their dependency on direct and indirect government subsidies because Gunns has neither reported on these in its Integrated Impact Statement and does not report the subsidies in their books. Given the scale of these subsidies, their potential loss to Gunns and forestry in Tasmania poses a significant risk to the future value of Södra’s investment as the global financial downturn forces governments to look for ways to cut back on expenditure.

The profitability of Gunns Ltd has long been artificially propped up with a wide range of taxpayer subsidies as listed in the Appendix below. A cash subset of forestry related subsidies have also been identified in an independent study by economist Graeme Wells.

The local community via its organisation TAP Into a Better Tasmania has estimated subsidies for Gunns and forestry in Tasmania and costs arising from the pulp mill project. These include losses to other businesses and the community of more than $3.1bn, one time diversion of taxpayer dollars of $399m (so far) and ongoing subsidies of $360m/year See Subsidies and the Appendix below for more detail.

The scale of many subsidies is not precisely known as there has been no socio-economic and environmental analysis of the pulp mill proposal or an analysis of cost side of a cost-benefit study. Neither has there been a risk assessment to Australian Treasury standards of the pulp mill project. Sweco Pic’s assessment of the project “does not include … noise emissions, impacts on surface or estuarine waters, effects on flora and fauna, transport implications and social and economic effects, and does not include construction impacts and does not include impacts from off-site infrastructure development such as raw water supply pipeline, effluent pipeline or quarry” (p12 Assessment of the Gunns Limited Bell Bay Pulp Mill Against the Environmental Emission Limit Guidelines, 25 June 2007)

There is considerable community disquiet about the assessment of the project with only 26% agreeing with the Government's fast-track process, 64% disagreeing and 10% unsure (8 August 2007 EMRS statewide poll. (See http://tapvision.info/node/413). Also, 26 of 27 opinion polls conducted from 2005 to the present show a majority of Tasmanians and Australians are opposed to a Gunns’ pulp mill in the Tamar Valley. Only one poll in George Town near the proposed pulp mill, showed majority support (53% to 47%) in February 2008.

Governments are coming under increasing pressure as a result of the global financial crisis to reign in spending, recoup costs and reduce subsidies in the face of backlash from voters who are increasingly angry with the loss of essential services. Some of these services include health, public housing, education services, disability services, road & rail funding, national parks and nature conservation.

The dependence on subsidies means that neither Gunns nor Södra can guarantee the future bottom line profitability of the proposed pulp mill. Professional business consultants have advised us that the most responsible decision for Södra is to wait until the scale and type of subsidies is clear and the risks clarified.

We welcome inquiries to provide further information about the financial risk to your bottom line from investing in Gunns’ planned pulp mill.

Yours faithfully

Tony Saddington

Spokesperson for TAP Into a Better Tasmania
Email mtdismal@bigpond.net.au
Web www.tapvision.info

Cc Evans & Peck, Sydney office
Fax: +612 9495 0520


Whilst it has not been possible to produce precise figures for all subsidies to Gunns and the forestry industry, it is clear that the level is very high. The global financial downturn and a decline taxpayer in funded support poses a significant risk to Södra’s future bottom line.

Some opportunity costs and subsidies for forestry and the proposed pulp mill include:
1. Logging operations (research, building and maintaining roads, bridges). Greater than $65m/yr.
2. Resource use (free water use by plantations, transportation subsidies for heavy truck traffic). $176m/yr.
3. Provision of infrastructure (rail, pipelines highway upgrades). One time costs = $376m, annual cost = $19m/yr.
4. Pulp mill project promotion, planning and review. One time costs = $14m.
5. Direct government assistance to logging industry (plantation establishment schemes, favourable loan agreements, economically inefficient pricing policies, taxation policies and direct and indirect financial assistance) over past 10 years = $632.8m.  See Graeme Wells report at (http://tasmaniantimes.com/images/uploads/WELLS_ECONOMIC_REPORT.pdf)
6. Indirect costs (health impacts on communities, losses to 2600 tourism and related businesses in Launceston and the Tamar Valley, loss of agricultural land to plantations, losses to 77 fine food and winery related businesses in the Tamar Valley, risks to Bass Strait fishing industry). Largely unknown but exceeds $1.1bn/yr.
7. Carbon trading losses ($165m/year).
8. Electricity subsidies (to Gunns and major contract users in the wood processing sector). Unknown.