Can Tasmania afford North Broken Hill and friends?


By Chris Harris

HOBART — It seems there is but one rationale for any major new industrial development in Tasmania — jobs. If a new development will, apparently, provide jobs, then the assumption is that it must be good. This is the logic of the present government, the state opposition, and industry.

Unfortunately, no such conclusion can be drawn either from the current situation or from the history of industrial development in this state. If major industrial developments of the type proposed by North Broken Hill (NBH) were economic bonanzas providing large numbers of jobs, the areas with the heaviest concentrations of industry could be expected to be the wealthiest.

Tasmania, and specifically north-west Tasmania (which has the highest per capita concentration of industry in the country), would be among the wealthiest places in Australia. But Tasmania in fact has the highest unemployment of any state and the lowest per capita income.

The reasons are straightforward. Heavy industry is often capital intensive and employs few people in production. The benefits often come from employment in other, smaller firms supplying the large industries.

The trickle down effect usually works if the heavy industry is efficient, self-sufficient and competitive. If it is not competitive, and therefore requires government subsidies to stay in business, the benefits disappear.

In Tasmania, big industries such as Comalco, Electrolytic Zinc (EZ), Australian Pulp and Paper Mills (NBH) and Tioxide are not competitive unless subsidised. Money that government could use to boost small industry or provide job-creating services goes to keep open uncompetitive heavy industry that provides few jobs. Even though some small businesses rely on these companies, the economy as a whole is worse off.

Standard economic theory suggests that any item or commodity produced by public utilities should be sold at what is known as the marginal price — the cost of producing the last unit. Thus, energy should be sold at the price of producing power from the newest power station, or at least at the averaged marginal price.

If power is sold at the price of production in the oldest station, there will be insufficient funds to replace it with a new station costing many times more. This is what happens in Tasmania. The Forestry Commission, for example, places no economic value on trees that existed prior to logging, and therefore sells them at a hugely discounted historical price. But when it replaces trees, it must do so at the 1990s price.

This is why the commission consistently loses money and has run up a $450 million debt, which cost $50 million to service in 1990-91. If the commission sold trees at the marginal price, it would be profitable and would return money to the treasury, which could in turn jobs.

Similarly, the Hydro-Electric Commission charges heavy industry the price of producing power from old power stations. These stations were the best in the sense that they required less concrete to produce the same amount of power because the sites were better. Also, interest rates were lower.

This amounts to a subsidy by small business and private customers to large customers. Although Comalco, for example, correctly argues that it is paying the cost of production, this is the cost from the old power stations and does not cover the cost of replacing that station at 1991 prices.

Nor does Comalco pay its share of transmission costs and administration, which are, again, met mainly by small businesses and private consumers. Other subsidies include freight equalisation, road costs, rail subsidies and reduced royalties. In the case of the forest industry, total annual subsidies amount to $80 million.

Many people argue that the large industries are essential for Tasmania and that it is better to subsidise the industries and keep them here than have them leave. There is an assumption that heavy industry is an integral and necessary part of the Tasmanian economy, but this is not so.

Take the $80 million a year forestry subsidy. It the subsidy was removed, we could use that money to create 800 jobs in small business.

These jobs would probably create more indirect jobs than either pulp mills or woodchip plants, which have low multiplier effects. Even if a similar number of jobs were lost in those industries, we would still be better off overall, and we would still have the forests.

Of course, this is a simplified analysis of a complex picture, and a much more detailed analysis would be required, but it is possible that, contrary to public perceptions, Tasmania would be better off if most of the large companies left.

Unasked question

In regard to NBH's proposed new pulp mill, the government has not examined all the options. It has not bothered to ask whether a new pulp mill the right industrial development option for Tasmania.

The question can be answered only by examining the likely overall effects of a new pulp mill. These are:

l The continuing use of "old growth" (natural forest more than 100 years old) for pulpwood.

l Continuing subsidies through low pulpwood prices, rail and road subsidies, power subsidies and freight equalisation (subsidies on freight across Bass Strait).

l Provision of large amounts of additional state government infrastructure for housing, health and education for the NBH workforce. l Discharge of toxic organochlorines and resin acids.

In 1988 the state government commissioned a report which examined a range of benefits and costs from the construction of the proposed Wesley Vale Mill.

The report concluded that the construction of the mill would cost the state money overall, with the only benefits flowing to north-west Tasmania. Only 200 long-term jobs would be provided, at a cost of $2 million each.

Moreover, this report did not look at the likely impact of the proposed new Wesley Vale mill on existing operations, apart from NBH's Longreach woodchip mill, which it assumed would close. Nor did the report examine the economy-wide ramifications of the existing subsidies.

NBH currently has two pulp and paper mills, one at Burnie and one at Wesley Vale. Both are old, uncompetitive and dirty. The Burnie plant is one of Australia's dirtiest industrial operations.

The pulp produced at these plants is used in production of fine writing and printing paper and copy paper — the same product that will be produced by NBH's proposed new mill.

Apart from the existing long-fibre (Pinus radiata) pulp production, there is no economic rationale for the existing pulping operations to stay open, regardless of whether a new mill is built or not.

NBH public affairs manager Chris Oldfield said in February that if NBH did not get a new mill, it would close its existing plants. A new mill is likely to accelerate this process, with between 800 and 1600 jobs being lost depending on whether both the pulp plants and both the chip mills (Longreach and Triabunna) close, or only some or parts of these.

A new kraft pulp mill is likely to bring the worst of all worlds to Tasmania. With resource security, 80% of all Tasmania's remaining native forests will be dedicated to permanent logging zones.

This will include almost all the old growth, 20-30% of the north-west rainforests, 184,000 hectares of national estate forest and about 100,000 hectares considered by the National Parks Service to be of world heritage value. None of this areas could be removed from logging zones without compensation to the affected company and the consent of the Legislative Council.

In return, Tasmania would lose more than 800 jobs, get a large, polluting industry and be permanently locked into an increasing cycle of subsidies. This would further damage employment prospects elsewhere.

With 100 new pulp mills planned or under construction worldwide, and hundreds of thousands of hectares of plantation eucalypt on rotations as low as eight years now available in South America, it is unlikely that NBH's pulp mill will ever be competitive without continuing and increasing subsidies. This scenario has already been realised in NSW, where Harris-Daishowa says it will be economic to build a new mill only if royalties are reduced to zero.

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