VicForests figures show state subsidy for logging

Thursday, February 13, 2014

Victorian state government enterprise VicForests tabled its annual report in parliament in October last year, revealing that, for the sixth year running, the corporation had failed to pay a dividend to the state for being allowed to log publicly owned forests.

Environmentalists say that on a commercial basis, this could mean VicForests now owes Victorians more than $61 million in unpaid dividends. An invoice for this amount was delivered to their offices in early November and copied to Peter Walsh, minister for agriculture and food security, and Ryan Smith minister for environment and climate change.

In January, Walsh responded to the invoice, basing his arguments on the auditor general’s report on the industry, tabled just before the Christmas break.

Environmental campaigner Steve Meacher sent Walsh the following open letter:

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Dear Minister Walsh,

Thank you for your letter of January 8, in response to mine of November 8, with which I attached a copy of an invoice to VicForests for unpaid dividends in the amount of $61 million.

I am pleased to note that you have now revised your estimate of employment in the native forest logging industry down to 2,300, in contrast to the gross overestimates that characterised your previous correspondence on the subject.

Thank you for including a link to the auditor general’s report, which I have already studied. Your claim that the report found VicForests manages public forests sustainably and productively demands closer examination.

Sustainability

In fact the auditor general did not conclude that VicForests’ logging is sustainable. He found only that logging is conducted, “within the current estimated sustainable harvesting rate and within the allowed areas”.

If the rate is set too high, or the allowed areas are too large, logging within those limits may not be sustainable. There is strong evidence that the current sustainable yield is at least four times too high.

The auditor general has also confirmed there is no evidence to support VicForests’ claim that its operations are sustainable because it regenerates the same area logged each year, as the corporation, “is not accurately reconciling its regenerated areas against its harvested areas”.

Further the audit states, “the Department of Environment and Primary Industries (DEPI) has not met its responsibilities to regenerate [a backlog of 37,400 hectares of unregenerated coupes], which is inconsistent with the sustainability principles and regulatory requirements of the Code of Practice for Timber Production.”

The auditor also found that the DEPI, for which you are the responsible minister, has continued to fail in its duty to oversee compliance within the industry, as noted in its previous audits, Administration of the Flora and Fauna Guarantee Act 1988 (2009) and Effectiveness of Compliance Activities: Departments of Primary Industries and Sustainability and Environment (2012).

DEPI’s “measurement of how forest values are maintained over time was poor.”

Productivity

The claim that native forests are being managed productively appears to be based on the conclusion that VicForests, “generates profits in most years”.

As you point out, minister, VicForests has achieved net profits of over $13.5 million over the past nine years. In fact VicForests’ apparent profitability is predicated on the receipt of grants from the government, which are included in the annual accounts under “Income”.

VicForests received grants in 2007, 2008, 2009, 2010 and 2011 totalling $24.75 million. Without these grants, VicForests would have generated profits in only three of nine years, 2005, 2006 and 2013. Its cumulative losses would now be more than $11 million.

You also note that VicForests has returned dividends in excess of $5 million. These dividends were paid in 2006 and 2007. No dividend has been paid in the last six years. $5 million represents a very small recompense to the state for $871 million worth of wood pulp and timber from publicly owned native forests.

In VicForests’ Corporate and Business Plans 2011-2014 it is stated that the company plans to pay dividends of 50% of the previous year’s profit. Given that the company declared a profit of $800,000 last year, it should therefore be paying a dividend of $400,000 this year.

So why is the board proposing, as you state in your letter, a payment of only $250,000? And what guarantee is there that even this will ever be paid? The 2011 annual report similarly flagged a proposed payment of $1.26 million but this has never been made.

You report the auditor general found that “VicForests does not receive government subsidies”. Given that, apart from the $24.75 million in grants already mentioned, VicForests receives free access to tens of millions of dollars worth of timber in public forests every year, I do not accept that such a claim can be substantiated in any meaningful sense. If the gift of almost $100 million worth of free timber every year is not a subsidy, what is?