A secret deal by the former State Government to supply Australian Paper with timber at a discounted fixed price has shed further light on the financial vulnerability of the Maryvale Mill.
A Department of Treasury briefing, seen by The Express as supplied by The Age, reveals Maryvale Mill owner Australian Paper had failed to hand over $10 million that VicForests said it was owed.
In a significant concession to settle the stoush - which was described by one well-placed industry source as "an exercise in corporate socialism" - former agriculture minister Peter Walsh agreed to fix the price for the mill.
The November 2013 briefing details an agreement by Mr Walsh to a price cap for AP on wood supplied by VicForests.
A spokeswoman for Agriculture Minister Jaala Pulford confirmed a price cap had been agreed to by the former government, but said it was never "formalised or enacted".
"Australian Paper's account with VicForests is up-to-date and prices have been determined in line with the provisions and mechanisms set out in the wood supply agreement legislated by the Victorian Parliament nearly two decades ago," the spokeswoman said.
"The dispute between VicForests and AP was resolved and those negotiations concluded under the former government."
An AP spokesperson said the company would not comment on specific detail of commercial arrangements it had through local plantations, lower grade wood from VicForests and recycled wastepaper.
VicForests spokesman David Walsh said the account with AP had been paid in full.
He said pricing for Victoria's timber was set in legislation, ensuring VicForests received "fair market value" for its wood.
"This long-term agreement with a significant local employer is the envy of other states in Australia," Mr Walsh said.
Facing significant financial challenges from cheap paper imports and pressure from environmental groups to hasten its transition to sustainable wood supplies, the operation has recorded four straight deficits since its takeover by Japanese-owned Nippon Paper.
"We have now reached a point where without significant improvement to our cost structures, the ongoing competitiveness, and therefore, viability of our operations will be severely tested," AP chief operating officer Peter Williams said.
In March the company announced it was undergoing a major restructure, advising they were confident it would return the business to a path of "financial viability" next year.
Producing Reflex paper and several other products, the operation has suffered from growing consumer preference for environmentally-certified paper - something it has failed to achieve because it sources wood chips from the habitat of the critically endangered Leadbeater Possum.
The Treasury briefing reveals the former government agreed to use its "best endeavours" to achieve Forest Stewardship Council certification.
"AP believes FSC certification will improve the environmental appeal of its paper products," the briefing stated.
"This initiative (and the initiative to support Leadbeater Possum's habitat) demonstrates VicForests' focus on sustainable forest management."