Victorian native forest timber offered at discount price to Japanese mill

17 July 2015

Australia Paper Morwell site

Australia Paper worker Darrin Canning at the Morwell site. Photo Jason South

Victoria's native timber was offered to a Japanese-owned paper mill at a discounted fixed price as part of a secret government deal to end a protracted multimillion-dollar dispute over unpaid debts.

A Department of Treasury briefing obtained by Fairfax Media reveals Gippsland-based Australian Paper – the state's largest wood customer – 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 fix the price for the mill.

The Australian Paper facility in Morwell

The Australian Paper facility in Morwell. Photo Jason South

"As part of the agreement between government and AP to resolve the dispute, the minister agreed to a price cap for AP on wood supplied by VicForests," the November 2013 briefing to former treasurer Michael O'Brien says.

Australian Paper, which employs 1250 people and is Australia's only manufacturer of office paper, is in financial strife, having notched up four consecutive years of losses.

The company's chief operating officer, Peter Williams, recently said the situation had been driven by tough economic conditions and a "flood" of imported paper from Asia, suggesting the mill was  in danger of closing.

"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," Mr Williams said.

But the company, which is fully owned by Japan's Nippon Paper Industries, is critical to the native forest timber industry, being the largest customer of wood from the state's central highland forests.

Central highlands logging is also the most profitable operation in the state and is being used by VicForests to cross-subsidise timber cutting in East Gippsland, where it has been making multi-million dollar losses.

Australian Paper, which produces Reflex paper and several other products, appears to have also 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 says. "This initiative (and the initiative to support Leadbeater Possum's habitat) demonstrates VicForests' focus on sustainable forest management."

In a written statement to Fairfax Media, Australian Paper said it had several supply contracts covering local plantations, lower grade wood from VicForests and recycled wastepaper. "We value all of these suppliers and won't comment on the specific detail of these commercial arrangements," the statement said.

A spokeswoman for Agriculture Minister Jaala Pulford confirmed a price cap had been agreed to by the former government, but said this was never "formalised or enacted".

A Coalition spokesman declined to comment, saying it was a matter for the current government.

The briefing also reveals VicForests "has problems with ongoing overdue debts from customers, due in part to poor industry conditions".

VicForests spokesman David Walsh said the account with Australian Paper 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.

Industry sources told Fairfax Media there was  long-standing concern within the government about the viability of Australian Paper. Negotiations over resolving the outstanding debt and the cap on wood prices would have been taken in that light, industry sources said.

One source also pointed to Australian Paper's demand that VicForests obtain green credentials for its operations – known as Forest Stewardship Council certification. A leaked copy of VicForests' 2013-14 corporate plan says Australian Paper wants the certification in place to help it win back lost sales for its Reflex paper brand.

Darrin​ Canning, a full-time maintenance worker at Australian Paper's Maryville Mill, in Morwell, says the viabilty of the mill is "crucial to the fabric of the Valley. We've got 830 direct employees and over 2500 indirect employees, and then the flow on effects of that to every other small business in town. Schools, doctors in surgery - everything would be affected if we were not here."

 

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