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The impending closure of Heyfield sawmill has pitted senior federal ministers against each other, a premier, farmers and conservationists. By Karen Middleton.

Dispute over Heyfield logging deal pulls in senior cabinet

Environment Minister Josh Frydenberg and Deputy Prime Minister Barnaby Joyce.
Credit: AAP Image / MICK TSIKAS

In the federal government, Josh Frydenberg is, among other things, the minister for protecting wildlife and saving trees. In the agriculture portfolio, his Nationals colleague Deputy Prime Minister Barnaby Joyce is effectively the minister for cutting them down.

When Joyce launched his defence of Victoria’s Gippsland timber industry last week, he portrayed it as the state government “putting possums before people”.

“It seems an absolute absurdity that the Labor Party in Victoria are starving these forestry workers of their livelihoods,” Joyce told parliament. “They are not getting access to timber. Apparently, there is a greater fascination in Leadbeater’s possum than there is in the working men and women of Victoria, especially those associated with Heyfield.”

The Heyfield sawmill, Australia’s largest hardwood mill, is slated to close by next year, with the loss of 250 jobs, after its owners failed to reach agreement with the Victorian government over a new timber supply contract.

The government has also rejected the owners’ request for $40 million in assistance to keep the mill open.

The state Labor government offered access to much less native forest timber and over fewer years than Australian Sustainable Hardwoods and its parent company, the Hermal Group, believes is viable for its business.

It is also much less than the 155,000 cubic metres its current contract allows – the figure the previous Coalition state government promised would continue, before it lost office two years ago.

The mountain ash forests at the heart of the dispute are also home to the Leadbeater’s possum, which happens to be both Victoria’s emblem and listed as critically endangered.

On Sunday, Joyce injected the federal government into the Heyfield dispute, writing to the Victorian premier, Daniel Andrews, to ask that he reconsider the areas of forest already protected from logging and the further 200-metre buffer exclusion zones designated to protect the possum. He told Andrews it was imperative that the Victorian government commit to extending the five existing regional forest agreements across the state.

Joyce referred to what he called “the large amount of recent evidence regarding Leadbeater’s possum colonies detected in the Central Highlands region” – a claim that conservation groups say is a misleading interpretation of their surveys. Joyce said this went beyond the ash forests to snow gum and even fire-ravaged regrowth areas. On that basis, he said, he had asked Frydenberg to “review the threatened species status of the Leadbeater’s possum”.

This was news to Frydenberg.

Joyce’s letter to Daniel Andrews, which he released, was dated Sunday, March 26. The Saturday Paper understands that the letter Joyce sent Frydenberg arrived in the environment minister’s office 24 hours later. While neither will comment on the communication, they are believed to have had a conversation about it.

Joyce’s intervention puts Frydenberg in an awkward position. His current position is that the possum remains critically endangered. At any rate, the federal government can’t make a unilateral declaration that it’s not. The state government has to be involved.

On top of that, Frydenberg is overdue to make a ruling on a proposed recovery management plan for the Leadbeater’s possum, the marsupial having been thought extinct and only rediscovered in recent years.

The threatened species commissioner, Gregory Andrews, and an appointed taskforce has prepared the plan, which is with the environment department for assessment and has not yet been handed up to the minister.

The commissioner did not return The Saturday Paper’s calls.

But Barnaby Joyce’s letter to Daniel Andrews makes it clear he believes that while the conservation of the possum is important, he considers “the livelihoods of 21,000 Victorian forest industry employees and their families deserving of greater consideration and thought”.

So does the Construction, Forestry, Mining and Energy Union, which represents the timber workers there. The CFMEU and the Heyfield mill workers organised a hundreds-strong demonstration outside state parliament last week to protest the mill’s forecast closure and the loss of jobs.

With the mill owners preparing to shift their operations to Tasmania, Andrews is concerned about the workers’ jobs, too, and is offering to help the owners find a buyer or, failing that, have the state government buy the mill and transition it to using plantation timber, which is smaller in diameter and would require different equipment.

But it is the Nationals versus Liberals snafu that is arguably most intriguing, not least because it isn’t the first one involving the Heyfield mill. And the previous disagreement relates directly to why the mill owners say they are moving out.

Back in the lead-up to the 2014 Victorian election, when the state’s economy was stagnating as mining states boomed, the then owners of the Heyfield mill – struggling logging company Gunns Ltd – decided to sell. The Liberal–National state government couldn’t afford the closure of the mill and associated loss of jobs right before an election.

Enter the Hermal Group, whose owner Ronald Goldschlager comes from seven generations in the timber industry. Goldschlager agreed to buy the Heyfield mill for about $28 million. While Hermal won’t confirm all of the details, it is understood the timber in the yard alone was worth almost that much. Gunns wanted out, and it was effectively a fire sale.

In fact, actual fires had featured in the years prior – in 2003 and 2006-07, and then the horrific 2009 Black Saturday bushfires.

They had burnt out 36,000 hectares of the mountain ash forest, making it – according to some – a significantly diminished resource. How much impact the fires had on available future timber volumes – and how much it is the possum protection and state government resistance that is the cause – is now in deep dispute.

Hermal insists that in 2012 the mill needed a significant further capital investment to make it a long-term going concern.

And that, in turn, required some kind of assurance from the state government that if Hermal bought the mill, it would have access to enough of the remaining 80-year-old trees in the mountain ash native forest of the Central Highlands to turn the subsequent sawlogs into profit.

The assurance came in the form of what Australian Sustainable Hardwoods’ director, Clinton Tilley, recently called a “gentlemen’s agreement” between Goldschlager and the then Victorian primary industries minister, now state Nationals leader, Peter Walsh.

It’s understood Walsh indicated a contract would be forthcoming that guaranteed access to the timber via the government-owned forest managers, VicForests, and contained a compensation clause, should supply fall below the stipulated volumes in the future or the contract be cancelled due to a policy change.

On that basis, Goldschlager bought the mill in 2012 and sank $20 million into an upgrade. The company says many millions more were invested after that. The contract was duly drafted and signed by both VicForests and Goldschlager in 2014.

But when it reached then Victorian Liberal treasurer Michael O’Brien, he did not give it the required endorsement.

Exactly what transpired is not clear.

Coalition sources say it was only a timing problem – that it landed on the eve of the pre-election caretaker period and couldn’t be resolved fast enough.

Government sources suggest O’Brien believed the contract exposed the state to too much financial risk. They suggest he was not convinced the promised volumes could be supplied, meaning compensation could run into many millions of dollars for a long time.

He did not respond to a request for comment.

When the Coalition lost office, the new Labor government wouldn’t endorse the contract either.

Instead, it has offered a contract for just three more years, supplying 80,000 cubic metres in the first year and 60,000 in each subsequent year – significantly less than the 155,000 in both the current and the thwarted future contracts.

Australian Sustainable Hardwoods has rejected it. As a compromise, it wants the whole first year’s supply in seven months while the state government reviews its policy on the possum buffer zones via a more thorough examination of the animals’ numbers and habitat. The state government says no.

ASH and its parent company, Hermal, blame both governments for its subsequent decision to close the mill but have reserved special anger for the Nationals leader, Peter Walsh.

In a radio interview with ABC Gippsland on March 17, Hermal chief executive Clinton Tilley let rip.

“Peter Walsh allowed a contract to be signed with us and then did not sign the indemnity at the close of government, despite promises, undertakings and gentlemen’s handshakes,” he said. “That man, Peter Walsh – do not vote him back in, voters. He is the biggest liar you will ever come across and will lie and lie.”

Tilley told The Saturday Paper he had since apologised to Walsh, saying he was unaware of how hard the minister had tried to have the contract finalised. He now opts for time-related stuff-up over conspiracy.

Walsh told The Saturday Paper he accepted the apology. “Driving the frustrations is the fact that we all know timber is there,” he said. “It was there in 2014 and it is still there today. What is missing is willingness from the Andrews Labor government to reverse policy positions they’ve adopted since 2014, including their refusal to get on with review of the possum exclusion zones.”

Forty minutes after Tilley’s radio spray two weeks ago, Premier Andrews also took to ABC Gippsland, defending the current government’s position.

“There isn’t the timber there,” he insisted. “And I’m not prepared to put thousands of jobs at other mills [at risk], particularly at the Australian Paper mill. I’m not prepared to do that.”

At the time the blocked contract with Australian Sustainable Hardwoods was proposed, VicForests already had a long-term contract with another company, Australian Paper, which owns the mill at Maryvale and uses lesser-quality logs from the same forests to make pulp. Signed under the Kennett government in the late 1990s, that contract runs until 2030.

The Saturday Paper has seen a copy of the blocked contract, which was to supply between 125,000 and 155,000 cubic metres of timber every year from July 1, 2017, until June 30, 2034.

But VicForests’ corporate plan for the period 2013-14 until 2015-16 forecast a sharp downturn in available timber in 2017.

It outlined that VicForests was committed to harvesting “at sustainable levels” and intended to reduce that harvest to a total of 215,000 cubic metres of ash annually from 2017, covering all of its contracts combined. It believed this was appropriate “given the impact of the fires, the proportion of the resource that is likely to prove unprofitable to harvest, and the ongoing uncertainty of further reservation of forest for Leadbeater’s possum habitat”.

It said all available ash sawlog was committed until June 2017 and flagging the reduction four years out gave industry “sufficient opportunity to make appropriate business decisions”.

However, the Hermal Group insists that in a briefing in 2014, VicForests told the company that 70 per cent of the reduction on available volume was due to possum management issues, and only 28 per cent due to fire.

Hermal and Australian Sustainable Hardwoods insist there is still enough timber to meet the higher supply level and that it’s the possum protection that is the real problem.

Barnaby Joyce appears to agree. Conservationists don’t.

“Leadbeater’s possum buffer zones cover less than 3000 hectares, a measly 1.2 per cent of the 240,000 hectares of ash forest available for logging and a minuscule 0.16 per cent of the 1.82 million hectares of state forest allocated to VicForests for logging across eastern Victoria,” says the Wilderness Society’s Victorian forests campaigner, Amelia Young.

Gippsland conservationists are suspicious, too. They point to a “force majeure” – the legal grounds for breaking a contract without penalty.

“Any reduction resulting from bushfire could be considered force majeure under current Victorian government policy,” according to a briefing note prepared by Dr Chris Taylor, commissioned by the conservation groups Environment East Gippsland, Friends of the Leadbeater’s Possum and MyEnvironment, and presented to the federal government this week. “But reductions resulting from Leadbeater’s possum detection would not be under force majeure.”

In other words, if it’s the possums’ fault, the state government might have to compensate the company for its loss. The Saturday Paper has confirmed the blocked contract stipulates a policy change is not a force majeure.

A delegation of conservationists visited Josh Frydenberg this week to ask about the possum recovery plan, and press for it to be expedited.

“We have lost so much, with mills quietly closing, lives and livelihoods lost due to fires, and the last of the great forests disappearing on the back of log trucks,” says MyEnvironment director Sarah Rees. “Fighting to log what’s left is counter to regional economies as we need the forests standing to start our new chapter.”

It and the Wilderness Society are pressing for the establishment of a Great Forest National Park, arguing that preserving the mountain ash trees – which are also an endangered species – and facilitating tourism would boost jobs and the state’s economy more than the timber mills.

“Even if you don’t care about possums or trees, the Great Forest National Park proposal is better for the Victorian economy than logging endangered forests,” Amelia Young says. “People don’t go to visit logged clear-fells, they come to visit intact forests. The Great Forest National Park could draw almost 380,000 extra visitors a year to the Central Highlands, add $71 million annually to the local economy and generate 760 jobs with a little private investment.”

Young agrees with the premier that there isn’t enough timber there to service a contract for 155,000 cubic metres every year until 2034.

“Even the wood that is there is so contested,” she says. “It doesn’t have the social licence. Using mountain ash to make paper, roof trusses and window frames is along the lines of dealing in ebony, mahogany or endangered rainforest timbers.”

Some Gippsland farmers have also joined the anti-logging cause, concerned at the impact clear-felling of old forests and replanting has on the water table. Because the trees are fast-growing in their early stages, they use a lot more water than established forest, posing a threat to some farmers’ access to the resource.

Toolangi strawberry-runner farmer Gayle Cole says the previous state government promised VicForests would investigate how it could militate potential water reduction.

“They have done nothing to militate against that,” Cole says. “They continue to cut down our beautiful forest, our free water factory… This is the frustrating thing. It doesn’t seem to matter which government is in. It continues.”

Meanwhile, at the CFMEU-led protest on March 21, timber worker Adam Lockett said the mill’s closure would effectively shut down the whole Heyfield community.

“Within three to six months, the community of Heyfield will shut down,” he told Channel Nine. “The town relies – probably 80 per cent or 90 per cent – on the timber mill. Once it shuts, it will be the end of it.”

Barnaby Joyce is determined to stop that happening. Josh Frydenberg doesn’t want to see it, either.

But there are just the small matters of portfolio obligations, environmental concerns, a possum and a shrinking native forest to contend with.

This article was first published in the print edition of The Saturday Paper on Apr 1, 2017 as "Two men and a possum". Subscribe here.

Karen Middleton
is The Saturday Paper’s chief political correspondent.

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