A rotting investment

When the accountants and financial planners put tens of thousands of their clients' dollars into trees planted and managed by Timbercorp and Great Southern, no one worried too much about harvesting the timber – that was around 10 years away.

The accountants were heroes for cutting their clients' tax bills and in some cases reducing family support obligations.

But now the potential horror of that lack of planning for the harvest is looming large because tree cutting time is approaching and the port facilities, roads and chipping plants are simply not in place to make the harvest an efficient operation.

If the Timbercorp and Great Southern official administrators can't create some competitive tendering for the forests, the value of trees maybe be hit hard by need to build facilities to get the timber out.

Portland is part of the Glenelg shire and its CEO Stuart Burdack had been expecting that the timber tonnages to hit Portland would rise from the current level of 1.5 million tonnes to around 4.5 million tonnes in 2012. The timber harvesting could be delayed a year, but any longer would represent bad forest management.

While it is possible to ship the extra tonnage through the existing Portland port facilities it would be inefficient and so the Portland port authority had planned to spend in the vicinity of $60 million to erect a port facility that would be managed by Timbercorp, Great Southern and Futuris. With two of the proposed managers now in administration the port authority has understandably deferred the project until long-term management of the forests is clarified.

The Timbercorp and Great Southern managed timber is mainly blue gum used in fine paper, with most of it going to Japan. Although the Japanese economy is weak, demand for blue gum timber is strong and the Japanese themselves are potential bidders. The most likely Australian group to take over the forest management and freeholds is Gunns which has extensive softwood forests in the region (Timbercorp's only hope, April 23).

You can transport the timber as logs, but it is very costly, so woodchipping is far more efficient. Neither Great Southern nor Timbercorp have erected chipping plants for the logs. Whoever takes over the management of the forests and ownership of the Timbercorp and Great Southern land on which the trees are planted will need to fund one or two chipping plants.

Similarly there is a network of roads and tracks required inside the forests – a task made more difficult because the trees were not always planted with efficient harvesting in mind. The forest managers/land owners will need to erect their internal tracks and roads and connect them with local council roads that will need to be upgraded.

The Glenelg and other councils will no doubt be talking to the timber companies about who should fund this upgrading. From there the timber goes to state and federally funded major roads. The plan to upgrade the major regional road network missed out on the 2009 federal budget and is listed among the 28 projects that are being further considered. That will be a very competitive process. The so called 'green triangle' timber road projects will not have any chance of securing federal funding until plans for all the other timber elements are in place – the chippers, the forest roads, the local roads and the port facility.

That is a large number of things to happen and it's hard to make them happen while companies are in administration. Yet the value of the timber depends on this infrastructure and optimum harvesting time will soon run out.

The accountants and financial planners who put their clients into these timber assets as a tax deduction now also face clients who have to repay loans to Timbercorp, Bendigo Bank and others (When financial advice backfires, April 24) and can see the value of their timber being harvested by the providers of the infrastructure and the new forest managers.