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Ben Butler – January 3, 2011

TAXPAYERS have been forced to fund a multimillion-dollar bailout of VicForests, with severe financial pressure putting the future of the government-owned company that logs state forests under a cloud.

VicForests’ operations are now being reviewed by the new Liberal-National coalition government, which says it will explore ”all management options” for the Victorian native timber industry.

Set up by the former Labor government six years ago, VicForests bled out more than $16 million in cash over the the 2009-10 financial year.

Advertisement: Story continues below To cover the shortfall, VicForests needed an extra $16.6 million in the form of a low cost loan from the Victorian Treasury, according to the logging company’s latest accounts.

VicForests would not have been able to declare a profit of $3.6 million if not for a $10.8 million government grant to cover the costs of salvage logging after the Black Saturday bushfires, and made a complex change to the way it accounts for logged areas that are returned to the state.

A senior analyst with a major financial institution, who asked not to be named, said VicForests was ”very much running out of cash”.

”It’s a business that’s completely non-viable and if it was a business that was standing on its own two feet without government support it would either be long-gone or guilty of insolvent trading,” the analyst said.

”Notwithstanding their cheap access to forests, there’s not enough cash flow to keep this merry-go-round going.”

Dr Judith Ajani, a resource economist with the Australian National University, said state-owned loggers such as VicForests had been left behind by a structural change caused by a move from native forests to plantation timber.

”What we’re dealing with here is state governments that simply won’t deal with an industry problem,” she said. ”They are propping up a fundamentally dead business.”

VicForests’ annual report shows that it has removed millions in expenditure from its operating statement by changing the way it accounts for regeneration – the cost of replanting logged coupes with seedlings.

While, in 2008-09, replanting cost $4.8 million, the latest set of accounts list regeneration expenses as $0.

But the company’s summary of financial results note ”substantial regeneration activities” among factors that ”contributed further to the negative cash flow from operating activities”.

”It is anticipated that this will return to a positive level in 2011,” the company says.

The report, one of more than 200 tabled by the former Brumby government on the same day in September last year, also shows that borrowings from the Treasury Corporation of Victoria blew out from $2.3 million to $19 million. All of the money is payable in the current financial year, but the terms of the loan can be extended by the Treasurer.

Agriculture Minister Peter Walsh, the National Party member for Swan Hill, said the government was ”committed to providing long-term security to the timber industry within a framework of world standard forest management practices”.

He said the Coalition would carry out its pre-election promise to reduce from three to one the number of government departments to which VicForests reports.

”The government is committed to implementing these promises and to exploring all management options that lead to an efficient and sustainable future for the timber industry,” he said.

”The government will review VicForests’ operations and it would not be appropriate to pre-empt the outcome of that investigation.”

Armed with a critical Treasury report into VicForests – which is yet to be made public – the former Labor Party had promised to abolish the company and replace it with a new entity.

Under the ALP plan the new body would have retained a commercial focus, but in addition to logging timber it would have been responsible for allocating water and carbon rights.