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A new independent valuation of State forest assets will improve the transparency of Forestry Tasmania’s true financial performance.
The revaluation was initiated by the Board of Forestry Tasmania after the Legislative Council last year suggested greater transparency would be achieved by separating FT’s commercial activities from the non-commercial obligations imposed on it by the Forestry Act.
The Auditor General also raised the issue while auditing FT’s financial performance.
Managing Director Bob Gordon said the American based firm James W Sewall, which has significant experience and expertise in forestry valuations in Australasia, was appointed to undertake the review early this year.
Mr Gordon said the review found the valuation of the forest estate should be based on the value of the standing timber rather than the previous convention of using a combination of the value of the standing timber and the value of the land with roads reported separately.
“FT’s directors have accepted Sewall’s recommendation and as a consequence, the book value of land managed by FT has been set at zero, down from $277m. The zero valuation recognises that the land is not owned, merely managed by FT.
Mr Gordon said the consultants also recommended formal reserves and areas set aside for special species management should be recorded as a liability rather than an asset.
“By accepting Sewall’s recommendations, FT’s directors have agreed to write down about $300m in asset value, most of which is attributed to no longer using land values. This will be reflected in the annual accounts.”
“Sewall set the value of FT’s production forest at $362.5m, based on the commercial value of the standing timber.
“However, the formal forest reserves and the special timber zones are recorded as a $66m liability, because these areas cost more to manage than the amount that can be re-couped through commercial activity.”
“In annual terms, the $66m liability translates into an operating cost each year of about $9.3m.”
Mr Gordon said it was important to draw a distinction between the financial cost to FT and the economic and social benefit to Tasmania.
“While these reserves and special timber areas might be a financial cost to FT, they deliver significant economic and social outcomes for Tasmania.
“For example, special species timbers are iconic to Tasmania and a recent report estimated special species timber contributed $70m and 2000 direct jobs to the state economy.
“Likewise, the reserves generate tourism activity and are highly prized by campers, bushwalkers, mountain bikers and a range of other recreational users.
“By attributing more realistic asset values to the commercial and non-commercial assets, parliamentarians and the community more generally will have a clearer picture of FT’s financial performance and its return on assets.”
Mr Gordon said he appreciated that some in the community might see the revaluation as little more than an exercise in accounting – but from the Board’s perspective, it is fundamental to good corporate governance that a government business enterprise’s assets are correctly valued.
ENDS
2nd September, 2010
Download Documents:
Valuation of State forest, August 2010 [powerpoint converted to PDF]
Sewell Appraisal Letter [79kb PDF]
