Selling the rights to fell and sell timber to private operators could see the end of a profitable state company, a closure of many, if not all, of the nation’s private sawmills and a devastating blow to tourism due to restricted access. Moreover, the financial return on the proposed sale would only generate enough cash to pay three weeks interest on the nation’s debts. The proposal, quite simply, does not add up.
The Coillte branch of IMPACT trade union, which represents 600 workers at the state firm, is campaigning against the proposed sale. Since last November a coalition of other organisations joined forces with IMPACT’s Coillte members to form the Save Our Forests campaign. These include the Society of Irish Foresters, Birdwatch Ireland and Mountaineering Ireland.
The Coillte branch of the union also took steps to properly investigate the economic consequences of the proposal by commissioning economist Peter Bacon to weigh up the economic viability of the proposed sale. As it turned out, Bacon unearthed some uncomfortable truths.
No economic rationale
“The economic rationale for the proposed sale of Coillte harvesting rights no longer stands up and cannot be justified,” was Bacon’s ultimate assessment in his report. Assessment of the Consequences of the Proposed Sale of Coillte’s Timber Harvesting Rights, published in January, found that the State would remain liable for costs of €1.3bn following a sale of harvesting rights.
To cover these costs, Coillte would need to sell timber at €78 per cubic metre, which is “well above current or recent prices.” The average recent price paid for Coillte supplies to sawmills has been just over €43 per cubic metre.Bacon’s assessment concludes: “To generate a sale valued at €1.3bn would require an average price of €78 per m3. This is well above current or recent prices and there is no basis in these prices for assuming that this would be achieved.” This means that, rather than generating State income, a sale of Coillte harvesting rights would represent a substantial cost to the exchequer.
The proposal requires the State to continue to maintain the land the forests are planted on, despite the loss of profits currently generated by Coillte timber sales. The report says the overall result of the Government’s proposal would effectively liquidate Coillte as a viable, commercial entity. “Given the non-commercial activities of Coillte and the residual land and forest that would need to be managed, it should be seen as a proposal to restructure Coillte as a National Parks Service that will depend on a state subsidy to carry out its obligations.
However, no argument has been formulated to support such a move and, when viewed as such, the economic rationale for the sale disappears,” it finds.
Bacon estimates the costs of a sale of Coillte harvesting rights as follows:Loss of funds from Coillte profit flow at €565m; Coillte deficit funding requirementequalling €313m; economic cost of Coillte job losses, €19m; Coillte debt liability at €172m; Pension liability, €130m; and loss of amenity value at €105m. This totals €1,304m.
Bacon estimates the return on the sale of the harvesting rights at €774m. With an obligation to use half of the funds raised to pay off debt, as part of the Troika bailout agreement, this would leave €387m. Bacon concludes of this figure, “the funds raised would facilitate repayment of 0.2 percent of the total debt under this measure or provide 6.2 percent of the interest cost in 2012, about three weeks of interest. Clearly, from an accounting point of view, the impact is marginal almost to the point of being negligible.”
In addition to the very real risk of job losses at Coillte, there is also a substantial risk of job losses in the industries reliant on a strong supply of good quality domestic timber product. Bacon’s report says the proposed sale has the potential to disrupt the Irish timber processing sector, due to lack of certainty over future supply. It says job losses, which could arise in the processing industry if timber were exported without processing in Ireland, would add to future costs to the State.
“There are risks associated with this that go beyond the normal risks that can be associated with projections of timber prices. These include the potential to disrupt the processing sector, a possible cost factor that was not included in the assessment of costs. It is possible to envisage some options to minimise this potential, such as a piecemeal approach to the sale using a policy that could be soon reversed or a conditional sale, but it is unlikely that such options would have any real value in practice,” it finds.
‘Save Our Forests: The social, economic and environmental case against selling Coillte assets’, published in November 2012, says the plans could jeopardise up to 12,000 jobs in the Irish forest products sector, which is currently worth €2.2bn a year, including €286m in exports.
These risks were further highlighted in a special Oireachtas members briefing in February, organised by the Save Our Forests campaign, when Pat Glennon of the Irish Timber Council (ITC), the representative body for Ireland’s sawmills, addressed the issue from the perspective of the timber industry.
Mr Glennon said that the proposed sale of Coillte’s harvesting rights could lead to the closure of all ten of Ireland’s sawmills with the loss of 2,500 jobs. The ITC has published a new report, prepared by EPS Consulting, which finds that it makes no sense for the Government to proceed with the sale from a either a commercial, economic or financial point of view.
The loss of jobs in the wider timber industry would disproportionately affect rural communities throughout the country, where the prospects of replacement employment are minimal at best.
The inclusion of the wide range of leisure groups in the Save Our Forests campaign reflects very real concerns about restricted access to, and through, Coillte forests in the event that private operators acquire the harvesting rights.
Save Our Forests says prospective buyers, set on the commercial exploitation of timber, would be unlikely to agree to maintain “safe and optimum” access to forests without significant incentives “which are unlikely to be affordable at present.” This would severely restrict countryside access in Ireland, which has no public ‘rights of way’ over private land, and where 18 million visits are made to Coillte forests each year. This could also have a major impact on the tourism sector. Coillte estimates the value of tourism to these amenities at €270m each year.
Drawing on the limited privatisation experience of New Zealand, the publication says: “commercially-driven owners or concessionaires could not be relied on to interpret access liberally, or to undertake the expenditure necessary to maintain forest land for safe and optimum recreational use. It is impossible to imagine how the State could maintain public access to Coillte lands after harvesting rights were sold to private companies.”
Bacon notes, “Coillte owns most of the forests with the best amenity assets and has an open forest policy. In addition, it is actively developing facilities to improve the use of its forests for this purpose. It currently manages ten forest parks, over 150 recreation sites and three mountain bike facilities, along with over 50 percent of all off-road long distance hiking routes in Ireland. This is in some contrast to the approach of private plantation owners who have largely adopted a closed forest approach.”
Bacon also identifies that Irish forests do not have a clear physical separation between forests of amenity value and forests of commercial value, “Coillte forests with amenity values are mostly commercial plantations i.e. they have been planted, often with the more commercial species, with a view to eventual felling to realise the timber value”.
A good example of this cheek-by-jowl arrangement can be found in places like Ballinstoe, County Wicklow, where existing mountain bike trails weave in and out of areas where forest land has already been commercially harvested. Coillte’s open access policy means that a balance has been successfully struck between commercial and leisure activity. However, international experience suggests this arrangement would be unthinkable, and unmanageable, should private operators acquire the harvesting rights.
In such circumstances, the losses to local economies from reduced tourism activity are inevitable.
Lessons of state asset sales
Matt Staunton, National Secretary for IMPACT’s state enterprises division, sees the proposal to sell Coillte’s forest harvesting rights in the light of other State asset sales. Invariably, he says, the state has sold state assets “in haste, and then has been forced to repent at leisure”. Mentioning the example of the sale of Eircom, Mr Staunton said “the unseemly haste with which the company was sold, along with all of its essential infrastructure, has hindered the development of broadband in Ireland quite significantly. That failure has put a dent in our international competitiveness.” He added, “the company was then mercilessly stripped of its assets by several owners, and left with a significant debt. This was a profitable company with a leading edge on the development of mobile and broadband technology. It was squandered for short term gains.”
Matt points out that Coillte does not cost the taxpayer anything, but would immediately require ongoing state subsidies if the sale goes ahead. He is certain that the proposed sale runs similar risks to Eircom. “Looking at the lifespan of the proposal, fifty to eighty years, how could you ever be certain that the land would not be acquired outright by private interests? How could youensure that the forests themselves would not be harvested beyond what’s sustainable?”
“We have a fast growing, high quality sustainable crop, which was only made possible by decades of carefully skilled planning. To abandon such a profitable state enterprise, for three weeks worth of interest repayment and a legacy of maintenance costs, is a measure beyond desperate.”
Following a Dáil debate on the issue in February, Kildare TD Emmett Stagg was moved to say that the sale is now “most unlikely”. Minister for Public Expenditure and Reform, Brendan Howlin TD has acknowledged the work of the Save Our Forests campaign to highlight the issue, including the publication of the Bacon report. While the Government seems serious about factoring Bacon’s report into its considerations, the proposed sale remains a live option. Until a decision is announced, Coillte’s future hangs in
Niall Shanahan is a Communications Officer with IMPACT Trade Union.