Matthew Denholm

June 19, 2008

THE proposed Gunns pulp mill suffered a new blow yesterday as Tasmanian Premier David Bartlett refused to rule out ripping up a sovereign-risk agreement for the project.

The deal - struck under former premier Paul Lennon - grants compensation of up to $15million to Gunns should further forest protection affect wood supply for the mill.

The government under Mr Lennon had claimed the deal was a requirement of potential financiers of the mill.

A clause in the agreement states that it can be terminated if construction of the $2 billion mill proposed for the Tamar Valley, north of Launceston, does not begin “by June 30”.

Treasurer Michael Aird received a request from Gunns executive chairman John Gay on Monday to extend the agreement to November 30.

However, Mr Bartlett said yesterday he would not be rushed. He said cabinet would not consider the Gunns request until it had an opportunity to seek further advice - including on the project’s chances of proceeding.

This meant it would not be considered until the next scheduled cabinet meeting on June 30 - by which time the opt-out clause will have come into play.

Mr Bartlett did not commit to continuing the agreement on the same or any terms, and appeared to accuse Gunns of seeking special treatment.

“If the (mill) proponent thinks that they can write to a treasurer in any government that I am leading and get an answer on a $15 million question with two or three days’ turnaround, they are sadly mistaken,” he said.

“The company will certainly understand from my statements today that a decision this important will be considered with the full weight of data, evidence and knowledge. I believe that includes an understanding from the proponent of their view of the likelihood of their project going ahead.”

A Gunns spokesman denied the company had attempted to pressure the Government into a quick decision. “There is no need for the Government to rush into it,” he said.

The refusal to guarantee a continuing sovereign-risk agreement will make Gunns’s task of locking in a syndicate of mostly foreign financiers more difficult. However, Gunns insisted it was confident the mill would proceed.

In a further setback, The Australian has learned Gunns has now given up hope of the Government assisting in the construction of a 35km, $60 million-plus, taxpayer-funded water pipeline to the mill.

Gunns yesterday confirmed it had written to affected landowners seeking permission to install the pipeline on their land. Without the compulsory acquisition powers of government, this may prove impossible, as several landowners have refused to provide access at any price.

Redirection of the pipeline will add to the cost of the project, which has already blown out from $1.4 billion to $2 billion.

Potential investors may also be reluctant to commit until the conclusion of a Federal Court challenge to federal approval of the mill.