Unexplained: government business blocks release of information about mining debt write-off

A Tasmanian government-owned business has blocked the release of documents detailing why it wrote off a debt of almost $2.5 million owed to it by a mining company chaired by former Labor premier Paul Lennon.

Tasmanian Inquirer sought details under the Right to Information Act on why TasRail, a government business enterprise, failed to enforce the take-or-pay provision of the contract it had with Australian Bauxite. Paul Lennon has been chairman of the company since June 2014.

The mining company, which intermittently operates a small bauxite mine just outside Campbell Town, originally promoted the project as creating up to 180 jobs, paying hundreds of thousands of dollars in royalties to the government and delivering millions of dollars in revenue to TasRail.

None of these claimed benefits have come true.

Of 52 pages of documents (and here) identified in response to the request, the contents of 50 pages were entirely blacked out apart from the header and footer.

The only two pages with no deletions were from a public report Australian Bauxite provided to shareholders.

But the records reveal TasRail informed Treasury and the then infrastructure minister, Rene Hidding, before the government business wrote off its losses. The other shareholding minister at the time was the Treasurer, and now premier, Peter Gutwein.

Tasrail declined to release its communication with shareholding ministers about the take-or-pay provisions and the multi-million dollar losses incurred on the contract.

Under the terms of its four-year contract that ran from May 2015 through to May 2019, TasRail agreed to transport up to one million tonnes of bauxite to the port at Bell Bay.

TasRail was to invest in new infrastructure to have up to six new rail freight services a week running by early 2015.

While the exact cost of the additional investment remains unclear, Tasrail needed to hire open-topped containers, purchase new loading equipment for the Conara rail terminal, provide additional rail wagons and allocate extra staff. Tasrail also had to appoint a subcontractor to haul bauxite-laden containers by truck from the minesite to the rail terminal.

As a hedge against the risk of incurring up-front costs without guaranteed income, Tasrail’s contract included a ‘take-or-pay’ clause requiring Australian Bauxite to make a quarterly payment for freight capacity, irrespective of whether it shipped the contracted volume or not.

TasRail’s spokesperson, Neale Tomlin, told Tasmanian Inquirer the contract “included confidentiality clauses as is typical of any commercial agreement” and that these clauses limit “our ability to provide further information”.

TasRail’s slow-motion crash

When TasRail was selected by Australian Bauxite as the preferred transport provider in late 2014, the rail company stated it had “worked hard with the proponents to ensure that our service offering is competitive”.

“We will make money out of that business – not huge money, we do not make huge money out of any business”, Bob Annells, the chairman of TasRail, told an estimates committee hearing in December 2014.

The week after the first shipment in mid-May 2015 the then resources minister, Paul Harriss, told an estimates hearing the success of the mine was evidence that “Tasmania is open for business under the Liberal Government”.

However, the RTI documents reveal the Australian Bauxite chief executive, Ian Levy, wrote an email to TasRail in September 2015 headed “re minimum quarterly payment”. The contents of Levy’s letter, which came at a time of TasRail’s last bauxite shipment, have been entirely blacked out.

At a December 2015 parliamentary committee hearing into the performance of government business enterprises, Annells defended the contract as being “very commercial”, but added that TasRail also had “an economic facilitating role to play”.

Annells acknowledged that Australian Bauxite had breached its contract by shipping less than its minimum contracted volume, but argued that instead of sticking to “the black letter of the contract” the government body had taken “a more cooperative approach as a partner”. He said that included saying ”we are prepared to cut you some slack upfront because we believe in this project”. By mid-2016, TasRail had accepted that, despite Australian Bauxite having entered into a binding four-year contract, its mid-September 2015 shipment to Bell Bay was its last.

In its annual report for that year Tasrail disclosed (p. 11) that it had written off a $1.8 million loss on the project. In response to a request for clarification on the contract, Tasrail told Tasmanian Inquirer its estimated total loss on the project was actually $2.48 million.

Why TasRail declined to enforce the take-or-pay provisions of its contract and avoid a loss on the deal remains unclear. In mid-June 2016, Australian Bauxite told shareholders it had about $2.9 million in cash and tax credits from the Australian Taxation Office on hand.

TasRail said it decided against disclosing Australian Bauxite’s correspondence as it would “cause them competitive disadvantage.”

It declined to release its communication with shareholding ministers about the take-or-pay provisions and the multi-million dollar losses incurred on the contract.