New flag flies over vast forest estate as search for buyer continues

By PAM GRAHAM

At 4pm on June 30, a flag emblazoned with a red stag was raised in Waiotapu, 30km southeast of Rotorua, to mark the management handover of one of the world's largest plantation forest estates.

The ceremony might have been completed with the lowering of a Fletcher Challenge Forests flag, but the company did not leave one behind when it moved out of the operations base for the Central North Island Forest Partnership the week before.

So the Timber Management Company flag went up to the skirl of bagpipes played by log manufacturing manager David Balfour, to mark the new management of 120 million trees.

The offices had been blessed earlier by Te Arawa elders.

When the Weekend Herald dropped in unannounced on TMC chief executive Russell Dale weeks later, the impression was of big tasks being tackled in a tight timeframe.

In an ageing prefab with budget furnishings at the Forest Research Institute campus in Rotorua, Dale's immediate task was making sure that the 2500 loads of logs moved every week were tracked by new information and accounting systems for the first month-end invoices to customers and payments to contractors.

"It's a big challenge," he said.

The CNIFP's total land area of 189,000ha is dominated by the 142,000ha Kaingaroa Forest, with Whirinaki to the east and the Horohoro, Rotoehu, Crater and Whakarewarewa Forests nearby and Marotiri, Pokopoko and Urutomo further afield.

The forests have previously been run by a Government department, state-owned company, private-sector partnership and receiver. They have been on the market for two years.

In Auckland property terms, the CNIFP estate would be like a leasehold mansion on Paritai Drive up for mortgagee sale with doubts about driveway access. Price US$650 million ($1.1 billion).

Dale believes it is the best forest property in the world. The climate is good, the location central, the transport links excellent and the trees are intensively tended to produce higher-value wood. The land is Crown-owned and subject to Waitangi Tribunal claims.

Dale said Fletcher co-operated in the handover and the resource had been well-managed.

Of the 3.1 million tonnes harvested each year, about one-third is committed to Silva, the new export log marketing company set up by CNIFP and Carter Holt Harvey.

Fletcher receives about 500,000 tonnes, the pulp and paper mills about 800,000 tonnes, Waipa sawmill 400,000 tonnes, and the rest is available to the domestic market.

Over time the forests' output has shrunk as a proportion of the national harvest, now more than 20 million tonnes a year, and that will continue.

The estate's long-term supply contracts give it more domestic customers than new forests coming up for their first cut.

The first Kaingaroa plantings were at Waiotapu in the early 1900s and much of the forest is now growing its third crop of trees.

There is no plan to sell the right to cut standing trees, known as a stumpage. CNIFP forests are on relatively flat land with a private road network, reducing harvesting costs.

Little information is available about the CNIFP's operation during its two-year receivership. The partnership was a venture between Fletcher and Chinese investment company Citic, after Brierley Investments exited.

Fletcher managed the forests in conjunction with its own plantations nearby, and obtained logs for its processing plants.

Dale refers questions about ownership and land access to receiver Ferrier Hodgson and gives no insight into long-term contractual arrangements beyond saying they are on commercial terms.

Michael Stiassny and Brendan Gibson, of Ferrier Hodgson, are on the TMC board. Its third member is Devon McLean, the forest division head at Carter Holt Harvey.

At one time Carter Holt was seen as a possible provider of services to a smaller TMC but that idea did not proceed.

Instead, TMC is doing all the forest tending, harvesting and domestic marketing of logs, including running a processing plant at Kaingaroa, log warehousing yard at Murupara and a nursery at Te Ngae.

TMC reports to CNIFP, which had no staff itself previously.

Setting up TMC is seen as a bold move when the CNIFP could be sold to an owner wanting a different forest manager, but the counter argument is that having a manager that is not a former owner and present customer - Fletcher was both - is a better look.

TMC has about 60 staff, 35 of them from Fletchers. The plan is to have 25 at the log processing site at Kaingaroa and about 70 others.

Dale knows the forests, having worked at Forestry Corp and Fletcher Challenge during a career that also included a Carter Holt stint.

Carter Holt is cutting its annual harvest of 6.4 million tonnes by 15 per cent because of the high dollar, rising freight costs and poor markets.

TMC is not changing the CNIFP harvest and Dale said it might even increase.

The company made its mark straight away when it stopped processing trees into logs at Murupara from July 18, with the loss of 32 jobs, because it was uneconomic as the cut moved south. Scaling of export logs is moving to Murupara from Kawerau.

Dale said TMC kept most of the contractors used by Fletchers and had encouraged them to hire former Murupara workers. He believed all but five had found work.