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WOOD PROCESSING (WESBEAM) AGREEMENT BILL 2002
Introduction and First Reading


Bill introduced, on motion by Mr C.M. Brown (Minister for State Development), and read a first time.

Second Reading

MR C.M. BROWN (Bassendean - Minister for State Development) [3.12 pm]: I move -

That the Bill be now read a second time.

The purpose of this Bill is to ratify the agreement entered into on 11 August 2002 between the State, Wesbeam Pty Ltd as the project company and its holding company Wesbeam Holdings Limited as guarantor. The main purpose of the agreement now before the House is to secure the supply of pine timber to the company's proposed $80 million engineered wood products project - including laminated veneer lumber - at the Neerabup industrial estate near Wanneroo.
As the project is based on an investment cycle of an initial period of approximately 25 years, the company sought an assurance that during that period it could obtain a reliable supply of timber suitable for the production of its engineered wood products on reasonable and commercial terms from the State's softwood plantations on and adjacent to the

Gnangara mound and from other parts of the agreed timber supply area - being a geographic radius of 250 kilometres of the company's plant site at Neerabup. The company also wished to have the opportunity to obtain additional timber if it was available during that period and the right on certain conditions to the future supply of timber if it was available to the project.

The agreement was considered necessary by the company and the Forest Products Commission to meet those objectives as well as to ensure the issue of extra-mass and overlength vehicle permits or notices or both to enable the efficient cartage of timber to the company's plant site and of timber products from it to a ports railhead or road freight delivery point for sending out of Western Australia and to set and maintain appropriate zoning for the company's plant site and impose certain zoning restrictions on the surrounding land.

The engineered wood products proposed to be produced by the company are laminated veneer lumber, dry veneer plywood and I-joists. The agreement allows for approval to be given to allied products also being produced. The project's principal end product will be laminated veneer lumber, which is a high-value engineered wood product that the company will market as an alternative source of structural timbers to those currently provided by the State's old-growth hardwood forest resource. On a world scale, laminated veneer lumber production is presently concentrated in North America with some 15 plants located in the United States and three in Canada. Output of laminated veneer lumber has grown at a compound rate of about 17 per cent over the past five years.

Worldwide production was estimated at 2.3 million cubic metres in 2000, with Australian consumption currently in the order of 80 000 cubic metres per year. About 60 000 cubic metres per year is currently produced from a plant in South Australia, and the balance is imported. Although the company expects that most of the laminated veneer lumber produced by it to be consumed by the local building industry, it has also identified overseas markets for its timber products. The company's project will be based primarily on the State's long-established softwood plantations in the Gnangara to Yanchep region for the initial years of development. Timber will later be supplied to the project from plantations in the south west of the State. The progressive clearing of the Gnangara pine plantations over the next 15-20 years to support the project and the re-establishment of native bushlands will result in a lighter draw down on the Gnangara mound aquifer, which is an important source of potable water for Perth. This is an important part of the State's plans to protect the Gnangara mound ground water resource.

The project may provide a future market for pine plantings that may be undertaken to reduce the effects of salinity on agricultural land in the State. The project will provide considerable benefits to Western Australia that accord strongly with government policy. It will be a catalyst to bring forward development of a planned 1 000-hectare industrial estate at the Neerabup estate together with major services, which will assist in attracting further industry to the estate; establish an employment centre in the northern corridor; introduce new technology and skills to Western Australia; and generate revenue for the State over the life of the project.

The agreement commits the State to introduce and sponsor this Bill in Parliament to ratify the agreement and endeavour to secure its passage as an Act prior to 26 September 2002 or such later date as the parties agree. Once the Bill is passed and commences to operate as an Act, the State is obliged to ensure the commission enters into a production contract with the company in the form now tabled and, for the term of the agreement, supplies timber to the project in accordance with that contract and offers additional timber - if available - to the company in accordance with the rights set out in that contract.

[See paper No 165.]

Mr C.M. BROWN: The agreement also provides a mechanism for a subsequent 25 years supply of timber - if available - to the project, subject to the company meeting certain threshold requirements to obtain the right to that further supply. Those requirements, consistent with the State's strategy to use reforestation for environmental and economic purposes, include the company investing in planting trees suitable for the production of its timber products.

On its part, the company commits under the agreement to build and operate its project plant at the 10-hectare site at the Neerabup industrial estate that it has agreed to purchase from LandCorp for the purpose, and to enter into the production contract with the commission. The option it has negotiated with LandCorp to acquire an additional five hectares adjoining that plant site will enable it to expand its operations in the future if it so wishes. The company is in the process of confirming key markets, finalising its financial requirements, selecting a technology provider and constructing contracts. It has received approval under the Environmental Protection Act for the plant. Wesbeam has commenced discussions with the Industrial Supplies Office with a view to preparing an Australian industry participation plan. Some specialist pieces of machinery will need to be imported as they are not available locally. Otherwise, the project is expected to achieve a high level of local content.

I now bring to the attention of the members of the House the specific clauses of the schedule to the agreement Bill before them. Clauses 1, 2 and 3 deal with the definition of terms used in the agreement, certain interpretations of references and powers contained therein, and the initial obligations of the State with regard to ratification of the agreement and the coming into operation of the agreement.
Under clause 4, the company is obliged to begin construction at the Neerabup site by 31 December 2002 of a plant capable of processing not less than 160 000 cubic metres per annum of pine timber into laminated veneer lumber and

other timber products, and within two years thereafter to complete that construction and commence operations. In constructing, establishing and operating its plant the company must comply with all statutes, regulations and by-laws and the requirements of any relevant public, local government or other authority.

Clause 5 deals with the supply of timber to the project during the term of the agreement. It provides that the State will ensure the commission enters into the production contract with the company and, during the specified period expiring 30 June 2029, makes available for supply to the company at its plant site from within a geographic radius of 250 kilometres of its plant site up to 4 120 000 cubic metres - or such lesser quantity as is agreed between the commission and the company - of timber in accordance with the log specifications, at the prices and upon the other terms and conditions agreed between the company and the commission in or under the production contract. The timber supply to the project includes the entire balance of resource available in the region.

Under the production contract, 120 000 cubic metres is to be made available during an initial period - being from when the Bill to ratify the agreement commences to operate as an Act, or such other date as the company and the commission may agree, up to 30 June 2004. The balance is to be made available during the 25-year period from 1 July 2004 to 30 June 2029. The notional wood supply during that 25-year period is based on an average of 160 000 cubic metres per annum. The company will also during the above period have certain rights to an additional 90 000 cubic metres per annum of timber - if available within a geographic radius of 250 kilometres of its plant site - of wider specifications than for timber to be supplied under the production contract. The company's rights to available additional timber, as defined in the production contract, will comprise both a first right of refusal to be offered such timber if the commission wishes to sell it and a right to be offered such timber if a notification from the commission of available additional timber - which will be given at least once a year prior to 30 November, commencing in the year before 1 July 2004 - discloses that a certain quantity is available over a certain period.

The commission will determine the availability of additional timber in accordance with the provisions of the production contract. In making those determinations, the commission will be required to first allocate any available timber to certain categories of priority timber supply agreements. The categories include all agreements for the supply of timber by the commission or the State in force on the date of the agreement or which, as at that date, were proposed to be entered into by the commission, as notified in writing by the commission to Wesbeam Pty Ltd before the date of the agreement. Notification was provided by the Forest Products Commission to Wesbeam Pty Ltd by letter dated 9 August 2002. Subject to certain restrictions and exceptions, the priority agreements can be extended or renewed from time to time, and they can also be replaced for the purpose of continuing supply to a timber processing operation. While the provisions restrain the commission's ability to enter into new agreements with third parties after the date of the agreement, they do allow the commission to sell to third parties timber forfeited by the company or available additional timber that was offered to and rejected by the company. Additional timber to be made available by the commission will be provided under separate commercial contracts - concurrent contracts - to be entered into by the commission with the company. The commercial terms of any concurrent contract are outlined in the production contract.

The modifications deemed to be made to the Forest Products Act 2000 for the purposes of the agreement in respect of the production contract and each concurrent contract, as laid out in clause 5(3), are to clarify any doubt as to the capacity of the commission to enter into those contracts that could arise due to features of that Act. The deemed modifications will ensure the capacity of the commission to enter into those contracts to make timber available for supply to the company from the Gnangara pine plantations and state forests south of Perth beyond the term of the current relevant management plans for those areas. Those plans are currently the respective regional management plans - 1987 to 1997 - for the northern forest region and the central forest region. Their replacement is expected in the near future, but the term of any replacement plan can be only 10 years. The deemed modifications will also confirm the validity of the proposed pricing provisions, including the mechanism that will generally link stumpage rates to the market prices the company receives for its timber products. Given the long-term nature of the contracts, it is important that pricing provisions be confirmed from the outset.

Clause 5(5) provides on certain conditions and with certain exceptions that if during the term of the agreement the commission or the State is a party to an agreement that provides for the supply to a third party, from within a geographic radius of 250 kilometres of the plant site, of timber meeting the specifications applying to timber to be supplied under the production contract, and delivered at prices to the third party more favourable on the whole than those under which the company will be supplied during the same period under the production contract or a concurrent contract, as the case may be, the State will ensure that the same prices will be made available by the commission to the company. The principal contract conditions that apply are -


the third-party supply must be for 50 000 cubic metres or more of the timber over a period of five or more consecutive years, or 10 000 cubic metres or more of the timber in a 12-month period, to produce, or which the commission is reasonably satisfied the third party uses or intends to use to produce, one or more timber products for sale in Western Australia that the company is authorised to produce under the agreement; and
the more favourable delivered price to be made available to the company will apply for only the same quantity of timber and contract duration as the third party's supply or until the third party's timber specifications nolonger meet those applicable under the production contract or the contract under which the company has the benefit of the more favourable delivered prices expires or determines.

The provisions of clause 5(5) will not apply in the following circumstances -

the third-party agreement was entered into via a tender process that was open to the company;
the third-party agreement was in place prior to the agreement - unless it is expressly varied after the date of the agreement to provide for the supply of timber at delivered prices to the third party more favourable on the whole than those under which the third party was being previously supplied, in which event it will be subject to clause 5(5) as provided in the agreement;

the third-party agreement is with a third party that is or becomes a related body corporate of the company or is a director or secretary of the company or of a related body corporate of the company; or

the third-party agreement is for the supply by the commissioner or the State of timber that is to be sent out of Western Australia.


Clause 6 deals with future timber supply for the project. It provides, subject to and in accordance with the conditions set out in that clause, for up to a maximum quantity of 250 000 cubic metres per annum of timber of agreed specifications, if available within a geographic radius of 250 kilometres of the company's plant site, to be made available by the commission for supply to the company for a subsequent 25-year period commencing on 1 July 2029. Such future supply will be under a new contract to be negotiated at the time between the commission and the company. If at 1 July 2027 -

the company is not in default under the agreement, the production contract or a concurrent contract;
the minister responsible for the administration of the Act ratifying the agreement is satisfied that the company has spent not less than $1 million per year - or such lesser amount as the minister determines reasonable in the circumstances - during the period commencing on 1 July 2009 and expiring on 30 June 2027, on the planting within a geographical radius of 250 kilometres of the plant site of timber suitable for the production of the company's timber products to provide timber for its plant during the subsequent supply period; and

the commission has determined there is available future timber - as defined in clause 6(1)(a) - for supply to the company during the subsequent supply period,


the State must ensure that the commission, as soon as practicable after 1 July 2027, enters into negotiations with the company for the second supply contract. The availability of such timber for the subsequent period is to be determined by the commission as at 30 June 2027 in accordance with the provisions of clause 6(1) of the agreement. To secure rights to the maximum quantity of available future timber, the company's plant will need to have been processing at least 90 per cent - or such other percentage as the minister and the company may agree in writing is appropriate in the circumstances - of the agreed quantity specified in the agreement being, with specified exceptions, the aggregate quantity of timber made available by the commission for purchase by the company during the five-year period - or lesser period agreed between the company and the minister - leading up to 30 June 2027. Failing that, the company will be entitled to only the quantity consumed in the five-year period - or lesser period - mentioned above unless the minister otherwise agrees. The specifications for available future timber will generally be consistent with those at 30 June 2027 for timber being supplied under the production contract. Lower specification timber may also be provided if the company has purchased a certain quantity of it under concurrent contracts during the five-year period - or lesser period - mentioned above or if the minister otherwise agrees.
Clause 7 relates to maintenance and upgrading of public roads that may be used by the company for the purposes of the agreement. Transport permits are dealt with in clause 8. This clause requires, subject to observance of all statutory requirements as referred to in it, the Commissioner for Main Roads to issue extra-mass and overlength vehicle permits or notices or both appropriate to road transport routes as may be required to enable the efficient cartage of timber to the company's plant site and also such extra-mass and overlength vehicle permits or notices or both appropriate to road transport routes that the Commissioner of Main Roads reasonably determines are required to enable the efficient cartage of timber products from the company's plant site to a port, railhead or road freight delivery point for sending out of Western Australia.

Clause 10 requires the State, after consultation with the relevant local government, to set and maintain appropriate zoning or use protection for the plant site during the currency of the agreement. It also imposes certain zoning restrictions on the surrounding land. Clause 12 allows the company, with the consent of the minister responsible for the administration of the Act ratifying the agreement and subject to the provisions of that clause to assign, mortgage, charge, sublet or dispose of the whole or any part of its rights and obligations under the agreement or its land purchase or option contracts with LandCorp to another person. The minister may also consent to the company's plant site being used wholly or in part for purposes other than those of the activities of the company under the agreement.
Clause 13 allows the parties to the agreement to add to, substitute for, cancel or vary all or any of the provisions of the agreement from time to time for the purpose of more efficiently or satisfactorily implementing or facilitating any of its

objects. The variation must be tabled in each House of Parliament and may be disallowed. Under clause 16, the agreement may be determined due to a number of events, including: the production contract or if a concurrent contract is terminated by the commission in accordance with its provisions before its agreed expiry date; the company makes default which the State considers material in the due performance or observance of any of the company's covenants or obligations in the agreement, the production contract or in a concurrent contract or abandons or repudiates its activities under any of them and such matter is not remedied within 180 days after notice from the State to do so, or if the matter is referred to arbitration within the period mentioned in clause 1b(3); the company does not complete its purchase of the Neerabup plant site from LandCorp; and, the company at any time ceases to operate its plant for a continuous period of more than 12 months without the consent of the minister responsible for the administration of the Act ratifying the agreement. If the state agreement is determined, the commission may determine the production contract and concurrent contracts.

Clause 23 provides for the company's holding company Wesbeam Holdings Limited to guarantee its obligations under the agreement, the production contract, concurrent contracts and its contact with LandCorp for the purchase of the plant site. Clause 24 provides for the term of the agreement to expire on 30 June 2029, unless it is determined sooner in accordance with the agreement's provisions. Clause 25 relates to the possible entering into of a new agreement between the company and the State. It provides that if the State is reasonably satisfied at the time that a further agreement with the State is required to assure to the company the supply during the further term of timber to be supplied to the company in accordance with clause 6, and the company is not then in default under the agreement or the production contract or a concurrent contract. The State will not later than 18 months prior to the expiration of the term of the agreement enter into negotiations with the company for that purpose. Clause 26 provides a stamp duty exemption for two years on the agreement, the production contract, the land purchase contract and concurrent contracts entered into within that two years.

I have outlined the significant features of the agreement contained in schedule 1 of the Bill before the House. The remaining provisions are similar to those of other state agreements and do not require any additional comment. I commend the Bill to the House.

Debate adjourned, on motion by Mr J.L. Bradshaw.