Ms BURNET – Thank you, Mr Bugg, for that oversight and stepping through those bits of where we went wrong. Clearly, reading most of the information that we’ve been provided through scrutiny on Friday 24 November, where there was a lot of backslapping – this was going to be ‘the project to end all projects’ –
Mr BUGG – It’s sure done that.
Ms BURNET – I’m sorry?
Mr BUGG – I said it’s sure done that.
Ms BURNET – There was clearly overconfidence. We can rake over coals, and you’ve already said there’s a responsibility to the Tasmanian people.
I’m interested in the temporary berthing options for Spirits IV and V, and how they might be addressed. Only this week Spirit IV arrived in Leith. I’m curious as to what options and what ports in Tasmania ports were considered.
Mr BUGG – That needs to be considered in light of how we’ve had to look at it as a company. That is, do we bring it to Tasmania and dock it in a port or have it at anchor in a bay or a harbour, or a river, if we want to call the Derwent that. Or, having got it here, what’s the marketplace like for us to try and achieve, if we can, an income source from that vessel?
It’s pretty clear from the discussions we’ve had – and bear in mind this is all fairly recent because, until the decision was made not to proceed with the proposal to modify berth 1 to accommodate the new vessel, which I have to say –
Ms BURNET – I don’t think we need to go into that.
Mr BUGG – All right. As the interim chair of the company, I’m very grateful that that effort was made because, quite frankly, we don’t have the resources to go through the research that was undertaken. However, at the end of it, with disappointment, we could not practically or safely contemplate an alternative at berth 1. Therefore, we had to find –
Ms BURNET – I don’t think we need to –
Mr BUGG – No, but you need to understand why it’s proximate that we’re only now, closely and in some detail, examining what we can do with the vessel. Do we park it in Tasmanian waters and leave it there for 18 months? Because we’re talking about, at the least, having access to berth 3 completed to take freight and load and unload it, and passengers and load and unload it in October 2026. That’s almost two years. We’d have to get the ship out here some months before that to complete the fit‑out, which probably needs to be distinguished from ‘local content’, which has been joined together, but we can come back to that. So, do we bring it to Tasmania and leave it here where there really is no market and then meet the cost of taking it back to the northern hemisphere to try and obtain some charter or rental return on the vessel? It’s not cheap to sail a vessel that distance and it’s not easy to calculate a course when the Red Sea is as dangerous as it is, so we’ve got to come down the west coast of Africa. A course was calculated and the cost of that course roughly calculated with no degree of accuracy that I could sit here and tell you to the exact figure. We’ve got to move it to the northern hemisphere, keep it in the northern hemisphere and where’s the safest place? If we leave it in the shipyard at Rauma, it will freeze over.
Ms BURNET – Yes, I know all of that, Mr Bugg. That’s a very drawn-out answer. The question –
Mr ABETZ – The question was pretty drawn out as well.
Ms BURNET – The question was what ports were considered in Tasmania, and why is it over in –
Mr BUGG – I’m just explaining, I’m just trying to explain. If we brought it to Tasmania and there was no market, and it was sitting there, the member on your right would be on the front page of the Mercury every day saying, ‘It’s a disgrace that this vessel sitting here when it could be rented out’.
Ms BURNET – I’ll go back to the potential leasing of the ships. I’m curious – you’re talking about Europe as one of the main markets. Have you actually locked in any lease arrangement for the vessels?
Mr BUGG – No. In fact, the first decision you have to make is how you explore the marketplace. The best way to do that is to be represented by probably the broker who has the best coverage of the world markets. That was quite a lengthy discussion that engaged the board. You have to decide whether you make a step to go to a broker and say, ‘You’re the broker we want, what can you do for us’, and you build up expectations the moment you go to that person.
There are three levels of leasing or chartering. The first one is a time charter, the second is a voyage charter and the third is a bare boat charter. The bare boat charter involves handing over the vessel to the charter party and they then have it for the period that they will keep it under the charter and they will pay you the charter fee.
What are the impacts of that on your warranty, your insurance and other security and risk factors associated with the operation of the vessel? The voyage charter and time charter have much better protections for the owner of the vessel in terms of representation of the company on board, so you have to decide from the advice of the broker what guarantees you can get as the owner of the vessel.
Whilst this is a rambling answer, it explains why you can’t come up with an immediate answer. How much could we rent this car for in Tasmania is a very quick solution. How much could we rent this vessel for in the Mediterranean, or in the North Sea? Where and what will it be used for? Will it be used for freight and passengers or just passengers?
Ms BURNET – That goes to my second question, if I might have a second question this time, Chair, thank you?
CHAIR – You had a second question the first time, Ms Burnet; you just disagreed with me.
Ms BURNET – Given the timeline – it takes a long time to charter – will there be enough time to lease the vessel, given we want the vessel back in Tasmania and running once the infrastructure is in place in Devonport?
Mr BUGG -I think you have been eavesdropping on my last board meeting, because that is the very challenging question we are wrestling with at the moment – don’t bring it down here and try and make a decision about what you’ll do with it in the northern hemisphere. Leave it there in the short term. Make a decision, and on that decision either bring it to Tasmania and anchor it somewhere, or try and do something with it as you bring it out. Bring it out laden; it is a vessel that will carry freight. All those things are exercising the minds of the board. It will be our decision, but in the back of that decision is my undertaking to the Premier that our first choice will be to bring that vessel to Tasmanian waters.
Whilst we are thinking about it and trying to make the right decision from a company perspective, it is best to leave it somewhere safe and somewhere less caustic from the point of view of the climate than Rauma shipyard, so we’re in Leith. The feedback I am getting is that it’s a good advertisement for Tasmania, but it –
Mr WINTER – I’m not sure about that.
Ms BURNET – In relation to returning the vessel to Tasmanian waters, whether that’s for storage or just for service, would it be true that the longer you leave it the more costly it would be?
Ms SAYER – Sorry, to clarify, the longer we leave it where?
Ms BURNET – You talked about millions of dollars to bring the ferry home.
Ms SAYER – In Europe?
Ms BURNET – Yes. If you decided to sail it in two years’ time, would that not likely cost more to sail?
Mr ABETZ – I would imagine marginally, with the wage increases for the crew and cost of fuel going up. I dare say there would be those marginal costs, but it’s the opportunity cost of having the vessel in Europe and a potential charterer or lessee of the vessel, which is making or informing the decision that’s been made and if we can get for the Tasmanian people, hopefully, I don’t know, but many dollars more than the extra cost of sailing her out in 12- or 18-months time, that’s the economic decision. I’ll hand over to the CEO.
Ms SAYER – I would agree with that. It’s certainly not within our decision-making right here and now because we haven’t decided to leave it there for two years or we haven’t made the decision on a charter option at the moment, so I think the marginal costs of a potential increase, as the minister has identified, wouldn’t be a significant factor. It will be a factor when we present something to the board.
Ms BURNET – So, you haven’t made that decision –
CHAIR – Just before you move on, Ms Burnet, Mr Bugg just indicated to me that he wanted to add to the answer as well.
Mr BUGG – There’s a factor I want to put on the table so that you understand one of the tensions we face in looking at a new ship that’s arrived in just recent weeks and we’ve taken possession of it and the meter is now ticking on warranty. It’s got a 12‑month warranty. We’ve got to work it and operate it in some way to satisfy ourselves that everything that’s there is functioning properly, so one of the considerations that keeps pressure on us to do something is the warranty and the expiration of that 12‑month period. If it sits in a dock in Leith and we do nothing with it for a period of time, it eats into our warranty period. There are a lot of factors at play.
Ms BURNET – I’m sure there are. Twelve months is not a very long warranty, but subsequent to that question about bringing the ferry home, have you exhausted the local markets for charter, like New Zealand, more local?
Mr BUGG – New Zealand were interested for a short-term charter whilst they took a vessel to Singapore for dry docking. All up we were looking at taking it to New Zealand for three months, which was really not attractive to bring it all the way from the northern hemisphere for a three-month charter. There’s another company in New Zealand, which was planning what we’re doing, that is, infrastructure builds at the wharfs north and south and replacing with new vessels. The quote was $3 billion and the New Zealand government has withdrawn its support for that proposition. Was there an expectation we might get something there? There was. Nothing’s been forthcoming.
Look, we’re speaking publicly about a marketplace we’re trying to make discreet inquiries in at the moment. The only one that was of interest was New Zealand. It was when there was a dry docking occurring in Singapore.
Ms BURNET – I want to look at the Berths for New Vessels report, and it’s about Berth 3E. It looks at the TT-Line’s preliminary business case about leasing the new vessels to another operator until Terminal 3 becomes operational. It says:
By generating revenue through leasing, TT-Line could enhance cash flow and optimise asset utilisation, potentially allowing for a smoother transition once Terminal 3 is operational.
It goes on to mention warranties and maintenance, and possibly costly repairs. Then it says:
Overall, while leasing may offer –
Mr ABETZ – What page are you on, sorry?
Ms BURNET – Page 34, at the bottom. It’s really quoting the TT-Line’s preliminary business case:
Overall, while leasing may offer immediate financial benefits, the potential risks and long-term implications highlight why this option may be less favourable compared to the base case of storage, or the alternative case of upgrading Berth 3.
I am wondering how the board or TT-Line has done a matrix or risk assessment, because I can’t understand why one scenario might be to bring the ship here versus Leith as an arrangement. Can you take me through the thinking as to why those alternatives were proposed as better?
Mr BUGG – What was in the scales when we looked at that and made the decision to go to Leith really was – look, it’s a really good advantage to have a long sea voyage and run the vessel with a warranty period that is at risk of not having a full operational 12-month period. That brings it to Tasmania, but it takes a long way from what our perceived and actual feedback was: that the market for short- and long-term leasing is in the northern hemisphere. So, we’re taking it away from the marketplace.
The advantage of bringing it: a long operation. Leave it there in the short term to explore it, explore the markets, and if the market isn’t there, or it’s a market that we don’t feel justifies exposing the vessel to risk, exposing the vessel to wear and tear that we can’t achieve back from, if it was a bare lease, then there are real risks, which we were exploring at a board meeting this week. Quite frankly, I have to tell you I am not prepared to expose a valuable company asset such as that to any real risk.
They’re the things that were in the scales, which made us take it to Leith.
Ms BURNET – Following up from Mr Winter’s question about the number of crew required, if it were to be moored in Hobart, for argument’s sake, what would be the crew required, shore crew or shore staff required?
Ms SAYER – I wouldn’t think there’d be shore staff and crew. In terms of on board, there’d need to be a full complement of officers, if that makes – not the retail and hospitality crew that we have when we’re operating, but there’d need to be a full contingent of engineering crew.
Ms BURNET – A number?
Ms SAYER – I would suggest about 18 to have it laid up.
Ms BURNET – Thank you, Chair. To the acting chair, bigger ships have obviously been the order of the day, and I’m just curious to know, given the greater width of the ship – so, I believe Spirit IV has a 31-metre beam, and given that the Leith dock entrance canal is 31.6 metres in width, was that considered in relation to berthing it at Leith?
Mr BUGG – Yes, it was, and I had a wonderful description of it last night from Leith ‑ I say last night; the board meeting went for quite a while and that was from Dick Hall, our General Manager, Marine Operations. He said there was 300 millimetres on either side of the vessel as it went into the berth.
Ms BURNET – Oh my goodness.
Mr BUGG – Yeah. It’s calculated. He said he’s never seen such manoeuvring skills as was achieved from the person at Leith who was piloting the vessel in. It was under tow, as well, and these berths are in what is tidal water – sorry, it’s in still water. So, you’re not working with a flow challenge, but you are working with a real challenge. But, it was part of the risk assessment that was undertaken when it was determined that Leith would take the vessel.
Ms BURNET – Alright, okay. Well, there’s luck and there’s luck, I suppose, but –
Mr BUGG – Good management.
Ms BURNET – Minister, a question for you. So, I wrote to the Minister for Infrastructure on 9 October and received a reply from the next minister on 28 November, and in that letter, it stated:
In response to concerns raised regarding layup berthing rates at the Port of Hobart, the rates quoted by TT-Line are in line with TasPorts’ schedule of port charges. However, the schedule allows for negotiated rates for layout periods longer than 14 days upon application. TasPorts has not received any applications regarding negotiated rates from TT-Line. I am just curious to know why there wasn’t a quote asked for – and maybe it goes to the acting chair – but why there wasn’t a quote asked for in relation to berthing at Hobart?
Mr ABETZ – That is not within my knowledge base. I will defer to the chair if he knows something about that or the CEO.
Mr BUGG – There are two aspects to that question or two aspects to the answer and really, you have got to look at the date of the answer and could you repeat that again?
Ms BURNET – The answer came back on 28 November.
Mr BUGG – October – 28 November?
Ms BURNET – 28 November, this year.
Mr BUGG – One of the things we have to consider when we bring the vessel, the one that we are talking about in Leith to Tasmania, is that there is an unfinished fit out that has to happen. That involves some table tops, mattresses, numbering on cabin doors and artwork, all of which is not part of the $100 – up to $100 million commitment in the contract with Rauma. We have to contemplate the vessel being held in Hobart while that happens when it first comes to Tasmania. We may not have looked beyond that period of time, that is a fortnight, which is the sort of anticipated period, maybe a little longer than that. That is the first thing, if we are looking at quotes.
At the time that quote was first sought, we were just examining the likelihood that the options for the modified use of berth 1 were not available to us. It was to get a price indication, not a term of location indication, I think is the best way to describe that. That is the explanation and the acting CEO agrees with me.
Ms BURNET – Interim chair, I’m interested in knowing about the contracts awarded to Tasmanian and Australian firms. Could you describe how many contracts have been delivered, and how many, either completely as part of the build or fit-out?
Mr BUGG – I can’t answer that question but I know the acting CEO can, so I’ll deflect.
Ms SAYER – I don’t have the exact number. I’ve got lists of contractors, and I understand that we are going to supply through parliament – please correct me if this is wrong – a list of local content, what has been supplied under the RMC contract to date, but also what TT-Line has contracted and/or committed to, in terms of that fit-out. We will be providing the detail of that and the dollar spend to date.
Ms BURNET – Okay. Was that taken on notice or – how is that going to occur, minister? And that’s not my second question because it’s procedural.
Mr BUGG – It sounded like a question.
Mr ABETZ – I think that was in relation to an amendment to a motion in the House, moved by Labor – by Mr Winter, in fact; now my memory comes back – and I moved an amendment which you and Labor unkindly voted against but a majority agreed that we would be given until 10 December to provide that list. That was a vote of the House of Assembly.
Ms BURNET – Was that just for fit-out, or was that all the contracts?
Ms SAYER – My understanding is that was a point-in-time update on what has been spent in relation to meeting the commitment of up to $100 million of local content. That is my understanding of that agreement.
Ms BURNET – Okay. I’m curious to know if there were any conflicts of interest? How does a board look at contracts for Tasmanian companies and how do you declare conflicts of interest?
Mr BUGG – Thank you. That’s a question that – you’re all going to shudder – requires a slightly longer answer. If it was local content and it was up to $100 million between the two vessels – which was not a figure of our choosing, it was a figure that was put to us – and we imposed that clause into the contract with Rauma, it’s up to Rauma to negotiate and enter into the contract.
The fit-out contracts, which you quite rightly distinguished, are the ones that I was talking about – the mattresses, the artwork and so on – and they are contracts that have been negotiated between TT-Line and the suppliers. They follow an ordinary process of tender and assessment and evaluation, so I would have to say that if there was any potential conflict in those it would be examined, but the other contracts were between Rauma and whoever the supplying party was, be it here in Tasmania or on the mainland. I don’t know what steps they took to test perceived or actual conflicts, if there were any.
Ms BURNET – I wonder if you can take that question on notice, in relation to providing information –
Mr BUGG – What Rauma did?
Ms BURNET – No, information about how the board and senior management looks at any conflicts of interest in relation –
Mr BUGG – Generally, or in relation to these vessels?
Ms BURNET – In relation to these vessels.
Mr BUGG – So, that would be the fit-out contracts that we mentioned – that is, artwork, mattresses –
Ms BURNET – Well, no, it’s anything that was from a Tasmanian or Australian supplier.
Mr ABETZ – I think what the chair has explained is that there are two lots of contracts, and the first one is between the shipbuilder in Finland and Tasmanian suppliers, so that would be something that is negotiated between those two entities between Finland and Tasmania, over which – and correct me if I’m wrong – TT-Line would, of necessity, not have oversight until the end of the contract, when there has to be an accounting to TT-Line on whether the shipbuilder had fulfilled the terms of the contract for the local content.
Ms BURNET – Interim chair, I’ll go back to my previous question. Can you provide what processes were undertaken to ensure that there were no conflicts of interest with either board members or senior TT‑Line staff with the provision of fit-out and materials for the ship build?
Mr BUGG – I can provide you with the policy of the company as it applies to conflicts of interest or the details of the policy and as far as any contractual arrangement between the company and any person who may or may not have had a conflict or engagement which may have caused a conflict of interest. As I said, that limits me to the fit out because Rauma is the company.
Ms BURNET – I’m just about to get to that question. It’s my understanding that RMC were shrewd negotiators, they make ships all the time and have their own suppliers for the fit‑out and ship building. How is it that they were negotiating directly with Tasmanian or Australian companies? Was that at the behest of TT‑Lines?
Mr BUGG – Look, I don’t know the precise arrangements. All I know is that prior to this ‑ the acting CEO would know or have some understanding.
Ms SAYER – When the announcement was made or the commitment by the Premier at that point in time that there would be up to $100 million of local content included, that was included in the build. We did lobby very strongly to include the TT‑Line component of the vessel replacement project in that number but within the contract with RMC, the way that we could meet that commitment, is that we required RMC in their contracts to commit to up to $100 million of local content. That’s their build. TT‑Line have employed a procurement manager to work directly with RMC to try and facilitate that, obviously being local and based in Australia to try and support RMC to deliver on that contractual commitment.
In terms of RMC, RMC do the build, they engage with the contractors in terms of, say that TT‑Line might have over that, at a high level there is a makers’ list where TT‑Line can approve a list of suppliers that may be used, not in everything but at a high level. We could say as an example – I have to be careful what I say publicly – there might be an area where we would not want engines to come out of. For example, we could say no companies from that region would we accept on the makers’ list but it is up to RMC to determine who they use.
They do contract directly with local, being Tasmanian and/or Australian suppliers, if I can just add in terms of the question around conflict of interest. At every board meeting there is the declarations of any conflicts of interest and that has certainly been discussed in terms of the RMC building. Is there a policy associated with that? Is there a written policy in relation to conflicts of interest?
Ms SAYER – Internally, in terms of TT-Line, we have procurement policies that require declarations of conflicts and/or potential conflicts that need to be documented.
Ms BURNET – I wonder if you could take it on notice to provide that, please?
Ms SAYER – Yes, happy to.
Mr ABETZ – Yes. Taken on notice, Chair.
Ms BURNET – I am curious to know what checklist or matrix was utilised in order to determine value for money, good investment and warranty or life of products supplied to the vessels?
Mr BUGG – The new vessels?
Ms BURNET – Yes, particularly for the Tasmanian product.
Ms SAYER – If I can answer that in terms of – and again I think we’ve hopefully clearly articulated, there’s the RMC procurement and then there’s the TT‑Line procurement. We obviously have specifications for what TT‑Line procure. We know what we need, we know the marine grade specifications that we need. In terms of our buyer supply matrix, we have a number of criteria that needed to be met and then the recommendation comes back to us to say: this is what we need, we’ve assessed the different options and this is what we’re recommending that we procure, based on that.
Ms BURNET – Does that include value for money on Tasmanian products as well?
Ms SAYER – I’d have to have a look at the matrix.
Ms BURNET – Perhaps I could ask that that be tabled as well, or we can take that on notice, minister?
Mr ABETZ – Sorry, I was otherwise –
Ms BURNET – The procurement matrix for Tasmanian product.
Ms SAYER – I’m happy to take that on notice.
Mr ABETZ – If the CEO’s happy, I’m happy.
Ms BURNET – Thank you. On Page 30 of the annual report, there’s a table which looks at the asset revaluation recognised in profit or loss and it says that the improvements and periodic maintenance in 2023 was 9.812 deficit –
Mr BUGG – That’s millions.
Ms BURNET – Yes, $9.8 million, okay. In 2024, it’s $6.54 million. Can you just explain that difference please?
Mr BUGGS – I think one of them we had a dry dock, didn’t we?
Ms SAYER – Sorry, I missed the page number.
Ms BURNET – Page 30.
Ms SAYER – Is this the financials?
Mr BUGG – Second line, it’s the maintenance costs for the vessels. I think we did not have a dry dock that year. We actually berthed the vessel in Hobart –
Ms SAYER – Then we had two the following year, a dry dock and a wet dock before that.
Mr BUGG – So, you might remember the vessel was tied up in Hobart and that was because we’d lost our slot in the dry dock. The dry dock in Sydney is available for naval vessels as a matter of priority and we lost our slot that year so we did essential maintenance whilst tied up in Hobart.
Ms BURNET – Okay and in relation to – so, if we go to page 26 now in the financial assets, (b)(2), so we’re looking at the asset platform operating liabilities, the derivative asset for fuel and foreign currency hedge. So, the hedge fund arrangement was $10.8 million in 2023 and then in 2024, it was $0.7 million –
Mr BUGG – $785,000. I will happily hand that one to the CEO who was CFO when that happened.
Ms SAYER – So, I guess those move – they can be quite big movements in those balances depending on, I guess, the foreign exchange rate at the time, but also, as we were moving towards potentially utilising new vessels with a different fuel type, our hedged position was reduced to an extent so that we didn’t hedge a commodity that we weren’t going to use. So, that’s part of the movement. But there can be quite big swings in terms of how we revalue those.
Ms BURNET -It seems like significant swing. Are you concerned about that as a figure, a comparative figure?
Ms SAYER – No, we report on our hedging limits and values every month to the board and that’s in compliance with our risk mitigation strategies within our Treasury policy.
Ms BURNET – On pages 41 and 42, we come to the executive remuneration and we also have the director’s remuneration on page 40. I see that the former chair was on a pretty good base salary and over the course of the 12 months, there was a $23,000 overall increase in that arrangement. Can you –
Mr BUGG – Do you mean the former managing director, or – because we’re looking at executives, not –
Ms BURNET – The executive renumeration, so Mr Dwyer –
Mr BUGG – Yes, so not the chair.
Ms BURNET – Oh, sorry – Mr Dwyer, yes. My apologies. So, page 42 is 2023, and 2024 is the previous page – $23,000 extra. For all of the executive remuneration, there’s a total of $4 million. I’m very interested to know how this figure for the executive, like the CEO, is arrived at.
Mr BUGG – Well, it’s based on the Treasury guideline that we follow and we can’t exceed. In what sense? Any increase that occurred – I see that there was an increase in salary of $13,000, which represents about –
Ms BURNET – Which would have been considered by the board.
Mr BUGG – Yes, it is.
Ms BURNET – Did you have any concern about awarding an increase at that time?
Mr BUGG – No, it was consistent with increases that were being awarded across the board for CPI increments. This is not a bonus; that’s a salary increase.
Ms BURNET – It’s a very generous salary increase.
Mr BUGG – It’s about 3 per cent.
Ms BURNET – Thank you. I’m interested to know how many logging contractors are using the Spirit of Tasmania currently?
Mr ABETZ – I should have corrected the record. If only I could have known.
Mr BUGG – Could I take that on notice?
CHAIR – Time. You can take it on notice, but the time for scrutiny has expired. I thank everybody for their attendance.
