UNCORRECTED PROOF ISSUE

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1 Wednesday 4 December Legislative Council - Government Businesses Scrutiny Committee B - TT-Line Company Pty Ltd - Pages 1-38 LEGISLATIVE COUNCIL GOVERNMENT BUSINESSES SCRUTINY COMMITTEE B Wednesday 4 December 2013 MEMBERS Mr Dean Mr Finch Mr Gaffney Dr Goodwin Ms Rattray (Chair) Mrs Taylor IN ATTENDANCE Mr O'Byrne, Minister for Infrastructure Ministerial Office Ms Janine Arnold, Adviser Mr Clancy Dobbyn, Head of Office TT-Line Company Pty Ltd Mr Michael Grainger, Chairman Mr Charles Griplas, Chief Executive Officer Mr Stuart McCall, Chief Financial Officer Mr Kevin Maynard, Company Secretary The committee resumed at a.m. CHAIR (Ms Rattray) - Minister, welcome. We also welcome Michael and Charles to the table. TT-Line is a very important part of the Tasmanian landscape. We heard yesterday that it is the most recognised brand with the ships sailing into Melbourne carrying passengers from all over Tasmania in the tourist season. That was very good information. We know how important it is but when you hear from Tourism Tasmania that it is the most recognised brand it reinforces its Wednesday 4 December TT-Line 1

2 value as an asset and what it means to Tasmania. I am sure you are going to inform us more, minister, about what the TT-Line does, so I will ask you to make some opening statements. Mr O'BYRNE - Thank you for the opportunity, Chair. I am very pleased to have the opportunity to meet again with the committee in relation to this very important asset to the Tasmanian community. Under the strong leadership of Mike Grainger as chair and Charles Griplas as CEO the TT-Line Company has recorded its seventh successive year of operational profitability. This is an excellent outcome given the business is operating in a very highly-competitive market. Underlying operational profit before tax in was $15.2 million and the net profit after tax was $12.7 million. I note that a key input into this financial result again comes down to the valuation of the vessels and a decrease occurred from 74 million to 65 million - the ships are valued in euros for international market reasons. It is well known that TT-Line has been considering vessel refurbishment and/or replacement, with the company 'leaving no stone unturned in relation to this work'. The overall assessment of this significant activity is not yet complete and, given it is now a matter before Cabinet, I would flag and like to confirm with the committee that I am unable to make detailed comments. I can make some general comments but I am unable to make detailed comments because there is a matter before Cabinet. CHAIR - The committee was hoping you were going to table that report today, minister. Mr O'BYRNE - If I can get past my initial opening points, we can have a conversation about it and I can explain my position, Chair. In the last financial year, revenue for TT-Line increased slightly to $187 million, compared to $185 million last year. It is highly likely this trend will continue given that, as at the end of November this year, passenger bookings have increased by 8.38 per cent and passenger vehicle bookings were up by 8.95 per cent compared to the same time last year. This is a great result and hopefully a strong indication of more good things to come both for TT-Line and Tasmania. Other figures for include the fact that the vessel carried passenger vehicles and units of freight. The vessels also transported passengers, with these passengers injecting an estimated $260 million into the Tasmanian economy. In addition, TT-Line as a company has contributed direct and indirect spending into Tasmania in goods and services and salaries to the value of approximately $48 million. This goes to show that TT-Line is an important contributor to the Tasmanian economy on a number of levels: the services it provides, the travelling public it brings to Tasmania, the freight it carries and the money the company spends here. I want to put on record my sincere thanks to the board, particularly the Chair, Mike Grainger, the CEO, Charles Griplas and all the employees from the new trainees right up to the top of the board of TT-Line for their efforts. The recognition and the importance of TT-Line as a brand and the fact that every morning we have a billboard sailing right into Station Pier and people, when they think about coming to Tasmania, have options beyond the airlines, is crucially important. We celebrated 15 years last year of the two ferries and that shows that decision made many years ago has paid dividends that you can hardly quantify in terms of, not only of financially backing Tasmania, but the branding aspect of Tasmania. Wednesday 4 December TT-Line 2

3 We are very proud of the work of TT-Line. It plays a crucial role and we look forward to having a discussion today about clarifying any questions the committee has. CHAIR - Thank you and I think you are going to get straight into that report and that might be part of the content of that report, whether we are going to refurbish or re-invest. Mr O'BYRNE - I will make a few comments and then I will ask the Chair to add anything he feels. We set a task for the TT-Line board to make sure that they have left no stone unturned in terms of the next phase of freight and passenger ferries to Tasmania. Under the board, we established a committee to do that work and that work has been undertaken for close to 12 months. They are due to finalise their report and it goes to the TT-Line board at their next meeting which is on 19 December. Initial information has been given to the government on that work to inform our processes. There is some significant due diligence on that information and trying to unpack it and understand what it means. A number of government departments have provided formal advice on the initial information. A final report will come from the TT-Line by the end of the year. That is now before Cabinet and because no decision has been made, that due diligence process has not been completed. There is more work to be done and the government is clear that we want to make sure that all the information is before us before we make a decision. We know the initial decision for the purchase of the two ferries was an important one for Tasmania. We know we had an experience with a third ferry from Sydney to Devonport and there is a lot of learning out of that as well. Markets have changed, demand has changed and we need, as a company and a government, to ensure that we respond appropriately. I might ask the Chair to add anything to that. We know that we have a big decision to make but I am not going to have a running commentary on it because there was some commercial in confidence in a whole range of areas which would be inappropriate for me to have a commentary on, particularly given that Cabinet has not made a decision. Once Cabinet makes their decision, we can move from there. Mr GRAINGER - I cannot add a lot to the minister's comments except to say that this vessel replacement refurbishment committee which I chair has been working diligently now for close on three years. We have gone nationally and internationally in search of the proper advice that we believe we need to make an informed and balanced decision on where we believe the company should be, moving forward. At our next board meeting, the VRP committee will providing an executive summary and a ministerial brief and a covering letter to the board for the board to accept. Following that recommendation to the board, we will be bringing that to the minister at the post board briefing. I am confirming what the minister has already told you. CHAIR - Are there any time frames, minister, if you cannot give us too much detail? Is the committee and the Tasmanian public entitled to a time frame around when we will know the outcome? Mr O'BYRNE - Prior to the last election there was talk about 2017 as a date. That is not something that we believe is a date that needs to be confirmed. The advice that we sought from TT-Line as a corporation was that we need to start thinking about this as these vessels are 15 years old. There is a whole range of options before us. We made it very clear to TT-Line that we want the most expansive advice, A to Z, about what are the options before us. The final report Wednesday 4 December TT-Line 3

4 will come from that committee, from TT-Line, after the board meeting on 19 December. Once that final advice is received, Cabinet needs to go through its process. We need to provide clarity to the Tasmanian community sooner rather than later, but I think the Tasmanian community wants to know that we have done the work on it so that it is an informed decision. We are hopeful over the next few months of being able to inform the Tasmanian people about the kind of advice we have received, the matters that we have considered and the decision that we will make. Dr GOODWIN - I want to tease out a bit some of the comments you have made around this. You mentioned that some information has already gone to government and there has been some due diligence work done on that. Was that essentially a draft report or what sort of information are you talking about? Mr O'BYRNE - The finalised report will come to us by the end of the year. At various times we seek updates and other pieces of information and formal advice from TT-Line that we need to consider. The committee and the TT-Line got to a point where they needed to provide us with some initial advice pending the final consideration and that is what is before us at the moment. Dr GOODWIN - There has been some public reporting of the freight issue. Mr O'BYRNE - I have seen a bit of it, yes. Dr GOODWIN - Can you elaborate on what is being considered in that space, given that it has been publicly reported and that there are some suggestions that you are looking at one or two dedicated freight ships. If that is the case, can you elaborate on the rationale behind it? Mr O'BYRNE -There is no doubt that the current operation of the TT-Line provides crucial support to time-sensitive freight out of Tasmania. We are probably the only island of our size and economy of our size where you can, as I have said before to this committee, pick it in the morning, process it in the afternoon and get it on a boat into Melbourne into one of the biggest markets in South-East Asia in terms of a hub freight-forwarding context. There is no doubt that people and a lot of our customers are on TT-Line because we are running at capacity with our freight and very mindful that we need to make sure that the bulk of the work is around tourism numbers and making sure that we can get people to Tasmania. How we respond to the request from our current clients and the question of freight is no doubt being considered because as a part of the original legislation back in 1993 it was passengers, vehicles and freight, so of course freight is considered. I am not going to speculate on 16 boats, 17 boats or whatever people are saying out there. All I know is that we have asked TT-Line to provide formal advice about options and it is before Cabinet so it is inappropriate for me to speculate on the detail or comment on media reporting. There is lots of chatter out there about what is going on, but I think it is important that we focus on due diligence on the advice that we receive from the TT-Line and then make a decision in the best interests of Tasmania. I am not going to speculate about the media speculation. Of course freight was one of the original considerations in 1993 when the act was brought in. If you talk to people like Neil Armstrong from Harvest Moon and Tim Hess at Petuna, they are important clients. We need to make sure that we do the best thing by Tasmania and the companies. Wednesday 4 December TT-Line 4

5 Dr GOODWIN - You mentioned that the vessels are currently running at capacity with freight and we know that Toll and SeaRoad, or their related companies, are looking at new ships potentially for freight. Can you indicate how much freight TT-Line is currently carrying on behalf of Toll and SeaRoad or their related companies? I have a figure of 50 million per year. Mr O'BYRNE - In terms of tare units or - Mr GRIPLAS - No, it can't be units, it would be dollars. I could not confirm that. Dr GOODWIN - Fifty million dollars a year, yes, sorry. Mr GRIPLAS - I can't confirm that offhand but I can get back to you. [11.15 a.m.] Dr GOODWIN - If they are getting new ships, and you are currently carrying $50 million worth of freight for those companies, if that freight goes onto their new ships with more capacity then that presumably leaves a dent in your freight capacity. Mr O'BYRNE -TT-Line is very much focused on time-sensitive freight. SeaRoad and Toll don't have overnight. They deal with bulk and a whole range of predominately containers - roll on, roll off. Mr GRAINGER - What you have to understand is this is a complex business. It is not just freight and passengers and what other operators carry. We don't have the slightest idea what our competitors are doing. All we do is read what is in the media as you do. We don't know if it is true, we don't know if it is false, and quite frankly we are getting a little bit fed up with all this nonsense that has been bandied around, in particular about TT-Line. Ninety per cent of what we read is just wrong, absolutely wrong. We only know about it when we pick up these newspapers. Mrs TAYLOR - They keep saying that about the upper House as well. Mr GRAINGER - We need to put it into context. Mr DEAN - Are you correcting that information that is going out? Mr GRAINGER - We try to. We have a job to do and the job that we are trying to do is in the best interests of Tasmania. You have heard the minister say that we are at capacity with freight and that is a fact. You will see some issues with freight coming up with some of our competitors going into dry dock and things like that. That will be raised and it will be factual and it will be correct. You will see that physically in the coming six or 12 months. What this vessel replacement and refurbishment committee is doing, exactly as the minister said - we have been working on this diligently for three years and we have provided an element of information which is now before Cabinet and we will complete that information in a couple of weeks' time. Mr O'BYRNE - As a government we have met with Toll and SeaRoad and they have told us that they are going through our routology process. We haven't seen any more details apart from the fact that they are investigating options, and of course there is a big time lag between when they make the decision and when we see vessels on the run. We have forecasts for increased exports out of Tasmania by way of freight with the growth in agricultural products, particularly Wednesday 4 December TT-Line 5

6 time-sensitive ones. All of those matters are considered. There is no doubt that we consider those matters, but it is important that you understand the different segments that TT-Line compete in, particularly around time sensitive in comparison to Toll and SeaRoad. Dr GOODWIN - I guess that is the point. You are trying to get a feel for the demand and how confident you are that it is going to be continuing demand and in fact probably a growing demand as far as your particular strengths in the freight area. Mr O'BYRNE -This is probably a separate process. I am due to receive this week the work of the Freight Logistics Coordination Team, which is chaired by Phil Clark. It is industry led and is providing advice to the state and federal governments around Bass Strait shipping, not just TT- Line, and also how our road/rail and port freight logistics are working on the island. It is a bigger question for Tasmania as an economy but we know that and people are very clear that Bass Strait is an expensive piece of water because of the nature of the market dynamics. All of those things are being considered and, again, we have to do the due diligence on this. This is a very important decision for Tasmania. Dr GOODWIN - Did TT-Line provide a submission to that discussion paper of the freight logistics coordination team? Mr O'BYRNE - My understanding is they did. Yes. There are a number of submissions that have gone to that team that have commercial-in-confidence information. I think the team are making a decision about which submissions they make public. Again, this is not something that we run. We provide the secretariat to that coordination team but that will ultimately be a matter for that team. Dr GOODWIN - Perhaps I can ask you with your TT-Line hat on then whether that submission is able to be made public or not. Mr O'BYRNE - I will need to take advice. My initial understanding is that there is some commercial-in-confidence information that was provided to that team. Obviously in a competitive environment you have to be sensitive about the information. I think most people who have put in submissions and provided advice to the work of that team, have done so on the basis of goodwill. They have not made submissions on the basis of the individual company they're running, or organisation they're with - they are talking about what is in the best interests of Tasmania. They have been very open with some of their information to government, on the basis that it is kept confidential from some of their competitors. We need to be sensitive about that. Dr GOODWIN - That information would have gone to the team, though? The submission from TT-Line would have gone to the team working on that? Mr O'BYRNE -Yes. CHAIR - Minister, in your opening remarks, you gave the committee some information about increased numbers of passengers in vehicles. I think you said it was up 8 per cent. Was that passengers or vehicles? Mr O'BYRNE - Both. Wednesday 4 December TT-Line 6

7 CHAIR - Then you said that freight is at full capacity, so that is steady at TEU. Is that correct? Mr O'BYRNE - I think there has been an increase, and it is around 8 per cent. MR GRIPLAS - Yes, but the issue is the freight. We just can't take any more freight. CHAIR - So, that is max - at , we are maxed out? Does that keep the ratio of passengers to vehicles at 65:35? Are we absolutely sure we are holding onto that? Mr GRIPLAS - It is by physical constraints below deck. We are constrained by what we can carry. We are driven by what is in the deck space, and that is all we have available. We have been measuring it, every time we appear before the committee for the last five years, and that ratio has been 60:40, 61:32 - it changes around that ratio. A ratio of 60:40 has been consistent over this period. CHAIR - It was 65:35. I am looking for the firm number. Mr GRAINGER - It changes daily. We work on a 60:40 balance. That is how it has been for 6 to 8 years. It will change by 2 per cent or 3 per cent daily. It depends on what time of the year it is, what season it is, but generally speaking, it is a 60:40 balance. Mr FINCH - On the subject of numbers, I was at the Launceston Airport meeting last week. They made the point that general visitors to Tasmania are up 12 per cent - air visitors are up 16 per cent and sea visitors are down 9 per cent. What do you make of those figures? Mr O'BYRNE - Would that be the financial year? Mr GRIPLAS - They would be the TVS figures. We can only go on actual performance. The TVS figures are based on a random sample of travellers, then they correlate that with a whole series of other databases. Tourism Tasmania is best to answer that. In terms of looking at those sea figures, they don't accord with our figures. They never have. Mr GRAINGER - Those figures also take into account, for example, visiting friends and relatives and the offshore market, which has a big impact on the airport through-figures, because workers fly in and fly out. It has a big impact. We base our numbers on people travelling on our ships. That is the difference. Mr GRIPLAS - They would be last year's figures - the TVS figures. Mr FINCH - Thank you. Mr DEAN - On the freight, you said you were at maximum freight, on the vessel. How much, currently, in your estimation, additional freight out there is available and could be moved on the Spirits? You are saying you're at maximum, but there must be more freight out there to be moved. What is the estimation of that, and currently what is happening with that? Mr O'BYRNE - That is more the work of the Freight Logistics Coordination Team. We provide our slots, and if we are not able to provide the slots for our existing customers, they then seek options with SeaRoad and Toll. Some of them use air freight, which is a small percentage of Wednesday 4 December TT-Line 7

8 the overall freight task. It is very time sensitive. We know that particularly in March, which is a very busy month, all three shipping companies combined cannot take the volume. Volumes are increasing, particularly in the time-sensitive area. We're maxed out, and there's a market opportunity for other shippers to expand. That is why both Toll and SeaRoad have announced that they are looking at rechallenging. What that looks like ultimately is a matter for those companies. All we can say is that with our current capacity - we are at max - and as a part of the work, all the information is being put to government about what is next. Mr GRAINGER - Mr Dean, if I can add to that, in the context of what this government has spent on irrigation infrastructure, for example, you would have to expect that there will be an increase in produce otherwise I'm sure that the infrastructure wouldn't have been implemented. How much that will mean will be determined in the future. We don't know exactly what sort of increases there will be, but there will be increases, no doubt. Mr DEAN - And those increases are going to build up though over a period of time. Mr GRAINGER - They are going to build up and they will be time sensitive. Mr O'BYRNE -With irrigation in agriculture at certain times of the year, that is seasonal. The salmon industry has doubled in size in the last five years and within another seven years it will double in size again. It will be a billion dollar industry for Tasmania and that is time-sensitive freight. That is an opportunity for any shipper - Mr GRAINGER - For domestic consumptions. Mr O'BYRNE - For domestic consumptions onto the mainland. We provide 80 per cent of mainland salmon and year-on-year it is a 15 per cent growth. You talk to the three major players - Petuna, Huon Aquaculture and Tassal - they are very robust about the future and going through a big capital expenditure as time-sensitive freight. The market, the freight forwarders and the shippers - everyone knows that. So, again, that will be fed into any decision that SeaRoad will make, Toll will make and we will make. Mrs TAYLOR - Someone must be doing modelling on the freight run. Mr O'BYRNE - That is the work of our Freight Logistics Coordination Team. Mrs TAYLOR - Will we ask you that when we talk to you about Tasports later in the day or would you like to talk about it now? CHAIR - We probably will. Mr O'BYRNE - Okay, we will talk about it then. That is a capacity constraint. That team is not only doing the work on water, it is also making sure that our road/rail port infrastructure is lined up and is productive, and that it meets the needs of our existing and growing industries. Wednesday 4 December TT-Line 8

9 Because of the diverse nature of our economy - lots of small, small/medium-sized exporters, a couple of large bulk mineral companies - we have the full gamut of industries in Tasmania with very different needs that we have to accommodate, and that is a challenge for us. Some of the other major ports on the mainland, because of their size and volumes, can aggregate costs across a number of industries. We have a lot of market segmentation in terms of need. The Freight Logistics Coordination Team is due to report to me this week. I spoke to the chair yesterday and asked how they were going and if they had the report yet. As soon as we receive the report it will need to go to Cabinet and that will be released before the end of the year. That will provide all of the information available. That team is run by industry and the team and the people around that table including the Toll, SeaRoad and others, are being very open with their data and their information. What is great is that they are pulling off their individual caps and they are putting on the Tasmanian cap and saying, 'What is in the best interest of Tasmania?'. If we have a very clear picture of the need and we get a consensus around that for the state then we all win. Mr FINCH - It is interesting to hear about this committee that you have that is doing investigation into where we go with the next option for the replacement of the ferries, what they may look like, whether they will be refurbished or whatever. If we do replace the ships, and it is something that I have been banging on about for 12 years and I always like to bring it to attention during these investigations, should we use brokers to do that deal when we have the skills and expertise within TT-Line with AMC at the university and with Treasury to do that work? Mr FINCH - I only have to look online and Bill Gates is now doing brokerage work for ships around the world. Mr O'BYRNE - I don't think he's on our shortlist, Kerry. Laughter. Mr FINCH - I am wondering whether that would be part of the consideration of that committee. Mr GRAINGER - We would be foolish not to use an international, respected broker. The risks involved of not using a broker far outweigh the risks of using a broker. When you are playing in a global market, as we could be, to understand the market and the vessels and the owners, the brokers do it daily. That is why we have brokers. Any potential vessel seller will not sell it through the company; they will sell it through a broker. That is just how the world market is in shipping. I chair a board of directors that represents an international organisation for ferry owners, and around that table are the most significant ferry owners in the world and all of them use brokers; most of them use the same brokers. It is an industry standard. We would not put the state or the company at risk by not using a broker. These people know what they are talking about. We do not know the intricacies of doing the deal with the yard or the owner of the vessels, so we would not consider not using an international broker. Mr FINCH - Are you apprised of the fees that are charged by brokerage firms? Wednesday 4 December TT-Line 9

10 Mr GRAINGER - No. It depends on the deal, the ship, the yard. It varies. They work on percentages, commissions and a whole range of options. It depends on what you are trying to do. Mr FINCH - Would you have a broker selected now that you think you might use to assist Tasmania to make those deals? Mr GRAINGER - We use a number of brokers to give us the valuations of the vessels and we do that for all the right reasons. In the interests of our assets and Tasmania, that is what we do. There is a number of respected brokers in the industry and we have spoken to a number of them over the years. Mr FINCH - When you use multiple brokers who you may take advice from, do you pay the same percentage to each one? Mr GRAINGER - It depends what we are discussing. We have not paid any broker anything since we purchased those ships. CHAIR - Except the revaluation broker. Mr GRAINGER - Revaluations of course, but we have not entered into financial discussions with any broker. There is a number of options that we have, and the same broker who has been working with the TT-Line since the very early days is still the broker we have discussions with from time to time. Mr O'BYRNE - And ultimately it depends on whether refurbishment will not be needed - if that is the decision we make. Dr GOODWIN - On the refurbishment and replacement committee, you mentioned it has been doing a bit of a national and international search, so presumably it has been looking at the sorts of ships available in Australia? Mr GRAINGER - There aren't any ships available in Australia. Dr GOODWIN - None at all? Mr GRAINGER - No, none at all. What we have with the existing vessels is probably the best in class in the world. Our investigations have not really provided us with any options for better vessels than we have in operation at the moment. Dr GOODWIN - That is in their current model, which has the overnight accommodation - is that what you are talking about? Mr GRAINGER - Yes, that is under the current model. There will be some technical advances coming through in the coming years - different types of propulsion and fuel, and different types of configurations - CHAIR - Better deckchairs. Wednesday 4 December TT-Line 10

11 Mr GRAINGER - Better deckchairs - but the vessels we have are the best we can have at the moment. If the decision was made to refurbish those vessels, we would probably put better deckchairs on. We have gone to what we believe to be the best consultants in the world to give us advice. We have spent a lot of time doing that and we have considered that advice very carefully and it will form part of our advice to government. Dr GOODWIN - Are you looking at different models, though? Mr GRAINGER - Absolutely. Dr GOODWIN - Incat, for example, is a company that is being considered. Mr GRAINGER - Yes. Dr GOODWIN - So the whole range of options has been on the table and is being considered? Mr GRAINGER - Yes, right across the board. We keep saying that we have left no stone unturned. It is a term we use regularly. Mrs TAYLOR - Stop talking about stones on the water. These ships are not stones. Mr GRAINGER - We are doing the best we can. Dr GOODWIN - Would one option potentially be, if you decided to do a refurbishment, to look at whether you have cabin accommodation, for example, and change it to all day seating or whatever? Mr GRAINGER - There is a range of options. We are an overnight service so it would be difficult not to have passenger accommodation. Dr GOODWIN - Although you do day sailings? Mr GRAINGER - We do. Dr GOODWIN - Can I ask about those day sailings? About how many you do and how you many you accommodate? Mr GRIPLAS - The day sailings start in two weeks and they finish at the end of Easter. Dr GOODWIN - How many do you do over that period? Mr GRIPLAS - Two sailings a day. One leaves at night and one leaves in the morning. Dr GOODWIN - Every day that is, over that period? Wednesday 4 December TT-Line 11

12 Mr GRIPLAS - No, not every day. We pick them up in the peak season and we sail on Sundays. I can leave this calendar which is our desk calendar which has all the dates going forward in terms of the schedule and it is available on our internet site. Mrs TAYLOR - Fantastic. Can we all have a copy of that? Mr GRIPLAS - You can download it off our website but I am happy to leave this. Mr DEAN - What did you say about the Sunday sailings? Mr GRIPLAS - During the year, in winter, we do not travel all Sundays. We have some lay days on the Sunday which we use for repairs and maintenance, et cetera. But over the peak season we pick up every day. Mr DEAN - The information yesterday was that some Sunday sailings had not been done and no notification provided. Mr GRIPLAS - That is not correct. Mr DEAN - It was information that was given to us. Mr GRIPLAS - Our schedule is as regular as you can make it, Mr Dean. Mr O'BYRNE - It is pretty consistent year in, year out. A couple of freight companies approached us looking at some of those slots in winter that we traditionally have not. You want to make sure that you can at least break even when you put the boat into the water, with staffing. Once you get it going it needs to stack up to ensure that we have a viable business and that tourism numbers drop off because of the seasonality of some of the time-sensitive freight, freight drops off as well. Essentially we go hard in the summer as much as we can for both markets and in winter we respond to the customers. Mr GRIPLAS - In terms of total sailings, we commence on 21 December this year for four days. It is Saturday through to Tuesday. We then break on a Wednesday. It is a catch-up time for us to ensure that we get the schedule back and then we commence on Thursday for four days until 29 December. When we come into January, it is the Thursday, Friday and the Sunday, Monday, doubles. We picked them all up and all the way through to Easter. Mrs TAYLOR - How many sailings is that? Am I correct in saying that last year you did about 30? Mr GRIPLAS - I am counting it offhand but it is about 30 double sailings. CHAIR - How many voyages? It is not recorded in your annual report this year for some reason or we could not find it and some of us have been fairly busy. Mr GRAINGER - Maybe it is not in there. CHAIR - In there were 825. In and then , we have not had them recorded for two years. I am happy to take it on notice, minister. Wednesday 4 December TT-Line 12

13 Mr O'BYRNE -We can do that. UNCORRECTED PROOF ISSUE Mr GRAINGER - It is something that goes into the board report each month. I do not know why it is not in here. We can find that very easily for you. CHAIR - Thank you. It helps out our information. Mr GRAINGER - The voyages for last year were 759. If it did not appear in the annual report we will make sure it is included in the next one. Our schedule is available, there are no secrets around it. CHAIR - Do you have the year before, ? Mr GRAINGER - For June 2012 which is the , it is 759. For voyages, 748. CHAIR - Coming down slightly. Mr DEAN - The voyages are coming down at a time freight is going up. CHAIR - It is coming down. MR GRIPLAS - Yes, but physically we cannot carry any more freight - that is the issue. Even if I was to add another 50 sailings, for instance, I am capped. I cannot physically carry any more below deck. Freight travels at night. It is seasonal, as well. Mr DEAN - I am just trying to work that one out. You had about eight or nine fewer sailings this year and you are saying you could not carry any more freight. I would have thought if you had another seven or eight extra voyages this year you would have that extra freight on those extra seven or eight voyages, so I am trying to work it out. I am finding it difficult to understand. MR GRIPLAS - You are right. The additional sailings relate to day sailings, and freight does not travel during the day. Mr DEAN - Freight is overnight. Mr GRAINGER - We have done all we can to encourage freight during the day, but it just does not work logistically for the freight operators. Dr GOODWIN - Because they are harvesting or something. Mr GRAINGER - That is what they tell us. Mr O'BYRNE - Early in the morning they pick and process it and we get it by late afternoon. Mr GRAINGER - We have offered the best possible deals to the freight industry for day sailings and by the best possible deals, I mean virtually free carriage, and they will not take it up. It does not fit with their processes, or that is what we are told. Wednesday 4 December TT-Line 13

14 Mr GRIPLAS - Effectively if we carry it during the day, they are day late because you pick it the day before to get it during the day. Mr O'BYRNE - If they are a day late then the price they charge is lower because of the shelf life cycle. Mrs TAYLOR - That is important for freight that is time sensitive, but it is not important for stuff that is not time sensitive, but they still do not want to do it. Dr GOODWIN - How many passengers can you carry on your day sailings? Mr GRIPLAS - Up to Dr GOODWIN - Where do they all fit? Mr GRIPLAS - There are cabins, and some seats, but some passengers choose not to take either option up, and we just open up decks 9 and 10. During the night sailing decks 9 and 10 are restricted, but we open them up for the day sailing. Dr GOODWIN - What is on decks 9 and 10? Mr GRIPLAS - They are closed-in decks, and they have chairs and tables. You have a sports bar on deck 9 and on deck 10 we have various amusements. Mr GRAINGER - Just plastic tables and chairs. Mr GRIPLAS - Playgrounds and amusements for kids. Dr GOODWIN - Some people take up the cabin option during the day sailings, some have a dedicated seat and others just roam around the ship? Mr GRIPLAS - Correct. Because during a day sailing they come on at 9 and they arrive at 6 in the evening, a three-hour turnaround and we are back out again at 9 in the evening and arrive 6 in the morning. We run that ship right through. Mrs TAYLOR - To get off the freight, can I just go on to some questions about operational stuff, minister? I know that your headquarters is in Melbourne and we keep being told that is because that is where the marketplace is and it makes more sense to have it in Melbourne. I suppose there are people who think the opposite - that maybe it should be in Devonport, in terms of Devonport and Tasmania benefiting from the employment. How many employees do you have in Melbourne? Is the providoring done in Melbourne or here - because at least we could do the providoring here if we cannot do the administration? Where are people employed from? Where are the cleaning contracts? Is it done here in Tasmania or is it done in Melbourne? Can I ask you about some of those sorts of things? Mr O'BYRNE - The last bit first. Cleaning obviously happens at both ends. My understanding is that 70 per cent of operational staff reside in Tasmania. Mr GRAINGER - Devonport. Seventy per cent of our shore staff. Wednesday 4 December TT-Line 14

15 Mr O'BYRNE - Seventy per cent of our shore staff reside in Devonport. In terms of providore, it is 90 per cent locally sourced in Tasmania, and we have recently had a number of promotions on board promoting Tasmanian food and wine, which have been highly successful. In terms of the other details with providore - 90 per cent of Tasmanian wines on our list - 93 per cent to be exact. Percentages of food and beverages in Tasmania per cent of beverages and 85 per cent of food is purchased within Tasmania. Necessarily, particularly with those day sailings in the summer, you will need shore-based staff in Melbourne to assist in the changeover. We are a Melbourne-Devonport ferry service, but 70 per cent of shore-based staff are in Devonport, which we think is a good mix. Mr GRAINGER - We have a policy, Mrs Taylor, within the company whereby it is reported every month to the board that promotes Tasmania. The only reason we don't use Tasmanian services or Tasmanian products is if they are unavailable. For example, there is a service that we use out of Devonport that we put out to tender earlier this year, and we awarded the tender for that service to a Devonport company even though that Devonport company was not the cheapest. We could have got that service done in Melbourne cheaper, but we chose not to. That is the culture. CHAIR - Good news. Mr GRAINGER - You have to understand this because, again, we read about this nonsense in the media which is just not right. Our culture is to buy Tasmanian and support Tasmania - we are a Tasmanian company. If any of you are travelling on the ship, you will see it. You will see it on board the vessels. It is Tasmanian - everything, unless we can't physically get it from here. Mrs TAYLOR - Who owns or runs or leases or whatever the shop? Is that a Tasmanian company or is that the TT-Line's own shop? Mr GRIPLAS - It is a franchise company. We leased that space out. It is Tasmanian, based in Launceston. Mrs TAYLOR - It is just that on my latest trip, which was some time ago, a number of months ago, for instance there were ceramics for sale in the shop which are not Tasmanian. Mr GRIPLAS - We don't control what they put on their shelves. Mrs TAYLOR - That is why I was wondering if it was a Tasmanian company that leased it. Mr GRIPLAS - It is a Tasmanian company but we don't control what they sell in their shop. Mr DEAN - Head office is in Melbourne - you asked a question, what was the answer to that, the number of people? Mr GRIPLAS - Head office has always been in Devonport. Mr DEAN - What is the office in Melbourne? Is there an office in Melbourne and how many are in that office in Melbourne? Mr GRIPLAS - The office in Melbourne predominantly is terminal staff to receive passengers and freight. I am there and approximately a quarter of my team are there. Wednesday 4 December TT-Line 15

16 Mr DEAN - How many is that? Mr GRIPLAS - Of the seven, there would be four based there. Mr DEAN - So there are seven administration staff in Melbourne in the office there. Is that what you are saying? Mr GRIPLAS - In terms of my direct reports, the executive team. If you are talking about general staff, it is a 70/30 split. Our call centre, our IT department, and our finance department are based in Devonport, et cetera. The guts of the organisation in terms of the operations it is a 70/30 split of the shore-based staff. You often read in the newspapers people saying, 'I think their call centre is based overseas or in Melbourne'. It is a nonsense. It is based in Devonport. You get to hear this. We try to write to the press and try to get it corrected. It never gets corrected. Mrs TAYLOR - That is why it is really good you are here. You get the chance to say this. Mr GRIPLAS - But it never gets picked up here. There are a few journalists here but it never gets picked up. CHAIR - Front page: 'Call centre located at Devonport'. Mr GAFFNEY - A couple of different questions. First of all, minister, about the Melbourne corporation and the licence fee and the issue that you went through there. Obviously, there is a financial impact and impost. Where is that heading? Is there any more information on that or is it going to be a yearly fee that you have to come up with? CHAIR - Is it $2.7 million? Mr O'BYRNE - It is $2.6 million. CHAIR - No discount for mate's rates? Mr O'BYRNE - In terms of the licence fee, they are not really mates of ours, unfortunately. They made the decision. The previous Labor government made a decision around port infrastructure. I think their decision was to levy truck owners - land-based freight activity. The incoming government under Baillieu, and Napthine was the minister at the time, removed the land-based levy or fee, or whatever they were going to call it, for trucks large and small. They moved that to a standard port licence fee. We obviously took advice about whether they could do that constitutionally, et cetera. It wasn't necessarily a Tasmanian tax. It was a tax to any activity going through that port licence. It was a standard fee; any shipper regardless of where they were from and their colour, they had to pay the single fee. There is a whole range of other slot fees, dredging and a whole range of other complex array of fees that Melbourne ports apply. We managed to negotiate a number of either no changes - no CPI increases - or some slight reductions in some of our other Tasmanian-based activities. I don't have all those details in front of me, but we continually ask the Port of Melbourne and the Victorian government for assistance and for greater consideration Wednesday 4 December TT-Line 16

17 of Tasmania. That has not been successful. It is raising, in the blunt words of now-premier Napthine, who said, 'I've got a $75 million hole I need to fill and this is how I'm going to do it.' We have been briefed on the Victorian port strategy, and the upgrades of the Victoria and other docks, the Swanston dock, and that will have potentially, when it is completed in 5-10 years, some productivity increase for Tasmania. We will have a dedicated area to unload and onload our freight. In terms of TT-Line, as we head into the Channel and at Station Pier, there are set fees. Mr GAFFNEY - You mentioned you were successful in not getting a CPI for some of the charges. Is that in perpetuity, or just - Mr O'BYRNE - It is a year-by-year negotiation. Mr GAFFNEY - There was also an issue about the Australian dry dock facility and what is happening on Garden Island. The 2014 has not been confirmed, not that I am aware. What options do you have, if that facility is not going to be available, and what cost impacts will that have? Mr O'BYRNE - Well, 2014 is now confirmed for Garden Island. There is an ongoing uncertainty. We have had a number of meetings with the federal government and the defence department about their intentions with Garden Island. It is unclear at the moment with the change of government but we do not think they will change their mind. Brisbane is not an appropriate facility for us. Singapore and Thailand, in terms of their work, is the option for us, and that is more expensive. The Chair is having extensive and somewhat frustrating discussions from time to time so he might be able to fill out - Mr GRAINGER - We cannot underestimate the seriousness of this issue. CHAIR - We are not, that is why we are asking. Mr GRAINGER - It really concerns us, because the Brisbane dry dock is closed. The only other option for us is Singapore. That will add something like $10 million to our dry docking fee. And take the ships off the service for another week to adjust for travel time. We are really worried about it. We are trying our hardest to speak to the right people. We have spoken to the previous minister of the Labor government, and I have spoken with the new defence minister. They are saying to us, we think it will be okay, but when you want to plan a dry dock for something as complex as the ships we operate, it is not that easy. We are concerned about it, we are okay for another 12 months, but after that, who knows. Mr O'BYRNE - We are also concerned about continuity of labour. For many years, we have had many similar operations in Garden Island, so people are familiar with our vessels, they know what is needed, and they have a good understanding of the vessels. There was a proposal to change the labour arrangements at Garden Island from a standard, directly employed group run by Talis but then there was a proposal to move to a labour hire arrangement where they would appoint various people with a skill, to a certain vessel once the booking was made. We are concerned about that and have raised that with the federal government. Mr GAFFNEY - Are there any other docks? Brisbane is closed. Garden Island is the one you prefer to go to. Are there any other dry dock facilities in Australia, or are they the only two? Wednesday 4 December TT-Line 17

18 I suppose that is because of the size of the ships. That is going to have an impact on what other ship you may move to, because of the size. Mr O'BYRNE - A whole range of other private sector organisations run shipping in Australia. This is not just TT-Line, there are Carnival Cruises, and with Brisbane closing and the issues around Garden Island, Singapore seems to be the only place. Mr GAFFNEY - Surely that is no way for any federal government - for security, confidence and business monitor. What is the bigger issue? You have not heard anything, there is no game plan or - Mr GRAINGER - No. I wish we had an answer for you, but we do not. Mr O'BYRNE -We had constructive conversations with the previous ministers. They were in discussions with Defence. Defence has a certain view and that is why we were able to guarantee the 13 and 14 dry dock. We worked with the previous federal minister to ensure that, but again it is a great concern to us. Mr GAFFNEY - The percentage ratio of interstate and Tasmanian travellers last year was approximately 70:30. With people travelling overseas and the changing destination market, of the people we had, was that still the split? I know you can do very good statistics because of the entry and exit ports. Has there been a change? Mr GRIPLAS - Our largest area of destination is Victoria, followed by the ACT and New South Wales. We are predominantly into domestic trade so the proportions are the same. It is very interesting when people come to consider travel to Tasmania. We also do a lot of analysis in terms of what other destinations people view. Oddly enough, when it comes to Tasmania it falls into the category of Fiji, Hawaii, Bali and New Zealand. When they think of travelling to Tasmania over the Bass Strait component, it puts us in a very different category when they consider their travel behaviour or their consideration for travel. It still is at 70. Mr GAFFNEY - Of the vehicle travel, I am interested to know your assistance with pensioner discounts. I think that needs to be highlighted. Mr GRIPLAS - We provide approximately pensioner fares a year. If you look at that in our total carriage, that is a high proportion. Although we say we carried or so passenger legs, you divide that by two and it is a high proportion that we carry. We are the only people across the Bass Strait that carry it. I do not see any airlines providing pensioner fares. They are well looked after. People tackle those fares very quickly. Mr DEAN - The airlines are so cheap they don't have to? Mr GRIPLAS - Oddly enough, Mr Dean, we do quite a lot of research on that. When you look at the fare comparison - and we do a like-for-like comparison - you throw in all the fees and compare it to us, we don't carry a baggage surcharge, a credit card surcharge, or a food surcharge. We have a rolling schedule of every five weeks. We look ahead and we place our strategy in terms of that. Of the top five, and we throw ourselves in with all the airlines, we rank as the second cheapest consistently all the way through. The next one would be Tiger Air. When people say we are very expensive, when you do that comparison - a $5 kid fare - I don't know how cheap you can get without any baggage or credit card surcharge. Wednesday 4 December TT-Line 18

19 Mr DEAN - I just came over on it and it cost me about three or four times as much to come over on the Spirit as it would have done on the aircraft. CHAIR - You probably brought your car. Mr DEAN - Yes, I brought a car. CHAIR - Well, you can't take that on a plane. Laughter. CHAIR - I want to ask about the carbon tax. That has been put onto the fares, so when are you going to take that off? Mr GRIPLAS - Correct. It is not up to us to take it off. It is a surcharge that is brought on by the federal government. It is part of its carbon surcharge regime. They look at the fuel tax credit scheme and every year it reduces even further. For instance, we are carrying, per passenger fare, $3 for a carbon surcharge and $6 per vehicle. You add that to the Port of Melbourne surcharge and the increases we put on, but there are additional uncontrollable items that come onto our fare. What the federal government will do - I know the legislation has been knocked back by the upper House so I don't know where it is in terms of where they are at. It is something I have no control of but it will have to apply to us. CHAIR - How many phone calls have you had in relation to when the fares are reducing? Mr GRIPLAS - If the carbon surcharge comes off and the fuel tax credit reduction scheme is removed, it comes off the fare. There is no need or requirement for us to put that on. CHAIR - Something for the wider community to lobby for. Mrs TAYLOR - I want to go again to the federal government and relationships with TT-Line and the state in terms of the national highway comparison. Currently we still have the freight subsidy and also I think you have a passengers subsidy. Where are we sitting with the new federal government, or do we know? Mr O'BYRNE - When you look at the federal budget there is up to about $140 million a year combination of freight and passenger subsidy under the Freight and Passenger Equalisation Subsidy. That is something that comes to Tasmania. It is uncapped. If volume increases the support to Tasmania increases. The federal government has announced a Productivity Commission and ACCC investigation. The last time the Productivity Commission did a nine-month review of freight equalisation, they recommended scrapping, phasing out and removing it, because it is what they call a market subsidy. It distorts the market and there is no benefit to the national economy according to an economist's view of subsidies. We found out last week that the terms of reference for this new Productivity Commission review are out, and apart from the freight equalisation, it is very similar to the work of the Freight Logistics Coordination Team. That closes at the end of next week. Effectively, by the time they Wednesday 4 December TT-Line 19

20 announced their terms of reference, it is 11 working days. There are hearings over the next couple of months and it will close in January, early February, and they are reporting in early March. I don't know why they picked March. I could be cynical about why they picked that date in March. CHAIR - We are not cynical here, minister. Mr O'BYRNE - No, other people may have a running commentary on it. This is such an important issue that the Productivity Commission in 2006 took nine months to do a comprehensive review and recommended the removal of the freight equalisation scheme. There are 11 days in this case. We will be writing to the Productivity Commission to say that is plainly outrageous, and denies an opportunity for so many organisations and interested people to make appropriate submissions based on the recently announced terms of reference. On the basis of that 11 days, Cabinet would not even have considered the Freight Logistics Coordination Team's work and we think that is probably the most substantial piece of work on freight logistics and the importance of Bass Strait and the road/rail port interface in Tasmania in a generation. We think they need to take that work into account, so we will be writing and asking for a delay. Mrs TAYLOR - Your expectations? Mr O'BYRNE - The election was in September. It is between September and now, in the last few days of November. They have taken three months to get to this point and then effectively given people 11 days to provide a submission. It is disgraceful. It is disrespectful. Mrs TAYLOR - My question about freight equalisation - what are your expectations? Mr O'BYRNE - We will be fighting for freight equalisation. Mrs TAYLOR - Is there a final date? Does the arrangement finish at a certain time? Mr O'BYRNE - It is an ongoing policy that has bipartisan and tripartisan support. But, as I said before, in 2006 the Productivity Commission was quite critical of it and wanted it removed. I think, politically, it won't be removed but you have got to think about the motivation behind it. Why March? We will be fighting for maintenance of it. There are some little tweaks that may be recommended, dealing with the King and Flinders islands. Making sure there is equity there. Essentially it was a scheme that was structured in the mid-1970s, and reviewed again and tweaked again in the mid-1990s. Again, an 11-day opportunity to provide a submission is very difficult for us. Dr GOODWIN - Minister, could I jump in there. Come on, we all know that sometimes the timing is the thing of interest. You might be cynical about this. We might be cynical about something else. Let's put that to one side. Aside from the tight time frame issue, obviously which you have made a lot of - Mr O'BYRNE - It is 11 days. It is not the tight time frames. It is 11 days for something as significant as this. Dr GOODWIN - Aside from that. I think you have made that point. Could I ask you to confirm that, ordinarily, this is the sort of thing that TT-Line would be making a submission about Wednesday 4 December TT-Line 20