Information Memorandum

In March 1999, State Forests produced an Information Memorandum (IM), offering an investment opportunity in new planted forests for both timber and carbon rights. The IM was targeted at companies with the ability to establish a minimum of 1,000 hectares of new planted forest.

The Information Memorandum sets out the basis on which State Forests will provide to the Investor a management service. The service comprises securing land (either through purchase by the Investor or rental from a landowner, using State Forests as the intermediary), obtaining all relevant approvals, establishing and managing the planted forest, selling the timber products if requested and preparing the carbon accounts. State Forests does not have equity in the planted forest itself - the Investor owns both the timber rights and the carbon rights.

The IM is clearly and solely targeted at the creation of new planted forests as carbon sinks compatible with Article 3.3 of the Kyoto Protocol. State Forests has adopted a conservative interpretation of Article 3.3 and is focusing on land that was cleared prior to 1990 (usually many decades before) for grazing and/or cropping, such that a new forest is created where none has existed for a time frame measured in decades. Carbon sinks under Article 3.3 have been the least debated and least controversial of all types of carbon sinks under the Kyoto Protocol.

The IM offered by State Forests is an attractive investment opportunity for a number of reasons:

1. State Forests has long-standing expertise in plantation establishment and management and was currently a large scale plantation manager.
2. As a Government Trading Enterprise, State Forests operates as a business but creates the confidence that it is in the forestry business for the long term.
3. The underlying timber investment was yield positive returns even if the carbon sink produced by the planted forest ultimately had no value. However, if the carbon has value, the rate of carbon sequestration was quite high for these fast growing planted forests. Together, this makes the investment an attractive hedge against future emissions obligations.
4. State Forests currently markets large volumes of timber, which gives the Investor confidence in being able to sell timber products from the planted forest.
5. State Forests has well-established expertise in carbon accounting.

NSW has legislation that permits the carbon sequestration benefits to be registered as real property on the title of the land but separate from the forestry rights. This gives users of the carbon benefits greater confidence in the validity of the carbon "product" and enables the carbon sequestration benefits to be sold separately to the timber rights.