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THE government-owned company that logs Victoria's native forests is running out of timber, has failed to keep track of how much forest is left to log and cannot manage its costs, a damning Treasury report has found.
VicForests has also twice breached Department of Sustainability and Environment rules by logging too much and its backlog of forest that needs replanting has nearly tripled, according to the report by forestry expert URS.
Released to The Age after a freedom-of-information application, the report portrays an industry in decline, with jobs on the line as the supply of trees dries up. Its early leak to another media outlet has embarrassed the Baillieu government, under pressure because of divisions between the Liberals and Nationals over conservation issues.
In the key forestry battleground of East Gippsland, where Vicforests has repeatedly clashed with environmentalists, the number of quality logs suitable for sawn timber is ''expected to decline significantly within about 10 years and impact adversely on businesses directly involved'', URS said.
''Assuming forecasts are correct, it may not be possible to supply sawmills located in the East Gippsland area with sufficient sawlogs from the region,'' URS said. Those mills might have to ''reduce their operations''.
The report found Vicforests wrongly logged 87 hectares in the Central Highlands and East Gippsland.
''The dispute could have material financial consequences, especially if DSE pursues legal action,'' URS said.
But VicForests spokesman David Walsh said the organisation had reached a settlement with DSE over the breaches.
URS said VicForests' estimates of still-standing timber were up to 65 per cent too high, although Mr Walsh disputed the calculation.
In addition, the amount of forest that has been harvested but not regenerated and handed back to DSE has blown out from about 5100 hectares in 2004-05, VicForests' first year of operation, to more than 15,900 hectares in 2008-09, URS said.
The organisation's inability to manage its cash flow led to what was described by URS as an ''emergency increase of the credit line'' from Treasury of $16.6 million last year.
VicForests also failed to collect money from customers quickly enough and was not fully considering the impact decisions would have on its cash reserves, URS said.
URS said it was critical that VicForests rein in the cost of harvest and haulage, which it underestimated by about $8.5 million last year.
Agriculture Minister Peter Walsh blamed VicForests' problems on bushfires and the former Labor government's logging restrictions. He said the government would work with the company to implement the recommendations.
VicForests chief executive David Pollard said the report recognised the company's significant achievements and it was addressing issues ''where appropriate''.