TASMANIA'S forest industry is in meltdown, with one-time timber giant Gunns Ltd admitting for the first time it lacks confidence its flagship $2.3 billion pulp mill will go ahead.
The bitterly divisive Tamar Valley project has failed to find a backer despite repeated upbeat claims by the company, and is unfinanced nearly eight years after it was first proposed.
In a second blow to the state, marathon native forest peace talks are struggling to reach a final deal after two years of intensive negotiations between green groups and industry. They are now set for what one negotiator called a ''last hurrah''.
The state has been struggling to adjust to plunging demand for the native forest woodchips that once sustained Gunns, and at the same time end the 30-year forest wars.
Green groups hoped to gain protection for about half a million hectares of native forest, and the Gillard government put together a $276 million package, mainly to assist thousands of timber workers whose jobs were lost in Gunns' shift out of native forests to what was planned to be a plantation-based pulp mill.
But in a bombshell announcement driven by the need to adjust its accounts, Gunns said yesterday it could no longer list the project as ''probable to proceed''.
''The decision taken by the board does not necessarily mean that the mill project will not proceed,'' Gunns said. ''Rather, it is an indication of decreased confidence from the company that it has the ability to influence the mill project proceeding.''
Federal Environment Minister Tony Burke said the government supported the mill because it would create ''extraordinary outcomes'' for employment in Tasmania if it could go ahead, and Premier Lara Giddings refused to concede it was being written off. ''It's obvious that at this point in time it's more challenging than ever to get a project up,'' Ms Giddings said. ''So at the moment I accept what Gunns themselves are now saying. That this project is a bit further away.''
However, Greens leader Christine Milne said the company appeared to be preparing the pulp mill's obituary. ''There is no life left in the beast,'' Senator Milne said. ''Gunns has admitted to a completely non-viable business model.
''Now they need to do the decent thing, spell out that there is no prospect of it proceeding, and allow the people of the Tamar Valley to get on with their lives.''
The Forest Industries Association of Tasmania, taken by surprise by the announcement, said it was regrettable.
''We need the employment, we need the investment,'' association chief executive Terry Edwards said. ''If that project were not to proceed, then I think it's important that we rapidly turn our minds to alternatives.''
Mr Edwards is a central player in the forest peace talks that came close to agreement a fortnight ago.