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Category: Sustainable Settlement and Agriculture

The Generator is founded on the simple premise that we should leave the world in better condition than we found it. The news items in this category outline the attempts people have made to do this. They are mainly concerned with our food supply and settlement patterns. The impact that the human race has on the planet.

  • Offshore investors retreat on profit tax

     

    “The sentiment from them has been not just overwhelmingly negative, they are just baffled,” Mr Schellbach told journalists during a briefing on Thursday.

    “That’s why the traded volumes that we had through them over the last six weeks have dried up. They are staying on the sidelines.

    “Essentially they look at this situation and are thinking ‘whoa, what exactly are you guys trying to do here?’”

    Since May 2, when the government announced the proposed tax on mining companies, the local S&P/ASX200 index has fallen 5.2 per cent.

    At the same time, the S&P500 index on Wall Street has slipped 6.1 per cent and London’s FTSE 100 has backpedalled 5.7 per cent.

    The Shanghai Composite was down 10.5 per cent over the same period.

    Mr Schellbach said the combination of low valuations on equities, combined with the improving cost of corporate debt, may tempt private equity players back to the table in the year ahead.

    He also said potential mega deals, such as the unsuccessful attempt for national flag carrier Qantas Airways Ltd, were unlikely.

    Instead, private equity firms were likely to focus on “pretty boring”, non-cyclical businesses with stable, predictable cashflows and market capitalisation between $1 billion and $2 billion.

    “Because the banks are not as willing to provide funding of the magnitude as was the case three years ago, you are not going to get the front-page type blockbuster deals of buying out $10-$20 billion corporate icons,” Mr Schellbach said.

    Sectors to look out for were healthcare, beverages and consumer stables, he said.

    Private equity firms have made bids for hospital operator Healthscope Ltd and Boom Logistics recently.

  • China’s Wind Industry Is About To Get Squeezed

     

    In addition, all Chinese wind turbine manufacturers (including to a lesser extent the “big three” — Sinovel, Goldwind and Dongqi) rely to varying degrees on technologies that they must acquire from abroad, which puts even greater pressure on their profitability.
     

    The Chinese themselves are increasingly worried about a shakeout in the wind equipment industry as tremendous capacity development has lead to the familiar insidious malady in Chinese industry: invidious competition based primarily on price. The general manager of one wind farm developer described this phenomenon as “collective suicide” among Chinese wind equipment manufacturers, while another wind farm developer said that the price war among Chinese wind equipment manufacturers has left them all “drenched in blood.”   

    Statistics paint a stark picture: in 2004 China had only 6 wind turbine manufacturers; as of the end of 2009 that number had skyrocketed to nearly 90 companies.  Of those 90 companies, 57 already have produced at least one prototype and 30 Chinese wind turbine manufacturers now are producing at the rate of 100 units or more per annum.  In addition to the proliferation of wind turbine manufacturers in China, there are now upwards of 100 wind parts manufacturers operating in China.  China now is home to more than 50 wind turbine blade manufacturers. 

    Almost surely many of these wind industry equipment manufacturers will be caught up in the major shakeout that is on the horizon — repeating a familiar plot line played out in countless other Chinese industries.  An official with Xiang Power Wind Power Co., Ltd. has observed that a large number of wind equipment manufacturers are now losing money and that in the next stage the industry will experience failures on a large scale.  

    Goldwind, one of the “big three” wind turbine manufacturers, also is feeling the pressure from steadily increasing competition. Mr. Wu Gang, the Chairman of the Board of Directors of Goldwind recently referred to the competition as “savage” and worried about what the effects of this “self-destructively pernicious” competition would be on the healthy development of the wind industry.  The competition is so fierce because the low-end segment of the market is over-saturated, which in turn has lead to price competition and falling profitability, which further squeezes companies’ ability to invest in the research and development necessary to move up the value-added chain.  

    In addition, all Chinese wind turbine manufacturers (including to a lesser extent the “big three” — Sinovel, Goldwind and Dongqi) rely to varying degrees on technologies that they must acquire from abroad, which puts even greater pressure on their profitability. 

    Though the increasingly intense price competition in the wind turbine industry is worrisome to Vestas, the international wind turbine manufacturer that has substantial operations in China, because the most intense competition is in low-end products, Vestas has not felt the pressure that smaller Chinese “commodity” wind turbine manufacturers are experiencing.  Rather the international wind turbine manufacturers and the “big three” Chinese wind turbine manufacturers are able to continue to dominate the market for the most technologically advanced products, even as the “commodity” wind turbine market becomes saturated. 

    On the Other Hand Falling Prices Equals More Development

    The flip side of shrinking profitability among Chinese wind equipment manufacturers is the growing enthusiasm among wind farm developers as the cost to develop wind power has declined.  As the price war in the Chinese wind equipment industry has become heated, the price of wind equipment has begun a steep decline.  Based on recent surveys in Inner Mongolia, Liaoning, Hebei and Guangdong, there already has been a 1000 Yuan/kilowatt (kW) decline in the price of wind generating equipment compared with 2008.  

    According to Ma Yugang, the general manager of the Huaneng Tongliao Wind Power Generating Co., Ltd., a China Huaneng Group Company, when the company built the Baolong Wind Farm in 2008, the average construction price per kW for the wind farm was 9250 Yuan/kW.  In 2009, when the company constructed the Zhuri River Wind Farm, the average price per kW for construction had fallen to 9000 Yuan/kW or lower.  As of 2010 Huaneng Tongliao is anticipating building its newest wind farms for an average price per kW near 8000 Yuan/kW. 

    One of the routes Chinese wind equipment manufacturers now are taking to avoid being swept away by this increasingly pernicious tide is to become wind farm developers themselves.

    The tried and true “safety value” for excess capacity development throughout Chinese industry — exports — is quickly becoming a necessary component in the marketing strategy of every Chinese wind equipment manufacturer.  The export market, however, is in its infancy for the Chinese wind equipment industry and it is unlikely that even the largest Chinese wind equipment manufacturers will be more than a statistical asterisk in international markets in the next several years. 

    With wind installations expected to skyrocket through 2010 and beyond, the world’s absorption of wind turbines could be as high as 3 to 4 times the volume of what is already installed in China.  As a result, the Chinese undoubtedly will find a way to become a significant supplier of wind turbines worldwide. Now that the Chinese have commoditized smaller (1.5-MW and below) wind turbines, there is likely to be a flood of those products exported from China.

    Goldwind has ramped up its preparations to break into the North American market by opening a North American office and hiring industry veterans as its general manager and director of sales.   Likewise, Sinovel, which is the world’s third largest manufacturer of wind turbines (based almost exclusively on its sales in China), sold a batch of 1.5-MW wind turbines to India in 2009. Sinovel also continues to source crucial electronics systems from American Superconductor for the 5-MW wind turbines that Sinovel has developed itself.   According to Sinovel’s CEO, these large-scale wind turbines will be the focus of Sinovel’s export strategy. 

    So, as Yogi Berra famously said “it’s déjà vu all over again.”  The Chinese appear to be poised to be the low-cost supplier at the low-tech end of the export market, but continue to rely on Western technology to produce the larger, more sophisticated wind turbines.   Relatively good news for Western suppliers of high technology into the wind industry, but a challenge for Goldwind and Sinovel, who may well find themselves squeezed between the big international players and the Chinese commodity suppliers.  

    For reference, see some of my former articles, “China’s Wind Power Industry: Blowing Past Expectations”, China’s Wind Power Industry: Localizing Equipment Manufacturing, and China’s New Generation: Driving Domestic Development.

    Lou Schwartz, a lawyer and China specialist who focuses his work on the energy and metals sectors in the People’s Republic of China, is a frequent contributor to Renewable Energy World.   Through China Strategies, LLC, Lou provides clients research and analysis, due diligence, merger and acquisition, private equity investment and other support for trade and investment in China’s burgeoning energy and metals industries. Lou earned degrees in East Asian Studies from Michigan and Harvard and a J.D. from George Washington University.  He can be reached at lou@chinastrategiesllc.com.

  • Whitehouse has BP over a barrel as estimate of oil outpouring soars

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    Under US law, BP will be fined for the spill according to the size at the rate of $US1100-$US4300 a barrel.

    The formula suggests that BP’s civil fines have been increasing at the rate of up to $US258 million a day for the past 59 days – and are likely to continue until a relief well can be drilled in August.

    Further billion-dollar penalties will also be incurred for violations of the Clean Water Act and other legislation.

    The figures exclude a $US20bn compensation fund agreed with President Obama for victims of the spill.

    BP had profits of $US17bn last year and sales of $US239bn.

    The company has denied talk of bankruptcy, but yesterday its chief financial officer Byron Grote tried to reassure investors.

    US shareholders have been selling shares in the company, once Britain’s largest, while it was reported that Bank of America Merrill Lynch had ordered its traders not to enter into oil deals with BP extending beyond June 2011.

    On Monday, Fitch, the international ratings agency, downgraded the company’s credit rating by six notches to BB, just two notches shy of junk status.

    BP has also retained Goldman Sachs, Credit Suisse and Blackstone, a restructuring specialist, to help it deal with increasing liabilities.

    Experts said that BP’s chances of surviving – without being forced to sell off assets, limit its liabilities through a partial bankruptcy filing or by accepting a takeover bid – depended on how quickly the chief executive Tony Hayward and the chairman Carl-Henric Svanberg could resolve the crisis.

    BP has promised that a relief well can be drilled by August, allowing for the injection of a cement plug that would stop the leak.

    But some have suggested that this could be optimistic.

    Dan Pickering, the head of research at the energy investor Tudor Pickering Holt in Houston, said that the worst-case scenario would be that the leak continued until Christmas.

    “This process is teaching us to be sceptical of deadlines,” he said.

    One senior lawyer familiar with the company, which celebrated its 100th birthday in 2008, said: “The speed with which this has happened is just extraordinary.”

    He suggested that placing part of the business, BP America Production – the unit responsible for the spill – into bankruptcy would protect the rest of the company, although still carried risks.

    A demerger of its US business to free the rest of the company is another possibility.

    Professor Freeman said that a better option would be to make a deal with Congress that would create legislation to protect it from liabilities.

    However, this would be possible only if BP could stop the leak and the political atmosphere cooled sufficiently to allow it.

    Whatever happens, she added that BP would probably drag out proceedings for as long as possible to spread the impact on the company’s finances.

    “It took 20 years to settle after the Exxon Valdez spill. There could eventually be some large settlement that resolves claims once and for all.”

    But the outlook for BP’s top executives remains difficult.

    One senior source in the oil industry said: “Hayward will have to go and the chairman (Mr Svanberg) will probably have to go too. He was a bad choice because they needed someone with more of an American profile and experience.”

    He said that they were unlikely to resign until the well had been capped.

    Pierre Terzian, director of Petrostrategies based in Paris, said that BP, which was built on a lucrative concession to produce oil in Persia with the backing of Winston Churchill, likened the company’s actions to its colonial past.

    “This was 19th-century behaviour – where the safety of people and the environment were neglected and put ahead of higher profits and production,” he said.

     

  • Is this what politics has come to?

     

    The end result was nothing if not unfiltered. Indeed, it was almost completely incoherent, as Wilde struggled to provide any semblance of moderation and the leaders alternatively answered random tweeted questions or fired campaign pledges into the ether.

    The potential positives for this new style of debate are immediately evident in terms of engagement and participation. Following the #penrithdebate hashtag was like leaping into the warm bath of democracy: raucous and disorderly, but also robust and diverse. Ill-considered quips and confected outrage jostled happily with witty puns and even the occasional balanced and intelligent remark.

    But the disadvantages of such a chaotic medium were just as apparent. Watching the tweets tumble down my screen, I was struck by the sheer avalanche of unmoderated information that Twitter makes available. Even in this age of “partial continuous attention“, the brevity and rapidity of Twitter is exactly the opposite of what one might hope for in an enlightened democratic dialogue. The tendency for candidates to ignore each other and simply to repeat their talking points; the morass of bathetic banter; the trolls and sock puppets: none of these show democratic debate in its best light.

    On the other hand, the same criticisms have been levelled at democratic processes since the time of Pericles. Indeed, one imagines a reanimated Pericles transported into the future would not feel out of place trying to make his points amidst the dull, chaotic roar of a Twitter stream.

    Why participate in the debate anyway, moderator Kevin Wilde asked at the beginning of the debate. “cos KK refused to participate in a debate organised by the Penrith Business Alliance” Barry O’Farrell fired back, in the first of several well-turned tweets.

    What can we draw from this brave exercise? A few key observations offer themselves.

    Firstly, Twitter offers new models for geographically distributed debate. Today’s debate did not require the leaders to assemble in one forum. Keneally was at a Penrith cafe, Rhiannon was at her electoral office, and O’Farrell was on the move. Twitter offers not so much a lack of geography as a multiplicity of geographic simultaneity. Insert your favourite new media metaphor here.

    Secondly, a new medium offers a new challenge for politicians. The first televised US presidential debate in 1960 offered voters a radically new way to engage with their leaders. Listeners on radio thought Nixon won. Television viewers thought Kennedy won. Many blamed Richard Nixon’s five o’clock shadow for the result.

    Today’s Twitter debate offers some intriguing glimpses into a future in which a quick wit and rapid touch typing skills could be just as important as good hair and an appropriately tailored suit. To my surprise, I decided that Barry O’Farrell performed best. His tweets were more direct and even betrayed the occasional flash of humour whereas Keneally seemed capable only of anodyne campaign pledges. Rhiannon seemed most at home in the medium, but also struggled to get a consistent message across.

    Thirdly, the new medium will stimulate a rapid evolution in political tactics appropriate to it. Indeed, we saw a number in their nascent form today. For instance, Keneally showed her political discipline, staying on message with a series of boring — but at least clear and comprehensible — campaign talking points. Another tactic that could emerge is to flood the channel by engaging large numbers of supporters or party members to bombard the Twitter stream on a particular hashtag. Twitter also offers the opportunity for savvy politicians to simply overwhelm the debate with large numbers of tweets; unlike a live TV interview, no-one can say “I’m going to stop you there”.

    It may take audiences and media professionals just as long to understand and adapt to the new medium as politicians. The messy and difficult debate will look a whole lot smoother once it makes the news tonight.

    Perhaps the tweet of the debate was from Daily Telegraph blogger Joe Hildebrand, who observed “Exclusive: Twitter debate confused, nonsensical and unproductive; perfect representation of NSW politics.” It will take more than a few Twitter debates to sort out the mess that is state politics in New South Wales. Genuine democracy is never neat or clear-cut.

  • Teflon and the haters of Rudd

     

    Paradoxically, we see that the same mistake is being made by the neo Rudd-haters as was made by the Howard-haters, who in many cases are one and the same people. The more vitriolic or unreasonable the attacks, the more they work for the Prime Minister, as voters inclined not to like him pause, take stock and decide their misgivings are really not so grave that they need to join the frenzy. Distaste for the attacks soon turns to regard for the victim.

    As Noel Pearson once described it, the Teflon which coated Howard for so long was made from the spit of his opponents. Rudd may soon discover similar Teflon attaching itself to his thick skin.

    But in the upcoming election Teflon will be an equal opportunity protector, since the Opposition Leader, Tony Abbott, has always been the most obvious beneficiary of the Howard-hater effect. In fact he inherited many of Howard’s enemies who, if it is possible, have become even more unhinged in the face of Abbott’s intellectual version of pragmatic social conservatism.

    Abbott has focused attention so astutely on the government’s failings that the spittle has barely had a chance to land on him yet.

    But, as government hard man Anthony Albanese signalled on the ABC’s Lateline on Tuesday night, with his blitzkrieg on Abbott as “a throwback”, “a huge risk to our economy”, “a huge risk to national security”, “the most extreme ideological leader” the Liberal Party has ever had the misfortune of harbouring, it’s clear Labor’s election strategy will be to destroy Abbott personally.

    Labor’s only glimmer of light in fading opinion polls has been that Abbott has not benefited much personally from the Prime Minister’s catastrophic loss of popularity, even though the party he leads is in a competitive position for the first time in three leaders.

    But, just as interpretations of Rudd’s decline have been skewed in favour of a progressive storyline, so too has Abbott’s success. They’re hating Rudd for the wrong reasons – all emissions trading scheme betrayal, not a prosaic cocktail of voter disappointments, from a cigarette tax to electrocution by pink batt, from a $600,000 education revolution canteen to FuelWatch and GroceryChoice, from record numbers of unauthorised boat arrivals to the new mining tax which threatens to kill the goose that lays the golden eggs.

    The line on Abbott’s success, even from some within his own party, is that he is simply the beneficiary of luck and good timing, having arrived at the leadership at the precise moment that Rudd’s fortunes were heading south; further, that his fundamental shortcomings are the reason he has been unable to turn Rudd’s popularity to his own advantage, as if any opposition leader engaging in hand-to-hand combat with a once-popular prime minister has ever emerged unscathed.

    An opposition leader who acts like a statesman and stands above the fray, enlisting henchmen to do the bruising work, may burnish his own reputation, but he doesn’t shift the polls like Abbott has. People expect you to have your own skin in the game.

    But this reluctance to give Abbott credit for the plunge in the government’s fortunes encourages potential challengers such as Joe Hockey and the failed opposition leader Malcolm Turnbull, seen by the Fraser rump of the Liberals as the last hope against conservatism in the conservative party. Their chutzpah is astonishing.

    Thus we have a reinvigorated Turnbull giving a speech at the weekend containing a carefully worded sideswipe at his leader, while ostensibly criticising Rudd over climate change.

    ”Our efforts to deal with climate change have been betrayed by a lack of leadership, a political cowardice, the likes of which I have never seen in my lifetime.” There wouldn’t have been a political junkie in the country who didn’t think he was talking as much about Abbott as Rudd.

    Equally unhelpful to his leader, the former head of Australians for a Constitutional Monarchy, was news at the weekend that Hockey has rekindled the republic debate, for no apparent reason, by beginning talks with the Australian Republican Movement. That’s called wedging yourself.

    With the government bleeding on so many issues, on the eve of what was always going to be a crucial two weeks in Parliament, the weekend contributions of two of the opposition’s most innocent-eyed politicians were self-defeating, to say the least.

    In the case of our Prime Minister and Opposition Leader, if Teflon is the protection they receive from the hatred of their enemies, then mischief by their friends is the Kryptonite that makes them vulnerable.

    devinemiranda@hotmail.com

     

  • The duffer’s guide to the Resources Super Profits Tax

     

    The Government says the old tax system has failed to keep pace with the spiralling profits generated by the big miners. The miners believe the new tax is not a tax on “super profits” but on very mild profits.

    This is how the tax would work.

    Under the current system, mining companies pay 5 per cent of annual income to the state where they operate as royalties.

    A company earning $300 million in revenue would pay royalties of $15 million.

    It then pays federal company tax. This is calculated by deducting operating expenses of say $100 million, another $95 million for depreciation of equipment and $5 million for interest on money borrowed to pay for day-to-day running of the business.

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    It also subtracts the $15 million royalty paid to the state. That gives a figure of $85 million which is taxed at 30 per cent – a total of roughly $26 million.

    When added to royalties it leaves a total tax bill of $41 million, (41 per cent tax.) Under the proposed super profits tax, companies still pay the same amount for royalties.

    The super tax kicks in after a company earns more than the government long-term bond rate (currently 5.7 per cent).

    To calculate the super tax on $300 million a company deducts the $100 million operating expenses, $95 million for depreciation and a capital allowance from the Government to offset set-up expenses of about $5 million.

    That leaves a total of $100 million, taxed at 40 per cent – or $40 million. The royalty already paid is then deducted, leaving a total of $25 million.

    Company tax at the new lower rate of 28 per cent is then calculated using the existing equation, except the $25 million super tax is also deducted, leaving a total of $60 million to be taxed.

    That would mean the company owed $17 million.

    When the royalty, super tax and company tax are combined it comes to $57 million – or an effective tax rate of 57 per cent.

    If a company fails to turn a profit, the government would reimburse 40 per cent of its initial investment.

    Lowering the company tax rate to 28 per cent means miners who make a small profit will pay less tax.

    The tax is retrospective and will be applied to projects already underway. The Government will reap upwards of $12 billion in the first two years, with a third going to a scheme to lift superannuation levies from 9 per cent to 12 per cent.