08/08/2012 - 10:40

Blackouts to fuel debate over Asian power

08/08/2012 - 10:40

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Political ideology is the only barrier to Australia taking advantage of Asia’s need for power.

Political ideology is the only barrier to Australia taking advantage of Asia’s need for power.

AS interesting as it is to talk about Australia becoming the ‘food bowl of Asia’, the truth is somewhat different; the real job is for Australia to cement its role as the powerhouse of Asia.

Last week’s blackouts across northern India, which left 680 million people in the dark for two consecutive days, was a useful reminder that Asia wants electricity as much as it wants food – perhaps more so.

While a uniquely Indian event, caused by a mixture of failed government planning, an ancient and inefficient electricity distribution network, and outright corruption, the heart of the problem is that Indian power stations do not have enough coal to meet electricity demand, which is growing at 8 per cent a year.

The fuel shortage has, so far, been reduced to a secondary status as the Indian national and state governments haggle over who is responsible for a disgraceful event that has raised doubts about whether India can ever hope to match China as an economic giant.

Without going into the detail of who said what and when, the Indian system of central control over electricity production and the allocation of quotas to the states (which have to submit estimates on a daily basis of the next day’s electricity requirement) creates a climate where everyone cheats. Some states exceed their daily quota by more than 20 per cent, which causes the system to crash.

The obvious solution, and one which is heading Australia’s way, is for India to buy more coal, gas and uranium – the triple crown of Australia’s future as a regional powerhouse.

For the Australian government, with its dependence on the support of the environmentally focused Greens, the triple crown of power is both a blessing and a curse.

On one hand the government can see that Asian power demand, as shown in India’s crisis, is a major opportunity for Australian business and a major taxing target to top up its depleted Treasury.

On the other hand, the government has a partner that’s opposed in principle to uranium, has a dislike for gas, and a deep hatred of coal.

While India and many other countries in Asia want to build on their relationship with Australia as a reliable source of multiple streams of fuel, the Australian government is split; should the ‘powerhouse’ business be encouraged because it creates wealth, jobs and tax revenue, or discouraged because of a philosophical belief in restricting the use of certain fuels?

Windmills, solar farms, and other forms of alternative power are simply not an option to supply the large amounts of power required in heavily populated Asian countries.

They need Australia’s triple crown of coal, gas and uranium, and are willing to pay handsomely for supplies.

What becomes interesting is whether the Australian government, under the influence of the Greens, will seek to limit fuel exports on the grounds that coal, gas and uranium are bad for the environment and a belief that Asia should reduce its reliance on polluting, or politically incorrect, fuels.

The fuel debate has not reached that point, yet, but it will in the aftermath of India’s blackouts and the rapid growth in regional electricity demand.

The point about Australian fuel is that the market is wide open. Competition is scarce because few countries in the world have spare energy supplies to export, and there are willing buyers prepared to pay whatever it takes to avoid the debilitating blackouts that closed large parts of India.

Politically difficult it might be for some Australian politicians but they had best get used to the idea of Australia being the powerhouse of Asia – or explain to a couple of billions Asians why keeping the lights on using Australian coal, gas and uranium is bad for them.

Tough retirement

THE Power of One is a Bryce Courtenay novel about a man who achieves much with his life, whereas the ‘power of zero’ describes how the seeds for the next crop of monumental financial disasters are being sown.

The zero in question is what most investors around the world are getting on their savings at a time of record low interest rates, which, in some cases after allowing for inflation, actually mean they are losing money (a negative return) by investing in assets once considered blue chip.

Funds under management in the US’s biggest pension fund, the California Public Employees’ Retirement System (Calpers), have shrunk from $US250 billion five years ago to $US233 billion, and the rate of annual return crash from 10 per cent a year (and more) to 1 per cent (and less).

Panic has not yet set in among the world’s pension fund managers but it will soon because their assumptions of generating a safe 5 per cent to 7 per cent a year just by acquiring government bonds has gone out the window in an era of 0 per cent.

Human nature being what it is, and with history as a guide, it is only a matter of time before one or more of the big pension funds either admits that it will not be able to meet future demands from retirees, or that it chased a higher return on a risky investment and lost a few billion dollars in client funds.

Speculative

SPEAKING of risk, watch out for a sharp correction in the Australian dollar, which has been behaving like a hothouse flower, blooming under the heat of hot money flowing in from depressed Europe – but at a time when Australia’s terms of trade are worsening thanks to flat-or-falling commodity prices.

Australia deserves a high-value currency, but the recent run up to $US1.05 represents an 8 per cent gain in just six weeks, and that’s not only too far, too fast, it’s a sign that the Australian dollar has become a speculator’s plaything.

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“Originality is nothing but judicious imitation.” 

Voltaire


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