04/11/2010 - 00:00

Counting the cost of government indecision

04/11/2010 - 00:00

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Governments are prone to change their minds, but it’s often the consumers who pay the price.

IT’S not often you find a common thread linking government in Australia with government in China, but if you look at the anger stirred by solar-power policy in NSW and anger over rare earth export cutbacks from China, you see the connection.

In both cases, government has encouraged investment and development and then changed its mind, leaving consumers up a certain creek without a paddle.

And in both cases there is a lesson for investors; always be wary of putting your money into a business that is subject to the whims of government, and always keep a watchful eye on the mood of government to pick up potential changes which could make, or cost you, money.

In China, the issue is one of encouraging production of rare earths for the export market, utilising the country’s super-cheap labour costs to undercut rivals in other countries, effectively driving them out of business.

That policy resulted in China snatching an estimated 96 per cent of the world’s market in rare earths, which are finding increased use in high-tech gadgets such as iPads and iPhones, as well as in the nosecones of precision-guided missiles and bombs.

Having secured market dominance the Chinese government then ordered a cutback in exports, leaving consumers in Germany, Japan and the US screaming foul, and wondering why they had not encouraged alternative sources of supply, which they are now doing.

In NSW, the government offered a ludicrously high purchase price for electricity produced by photovoltaic cells installed on the roof tops of suburban houses, an offer driven more by the desire to be seen as Australia’s ‘greenest’ government than by financial common sense.

The price of 60 cents per kilowatt-hour, plus government subsidies to install the high-tech flat panels in the first place, guaranteed a stampede of willing customers, with the rooftops of Sydney shimmering in the new green light of photovoltaic cells.

Then, without any early warning, the price at which the government bought power from these mini household power stations was slashed to 20 cents per kilowatt-hour – a 66 per cent price reduction overnight.

Hardest hit will be the photovoltaic cell installation industry in what looks to be a re-run of the infamous federal pink batt fiasco – also in the name of greening Australia.

Events in NSW are unlikely to be replicated in other states because of the way the 60 cents per kilowatt-hour power resale price was offered on all electricity produced and not just on what was returned to the state grid.

Of the two examples the worst by a country mile is NSW because it has unilaterally, and without warning, changed the rules of the game overnight.

In China, there has been some understanding of business needs by introducing a system that slowly squeezes the rare earth export pipeline. Products are still available, at a price, and it is that rising price that is encouraging new projects around the world, including WA’s own Mt Weld mine near Laverton.

Exchange of money

GOVERNMENT is also playing two roles in the proposed merger of the Singapore and Australian stock exchanges, a deal that has copped criticism in both countries.

Australia’s opposition has been well documented and revolves around the flexible concept of national interest.

Less well known is the opposition in Singapore, which revolves around money, and the potential to lose a lot on this latest Singaporean adventure in Oz.

While critics here have been fretting about the foreign takeover of a national institution, the critics in Singapore have been fretting about the potential to lose on a deal which involves buying into a business that might disappear overnight.

Through some Singaporean eyes the ASX is a business that could easily be replicated by the creation of a new Australian stock market, or by expanding one of the regional markets such as that in Newcastle – using the cash provided by Singapore.

“My thoughts are that if the ASX member firms took the cash then formed a new exchange, leaving the ASX a shell, then the SGX would have a big hole in its pocket,” wrote one Singaporean investor deeply unhappy with the deal.

Welcome to Australia

AUSTRALIAN tourism promoters are blaming the high dollar for a decline in foreign arrivals, but they might also care to look at another reason – the unpleasant reception from government staff at Australian airports, especially Perth.

Last month, Bystander passed through five international airports – Jakarta, Rome, London, New York and Perth. Without question the worst treatment was in Perth.

The most appalling experience, and one which undoubtedly frightens people with a fear of dogs, was being forced to walk in single file, between two taped lines, so a dog could sniff your bags, and stick its nose into your legs.

There is a place for dogs to sniff out smuggled goods. But being ordered to walk the line by goons in blue overalls barking instructions is a first-off experience of Australia guaranteed to destroy any chance of a return visit by a foreign tourist who will also tell their friends back home what to expect here.

Security is one thing. Treating visitors and returning Australians in a manner reminiscent of a prisoner-of-war camp is another.

Power blow

AS a final thought on power, and its misuse, it was amusing to see that sales of wind turbines have slumped with Vestas, the world’s biggest maker of the electricity-producing windmills, sacking 3,000 workers and closing five factories.

The problem, which has been obvious for years, is that the cost of ‘green’ power is more than double the cost of power produced by coal.

What will be interesting to see is whether the cost of subscribing for the new National Broadband Network also hits a cost problem when it comes to selling its service – and whether the government will be forced to make use of the NBN compulsory.

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“One of the things we have to be thankful for is that we don’t get as much government as we pay for.”

Charles Kettering

 

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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