# Keeping the Wiz in Oz- The Economist



## It's Snake Pliskin (12 May 2005)

Pick up a copy of the Economist May 7th-13th. 

It has a good survey of Australia and how it stands in the world. It's a good read and may give you a sense of where we are heading. A notable and familiar problem is the lack of infrastructure and the government's lack of investment in it.


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## Investor (13 May 2005)

Tina,

What are you doing "under the bridge"???   

Reading The Economist? 

Yes, I have read the article and agree with the issue about lack of infrastructure spending. I have read other reports about this issue as well.

The OECD has listed Australia as having one of the lowest spend on infrastructure, as a % of GDP, during a recent 5 year period, among the list of OECD nations. The OECD was critical about this lack of infrastructure spending.

I have read another report that suggested that Australia needs $90 billion in such spending to increase capacity and renew currently ailing structures.

To me, top on the list would be new reservoirs in all major cities, to guard against water shortages. Next would be ensuring adequate power supplies in future. The essential services.

Also, new overhead by-passes or new underground road tunnels for Sydney and Melbourne to ease traffic congestion. Last year, almost a million new vehicles were registered. This year, a million is estimated. The roads are already grid locked. What happens in another year or two??? One might be able to order a cup of coffee while waiting for the lights to change!

New aged care homes, means tested, due to the demographic profile, before the problems are outlined in the daily papers, like the way the problems with congestion in the ports have appeared in the papers and people wake up and ask "what happened?". 

Provision of real broadband instead of the "ancient" technology that we have here. The era of the information super highway is already upon us, and the government has left Australia with ill equipped infrastructure to mix it with the world.

Just my thoughts.


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## Smurf1976 (13 May 2005)

1. The way the National Electricity Market works is such that there is the absolute minimum reserve available at the time of system coincident maximum demand. A single outage of ANY generating plant results in insufficient spinning reserve and potential system collapse should an additional unit fail (quite a common occurrence). Only if NEMMCO standards are exceeded will this not occur.

This is a highly technical field and power system control is one of those topics not easily explained. In very simple terms there should ALWAYS be sufficient spare generating plant already running to cover the unexpected loss of generation. It is very common for major generating units to trip offline unexpectedly. If this is not done then, unless automatic load shedding systems work perfectly (which they tend not to), a single failure can bring the entire grid down. This is not an exaggeration but an established fact which has long dictated prudent operating policy in the industry.

Not only have the spinning reserve standards been lowered but there is no requirement for the physical existance of sufficient plant to enable them to be met anyway. It is that lack of physical plant which is the real problem. If it hasn't been built then it can't be run. 

Assuming that all the environmental statements, approvals etc. are already in place and that everything goes according to plan (no Aboriginal artifacts are found during excavations, no greens holding up construction, no strikes or equipment damage in transit (Basslink is delayed 6 months right now due to transformer damage in transit)), contracts are all signed, finance in place etc, physical plant construction times are aproximately as follows. Major new baseload plant would require about 3 years as a minimum for black coal-fired, not less than 18 months for gas-fired (combined cycle gas turbine) plus however long it takes to make adequate gas or coal available. A major new brown coal plant could easily take 7 years given the need to develop the mine, that any new plant would use unconventional technology (to limit greenhouse emissions) etc. Oil or gas-fired gas turbines for peak load use can be built more rapidly but they are high marginal cost (and fuel inefficient) and as such are not suitable for baseload application. With the exception of Queensland, more baseload generation is needed in addition to more peak load generation. These times can easily double, or more, once all the paperwork which goes on beforehand is included (dealing with Green objections, all kinds of impact studies, negotiating contracts and so on).

2. Regarding the comment about traffic lights, increasing the cycle length (the time the lights take to "come round") is one of the tricks used to increase carrying capacity. There are limits though due to the "wiredraw effect" - the front of the queue moves but the back doesn't thus stretching it out rather than moving the whole lot. Also people complain if the time is too long and of course motorists on the side streets of major roads (in many places those side streets are themselves major roads) get pretty upset if they only get 10% of the green time so there are limits.


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## RichKid (13 May 2005)

The sad lack of emphasis on infrastructure in the recent budget shows how much importance the govt places on it, if Costello is as good a treasurer as he thinks he is he'd quit worrying about buying himself popularity, now we will all suffer. I can't believe they neglected infrastructure in the budget.


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## It's Snake Pliskin (14 May 2005)

Hi Investor,

Yes and then I picked up a discarded copy of The Financial Review only to find out it was 2 months old.    So I kept reading the economist.  

I wonder who it was who started to reduce the size and capacity of the railways in all states of Australia. Surely, the extensive track system layed out years ago was for a reason.    It shows the states are not doing their job and have mismanaged many things - notably infrastructure and services.  We can't even sell weat because the tracks can't be used to freight it and inadequate roads make freight by truck slow.  A major commodity and we fail to invest in the longevity of it.   

Just some thoughts.


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## Investor (14 May 2005)

Smurf1976 said:
			
		

> .... A single outage of ANY generating plant results in insufficient spinning reserve and potential system collapse should an additional unit fail (quite a common occurrence). ...... It is very common for major generating units to trip offline unexpectedly. If this is not done then, unless automatic load shedding systems work perfectly (which they tend not to), a single failure can bring the entire grid down. .....




Yes. I have read about this in the newspapers before, some time ago.

There were warnings that in the years ahead, power outages will become a common occurrence due to increased demand. Over the years, increasing numbers of households have added reverse cycle air conditioning units (often centralised air conditioning units) to their homes. All it takes will be a hot day, leading to power overload caused by these air conditioning units.

We are used to having power whenever we turn our switches on. In years to come, this may not necessarily be the case. Same goes for water.

I have seen the massive hydro power stations in the Snowy Mountains. I believe this is a potential type of additional infrastructure that we need in many capital cities because it would address future water shortages simultaneously.

China is building the massive Three Gorges Dam, with hydro power, at a cost of around USD 200 billion (?) partly to address the same issues of water and power supply.

Rio Tinto is building a new USD 2 billion smelter near the Bakun Dam hydro plant, in East Malaysia, to access cheap electricity. 

Australia is still pondering about what to do with the congestion at the ports!!!  Rome burns while Nero fiddles. 

Wait till water and power shortages kick in. The public outcry will be furious.

What are your views?


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## Investor (14 May 2005)

Snake Pliskin said:
			
		

> ... have mismanaged many things - notably infrastructure and services.  ...




In the Financial Review today, regarding congestion at the ports;

"At any given time, there can be up to 50 ships off Newcastle or Dalrymple Bay - although, to be fair, the hold ups at Dalrymple Bay are caused more by the Queensland Rail link to Goonyella than the port.

Meanwhile, the amount coal exporters pay in delay charges for these, empty waiting ships will vary from USD 12,000 to USD 50,000 a day........

We're having a great boom, but we're missing an opportunity to have an even greater one."


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## Investor (14 May 2005)

RichKid said:
			
		

> The sad lack of emphasis on infrastructure in the recent budget shows how much importance the govt places on it, if Costello is as good a treasurer as he thinks he is he'd quit worrying about buying himself popularity, now we will all suffer. I can't believe they neglected infrastructure in the budget.




Actually, Costello has yet to be tested in an economic recession. As the saying goes,.... "The jury is still out".


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## Investor (17 May 2005)

Investor said:
			
		

> ......China is building the massive Three Gorges Dam, with hydro power, at a cost of around USD 200 billion (?) ...




I checked my notes. That figure is USD 25 billion, not USD 200 billion. Oops.


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## DTM (17 May 2005)

Investor said:
			
		

> Actually, Costello has yet to be tested in an economic recession. As the saying goes,.... "The jury is still out".




And I wonder how well the invested money from the Super fund will go if there is a recession.  That 5.5% risk free interest return from the Reserve Bank looks a lot more safer because it's easy finding a hedge fund that does well during bull runs, but very difficult to find during bear markets.  

Then there would be a lot of unhappy civil servants if they go backwards. :swear: 

But then again, it would give good liquidity to the markets for others to profit from.


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## Investor (20 May 2005)

RichKid said:
			
		

> The sad lack of emphasis on infrastructure in the recent budget shows how much importance the govt places on it, .... I can't believe they neglected infrastructure in the budget.




In The Age newspaper today:

Deputy PM stirs up a storm over ports

John Anderson's salvo does invite questions about his approach, but the infrastructure problem is urgent.

What was Deputy Prime Minister John Anderson thinking? And what exactly is he planning, as Transport Minister, for the nation's ports? On Wednesday, he announced out of the blue that the Commonwealth could use its constitutional powers to take control of Australia's main ports. There was little sign of such urgent concern about export infrastructure in last week's federal budget, a deficiency that attracted criticism, as did its neglect of the worsening drought. Mr Anderson is responsible for last year's $12 billion AusLink plan but only now has he extended it to ports. To add to the intrigue, the Prime Minister's taskforce on export infrastructure reports today. Labor has suggested Mr Anderson was anxious to produce a "big idea" to pre-empt findings that might reflect poorly on Government inaction. Treasurer Peter Costello, when confronted by concerns about the eventual impact of a stubborn trade imbalance and record foreign debt, has previously diverted attention to two state issues - their taxes and ports. Mr Anderson recited Mr Costello's favourite example of ships idly moored off Dalrymple Bay.

The issue of trade bottlenecks at some but not all ports is a real one, but Mr Anderson has failed to consult the states, port owners, operators and users, and even his proposed port regulator, the Australian Competition and Consumer Commission. They all struggled to respond to a plan without details - such as which or how many of Australia's 70 ports would be affected. Victorian Transport Minister Peter Batchelor has suggested the uncertainty could delay investments in the Port of Melbourne, Australia's busiest, which has just announced a 10 per cent increase in exports to a record 1.9 million containers over the past year. (We suspect, though, that the thought of the Commonwealth taking the heat for a final decision on channel deepening has appeal.) With the Federal Government muscling in on the states on many fronts, inflaming this debate from the start is an odd way to seek co-operative reform. The states have yet to sign up to the original AusLink. Nonetheless, while criticising a "policy decision on the run", federal Labor infrastructure spokesman Stephen Smith noted the philosophical appeal of giving a single regulator oversight of an often poorly co-ordinated export chain of roads, rail and ports.

The Commonwealth's plan needs to be considered. For this to happen, it must put its case properly, consult widely and offer more than just bureaucratic change. Big investments are needed to fix Australia's infrastructure problems. The states also need to respond constructively when the Council of Australian Governments meets on June 3. Prime Minister John Howard yesterday put a more reassuring emphasis on talking to the states about ports and said "agreement on a co-operative arrangement" would be better. His Government has an odd way of initiating co-operation, but Australia's infrastructure needs are too urgent to allow federal-state feuding to sink reform yet again.


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## Investor (20 May 2005)

Also in The Age newspaper today:

As Canberra moves to take control of ports, controversy swirls around the Port of Melbourne.

The Port of Melbourne is in danger of falling behind Sydney and Brisbane and becoming the worst major port in Australia, transport magnate Chris Corrigan said yesterday.

Mr Corrigan, head of stevedoring giant Patrick Corporation, said his company was being frustrated by delays in negotiations with the Port of Melbourne Corporation for a redevelopment of its operations at Swanson Dock.

While the company was expanding in Brisbane, and doubling capacity at Port Botany in Sydney, its Melbourne operation "will be putting in a couple of old straddle carriers from Brisbane" amid the planning delays.

Mr Corrigan said the Port of Melbourne - the nation's busiest and a key driver of the Victorian economy - used to have the best equipment and operating terminal in Australia. "It's now in danger of becoming the worst," he said.

*He said Patrick had first put forward in 1999 a proposal to expand Swanson Dock.*

His warning came a day after Deputy Prime Minister and Transport Minister John Anderson announced that the Commonwealth planned to seize control over planning and regulation of the nation's ports.

Mr Corrigan said he had no strong views on the Commonwealth plan, but he would welcome any moves to shorten the planning cycle for ports.

Negotiations on Swanson Dock include a possible extension of the wharf and waterway to Footscray Road to cater for an extra container ship. "We could use an extra terminal tomorrow," Mr Corrigan said. "Planning certainty would allow us to commit to the project."

Mr Corrigan said it would take three years to implement the design and planning of the project. *Patrick wanted the Swanson Dock precinct completed by 2008, but delays meant it might not be ready until 2010*.

*Port of Melbourne Corporation chief executive Stephen Bradford said he was surprised by Mr Corrigan's comments. He said the port was committed to the long-term development of Swanson Dock, and he expected a decision "in the next few years" so that it would be operating by 2008 to 2010, subject to container growth.*

He rejected Mr Corrigan's claim that it would take three years to implement the redevelopment, saying it should take no more than one or two years.

Meanwhile, Prime Minister John Howard's infrastructure taskforce, due to report today, is expected to criticise delays by state regulators in approving charges at ports. The taskforce also is likely to urge the need for substantially improved price incentives for investors to put funds into the nation's infrastructure, including ports, airports and power stations.

Mr Howard said yesterday he would talk to premiers about taking control of ports at the Council of Australian Governments meeting on June 3.

Mr Anderson did not consult Mr Howard before unilaterally announcing the plan on Wednesday. Victorian Transport Minister Peter Batchelor said it could not have come at a worse time, as the Government prepares to make "substantial announcements about investments".

Queensland Premier Peter Beattie told the ABC's Lateline last night he would not allow Canberra to put the Australian Competition and Consumer Commission in charge of regulating Queensland's ports.


My comments: I saw on ABC TV last night, issues of this nature being discussed. Was amazed that PRK's 1999 application for a mere expansion of an existing port, has yet to get approval. I know of the saying "Rome was not built in a day" but this kind of bureaucracy gives new meaning to the term bureaucratic red tape. Is it not amazing that the Port of Melbourne authority's CEO stated that he expected a decision in the next few years?   

During that time frame (for a mere port expansion), Brazil would have built 5 new ports for increased trade. I now think we have bigger infrastructure problems than we think we have. Rome burns while Nero fiddles.


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## Investor (20 May 2005)

Perhaps the first regional city to run out of water - an article about the looming risks of water shortages, in The Age today:

Goulburn could run dry in eight months
By Melissa Marino
Canberra

Matt O'Rourke walks across the dam that is Goulburn's major water source and does not even get his feet wet. He is not God, but perhaps another type of miracle is occurring. "It's raining," he says. "This is not a drought story after all."

But it is. The ultra-light shower barely touches the ground. What does make it disappears in the deep cracks - just five years ago, this was the bottom of a 10-metre-deep, 9000-megalitre dam.

The people of Goulburn, one hour north-east of Canberra, need a lot more rain than this.

Today their dam is just 8 per cent full. If the drought continues, the dam will be empty in eight months.

Things are not looking good. Mr O'Rourke, water services manager at the local council, says below average rain is expected over winter.

In the past two months they have had only 10 millimetres of rain. In an average month, they would get five times as much.

Goulburn's 22,000 people are not allowed to use hoses - residents cannot water gardens or wash cars.

Many sports grounds have been closed. The junior soccer and rugby clubs are on the verge of shutting down for the season, with concerns the injury toll from the hard earth is getting too high. In the prison, 70 inmates must shower within an hour.

Welcome to Stage 5 restrictions, tougher than anywhere in Victoria. Under Stage 5, all use of town water outside is banned and people are asked to use no more than 150 litres of water a day - about the same as a 15-minute shower.

But, Mr O'Rourke says, Goulburn is not unique. Water, as a resource, is running low and people have to come to terms with it or face a similar predicament. "We're just further advanced than a lot of people, that's all," he says.

Sharon Mitchell, like many Goulburn residents, waters "what's left" of her roses with dirty washing water - including the dog's. "They're pretty sad," she says. "You used to think you had a nice garden, but the grass is just barren, just dead."

Despite her loss, Ms Mitchell says adjusting hasn't been so hard. "You don't wash your car . . . it might sound awful, but we don't flush every time we go," she says.

Mr O'Rourke says the community has responded well since restrictions were extended last October, reducing consumption by half over the past three years. He is not so optimistic about the response of local business, which is being asked reduce water consumption by a third.

This week the council decided to close the public swimming pool. The council also is investigating halting development in the town.

They are drastic measures, but necessary, says Mr O'Rourke, who heads a team desperately looking for alternatives to avoid a last resort of trucking in 100 loads of water each day.

Already, four bores are being dug to reach water found last year - which was like discovering gold, Mr O'Rourke says. The bores will provide water for six months and should buy enough time for a pipeline to be built to pump water from a nearby river should the catchment water run out - that is, if the council can secure funding and resolve a dispute over water quality.

But Mr O'Rourke says all these responses are short term. Any long-term solution needs to be multi-layered. In Goulburn, this means being connected to a larger water supply, perhaps Sydney's or the ACT's, but it also means making permanent changes in water use.

"We've got to recycle stormwater and effluent . . . get right into water conservation, cut back what we use and be more effective and efficient," he says. "You've got to rethink the way you use water."


My comments: Imagine if this water crisis happens in Sydney.  :swear:


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## krisbarry (20 May 2005)

Investor said:
			
		

> Over the years, increasing numbers of households have added reverse cycle air conditioning units (often centralised air conditioning units) to their homes. All it takes will be a hot day, leading to power overload caused by these air conditioning units.




I remeber my Dad saying this back in the 80's "you kids are so wired up to power points these days"   20-25 years later.....

Aint that the truth...When the power goes out, my world stops!  

Homes started with the essentials of lighting, and progressed with all the mod cons that some 9 millions homes contain.... fridges, tv's, stereos, home P.C's, VCR's, DVD's, Air-Cons, Security Alarms, sprinkler systems, hot water systems, microwave ovens, digital set top boxes, X-boxes etc.

We are so reliant on power it is truely increadible!


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## It's Snake Pliskin (20 May 2005)

> that is, if the council can secure funding and resolve a dispute over water quality.




Why should funding be a problem when we are taxed to the hills, by all of our governments? It shows our system is not working and needs to be changed. 

Solution:
Regional governments under the control of the national government.


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## Investor (1 June 2005)

In The Age today:

There's a way to avoid infrastructure problems, writes Jon Stanford.

Fifteen years ago, according to Paul Keating, "every galah in the pet shop" was talking about microeconomic reform. Today they'd be squawking about Australia's creaking infrastructure. Two recent reports, from the Business Council of Australia and the Committee for Economic Development of Australia, have highlighted problems with inadequate infrastructure. A report by the Prime Minister's Infrastructure Taskforce will be published shortly.

If bottlenecks to Australian exports did exist, it would clearly be a matter of concern. In this century, our export performance has faltered, with the export share of gross domestic product falling from around 23 per cent to about 18 per cent. This is unfortunate in terms of Australia's ability to service its foreign debt, which has increased from about 33 per cent (net) of GDP in 1996 to over 50 per cent now.

According to a report by The Allen Consulting Group for the Victorian Government, however, there is no crisis in Australia's infrastructure. While it is true that some commodity ports, generally privately owned, are operating at or near capacity, the immediate problems have been caused by a failure to forecast the extent of the commodity boom.

In general, commodity port bottlenecks are a private-sector issue, with the role for government being to ensure planning and approvals processes are efficient and expeditious.

Nevertheless, while there is no current crisis, the economy is pushing up against capacity constraints and some major investment opportunities in infrastructure are becoming apparent. For example, recent studies have suggested potentially high returns from investments in the Melbourne/Sydney/Brisbane corridor, including the ports and urban road and rail systems as well as land transport networks in the non-metropolitan areas.

AS a result of considerable success on the part of all Australian governments in repairing their balance sheets over the past decade, there is also considerable financial capacity to fund those projects that offer a high social rate of return.

In their recent budgets, most states have made provision, including through prudent borrowing, for a considerable increase in infrastructure investment. The private sector is also likely to be heavily involved in this, particularly in areas such as electricity generation.

There are a number of impediments, however, to developing a national strategy for infrastructure investment. The Allen Consulting Group report makes three recommendations for government action.

First, it recommends that the Federal Government join with the states in designing an emissions trading scheme to apply after 2012. This would tackle the reluctance of investors in electricity baseload generation to commit to building new capacity in the absence of some certainty about future greenhouse policy.

*Coal provides the cheapest electricity but is emissions-intensive. If carbon is to have a price in the future, the wrong choice of technology now could result in a commercial disaster*.

Secondly, the report proposes that the Productivity Commission be asked to examine the effects of "horizontal fiscal equalisation" (HFE) and make recommendations for change. The manner in which the Commonwealth allocates revenue to the states can act as a disincentive to efficiency-enhancing investment in infrastructure. Funds are taken from the two largest states (NSW and Victoria) and given to the others to compensate them for various "disabilities". There is no requirement for the recipients to use the windfall to reduce their disabilities (by investing in infrastructure, for example) and, indeed, it may be in their future financial interests not to do so. On the other hand, the donor states have a reduced financial capacity to invest in infrastructure and a disincentive to do so. This is because the availability of higher-quality infrastructure may well disadvantage them further by increasing the other states' relative "disabilities".

Finally, at the Commonwealth-state level, there is a need for a comprehensive and transparent process for prioritising infrastructure investments of national significance.

*The report's main recommendation is that the Council of Australian Governments develop a rolling five-year action plan for national infrastructure projects.Heads of government should operate like the board of a large corporation to establish investment priorities and determine funding arrangements*.

The federation works best when there is co-operation between all levels of government. The national competition policy process in the mid-1990s demonstrates that this co-operation can occur. Investment in Australia's infrastructure deserves a similar level of commitment.

Jon Stanford is a director of The Allen Consulting Group


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