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In need of a sea change
13 June 2009
The Australian

THE Rudd Government's recent defence policy white paper outlines plans for a build-up in Australian naval power. This focus on maritime security contrasts starkly with the neglect of the oceans evident at Kevin Rudd's 2020 Summit in April last year. The summit report made only one small reference to the oceans, noting the need to assess Australia's maritime area to inform long-term management. This was inadequate recognition of the importance of the oceans to our future prosperity and security.

Australia is the country with the largest claim to an area of the Earth's surface, about 27.2million square kilometres, of which about half is over ocean or sea. In other words, it has jurisdictional responsibility for more than 5 per cent of the Earth's surface and nearly 4 per cent of the planet's ocean areas. Australia has declared an exclusive economic zone of 8.15 million square kilometres around the continental land mass and island territories, the third largest EEZ.

Paradoxically, the day after the 2020 Summit ended, the government announced that the UN Commission on the Limits of the Continental Shelf had confirmed a decision that extended the limit of Australia's continental shelf. The decision gives Australia jurisdiction over an additional 2.56million square kilometres of continental shelf in nine distinct marine regions. This is an area 10 times the size of New Zealand. It means the maritime area over which Australia has some jurisdiction is nearly twice the area of its continental landmass. Australia also has accepted search and rescue and international security responsibilities for a big area of high seas.

Australia should be an oceanic superpower, but we are not even a significant power. We tend to neglect the oceans. There is a terrestrial bias in Australian public policy although, as the white paper suggests, this may no longer be so with defence policy.

A sea change is required to advance our ocean interests. This is not just in terms of national defence but with our economic, environmental and resource interests, and with our security interests more broadly defined.

Why don't we think more about the oceans in Australia? Australians use the sea for recreation and are addicted to the beach, but our national identity has largely been forged by looking inward to continental Australia. Our main industries are terrestrial: farming and mining. The Australian mining industry even initially opposed Australia's ratification of the Law of the Sea Convention, from which Australia has gained so much in terms of marine space and ocean rights.

Until about 30 years ago, our marine industries, historically mainly shipping and fishing, were mostly in the hands of foreigners. Our military traditions are primarily those of the army: Gallipoli, the Western Front, Kokoda and Vietnam. The navy is largely sidelined in Australian military history. This is surprising for an island nation.

Our marine scientific and technological research effort, to know what resources we have control of and the characteristics of the sea territory we we are supposed to be defending, has gone backwards in the past 15 years. We've explored only about 10 per cent of our offshore estate.

Australia has a poor research-vessel capability relative to the size of our maritime domain and the capabilities of other nations. We have only one vessel engaged full time in blue-water research. That vessel is old and has substandard facilities and limited range. It struggles to get sufficient funding to remain at sea for even 180 days a year. Australian researchers make use of scientific vessels from other nations that research while in or transiting Australian waters, meaning our marine research is conducted according to other states' timetables. This situation will be partly alleviated as Innovation, Industry, Science and Research Minister Kim Carr snared $120 million from Wayne Swan in the budget last month to replace the one vessel, RV Southern Surveyor, as soon as possible.

Canada, however, has a maritime claim slightly smaller than Australia's and has about 18 blue-water research vessels. India's maritime domain is about one-third the size of Australia's. It has six research ships. Taiwan has four blue-water research vessels. And Japan, with an even smaller ocean zone, has more than 60 blue-water research ships.

It's a catch-22 situation; we don't invest resources in marine research because we don't know what we have.

The story is much the same with blue-water patrol capabilities. With the exception of minehunters pressed into border protection duties, the navy has nothing suitable for offshore patrol work other than its frigates. These are an over-kill for that task.

The Armidale-class patrol boats and Bay-class Customs vessels are only a coastal patrol and border protection capability. We lack an effective vessel to patrol in the farthest limits of our offshore areas and on the high seas.

Other countries have a much greater capability for offshore patrol, usually operated by a national coast guard. The Indian coast guard has 14 offshore patrol vessels, all carrying a helicopter and capable of extended patrols outside coastal waters. The Canadian coast guard has 14 large multi-tasked vessels, including icebreakers, as well as operating some blue-water research ships. Japan's coast guard has a large fleet of offshore patrol vessels and even operates research ships. The white paper has at least addressed this capability gap by including plans to buy bigger and more capable vessels to replace the Armidale-class boats.

Our Antarctic marine capacity is limited. Australia has one ship, the Aurora Australis, that's capable of operating in sea ice. Our dependence on one vessel makes the system vulnerable in the case of accidents. A decision on its long-term replacement will need to be made soon. We should have one or more ice-breaking national-flagged vessels to serve our interests in the Southern Ocean.

Almost everything to do with the oceans has a strategic dimension for Australia. They cut us off from unwelcome intruders and link us with our neighbours. Our specific strategic interests comprise our offshore island territories, the Australian Antarctic Territory, the sea-air gap with our northern neighbours and navigational rights and freedom. The white paper recognises the security significance of the oceans, but this attention must be complemented by initiatives in other areas of public policy.

Our political ocean interests include effective arrangements with the states and territories for managing our maritime domain and co-operation with our neighbours for oceans management and good order at sea. Direct threats in the oceans are increasing. These include illegal activity at sea such as piracy; smuggling in drugs, arms and people; marine pollution; and unregulated and unreported fishing.

The sea also offers oceans of wealth: our $38 billion marine industry includes offshore oil and gas, shipping, marine tourism and fishing. But there are also emerging industries, such as marine biotechnology (new forms of marine life are regularly being discovered), wind and tidal energy, desalination, deep-seabed mining, and carbon capture and storage. However, our research and development efforts to exploit the potential of these new industries are greatly under-resourced.

Projections of the state of the world's oceans and the decline of fish stocks are no longer just environmental fear-mongering. They are real and firmly based in good science.

It's not going too far to say that regional stability is threatened by declining fish stocks. The collapse of fisheries in the Pacific or Indian oceans would have a serious effect on Australia's security interests. As well as direct threats, indirect threats include food and energy insecurity, climate change, loss of marine biodiversity, marine pollution, ocean acidification, marine natural hazards and the effect of the oceans on drought.

Most threats faced by the countries around us, such as population growth, terrorism, food shortages, military expansion, climate change and energy insecurity, have a maritime dimension. While we can't have much influence on these threats at source, at least we can try to have an influence, even in some cases a controlling influence, on how they affect Australia via the adjacent oceans and seas.

The links between climate change and the oceans are also under-appreciated. The oceans directly affect climate and are directly affected by climate change. Our ability to predict drought and severe bushfire seasons in southern Australia would be greatly enhanced by better knowledge of ocean processes in the Southern Ocean.

Increasing acidification of the seas is a particular threat that may have severe consequences for Australia and our region, particularly on pristine coral reefs.

Our strategic planners too often regard our surrounding oceans and seas as a moat that separates us from our neighbours; we continue to seek security against rather than with the region. This is the mindset of insular insecurity that has influenced Australian strategic thinking since the earliest days of European colonisation. This insecurity is evident in the white paper.

We need to temper this by emphasising the positive dimensions of our regional links, particularly in the maritime domain.

With the Rudd government's commitment to expanding our naval capabilities, we are moving to increase our maritime hard power, but we could do much more with maritime soft power and influence. Australia has a clear strategic interest in helping to build stability in the adjacent oceans and seas and in ensuring good order prevails in those waters. It's one of the surest ways we can prevent threats to our own security.

The recent harassment of a US ocean surveillance ship by Chinese patrol vessels in the South China Sea provides an example of the need for enhanced regional co-operation, confidence-building and dialogue to build a more stable regional maritime security environment.

An Australian ambassador for the oceans would help bring focus to our efforts to provide regional leadership in ocean affairs, including maritime security. To become a global leader in marine research, we should establish a national framework for marine science research and development.

To reflect a true whole-of-government approach to ocean development and management, an office of oceans and maritime affairs should be established in the Department of Prime Minister and Cabinet. This would provide co-ordination of ocean-related policies across federal government agencies, and improve liaison with the state and territory governments.

Australia could achieve much in exploiting the economic and strategic potential of the oceans at relatively little cost but with enormous political benefit. Countries can't be good at everything, but we should try to be a smart nation in ocean affairs, and demonstrate enthusiasm, skill and commitment to looking after the oceans. The Rudd government has set an ambitious goal of creative diplomacy to increase our international influence as a middle-ranking power. The oceans offer a potential source of credibility and leadership to enable us to achieve that status.

While the defence white paper emphasises maritime security, we still have a long way to go before Australia is truly an oceanic power.

Sam Bateman and Anthony Bergin are the authors of Sea Change: Advancing Australia's Ocean Interests, Australian Strategic Policy Institute, available at: www.aspi.org.au
 

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Dubai heat felt around the world
27 November 2009
The Age

THE tip is that the company that led Dubai's spectacular growth, Dubai World, will be bailed out of its financial strife by black gold, with the richest member of the United Arab Emirates, Abu Dhabi, writing the cheque. Let's hope it happens, because a Dubai World collapse would send shock waves around the globe, not least in Australia.

It is the holding company for a stable of corporations that includes DP World, which owns port assets around the world and in this country has a comfortable niche alongside local competitor Asciano in the biggest container ports: Brisbane, Sydney's Botany Bay, Melbourne, Adelaide and Fremantle.

The Australian stevedoring assets were picked up in 2006 when DP World paid about $US6.8 billion for the P&O group. In that deal it also inherited extensive maritime operations, including port and shipping contracts with the Royal Australian Navy.

Separately, DP has teamed up with Chris Corrigan's Kaplan Funds management in Australian Amalgamated Terminals, a port joint venture with Asciano that handles general cargo and motor vehicles. The AAT joint venture was approved by the ACCC, but ACCC chairman Graeme Samuel would like to see a third player established in Australia's biggest ports alongside DP World and Asciano, and Queensland, NSW and Victoria are all planning to make it happen. DP World's problems are an unwanted complication.

Another Dubai World offshoot is Nakheel, the property developer that led the astonishing property boom in Dubai that has crashed so spectacularly (Dubai property prices are down about 50 per cent since the global crisis erupted), and is a joint-venture partner in the Middle East with Australia's Leighton Holdings.

Debts Dubai World is seeking to freeze in standstill agreements with its bankers reportedly include $US3.52 billion ($A3.8 billion) of Islamic bonds that Nakheel is due to repay on December 14.

Total debts in Dubai World are about $US59 billion, and while DP World said yesterday the Dubai Government had confirmed DP World and its debt were not included in the "restructuring process" Dubai World wants its bankers to agree to, the entire Dubai enterprise is under pressure.

Evidence of that comes here from the fact that Toll Holdings, the group that took over Corrigan's Patrick group and then spun it out into Asciano, has been contacted to see if it is interested in acquiring Dubai World assets in the region.

Assets on the block do not appear to include DP World's container ports, and Toll would not be interested in them anyway. Sources say, however, that Toll is examining the possible acquisition of DP World maritime assets.

If the group's Australian container port assets did shake loose, the list of buyers would be headed by overseas groups including the government-owned, acquisitive Port of Singapore. The big local player, Asciano, would be ruled out on competition grounds.

The theory in the markets is that the United Arab Emirates will not — cannot — let Dubai World go to the wall. Abu Dhabi, by far the largest UAE oil producer, injected $US10 billion into Dubai in February, and is expected to inject more. But the very fact that a state enterprise of Dubai World's mass has gone cap in hand to its bankers to seek a debt moratorium is something for the markets to chew on as they pause for Wall Street's Thanksgiving Day extended weekend.

One of the unspoken assumptions behind the worldwide sharemarket rally is the big shocks from the global financial crisis are known. Dubai is a reminder that shocks are still possible.

It was well known that the emirate's speculative property boom had busted, but the markets were not expecting its key state-controlled company to seek a debt moratorium. They pushed the cost of buying credit default swaps that provide insurance against Dubai defaulting on its debt up by more than 1 percentage point to 4.34 per cent in response. As of yesterday, Dubai was rated a worse credit risk than Iceland.

Woolies setting the pace

WOOLWORTHS told its shareholders yesterday that it was on course for an 8 to 11 per cent profit rise this financial year that will push earnings up to about $2 billion, but it will be increasingly watching its back as Ian McLeod's makeover of the Wesfarmers-owned Coles supermarket chain continues.

In the first quarter of the new financial year, Coles boosted same-store sales by 6.1 per cent, putting it ahead of Woolies' 5.8 per cent rise, and analyst reviews of the McLeod briefing this week are generally favourable.

The Coles chief stressed that he was on a five-year journey that involves group-wide changes, and a store renewal program that has so far covered only 32 of about 760 stores.

But with Coles booking sales of about $12,000 per square metre and Woolies booking about $15,000, a catch-up strategy is unfolding as the modernised stores generate double-digit percentage increases in sales per square foot, with the new fresh-food offer leading the way.

Deployment of an automatic ordering system that has already pushed profits higher at Woolies adds more relative momentum.
 
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