From the Editor’s Desk · Welcome to the Strategic Weekly Analysis. In this week’s edition, the...

19 October 2010 | Vol. 1, № 39.

From the Editor’s Desk

Dear FDI supporters,

Welcome to the Strategic Weekly

Analysis. In this week’s edition, the

Northern Australia and Energy Security

research programme reports on the now-

cancelled $118 billion Rio Tinto-BHP

Billiton iron ore joint venture plan and

also looks at developments in the

emerging area of wave energy as a

low-carbon emission source of renewable

energy.

The Indian Ocean research programme

reports on two bilateral military exercises

currently underway in India: an Indo-

Russian counter-terrorism exercise in the

country’s north and a joint exercise

between the Indian Air Force and Royal

Air Force in West Bengal.

Meanwhile, the Global Food and Water

Crises research programme investigates

some of the key findings from a report

released by the Asia Society and the

International Rice Research Institute,

which recommends a number of

measures to enhance food security in the

Asian region.

Upcoming Strategic Analysis Papers

include an analysis of strategic

requirements for the Pilbara region and

its offshore facilities, a study of the effects

of migration on population pressures and

a report on the possibility of links

between Somali pirates and the country’s

Islamist militias.

FDI welcomes comment on both SWA

articles and Strategic Analysis Papers.

Comments, as well as suggestions for

future articles, can be forwarded by

e-mail to Leighton G. Luke at

[email protected]

Major General John Hartley AO (Retd)

Institute Director and CEO

Future Directions International

*****

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An End to Rio Tinto and BHP Billiton Iron Ore Merger Plans

Background

The proposed $118 billion iron ore joint venture merger plan between Rio Tinto and BHP Billiton

operations in Western Australia’s Pilbara region has come to an end. Both companies made the

announcement after declining to make changes to the proposed merger plan in the face of ongoing

concerns from regulatory bodies.

Comment

The announcement made by Rio Tinto and BHP Billiton on 18 October 2010 has ended 16 months of

work and negotiations seeking to merge the two companies’ iron ore operations in Western

Australia’s Pilbara region. If the merger were successful, the 50-50 joint venture partnership could

have saved both companies US$10 billion ($10.15 billion) in costs.

When the plan for partnership was originally announced on 5 June 2009, a company statement said

that ‘formation of the joint venture is expected to be completed around mid-2010’.

Just last week, on Friday 15 October 2010, BHP Billiton released a statement: ‘BHP Billiton and Rio

Tinto have noted with disappointment the statement today by the German Federal Cartel Office

(FCO) that its current intention is to prohibit the companies’ proposed iron ore production joint

venture in Western Australia.’

The statement also said ‘the parties continue to believe that the joint venture is pro-competitive and

will increase the supply of iron ore’ and that ‘no decisions about next steps have been taken at this

stage while regulatory discussions continue’.

A decision was made by both companies on 18 October 2010 to end the joint venture partnership.

‘Both companies have worked hard together over the last 16 months in a positive spirit to

demonstrate its pro-competitive effects and I am disappointed that ultimately the regulators did not

agree with us,’ Rio Tinto chief executive Tom Albanese said.

According to a company statement by Rio Tinto on 18 October, ‘both parties have recently been

advised that the proposal would not be approved in its current form by the European Commission,

Australian Competition and Consumer Commission, Japan Fair Trade Commission, Korea Fair Trade

Commission or the German Federal Cartel Office’.

Fears of rising iron ore prices and claims of anti-competitiveness were factors for regulatory bodies

not favouring the merge.

Mining analyst Gavin Wendt from Mine Life, as reported by ABC News, said the deal would have cost

the two companies hundreds of millions of dollars. Gavin Wendt also believes that the level of

opposition from global steelmakers, in countries such as Germany, was underestimated by both

companies.

‘I think they've just totally underestimated the strident opposition amongst the steel industry around

the world to any sort of increase in the power base of these two companies,’ he said.

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According to some industry analysts, this week’s decision has not benefited smaller iron ore

companies operating in Western Australia because the issue remains access to rail lines owned by

Rio Tinto and BHP Billiton.

‘If BHP and Rio follow through with this suggestion that they might be able to gain access to each

other's railway lines, then the argument's going to be if you can do it for each other, why can't you

allow third party access,’ Mr Wendt said.

BHP Billiton Iron Ore operates two separate single track rail lines that run from inland mines in the

Pilbara to Port Hedland. According to BHP Billiton, the 426-kilometre rail link from the Newman area

to Nelson Point, ‘is one of Australia’s longest privately owned railways’ and pulls the world’s longest

and heaviest rail loads. The company’s second rail line is 208-kilometres long and operates between

its Yarrie mine to Finucane Island, Port Hedland. Both ports operate either side of the harbour. The

company also owns 114 locomotives, each one costing $6 million, and 4,000 iron ore cars.

Rio Tinto Iron Ore operations have ‘a network of eleven mines, three shipping terminals and the

largest privately owned heavy freight railway in Australia spanning more than 1,300 kilometres’. Its

two ports are located at Dampier and Cape Lambert. The company’s Expansion Projects continue a

programme of expanding its industrial capabilities across the Pilbara and, since 2003, have invested

approximately $8 billion in mine, rail and port capabilities across the region.

The decision not to merge does, however, provide additional opportunities for both companies to

invest, such as BHP Billiton’s move for potash, and Rio Tinto Iron Ore’s ongoing increases in capacity

across the Pilbara.

Gavin Briggs

Manager

Northern Australia and Energy Security Research Programmes

[email protected]

*****

Oyster and CETO to power Australia

Background

Australia’s present day electricity consumption is estimated to be 130,000 gigawatt hours (GWh) per

year. Independent reports have shown that at least 35 - 50 per cent of the country’s current power

needs can be met easily, if only ten percent of the wave energy along Australia’s southern coast

could be converted into electricity. With the World Energy Council identifying Australia’s southern

coast as one of the most promising sites for wave-power, the Oyster and CETO wave energy

convertors could potentially be the keys to unlocking the energy source lapping at Australia’s shores.

Comment

Reports commissioned by the Carnegie Corporation and Australia’s CSIRO Wealth of Oceans national

researchers have demonstrated that wave energy can be converted into electricity.

Despite its simplicity, the Oyster wave energy converter commands the ability to transfe

power to shore, where it is then converted into electricity. First manufactured in 2008, the newest

hydraulic technology developed by Dr Ronan Doherty of Aquamarine Power is currently being tested

in Atlantic waters, off the Orkney Isles of northern

The key feature of this technology is an 18

Trevor Whittaker of Queen’s University in Belfast. The machine is designed to be deployed near to

the shore, in waters of between 12

waves, such as Australia’s Southern Ocean. Once commercialised, Oyster devices will be arranged in

The basic function of Oyster involves waves moving the large mechanical flap that is attached to hydraulic pistons located on the sea

floor. The movement of pistons pushes high

turbines. Source: aquamarinepower.com

a farm-like structure which is expected to generate about 100 megawatts or more of electricity.

terms of environmental benefits, Carbon Trust has estimated that each Oyster could save up to 500

tonnes of carbon emissions per year. If testing proves successful, this device could possibly serve the

electricity demands of Australia.

CETO wave power: Submerged buoys are moved up and down by the ocean swell, driving pumps which pressurise seawater that

is delivered ashore by a pipeline. U

years in a marine environment. Source: renewableenergydev.com

Despite its simplicity, the Oyster wave energy converter commands the ability to transfe



in Atlantic waters, off the Orkney Isles of northern Scotland.

The key feature of this technology is an 18-metre wide oscillator based on a project led by Professor


the shore, in waters of between 12-16 metres in depth and operates best in areas with consistent


ster involves waves moving the large mechanical flap that is attached to hydraulic pistons located on the sea

floor. The movement of pistons pushes high-pressure water onshore via a sub-sea pipeline, driving conventional hydro

uamarinepower.com

like structure which is expected to generate about 100 megawatts or more of electricity.

of environmental benefits, Carbon Trust has estimated that each Oyster could save up to 500


electricity demands of Australia.


is delivered ashore by a pipeline. Units are manufactured from steel, rubber and hypalon materials, all proven to last for over 20

Source: renewableenergydev.com

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Despite its simplicity, the Oyster wave energy converter commands the ability to transfer wave



metre wide oscillator based on a project led by Professor


in depth and operates best in areas with consistent


ster involves waves moving the large mechanical flap that is attached to hydraulic pistons located on the sea

sea pipeline, driving conventional hydro-electric

like structure which is expected to generate about 100 megawatts or more of electricity. In

of environmental benefits, Carbon Trust has estimated that each Oyster could save up to 500



nits are manufactured from steel, rubber and hypalon materials, all proven to last for over 20

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Another new hydraulic technology still in the process of implementation is the CETO system. This

new machine has been invented by Carnegie Wave Energy and is operating offshore from Fremantle,

Western Australia. It functions in a similar way to Oyster, as it converts wave power into zero-

emission electricity or zero-emission freshwater. Unlike its counterpart, however, the fully

submerged CETO devices are permanently anchored to the seabed. The unique setup offers benefits

that include negligent surface impact and no disruption to surf sites.

Despite recent hydropower innovations, the ongoing development of renewable energy sources in

Australia has been largely funded by the private sector. Some feel the need for a review into the level

of Australian Government funding for alternative energy. For instance, Michael Ottaviano, Managing

Director of Carnegie Wave Energy, believes more government attention is needed to promote world-

class energy resources, adding that Australia lags behind the world in renewable energy funding,

especially in the wave energy sector.

Amanda Chang

Researcher

FDI Energy Security Research Programme

*****

Indian Military Exercises in Full Swing

Background

Two significant bilateral

military exercises are now

underway in India, with the

Indian Army and Air Force

conducting exercises with their

Russian and United Kingdom

counterparts. The Indo-Russian

Indra 2010 counter-terrorism

exercise, which began on 15

October and which will run

until 24 October, is taking

place in the northern state of

Uttarakhand, while Exercise

Indradhanush will bring

together the Indian Air Force

(IAF) and the Royal Air Force

(RAF) in West Bengal state

from 18 October-2 November.

Comment

Exercise Indra 2010 marks a

resumption of exercises Source: Maps of India

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between the Indian and Russian Armies, after a three-year break since Indra 2007 was held in Russia.

It is part of renewed efforts between New Delhi and Moscow to increase their bilateral defence

co-operation, quite possibly with a view to being able to exert a level of geopolitical influence

commensurate with their status as booming BRIC economies.1

Taking place in the mountainous terrain of Uttarakhand state – parts of which are contested by China

– the exercise specifically focuses on tackling terrorists operating in a remote area. Under the

exercise, infantry battalions from each country, including élite Indian troops and Russian alpine

forces, will form joint anti-terrorist task forces.

Similar to the increased Indo-Russian defence ties, the IAF-RAF Exercise Indradhanush is an

expression of India’s intention to expand ties with leading air forces and is confirmation that New

Delhi is looking beyond just Moscow, its traditional hardware supplier, for defence links. Following on

from the successes of the Indian Ocean Naval Symposium and Exercise Garuda 2010, which took

place in France in June between the IAF and the French Armée de l’Air, Exercise Indradhanush will

take place at Kalaikunda Air Base in the West Midnapore district of West Bengal until 2 November.

Indradhanush has added significance for India in that it will be the first time that IAF Airborne

Warning and Control System (AWACS) aircraft will take part in a bilateral exercise, where they will be

working alongside RAF AWACS to achieve greater interoperability and experience in bilateral

deployments.

Other aircraft taking part will include the IAF’s Sukhoi Su-30 MKI and Mirage 2000 fighters and MiG-

27 ground-attack aircraft, together with Eurofighter Typhoons from the RAF. The IAF will be watching

the Typhoons’ performance with interest, as the European aircraft is a leading contender for the

upcoming US$10.4 billion ($10.5 billion) Medium Multi-Role Combat Aircraft Competition (or MRCA

Tender), under which the IAF will acquire 126 new combat aircraft. Other contenders include the

Lockheed Martin F-16IN Super Viper, the Boeing F/A-18E/F Super Hornet (both from the United

States), the Swedish Saab JAS-39 Gripen, the French Dassault Rafale and the Russian Mikoyan

MiG-35.

Leighton G. Luke

Manager

Indian Ocean Research Programme

[email protected]

*****

Asian Food Security Rests on Rice Production

Background

The Asia Society and the International Rice Research Institute (IRRI) have released recommendations

to assist in developing food security in Asia considering, in particular, the role of rice production. The

1 “Brazil, Russia, India and China”: a term coined in 2001 by economist Jim O'Neill of investment banking firm Goldman

Sachs to denote the four largest rising economies of the twenty-first century.

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recommendations and findings are contained in the 72-page September report ‘Never an Empty

Bowl: Sustaining Food Security in Asia’.

Comment

While Asia has witnessed profound economic growth over the past two decades, it still remains

home to about 65 per cent of the world’s hungry population. Recent events such as the price hike on

food in 2008 have highlighted the persistent food insecurity that remains in the region. In order to

find lasting solutions, the Asia Society and the IRRI formed a task force. The resulting report suggests

that a number of steps need to be taken between now and 2030 to ensure that enough nutritious

food is produced for Asian citizens, with a focus predominately on rice production. It makes sense for

rice to be singled out, as Asia produces 90 per cent of the world’s rice and has more than 200 million

rice farms. As a result, rice is the staple food for most of the poor in Asia.

The first point mentioned is the need to revitalise research and development in order to raise the

productivity of rice farmers. For this to occur, the private sector, which is already playing an

increasing role in research development, will need to continue to do just that. This includes

developing a new generation of rice scientists and researchers in the private and public sectors to

bring about an agronomic revolution in Asian rice growing. In addition, the report suggests that

post-harvest technologies for rice also need to be enhanced.

In broad terms, the report suggests that the environment for rural development needs to improve by

means of investing in agricultural infrastructure and information systems, reforming the policy

environment for food markets, stabilising food prices and strengthening the rural non-farm

economy, as well as involving both male and female smallholder farmers in accessing markets.

What is apparent in the report is the need for more spending in the region to achieve sustainable

food security in Asia. The United Nations has argued that an additional $40 billion is required on top

of the $80 billion currently being spent in a bid to eliminate hunger and poverty in Asia by 2050. The

IRRI estimates that an annual investment of $120 million between 2010 and 2030 could increase rice

productivity by as much as 8.5 per cent, above ‘business as usual trends’ over the next 25 years.

Developing improved storage facilities and logistical networks in Asia will also assist in reducing the

amount of rice that is lost. It is estimated that between 20-30 per cent of food is lost post-harvest in

terms of quantity and nutritional quality. The storing, drying and processing of rice provides room for

improvement. In addition, wastage from the processing of rice in the form of rice straw and husks

could be utilised more effectively by using it for energy generation.

While the Asian region is still prone to food insecurity, this report offers reason for optimism. Its

recommendations, if applied with some degree of success, could be sufficient to herald a new

generation of productivity gains in the agricultural sectors of Asia. Without question, lessons learnt

from this experience, particularly in relation to post-harvest improvements, may also provide

benefits to other agricultural sectors both in Asia and other developing nations.

Gary Kleyn

Manager

FDI Global Food and Water Crises Research Programme

[email protected]

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*****

Any opinions or views expressed in this paper are those of the individual author, unless stated to be those of

Future Directions International.

Published by Future Directions International Pty Ltd.

Desborough House, Suite 2, 1161 Hay Street, West Perth WA 6005 Australia.

Tel: +61 8 9486 1046 Fax: +61 8 9486 4000

E-mail: [email protected] Web: www.futuredirections.org.au

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