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Inside Business -

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(generated from captions) Ben along? At least this time

he's going for a Labor-held

seat? Some of the Liberals in

performed better than expected. Bradfield were surprised he

He doesn't live in the

electorate of course but he

apparently performed well. He

came in number four. Final observations? The Victorian

Labor Party conference passed a

motion urging not to intervene

in the same sex marriage bill.

It's going to be a contest in

the next couple of

weeks. Increasingly becoming

clear that Nationals in

Queensland are going to be

standing for Liberal National

Party at the federal election, but the Liberals are going to

be standing for the Liberal

Party, which makes you wonder

what the Liberal National Party

whole thingo is about up there.

It just doesn't work. When I

was in India last year, there

was substantial disquiet about

the refusal of Australia to

sell uranium to India. I think

the Prime Minister's recent

visit has not resolved this

problem and made it worse.

It's quite serious. A couple of

weeks ago Piers Akerman's

observation he said the

Governor-General had been told

by the Prime Minister's

department to focus on regional

and rural affairs. The head of

the department on his website

says that's baseless, the

own program. That's our Governor-General determines her

own program. That's our

program for the week. I'll be

back with 'Offsiders' at 10:30.

Here's Alan Kohler and 'Inside


This program is not subtitled This Program Is

Captioned Live. Most of the

media attention on the climate

change legislation has focused

on the politics of it and on particular the brawling with

the Coalition, the real story

is about electricity. 80% of

the nation's electricity comes

from burning coal which makes

us the world's greatest per

capita carbon emitters. The

generators say the legislation

as it stands will send them

broke and navigating this

problem is Australia's great

challenge but it's not getting

the attention it deserves.

Kathy Swan reports. Flicking

the switch on AGL's new $230

million zero emissions

hydropower station at Bogong in

Victoria on Friday lit the

future for power generation in

a mostly brown coal powerered

State a little brighter, albeit

briefply. The Bogong power

station does stand as a shining

example of what the future of

power generation in this

country is going to be all

about. If you think of oirk

Victoria and Australia in the

next 10 or 20 years, we're

actually going to see more

aggregate investment in energy,

not less. Victoria, along with

the rest of coal-burning

Australia, is going to need

more investment in renewable

energy because under a CPRS coal-burning generators like

the four in the La Trobe valley

are on death row. The argument

is how quickly they can be

switched off, how much

compensation should go to the

companies operating the likes

of Hazelwood, Loy Yang A, Loy

Yang B and Yallourn and how to

replace all that baseload power

they produce. What we've said

to the Federal Government is we

want to see that the final

configuration of the CPRS

arrangements and they're of

course negotiating them with

the Opposition in the Senate at

the moment. To get it wrong is

gonna result in, we think and I

believe, an economic

dislocation here in Victoria

and here in Australia that it

will take generations to

recover from. You can't simply

shut those power stations down

overnight. We need to keep them

running. We need time for the new investments that need to be

made to replace them to ensure

security of supply and to

ensure we avoid price

shocks. Michael Fraser,

managing director of power

retailer and generator AGL,

says the company's major

investments in hydro, wind and

other renewables will offset

the losses from coal assets

like AGL's 33% stake in Loy

Yang A. Loy Yang A is Yang A. Loy Yang A is the best

of the brown coal generators so

it is Hazelwood and Yallourn

that are going to be more

the initial years than Loy Yang impacted by a CPRS certainly in

A. The situation is dire. As

a company we have a $5 billion

balance sheet and Yallourn

represents some 30% of that

balance sheet so we will need

to take a significant

impairment on the Yallourn

asset. Retailer and generator

Truenergy and its parent

company hong-kong-based China

Light and Power, hold Yallourn

in a portfolio of assets and size will offer some

protection. I think some of

the other generators who are

single asset generators are

going to find it quite

difficult to survive this. Truenergy's managing director

Richard McIndoe says the CPRS

in its current form will cost

the La Trobe valley generators

$8 billion compared with $2

billion compensation on the

table, an equation already

worrying the banks. Previously

we'd be looking at having 7,

10, 12-year debt to finance the

assets. Certainly the banks won't lend more than three

because of the uncertainty years to any of the generators

about CPRS and the belief the

assets are going to close down

one a 5-year period so we have

had challenges, yes. There are

significant issues around the

timing of the acquisition of

permits and the free allocation

of permits that can have a

significant impact on the cash

flows of those power stations.

They are all trying to put in place refinancing arrangement

said at the moment and frankly

I'd imagine that's a very

difficult task when you don't

know what the rules of the game

are. But is it likely to get so

difficult that coal-fired power

generators are force under to

insolvency in a scenario which,

if taken to its extreme, could

put chunks of Australia's power

network in the hands of

administrators. In that

situation an administrator is

going to rip up the existing

supply contracts and replice

the output at a much higher

level. That goes to two things.

First yowl veer a much higher

price in the wholesale market

and have a much lower level of

reliability in the assets

because there's no incentive to

invest in the long-term in the

assets anymore. When people

get moment from work at night

and turn the switch on they

expect the light to go on so

the challenge see-S to make

sure what's achieved through

the CPRS is energy security a

smaller greenhouse footprint

and additional aggregate

investment. I think it's a

serious threat because for any Government black-outs or

brun-outs would be

unacceptable. They've got to

take it seriously. It depends

on what the emission prices

turn out to be. Mountain,

director of carbon market

economics, is coshing about

increasing compensation because

under a CPRS, the fact that

coal is no longer cheap will

see the market move on to the

next best fuel. Study after

study has shown that for a

price of around $20 a ton gas

bebecomes more economically

viable than coal and market

forces are likely to encourage

that change so the question becomes do you pay for

something that gonna happen

anyway? If the Treasury

modelling is contract that 18%

increase intellect lecprices,

the renewable companies will

win out because they get the

cost of higher electricity

prices without the cost of

carbon. Gas equally so but

maybe not to the same extent so

the input will affect the coal

fire generators and the issue

here is the level of

compisation. What The purpose

of the scheme is to put aplice

on carbon and change

behaviour. Between them, Deutsche

Deutsche Bank's head of company

research Tim King and utilities

analyst John Hirjee have been

nutting out in impact of a CPRS

on the top 25 emitting

companies on the ASX. There's

gonna be a whole new cost line

for companies, being a carbon

cost, and that is gonna result

in new capx decisions for

companies about deploying new

technology, about abatement,

about importing permits from

oversee s. Thi. Reality there

are some very big investment

decision that need to be made

to replace the likes of the

brown coal genrairts. The

investment that we've been

seeing so far is about keeping

up with the growth in demand and the growth in peak demand

that is out there. If you

trash our balance sheets you're

going to have to find new

inveters to replace that

generation that. Rrts going to

take a long time. With the

negotiations on the final shape of the climate change

legislation now entering the

final frantic hours, power

companies face an anxious wait

to see how much time's left

before they have to pull the

plug on coal. In 1958 a

transport conglomerate,

privately owned, named WE

Brambles and Sons, bought the Commonwealth Handling Equipment

Pool or CHEP for short, from

the. The ropation existed of

60,000 pallets left behind by

the American army after the

war. Now Brambles Limited is

not much more than CHEP, almost

everything else has been sold

and it now owns 258 million

pallets in 45 countries and

since 1991 it's been back in

the source of its first pallets, the United States.

There it's done pretty well,

growing market share from zero

to 40% but lately Brambles has

been losing customers in the US

and its new chief executive Tom

Gorman, who was in charge of

the European business, is

working to turn it around and

get the business back on a

growth path. I spoke to Gorman

gr after this week's annual

meeting. Goer go Tom Gorman,

you've launched this thing in

America, what you call the

program better every day. The

obvious question is how did you

get to the situation in the US

where it was getting worse

every day and you needed to fix

it up? I think what was

happening in the US business if

you look historically where

we're coming from, we started our business in the United

States in the early '9s and

over the period of time we've

grown the business from zero to

1.2 billgenian and we were good

at satisfying customers. Some

customers were dedemanding a

higher level of quality in the

pallet and we were delivering

new pallets to them and

charging a premium for the

service and we able to meet our

ongoing sneeedz as we continued

to grow the business. What happened in the United States

is our customer needs were

evolving and because of the

growth we had we felt we were

in a position to meet those

needs. As soon as the growth showed it pointed oued

opportunities for us where we

weren't meeting their exact

rierchlts. You had some net

customer loss? You lost parts

of Pepsi and parts of kraft?

We have been adding customers

consistently since the early 9s, this year in the United

States we are pricking a

reduction in pallet volscpums

there's two pieces to that. One

is we're not adding customers

in a sufficient amount

in a sufficient amount that

we're offsetting some of the losses we've had and we continue to see in the United

States a slow-down in overall

economic activity. And you've

got 4 million idle pallets

there. They must be costing

storage money Exactly. Our

total portfolio in the United

States is about 75 million

pallets, both pallets in the

field as wellicise in our 93

facilities. What we've

identified to the marbsset we have about 4 million

have about 4 million excess

coming into this year, that's

about $5 a year to shore those.

We thing with our projections

it for demand beyond this

fiscal year we'll put the

pallets to work quickly after

FY10. Your competter in the US

has plastic pallets. Are you

confident timber pallets are

going to continue to be the

market? Very much so. A big

part of the better every

part of the better every day

review was a deep dive study of

the market, what our customers

were looking for, where we

project them to be and what

customers want going forward.

We discovered our customer was

indifferent between wood and

plastic. What they're looking

for is a pal that meets their requirements. We think we can

do that very well with wood.

Wood is the best alternative

for our customers. A wooden

pallet is about $20 to acquire

a brand new wood pallet.

Plastic is between $65 and $70

to put in play. We have plastic

pallets around the world, in

fact we're the largest company

to have plastic pallets. We use

them extensively in Europe, we

have about 10 million in total.

We put it in the market where

the customer requiratise and

price it appropriately. You've

lifted market share in the

United States from zero to 40%

over 18 years now that's about

half, I think, of the market

share in Australia. Do you

think you can achieve a similar

market share in the US as you

have in Australia? Long-term,

is that your aspiration? I

think if the question is is

there room to grow in the

United States, the answerer to

that is ablutely yes. We think

the US and continental Europe

are both markiates think most

people would say are mature

markets in terms of economic

growth and in terms of pallet

pooling we have opportunities

to grow in both segments. We

will look at new segments to

grow in, new customers and

winning contracts from our

competitors. Are there other

products you're thinking of

pooling? I think have the a

lot of opportunity for growth

for us around the world in the

CHEP and Brambles space. One of

the areas we're looking at is

taking the base pooling concept

and move nothing to new markets. You have been doing

that for a long time. We have.

We've announced the opening of

our Turkish office in July of

this year so we have a central and eastern European focus, we

have talked about China and

India as other opportunities.

Geographic growth is one. The

second is new verticals or new

market segments. We're looking

at going into pharmaceuticals

or building products in the UK,

different beverage sectors in

the United States. Pallets for

those sectors? Exactly. The

third alternative is really new

platforms and you can see that

here in Australia with what

we're doing with Woolworths,

the returnable plastic crate

business. What's happening is

we take fruits and vegetables

from the grower and rather than

using disposable cardboard or

wooden packaging it's brought

in plastic to the retail location, Woolworths, to the

location, Woolworths, to the

consumer comes in and picks

their produce out the crate. We

wash it, recycle it and

continue the process again.

Brambles's history is as a

transport conglom erate, doing

anything, and expanding in the

'70s and '80s to waste

management which didn't turn

out to be that great and now

you've come down to being a

simple business, just pal scpts document management. Do you

think that the future also

might lead to more businesses,

returning to being a conglomerate, perhaps adding,

during your time, a third

business? I think in all

fairness I've been in the job

now about three weeks and I

think it would be a little rash

of me to talk about long-term

strategies of where Brambles

might go. I can tell you we

have two good businesses today.

We have outstanding customers, 12,000 employees around the

world y think there's a lot of

growth opportunities in the

CHEP and recall platforms we

have today so to think about

adding a third leg or going

into different businesses, I

think we're focused on two good

businesses today and gnats

where my attention is going to

be. Do you think management

business will growing as a

proportion of your business or

shrink? I would like to think

we can grow both of our businesses so the relative size

of the businesses aren't as

important to me as growing profitably and adding

shareholder value. The recall

business, albeit small tharren

the CHEP business, it has a

role for us in the total

Brambles business model because

it is a good business. Of

course I want to make it better, of course I want to

grow it. I think we're capable of doing that and we'll

continue to evaluate that

business as we do every

business unit going forward.

What are the weekly reports you're getting from your outposts around the world telling you about the world

economy? What are the hot

spots, where is it weak? We

don't see a big bounceback

coming in economies around the

world. When we look at all of

had major markets we're in,

clearly Australia is doing well

and on a relative basis it's

probably doing very well

compared to our other major

markets. We haven't seen a big bounceback yet in consumer

demand in had US and when you

look at our European portfolio,

have not seen a big bounceback

yet in the UK which is important and Spain which is

another big market for us in

Europe is really still quite

depressed, suffering from a reported unemployment rate

close to 20%? We see that

market being much, much slower

to recover. I think we're well

positioned for recovery when it

comes but we don't see the

recovery coming aggressively at

least as we look out through

the rest of the fiscal year

which takes us to June

2010. China seems to be growing

well is. There a future for

pallets in China? I think

there is. I have been to China

on several occasions when I was

working with Ford. I make my

first trip to China in mid January with the objective to understand the business a

little bit more, we'll have an

operating review, a couple of customer visits and then I

think I'll be in a position to

to start to form on opinion. I

think there is nothing but

opportunity in China and I want

to get behind the detail and

understand where we're going

and for my own mind, so to set

the milestones of what success

will look like for us. Thanks

for joining us, Tom Gorman. My pleasure, Alan. Now with the latest from Wall Street and all

the market news over to Kate

Tozer. Not a whole lot of

inspiration for Australian

investors out of the United

States on Friday. Concerns

about the slow-moving economy

and weakness in the IT sector

sent shares sliding after

earlier in the week hitting

threne-thunth highs. The Dow

Jones shed 14 point and

computer maker del unsettled

computer maker del unsettled

Nasdaq stocks after reporting a

54% drop in profits. The European Central Bank said

stimulus measures brought in during the financial crisis

would be scaled back. On commodities markets gold

continued its record-breaking

run hitting US$1,001 50en a

ounce, silver and copper both

reached new highs for the year

on the London metals exchange.

on the London metals exchange.

Over the week US shares were

largely unchanged. Japan's

Nikkei index fell 3% as the

Government said the country's

economy is in deflation for the

first time in three years and

as Marcus Padley explains,

Australian stocks were largely

flat. Not the most dazzling

week this week, a tale of two

sectors. Resources were up and

financials were down. One of

the developing themes this week

has been the idea we priced in too much

too much for a US economic

recovery that has yet to

materialise but despite that we

saw quite a good week this week

again for the gold stocks on

the back of a higher record

gold price. We also saw results

this week from Incitec Pivot

whose results were in line with

expectations but left a lot of

brokers suggesting you buy them

as its bottom of the fertiliser

price cycle. We saw AWB survive

despite reporting a $250

million loss. On the takeover

front plenty going on, we're

waiting for a higher bid for

transurban, Breville rejected

the bid from GUD. AMP hosed

down talk that were going to

pay up for AXA, saying the deal

wasn't vital to them. We also

saw QBE hosing down rumours

they were going to bid for IAG,

saying it would only produce

limited earnings enhancement

and on Friday the press wrote

up the idea that Western areas

might be bid for by BHP or

Ex-trota. Stocks that went don

on their AGMs including one

stelic Brambles and Sonic

Healthcare and stocks that went

up included Fortescue and

Aquila was one of the forces

this year after Bayou Steel was

allowed to take a 19.9% stake and although it may not seem

like the market for it there

are something like 20IPOs

slotted in between now and the

end of the year of people try

to get the deals in as the

Christmas window closes. Winner

of the week was Patties Food,

up 23% as they upped their first-half earnings guidance

and loser of the week was MEO

Australia down 14% after

putting away a $27 million share placement.

It looks like being another big corporate collapse

tomorrow. A large privately

owned construction business

employing a thousand people has

been struggling under too much

debt for most of this year and has finally exhausted the

patience of its bank, ANZ, and

will almost certainly going

into receivership within 24

hours. As we keep reminding

ourselves, Australia has done

beautifully in this crisis.

Unemployment is still under 6%

and the only corporate

collapses were Jerrybuilt

businesses held together by

sticky tape and string like

Babcock and Brown and Allco.

Tomorrow's collapse, throwing a

thousand people out of work,

should be a reminder that we're

not out of the woods yet.

Credit is still hard to get and still expensive for

medium-sized companies and now official sthryts are going up

in fact there looks like being

a third consecutive rate

increase on December 1 for the

first time in history and on

top of that the Australian

Dollar is close to its higher

level since the mid 1980s just

after it floated. That doesn't

affect the construction dymps

too much and positively helps too much and positively helps

retailers but manufacturing,

which employs more than a

million people in Australia, is

in distress. Australia's

economy is strong enough to

prompt rate increases and our

currency is rising because of

China. It's just taken over

from Japan as our largest

export market but neither China

nor Japan want anything we

make, just stuff we dig up.

Spoke to a group of

manufacturers the other day. They're working on They're working on a survival

plan, robots. This is a

dangerous time in a dangerous

world. Interest rates and the

currency are rising and soon

carbon trading might penalise

manufacturers even more. Let's

be careful out there Mr Reserve

Bank. This week the corp

regulator ASIC got a black eye

in the NSW Supreme Court after in the NSW Supreme Court after

its long-running case against

One-Tel directors Jodee Rich

and Mark Silbermann was thrown

out and two other former

directors, James Packer and

Lachlan Murdoch, will be

sweating on whether the result

of the case strengthens a $230 million legal action brought

against them by the failed

company's lick withator. I

turned to Ian Ramsay, director

of the centre for corporate law

at Melbourne University for

some advice about some advice about what the case

means. Ian Ramsay, ASIC

commenced preeed proceedings

against One-Tel directors in

2001 and a couple of them

settled in 04 and 05 and then

there were five long years

chewing up $20 million of further litigation and now

finally we've got a 3,000-page

judgment dismiss ing the whole

case. It would seem the world's gone mad. What

gone mad. What can be done

about these kind of cases?

Well y think the judge, in his

more than 3,000-page judgment,

tells us a few things that

actually need to be done. In

particular though, he gives

some pretty strong lessons to

our corporate regulator ASIC.

They brought a case that was

far too broad, covering many

months of investigations of months of investigations of the

solvency situation of One-Tel,

a large company with many

international operations. He basically suggests that the

case should have been much more

focused, much more tightly run,

if you like. On that t was

tight ly focused, wasn't it, on whether Jodee Rich and

Silbermann performed their directors' duties. It was

on those simply a directors' duties case

started off what might have on those guys, wasn't it? ? It

looked like a simple directors'

duties case, did the defendants

breach their duty of care? But

what ASIC then chose to focus

on was a broad series of events

over quite a few months in the

first part of 2001 and let me

contrast that with of course a

very notable, more recent case,

James Hardie. The key

allegation there was a board

meeting in 2001, was there a

misleading press release that

was proved at that board

meeting by the nonexecutive

directors? Here though we

contrast that with One-Tel.

Such an extraordinary saga

involving so much evidence

needed to be brought to

establish the solvency if you

like, the financial status of One-Tel over a number of

months. Should ASIC have

focused on one event as being

the breach of directors'

duties? When ASIC issued its

media release just the other

day the chairman observed at the end, "This judgment will

give us some lessons about how

to run litigation." That's a

well made point and one of the

lessons hOz to be what do you

actually focus upon? What are

the allegations? What are the

factual circumstances that you

want to prove to the court? Is

it a board meeting? What went on at a board

on at a board meeting or is it

actually the financial State

offence an incredibly large

company over quite a serieses

of months? Isn't it the case

that the judge also repeatedly

believes Jodee Rich over ASIC?

That is certainly another part

of the case. Interestingly, the

judge certainly and very firmly

concludes that the defendants

were in a sense stronger, better witnesses, better witnesses, more credible witnesses than witnesses brought by ASIC including of

course a couple of notable

nonexecutive directors. The

judge goes as far as to say

that in his extensive

experience as a judge,

extending more than 10 years,

Jodee Rich was one of the best

prepared witnesses. How do you

see the ripples now spreading

from this? Will ASIC pull its

big head in? It's got number of

big cases going on. What effect

is it going to have on that and

also what lessons are there for

directors, if any? I think

there are some lessons to be

learnt, albeit that we know ASIC has gone through significant staff changes

recently. The first lesson it

seems to me must derive from

the fact that this litigation

was extraordinarily expensive.

We know that ASIC's costs are

the at least $20 million, we know

the defendants' costs are going

to be at least $15 millgen and

ASIC will presumably pay for

those so in other words the

taxpayerer is looking at a bill

of heading towards $40 million.

That by any critearier is a

staggering sum of money but in

the context of ASIC's budget of

$300 million, when we take $300 million, when we take the

total cost and measure it

against the total cost there is

an important issue because this

litigation was brought alt the

expense of other activities of

ASIC. Should it not do things

like this? We need a well

resourced regulator, which we

have, which is prepared to take

cases not on the guarantee it

will win but it realises it has

a credible chance of success.

What we now are What we now are on notice of is

it appears there was real

evidence eight years ago, if

not before, that this had

minimal prospect of success

based on the allegations or the

claims that ASIC brought. Do

you think it means some other

high-profile defendants will

get off now because ASIC will

pull its head in? I hope ASIC

won't pull its head in. I hope

ASIC will be more informed, more thoughtful, more thoughtful, more careful

about where it spends its

taxpayer dollars. I think we're

already seeing evidence that

ASIC is making more strategic

decisions and that's a good

thing. Does the judgment

provide the basis of litigation

against the Packers and the

Murdoches over their withdrawal

of funds as has been sugged

this week? That's a very

you controversial matter. What do

you think? I think that the

judgment this week might be of

some modest assistance to the special-purpose liquidator but

I think any statements that in

a sense the judgment is going

to be of great assistance to

the special-purpose liquidator

are exaggerated and the reason

for that is that are I think so

much will need to be

established, as we know the

a claim of special-purpose liquidator has

a claim of $230 million against

Packer and Murdoch for the

cancelled right issue but the

judgment is not at all clear

about what might or might not

have happened if that right

issue had been followed through

on. The judge speculates a bit,

says that maybe with the rights

issue and with some additional

financial support from

shareholders the company could

have kept going through until late 2001 but the late 2001 but the judge is only

speculating. Perhaps where the

judgment is of more assistance

is in relation to matters concerning whether or not the

nonexecutive directors were

misled by the executive

directors, ie people like Jodee

Rich and Mark Silbermann

because here, to the extent to

which that formed part of the ASIC claim, that

comprehensively failed. Thanks

for joining us Ian Ramsay. A pleasure. That's it for the pleasure. That's it for the

program. Thanks for your

company. I'll see you next week

and now back to Barrie and the

'Offsiders' team. Thank you.

Welcome come to 'Offsiders'. Remarkable events in Britain

over night, the wettest day in

that country's history and in

the middle of that a sporting

upset, Scotland has broke an

16-game losing streak against

Australia in world rugby. It's

been 27 years since they beat

the wa-Wallabies and it came

down the this final quick. Matt Giteau to kick for

Australia. Giteau has missed

it. He can't believe it. One of the famous victories for