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Inside Business -

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(generated from captions) some damage and I understand

Kevin Rudd I've been told by a Coalition figure that Kevin

Rudd told a senior business

figure that he expects to be

sacked by Julia Gillard if she

survive s the election next

election and form asgoth. So if

knows what he's capable he's got that frame of mind who

of. Well, next week Phillip

Ruddock, who's the father of

the House, is going to be

hosting a 21st birthday party

for Wyatt Roy, otherwise known

as Billy the kid and I gather

an invitation is going to Wayne

Swan BYOG, that is bring your

own glass. It's time to go.

Last week we left you with

Melbourne's lord mayor and his

description of his budget this

week it's Anthony Albanese on

the Federal Budget, thanks for

watching. This is a Budget that

had e meat and potatoes in it, the essentials of keeping the

economy strong but also some

veges and some other things on

the side. What we heard from the Opposition Leader was just

a bit of salad and some

dressing. No substance

whatsoever, no meat, no

Welcome to the program. Are

we looking at a future of

blownouts and power shortages?

Uncertainty about a carbon

price has effectively produced

a capital strike in the strois

sector. Nothing has been build,

decision decisions on upgrading exists plant are being delay

and the banks are increasingly reluctant to lend. A report released by the Federal Government this week put the

cost to the nation of this at

up to $2 billion a year. But

that will rise dramatically as

tonne certainty drags on. We

will have a detailed look at

this issue today. I will

interview the boss of the big

generator, tru energy's Richard

McIndoe and get a view from

David Leitch from UBS. This Program is Captioned


And in First Person, the

housing shortage is driving a

boom in prefab hope homes but

why aren't the banks joining

the party? The irony is that

the building where it's being

built in a modular sense it's

only in the factory for 12 week

a then on site. As opposed to

being on-site in an un

completed state over 12

week. It's a statement of the bleeding obvious that the response to climate change is

not bipartisan policy in

Australia as it is in the UK.

And it hasn't been for 18 months, since the Coalition

turned out Malcolm Turnbull and

replaced him with Tony

Abbott. The target is supposed

to be bipartisan, 5% reduction

in emissions by 2020, but of course there's furious disace greement about how to get

there. Speaking of fury, this

week Mr Turnbull infuriated his

party by remarking that

actually the Coalition's policy

is pretty expensive. Its main

advantage, he said, is that

they can dump it easely. But

its main purpose of course is

to be not an Emissions Trading

Scheme. But let's cut to the

nub of it. The key purpose of

all climate change policies in

Australia is to stop burn ing

coal to produce electricity and

instead to burn gas. The

alternative is nuclear but that

is off the table here, and you

can't get enough power from

renewables yet. The Greens want

to do it by driving the coal

generators out of business by

raising their costs through a high carbon price. The

Coalition wants to do it by

paying them to stop burning coal. The Government is

somewhere in the middle. Bit of

a carbon price, bit of a

payment hoping the generators

don't scream too loudly and the

Greens let them stay in

government. But nn no-one is

happy and no-one knows what is

going on, so there's no

investment in electricity

generation. This week the Government released two reports

about the costs of political

uncertainty, so today we have

two interviews to flesh that

out. In a moment David Leitch,

an an nl wist UBS, but first

Richard McIndoe who runs TruEnergy, owner of the

Yallourn power station in the

Latrobe Valle ji. I asked him how he sees the impact of

what's happening. We've had a

real lack of investment in the

strois sector over the last

three to five years because in

many ways around the

uncertainty here but also the

financial crisis. With the

carbon tax that's processed it

doesn't give any long-term

certainty as to what the

economic rules of the game will

be for a new investment. These

power Stacings are 30 to 50-year investments. So we

don't know what the regime is

going to be for an Emissions Trading Scheme going forward.

We know what the ta tax may be

over a 3-year period but we

don't have long-term certainty

there. A tax is not going to encourage investment today but

it will delay investment until

the industry gets a much better

perspective and view on what

the eventual emissions trading

regime will be. So you say

there will be electricity

shortages in five years time? I

challenges during the peak think there is going to be real

times. We have a market where

demand is very, very high over

the summer months and we came

very close two years ago to

having power outages here in

Victoria. Of course, for the

remaining 10 or 11 months

there's adequate supply but

it's those peak times that are

seeing a great deal of really important. We're not

investment in whether it's a

base load supply or peak supply

now because of this uncertainty. What is needed?

Instead of having a carbon

price this year, July or

August, but a target is set, is

that you wha you need? The

industry is supportive on ae

emissions trade ing regime and

a lot of us in the industry

operate in other jurisdictions

that have a regime like that.

The issue is that the need

costs of a carbon tax will be

borne by the industry, and as a

result of that you see the

equity value in the power

stations being significantly

eroded. Now, what that then

real problems in lending to the leads to is the banks having

industry because suddenly they're lending to an industry

where a lot of equity has been

wiped away by the economic

impact of the carbon tax. So we

have a real freeze in

investment. There's not a lot

of attacks for equity investors

coming into the market and the

Banks don't want to continue to

lend to those affected

generators. I think I have said

this to you before you're just

talking a book. Your company

bought into an industry that

had a horizon on it. Climate

change was going to mean that generating electricity from

brown coal was not going to be

viable for very long and don't

your owners have to wear

that? I think it's important to

acknowledge that this is a

country with 95% of genre

eration here in Victoria comes

from coal fired generation and

over 80% across Australia. As

an industry and as a company,

we ef b've been moving we ef b've been moving towards

investment in new low carbon

and zero carbon emission technology. Combined power

station in NSW has 25% of the

carbon emissions of a coal

fired power station in Victoria

and we built a number of wind

projects an we leer're look at the solar projects as

well. Because of the sides of

the coal fired sector here, it

won't change overnight. It took

50 or 60 years to build them,

we can't see them change their

profile now between now and

2020. Over a 15-year period we

could see deep inroads into

replacing coal with gas. But

doing it overnight is

impractical. So we're looking

for a more measured approach to

the replacement of that coal

fired generation with low fired

carbon. A lot of the talk is

around the carbon price of $25

per tonne which it is generally

agreed is not enough to convert

coal generation to gas. Yet it

is enough to make deep inroads

into your profits, isn't that

correct? At the moment we have

a carbon tax proposed that

really is not going to change

mump at all. $20 a done we

don't see any change between

coal and gas fired

generation. To what extent has

the change in the political

environment changed the

dynamics of the debate that

you're having with the

Government? First of all, there

is not really a lot of clarity

on what the long-term abatement

target. Is Yes, both sides of

politics say 5% but I don't

think the Greens have adopted

that target level. So we don't

as an industry to what target

we're trying to lead over the

next decade and beyond. Now,

second point is that in terms

of transitional assistance,

compensation, the Greens have

indicated that they don't want

to entertain that at all. Now,

that runs the risk of leaving

the industry with a number of

stranded players, who don't

don't have any equity left in

their assets an therefore don't

have the financial capacity to the continue to invest in the industry. So the dynamic in the

industry is probably worse than

it was before the last CPRS.

Now we've got a stake holder

there who really doesn't want

to countenance any rational

economic outcome with the

industry and that is a big

concern. And on the other side

of the spectrum you have the

Coalition with the policy that

involves writing new cheques to

abate. What do you think of

their policy? The Coalition's

direct action policy hasn't

been fleshed out as fully as I

think it could be. But I think

there is merit in looks at

really a combination of the two

areas here. We have no doubt

there - there is no doubt an

Emissions Trading Scheme is the

most economically cost effective way over the long

term of reducing the carbon

intensity of an economy. In the

short term, we've got two or

three major emitters in this

country, certainly here in

Victoria, two or three large

brown coal power stations that

emit really a vast proportion

portion of the carbon dioxide

from the sector here. Now, I

don't see anything wrong in

dealing with the low hanging

fruit. There are a couple of

power stations there that, if

we addressed the emissions from

those power stations, whether

it's through a direct action or

through some early closure

negotiations, then that would actually get much more

short-term abatement and then

that would allow us to progress

into an est Emissions Trading

Scheme which would allow us to

over time really tighten up the carbon efficiency of the rest

of the economy. Get the low

hanging fruit first. One side

of politics who have their

policy and they don't

continence the other side and

the other side won't

countenance the other side's

policies. So we're in a

situation here, where as

investors in the industry,

we're at an impasse and as a

result capital is not being investigate invested. So we

haven't seen new power stations

built. We're seeing these

impending shortages an we're

seeing electricity prices going up.

up. Over the last three years,

electricity prices have gone up

by 40%, principally as a result

of investment in networks. Over

the next three years we expect

them to go up by another 30%.

That is as a result of fuel

costs going up and gas prices

moving up. And that is without

a carbon a carbon price. That is without

a carbon price. A carbon price

will add another $300 per

household on top of that. So

over a six-year period you're

seeing an effective doubling of

electricity prices for houltds

with no tangible benefit. I

think if we can show to

households and consumers that

they're seeing abatement, they

know what the target is they

can actually see some abate

ment through closure, that is

more acceptable. If you're not

sighing any abate ment, all

you're seeing is a higher cost,

that is not a saleable proposition. Thank you for

joining us. Thank you. That is

the view of someone with plenty

of skin in the game. That's $7 billion worth of skin in terms

of generating assets. For

independent view I spoke to the

highly regarded utilities analyst at UBS David

Leitch. David, it handa lack of

investment among electricity

generators. Do you think it will lead to electricity

shortages in future an

brownouts everyone? I think

consumers are getting browned

off. Brownout s are problem yt

ache. Demand is growing quite

slowly at the moment because

consume Erbil s an tariffs are

going up. Over time certainly electricity consumption is

going to grow at about a 1%

pace, I guess, for the next

seven or eight years and we

need an ongoing supply of new

generation to cope with that. There haven't been any

new coal fired power stations

built in Australia for many

years and I don't think anyone would actually build one at the

moment without a huge amount of confidence about its long-term

economics and with complete confidence about what the

carbon price was going to be.

And at the moment without even

a policy we're not being coo

wee of being able to make those

decision. You've analysed in

detail how all this works in relation to the national

electricity market wi. It's

been said the price of carbon

will be around 20 to $20 a

tonne but you have said it will

need to be about $50 per tonne

to ensure that gas generated -

generated electricity is

dispatched into the grid. How

did you work that out? We look

at the carbon intensity of the

different fuel, al

Alan. Australia has thaz

highest per capita emissions

intensity in the world, or one

of the highest. One of the

reasons is because we burn so

much coal in our electricity

mix, the main reason, and the obviously candidate is the brown coal in Victoria where

the emissions intensity is

about 1.2, 1.3 tonnes of carbon

for every megawatt hour, and

that compares with new combined

cycle gas with the numbers is

about 0.4 tonnes. This is a

complicated argument but the variable cost for those brown

coal guys down there in

Victoria is only $2.50 a

megawatt hour right now. And so

they're generally the first

electricity generators dis

patched every morning because their base

their base load electricity

costs very little to people in

variable term s a at the

moment. As soon as the carbon

price is $25 or $30. Their

variable cost jumps up to #40d

a megawatt hour, from

$2.50. It's an enormous cost

increase for them. So all of a

sudden they're not dis patched

in the market every day as they

were before. Butly they also

have a lot less gross profit to

cover their fixed interest

costs and that will cause some

financial stress for them

almost immediately an it's one

of the reasons why the banking

sector is in general

increasingly reluctant to re

finance their debts. Do you

they think become unprofitable

with a carbon price of $25? They become less

profitable. At what point do

they become unprofitable? To cut

cut a long story short, I think

the carbon costs of $30 or $40

a tonne, those brown coal guys

will over time cease to

produce. And depending on how

many - how much assistance

they're offered there may be an

insensitive for them to go out

of bids, it's all very well to

say that is the desired out

come but from the point of view of national electricity

security, ultimately we don't

just want the brown coal guy

going a way in one day without

some electricity to replace

it. We need - that is where I

think some kind of industry

policy or some kind of over

sight to make sure there is

going to be enough new

generation to eventually

replace this brown generation does have some merits or at

least that people have

considered exactly which fas

fired power station or which

piece of wind or if you want to

believe the mad greenies which

piece of polar is going to

replace the brown coal. But

you've saying there not ga

enough gas. Tlnkts is enough

Gatt at the moment but it's being soldoff shore. That's

what I meant. So there is a gas

supply issue. It's quite a

complex environment. There may

be enough fas in Bass Strait

for all I know. Who knows how

much BHP Esso has got down there. Someone needs to get on

with detailed planning of it

fairly fast. If the carbon

price is introduced in 2013,

and let's say it does go up

towards a price which causes

these brown coal guys stress

after only a few years of

operation, and let's say it

takes, you know, five, six,

seven years to get the gas

fired plant plan and built, we

really don't have that big a window of opportunity from that

point of view. Thank you for

joining us Ice been a joining us Ice been a pleasure

talk ing to - it's been a

pleasure talking to you.

And now with the latest

business and market news over

to Jayne Edwards. Wall Street

capped off a fairly mediocre

week with some more selling on

Friday. The Dow, S&P 500 and

the Nasdaq each lost nearly 1%

as investors worried about the

retail sector and Eurozone

debt. Profit reports from

retailers Gap and Aeropostale

warned of higher raw materials

costs and tepid consumer

demand. And came at the end of

a week which also saw

disappointeding housing and

manufacturing data. But

business networking site

Linkedin provide add bright

spark, doubling its IPO price

on debut on Thursday and

raising expectations for possible share market floats

for Facebook and Twitter later

this year. There was little to

celebrate over in Europe, where

ratings agency Fitch downgraded

Greece's debt on Friday and the

Eurozone was pressured by the IMF over its handling of the sovereign debt issue. That led

to the euro loo losing 1%

against the major currencies

and a jump in gold. Looking at

world markets over the week,

most ended broadly unchanged, with Europe the sole mover,

down by 1%. Now with all the

news shaping our local market,

here is Tom Elliott. As you

just heard the Australian share market did pretty much nothing

this week. There was however

plenty of corporate activity

around. Firstly, foftders share

s were up slightly. No it's

demerged from its wine business

many people think Fosters could

soon become a target of a

groenl brewing giant like SAB

Miller. Also Austar shares up

over the week. It seems quite

likely that a deal will soon be

struck with Foxtel and many

people think that will be

struck at the rate of $1.50 per

Austar share. Still no formal

takeover has been announced yet. Telstra shares were up yet. Telstra shares were up a.

Now if a deal with the National

Broadband Network is imminent,

the company could be in receive

receipt of ad 9 billion cheque

from the Government. This would

be good news for Telstra

shareholders and the share

price is already starting to

react positively. Fairfax

Media, the radio and newspaper

network, has decided to get rid

of its radio stations. Fairfax has announced the sale of all

of its radio licences, if it

can get the price it wants,

rumoured to be between $275 and $300 million. Fairfax

shareholders will see their

company's debt loads reduced substantial substantialdy.

Finally in the agricultural

sector, GrainCorp shares were

stronger on Thursday. A big

rumour went through the market

that Canadian giant Viterra

might make a move on GrainCorp

very, very soon. Turning to the

world of banking, and the big

four banks had their collective

debt rating downgrieded by

Moodies from A A1 to A A2. This

was expected however, and their

share prices were mainly

positive during the week. And finally the big iron ore miner,

Rio, BHP and Fortescue got a nasty shock when the Western Australian Government decided

to raise the state mining

royalty on iron ore. However,

will be juf set by a redluks

the MRRT, that's the Federal

Government's resource tax, so

shareholder values were largely

unaffected. Winner of the week

is zinc and lead miner Kagara

up 18% after announcing

positive drilling results at

its Griffths hill resource in

northern Queensland. Loser of

the week is ATM operator

Customers Ltd, down a whopping

39% after announcing an entirely unexpected profit

downgrade. As Tom entioned

in, Telstra is starting to come

back into favour with

investors. While the focus has

been on its future in broern,

in the background a new threat

is emerging. Harjin shredding.

No flil s mobile phone deals

which could soon gobble up with

third of the lucrative mobile

phone market here . Neal

Woolrich reports. We're still turning them around in

good time. When we first

looked at Australia we said

this is impossible they're

paying twice as mump as

Europeans for the same commodity pructd and there's no

reason for it. What we are

doing is reshaping the

market. Just as budget airlines

like Jetstar and Tig ver shave

shaken up the aviation

industry, now a new mobile

phone upstart wants to give the big telcos a run for their

money. Welcome to Amaysim. In

fact we weren't long into our

Feizability study in 2009 when

we realised this was a market

that was screaming out for this

type of product and the customers really needed

it. Amaysim have brought two

things to the Australian mobile

market - a lean, low-cost

operating model, as well as

some innovative

pricing. Amaysim opened for

business in November. Instead of periodic contracts and

capped plans, the company is

offering a pay-as-you-go mobile

service at fixed rates. To put it bluntly I think caps are

crap because what they really

do is lure you into the

illusion that you're protected.

First of all cap is not really

a cap. Most of these products

you run into the risk of

overspending so they should be

called floor I think and not

caps. Secondly it's very hard

for any consume tore exactly

find a so-called sweet spot in

these plans. A point reinforced

by the ACCC this week, which

fined Optus $178,000 fined Optus $178,000 for misleading advertising on its

max cap plans. To keep its

costs down, Amaysim isn't

opening any shop front stores.

Instead, it's using established

retailers like the major

supermarkets, Dick Smith,

7-Eleven and Caltex to

distribute its products. The

the cost of acquire is probably

one-fifth, times even one tenth

of what the big brands spend

when they subsidise phones and

have their big shops. Rolf

Hansen and three other germ

executives founded Amaysim last

year after selling their

European business Simyo. He says low cost mobile carriers

have captured around 30% market

share in parts of Europe. It's

a sustainable business model,

secondly it has dramatically

changed the market because not

only small nimble and active

players like us have driven

that model but following one or

two years later all big brands

came back with an answer. We

think over time the impact is

going to be min - din mal. The

reason being is they are

resellers, they don't own

infrastructure and that makes

it difficult for them to m

compete when prices come down

and the fact that other telcos

use bundling strategies - they

have no other products in other

categories and they do not have the ability to cross sub

subsidise. Rival telco TPG has

been offering fixed price

service force a year and a half

and it accounts for about a

quarter of the company's new

mobile phone customers. Craig

Levy argues the major telcos

are unlikely to start offering

pay-as-you-go services, but

instead go to market indirectly

through Rehe sellers known as

mobile virtual network

operators or MVNOs. If you

look at the large er players

they're trying to protect their

premium brands and the reason

for this is because they have

exist ing customer numbers exist ing customer numbers an

existing revenue lines abthey cannot simply just drop the

price of their product. It will

affect their financials quite a

lot. I would suspect at this

stage that the main competitive

impact from Amaysim is being

felt more by the existing MVNOs

that are also targeting the

very low end of the market

rather than the incouple bents themselves. Ibrahim brilliant

brilliant brilliant says the

big - ibis world's Robert

Bryant says the big telco are

instead focussed in tapping

into the more lucrative market

for data downloads which has been enabled by the 3G

technology. Telstra is an

example over the last two

years. Their revenue from voice calls within Telstra has

dropped by 6% whilst data has

increased by 22%. So you can

see a drar am atic shift in the

way people are spending their money. Low cost carriers have

about 3% of the share market

share in Australia. But Amaysim

is forecasting that to grow

around 0%. The company won't

say how many customers it has

right now but another fixed

rate provider Lycra Mobile,

secured $170 - 170 subscribers

in its first three months after

launching in December. The

biggest execution risk we had

when we launched was convincing

Australians that Amaysim's

price of 15 pent - 15 cent s a

minute is very cheap. It's

exception algly cheap because

most mobile subscribers in

Australia do not know what they

pay per minute. Like any new

entrant they've spent a lot of

money on markets in the

beginning but the question is

will they be able to sustain

this market ing momentum? We

believe that it will Pieter out

over time and unfortunately

that will make consumers forget

about them and they won't have

the kind of impact. And many

Australians will remember the

One.Tel experience which road the dotcom wave turnaround turn

of the century but was brutally

wiped out. One.Tel was 12

years ago, One.Tel as a re

seller was quite a successful

re seller. It got into real

trouble when it went out and

bought a network and spent a

billion dollars of other

people's money doing that and

failed miserably. Amaysim is

hoping its customer service

centre based in Sydney will s

will be a point of difference

from its bigger rivals. And

help keep customer churn rates

low. But whether that will be

enough to loosen the grip, the

big three incumbent s have over

Australia's mobile market, is

another question altogether.

While Australia's

residential construction State

Governmentor has yet to fully

recover from the GFC, there's

one new and ingreasingly

popular player on the block -

pre fabriated modular housing.

But while more and more home

builders are turn to it as an affordable and sustainable

option, Australia's banks are

large already sceptical and are

back becoming a major hurdle

for this emerging industry.

Rmths One thing we've been

able to achieve with modular

construction is very rapid

risk-free construction process.

We're finding now modular or

prefabrication is coming into

its own as a legitimate

alternative to conventional

construction. Modscape's pre fabricated housing was Origin

anyway already foez want ing to

build in did or remote

locations. Our customer profile

has changed significantly over

the last three years. We're

finding 40 to 50% of all our

work is nower urban. You you

have the protect home designed conventionally-built house, we

tend to sit squarely in the

middle of that pocket ranging

between 2100 to 2300 dollars a

quair metre completed. Our

turnover we could anticipate to

be around 15 million dollar

mark. Paradoxically, this rapid

growth was largely due to if

economic uncertainty of the GFC. The projects are significantly derisked. Once we

start construction we know

exactly what we're buildings, subsequently the purchaser

knows what the cost of the

house is and when the house

will be delivered. The big est challenge facing the business

is a cultural one, particularly

with the banks. In Europe and

northern America, modular or

pre fabricated housing is a

normal way to go about

acquiring a house, so they have

specific lend ing products that

are suited to that product. In

Australia, given that it's a

relatively new market sector of

the construction industry, it's

presenting some new challenges

for the financial institutions. It seems much of

the concern centres on what

will be left if the borrower

goes bust. The typical approach

a bank takes to a construction

loan on a site is that each

time they're crawing down on

that loan there's an inherent

improved value on the site. So

for a lending institution, of a

building being built offsite,

they struggle with the

rationalial on how to

effectively obtain security on

that product. The irony is that the building when it's bhg

built in a modular sense is

only in the factory for 12

weeks and then it's on site, as

opposed to being on site in various stages of an un

completed pro-Project over a 12

to 18-month period, subject to

weather damage, vandalism,

robbery, et cetera. First

home buyers are finding it

particularly hard to acquire

finance for a prefab

house. That's led us in recent

times to actually put together

a facility where we can

actually finance the

construction of houses for

clients and provide, if you

like, a turn key service where

upon completion of the house

they seek a more typical type

of lending instrument to

finance the house and repay the

private equity that we've used

to fund their house. But Jan

Gyrn concedes this is not a

long-term solution. Modular

housing is definitely a growing industry within Australia and

probably over time in the next

three to five years I would

think it would be highly likely we will see a particular

product provided by one of the

institutions for lend ing on

offsite construction. Having

secured its foundations,

Modscape is now contemplating

new frontiers. Do we into more

land and house-type solutions - more of a developer-based builder, one of the biggest

costs in developing is the

finance of the construction and

with a modular-type building

that finance cost is

significantly reduced. If you

apply the design to that modular logic,

modular logic, we can find a

vast ly superior solution to

conventional construction. And

that is it for the program. Now

if you'd like to check out any

of our stories an interviews

again, we will have transcript,

video and a

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offsiders. There is a chance of

a fresh ballot for the 2022

World Cup and if that happens

if FIFA decides the ballot was corrupted then Australia will

bid again. Nobody's getting too

excited about the prospect just

yet but maybe the idea of Qatar

hosting the event was indeed

too weird to be true. In other

codes the Waratahs answered

their critic, the Wests Tigers

ignored by the State of Origin

selectors made a statement and

Richmond made it 4 from 5 in

the AFL. This Program is Captioned Live.