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According to Graham Kraehe, sensible water pricing and allocation policies should favour higher-value uses over lower-value uses. Nevertheless, BlueScope Steel’s Port Kembla steelworks in NSW has more than halved its drinking water use in the past year since implementing a major water recycling project reported The Age (12/7/2007, p. 1)

Water allocation policies should favour higher-value uses over lower-value uses: Importantly, each litre we use generates significant economic value. From raw materials to finished product, it takes about 1000 litres of drinking water to produce $1000 of steel roofing. The same 1000 litres used for cotton or rice irrigation would produce much less value. The point of this comparison is not to disparage those industries, but to point out that sensible water pricing and allocation policies should favour higher-value uses over lower-value uses.

Governments need to encourage industries to save water: In the rural sector, horticulture and viticulture typically generate higher returns for the water they use. Government restrictions on water trading and inadequate infrastructure mean market signals we muted and trading to higher-value uses is limited. Second, governments need to encourage everyone, including industry, to save water. Companies wanting to implement water savings projects in order to meet corporate social responsibility objectives, are often faced with the fact that such projects do not meet commercial hurdles.

Victorian State Government to contribute $4.1 million for water saving project: Water pricing changes could make some projects more attractive. But financial incentives are needed to allow others to proceed. The benefits of such water savings projects also flow to the environment and community. It is therefore appropriate that governments contribute a proportion of the cost. Such a project was recently announced in Victoria. The State Government agreed to provide $4.1 million towards a $21.5 million water-recycling project. This project will see the partial upgrade of South East Water’s Somers treatment plant and a new 13-kilometre pipeline to take recycled water to a BlueScope plant. The project will cut the plant’s drinking water consumption by more than 60 per cent, as well as reducing discharge from the South East Outfall and waste to landfill. In return for Government support, it is reasonable that industry be required to prepare water savings plans and meet savings targets. Finally, governments need to do more to encourage decentralised water solutions, such as rainwater harvesting.

Reference: Graham Krache is chairman of BlueScope Steel, a non-executive director of Brambles, and a member of the Reserve Bank board. This is an edited version of a speech to an Australian Industry Group forum.

The Age, 12/7/2007, p. 1

The cost of the Wimmera-Mallee pipe­line had blown out by more than a third to at least $688 million, reported The Age (16/8/2007, p. 6).

Revised cost of project is $688 million: The $187 million price rise for the plan to lay 8800 kilometres of pipe, which was expected to save the equivalent of 100,000 Olympic pools of water, did not include $82 million for projects on farms that would be funded by farmers. In its new five-year water plan, Grampians Wimmera Malice Water revealed that the revised cost of the pro­ject was $688 million, raising questions about who would pay for the increase.

Project to save 103,000 megalitres of water a year: After years of wrangling over financ­ing for the project, the Bracks govern­ment announced in June 2005 that the pipeline would be jointly financed by Grampians Water and the state and fed­eral governments, with each contribu­ting a third to the $501 million cost. The Wimmera-Mallee pipeline would replace 17,500 kilometres of open earth channels with piping, delivering water to farms and towns. The project was estimated to save 103,000 megalitres of water a year and was expected to be completed by the end of 2010.

Pipeline hit by high oil prices and mining boom: Grampians Water said the original price for the project was set in 2003 and since then the pipeline had been hit by the impact of high oil prices and the mining boom. Spokesman Andrew Rose said oil prices had increased the cost of pipes and transportation, and the resource boom meant there was high demand for contractors, pushing up prices. “For contractors to hire a con­struction engineer it is incredibly dear, compared with four years ago,” he said. The Grampians Water plan also recommended a water price increase of 17.1 per cent for its area. Shadow water minister Louise Asher said the cost increases would have to be met by taxpayers and water users.

The Age, 16/8/2007, p. 6

They were a scourge across NSW but bogong moths have become a tasty gourmet treat, reported The Daily telegraph (13/10/2007, p.3).

An aquired taste: As they swarmed on their spring migration from Queensland to the Blue Mountains, a cunning restaurateur has con­cocted a moth meal that was flying off the tables. Aussie tucker cafe Ironbark in Canberra was serving up a brandy-flavoured bogong moth frittata with boab root, sampled yesterday by The Daily Telegraph. The nutty-flavoured crunchy delicacy was cer­tainly an acquired taste.

The Daily Telegraph, 13/10/2007, p. 3

If it worked, it would give a new meaning to being bugged: a moth fluttering in through an open window may be just a nuisance today, but the time may not be far off when it would have far more sinister overtones, wrote Richard Macey in The Sydney Morning Herald (13/10/2007, p.6).

Camera-fitted bugs: American researchers were breeding moths that could be steered by radio control. Next they may attempt to develop tiny cameras and sensors light enough to be fitted to the bugs. The purpose? “Urban espionage,” said Mandyam Srinivasan, a professor of visual neuroscience at the University of Queensland. “They would be able to fly inside buildings, entering through windows and doors inconspicuously.” Perching on a wall, they could “take movies, record sounds” without raising suspicion. Professor Srinivasan knew about the work, funded by the United States Defence Advanced Research Projects Agency, because he saw it recently while visiting Cornell University.

‘We have the technology’: The researchers created the radio-controlled insects by injecting computer chips into the larvae of giant hawk moths. When the larvae turned into moths the chips, activated by remote control, stimulated the flight muscles, allowing the bugs to be steered on the wing. “They said they have made it fly,” Professor Srinivasan said. “I have not seen it with my own eyes, but [one of the scientists] said she was able to steer it.”

Anti-war protest “buzzed”?: Despite the progress being made he was sceptical about reports this week that an anti­-war march in New York in 2004 was buzzed by “a jet-black dragonfly” hovering just above the ground. “My guess is they were real dragonflies.” The smallest flapping aircraft he knew of was one about 10 centimetres across developed recently by Japanese scientists. “It flaps and takes off,” but was rather clumsy. “It doesn’t seem to be a great flyer.” Further, the ultra-small, lightweight surveillance gear such tiny aircraft would have to carry to do any useful spying was still to be developed. However, Professor Srinivasan had no doubt insect-like spies were on the way. “It is just a matter of time.”

The Sydney Morning Herald, 13/10/2007, p. 6

A new paper, in the current issue of the Academy of Management Journal detailed work of two professors, W. Gerard Sanders of Brigham Young University and Donald Hambrick of Penn State, who studied 950 companies between 1994 and 2000 and found that those whose chief executives received more than half their compensation in stock options were far more likely to take risks in more and bigger acquisitions and somewhat more likely to spend heavily on research and equipment, wrote Floyd Norris in The Sydney Morning Herald (13/10/2007, p.43).

Poor performance: But the risks they took were often poor ones. “The more that a CEO is paid in stock options, the more extreme the firm’s subsequent performance, and the greater the likelihood that the extreme performance will be a big loss rather than a big gain,” they reported. Their calculations, by the way, were based on the value of options when they were granted, not on their eventual value when they were cashed in. The reasons for the poor performance of option-laden bosses seemed obvious. An option holder would get rich if the stock soared, but he or she was no worse off if it falls a lot rather than a little. So a project with a huge possible profit may seem attractive even if a big loss was also possible, or even probable.

More balanced view: It appeared that executives who had a lot of options with exercise prices far below the current market price – and thus that would lose value if the stock price fell – made better decisions. “It tends to impose a more balanced view of risk,” Sanders said. “It is your own money you are betting with, not just somebody else’s.” There were other ways to take a risk, of course. We learned a few years ago that some bosses were willing to commit accounting fraud. Sanders said other research of his indicated that “there is a positive relationship between fraud and high option pay”. If you believe this research, it made a lot of sense to reduce options for bosses, or to change them, so that executives were more like shareholders. They could be given in-the-money options, with exercise prices below the current market price, so that price drops would hurt. (That would be perfectly legal, as long as it was disclosed.) Or they could get restricted stock.

Shareholder protection: Sanders said another recommendation often made, tying options to an index so an executive would not profit if a stock just rose with the market, could be counterproductive. “That might make the excessive risk-takers really go wild,” he said. Instead, he suggested granting in-the-money options and requiring the executive to hold onto the stock – or at least the shares not required to pay taxes – for years after the option was exercised. That might not be popular with ambitious chief executives. For options to have the same total value when issued, companies shifting to in-the-money options would grant fewer of them than they do now, and so the boss’s profit from a brilliant move would be lower. But his loss from a disastrous one would also be real, and that could make life a bit less painful for other shareholders.

The Sydney Morning Herald, 13/10/2007, p. 43

Egypt, Libya and Saudi Arabia were all investigating building nuclear plants to power their water schemes – according to US Department of Energy figures, it could take anywhere between 2.8 and 9.8 megawatts of electricity to produce 100,000 litres of drinkable water, wrote Robin Bromby in The Australian (13/10/2007, p.3).

Price increases for Aus: In other words, it was costly. There’s still obviously some guesswork involved, but the figures bandied about suggested that water bills of the future would cause some shock. Sydney users may, on average, pay as much as $272 a year more simply for desalination; Adelaide house-holders could find their bills rise anywhere between $80 and $160 a year; in Western Australia expectations were more modest, with talk of another $30 hike when the second desalination plant came on stream.

The Australian, 13/10/2007, p. 3

Despite China’s efforts to curb real estate speculation, housing prices continued to rise, encourag­ing even more construction and a frenzy of public stock offerings by big real estate companies, wrote David Barboza in The Sydney Morning Herald (10/10/2007, p.B27).

Huge paper-fortunes: SOHO China’s initial public of­fering raised nearly $US1.7 billion, or as much as Google raised in its 2004 public stock offering in the US. SOHO’s founders, Pan Shiyi and Zhang Xin, a husband and wife team known for their stylish developments in Beijing, were worth close to $US4 billion on paper, based on the stock’s clos­ing price. This year, another Chinese real estate developer, Country Garden, raised $US1.9 billion in a Hong Kong stock offering. Country Garden’s largest share­holder was the founder’s 25-year­-old daughter, Yang Huiyanto, to whom the founder gave all of his shares in 2005. She was thought to be the richest person in China, with shares valued at about $US16 billion.

The trouble with bubbles: “In real estate you’re getting overinflated profits from bor­rowing money to get cheap land and then selling at inflated prices. And then you’ve got a stockmarket that is valuing a dol­lar of earnings at about 40 or 50 times. So you’ve got a bubble on ton of a bubble.” said Michael Pettis, an associate professor of finance at Peking University and a former investment banker.

The Sydney Morning Herald, 10/10/2007, p. B27

Thousands of walrus have appeared on Alaska’s northwest coast in what conservation­ists were calling a dramatic conse­quence of global warming melting the Arctic sea ice, reported The Advertiser: (8/10/2007, p. 29) from Anchorage, Alaska.

In search of prey: Alaska’s walrus, especially breeding females, in summer and autumn were usually found on the Arctic ice pack. But the lowest summer ice cap on record had put sea ice far north of the outer continental shelf, the shallow, life-rich shelf of ocean bottom in the Bering and Chukchi seas. “It looks to me like animals are shifting their distribution to find prey,” said US Marine Mammal Commission executive director Tim Ragen.

The Advertiser, 8/10/2007, p. 29

A report by the director of the sustainability centre at the University of NSW, Mark Diesendorf, said a 30 per cent reduction in Australia’s greenhouse gas emissions by 2020 was achievable but would need both energy efficiency and renewable energy measures, as well as a change of diet, wrote Mathew Murphy in The Age (11/10/2007, p.B1).

Beef destroys environment: According to the report, ‘Paths to a Low Carbon Future’, slicing beef consumption by 20 per cent, while “politically challenging”, would reduce greenhouse gas emissions by 15 million tonnes on 1990 levels. “Beef consumption is chosen in this measure because it is responsible for the biggest share of livestock-related methane emissions,” it said. “This measure could be reduced by shifting to kangaroo meat and/or lower-meat diets.”

CO2-dump mirage: Dr Diesendorf also attacked governments for failing to make a commitment to a short-term target for greenhouse gas reduction. He said a target for 2020 was vital to prevent average temperatures rising by more than 2 degrees. “The dearth of interim targets may be explained by both major parties’ hopes that domestic emissions can in future be addressed by unproven technology for capture and burial of emissions from coal power plants,” he said. “Yet even the World Coal Institute concedes that only nine coal power plants with carbon capture and storage plants are likely to be operating by 2020.”

Wake-up call: The best-case scenario outlined in the report would reduce Australia’s emissions by 33 per cent from 1990 levels by 2020 through proven technology and energy efficiency. Greenpeace, which commissioned the report, said it should act as a wake-up call to the major parties.

The Age, 11/10/2007, p. B1