Thursday, April 8, 2010

"Managing" Data and Dissent: Where Big Brother Meets Market Fundamentalism




Repression doesn't come cheap, just ask the FBI.....

As the securitization of daily life increase at near exponential rates (all to keep us "safe," mind you) the dark contours of an American police state, like a pilot's last glimpse of an icy peak before a plane crash, wobbles into view.

In the main, such programs include, but are by no means limited to the following: electronic surveillance (call records, internet usage, social media); covert hacking by state operatives; GPS tracking; CCTV cameras linked-in to state databases; "smart" cards; RFID chipped commodities and the spooky "internet of things;" biometrics, and yes, the Pentagon has just stood up a Biometrics Identity Management Agency (BIMA); data-mining; watch listing; on and on it goes.

Pity our poor political minders, snowed-under by a blizzard of data-sets crying out for proper "management"! Or, as sycophantic armchair warrior and New York Times columnist, Thomas Friedman, would have it, "The hidden hand of the market will never work without a hidden fist--McDonald's cannot flourish without McDonnell Douglas, the designer of the F-15."

So true; yet neither can an aggregate of repressive police and intelligence agencies function without an army of corporate grifters who guide that "hidden hand" and not-so-hidden fist into highly profitable safe harbors. Call it Big Brother meets market fundamentalism.

And so, the heat is on as America's premier political police agency struggles to "modernize" their case file management system.

The FBI's Case Management "Problem"

When circumstances (a massive up-tick in illegal spying since 9/11 courtesy of the USA Patriot Act) forced the Bureau to store a treasure trove of tittle-tattle of "national security interest" on decidedly low-tech storage devices, FBI agents and their all-too-willing helpers from giant telecommunications firms such as AT&T took to scribbling "leads" on post-it notes.

Communications Analysis Unit (CAU) eager-beavers did so in order to speed-up the process of obtaining dodgy "exigent letters" that smoothed over the wrinkles (your rights!) as the Bureau issued tens of thousands of National Security Letters (NSLs).

The secretive lettres de cachet demanded everything: emails, internet searches, call records, bank statements, credit card purchases, travel itineraries, medical histories, educational résumés, even video rentals and books borrowed from public libraries. The contents of such shady administrative warrants cannot be disclosed by their recipients under penalty of stiff fines or even imprisonment.

While such extra-legal missives are supposedly issued only in cases of dire "emergency," the banal, ubiquitous nature of surveillance in post-Constitutional, "new normal" regimes such as the United States, all but guarantee that extraordinary "states of exception" are standard rules of the game in our managed democracy.

As the Justice Department's Office of the Inspector General revealed in a heavily-redacted report in January, with all semblance of a legal process out the window, the FBI were caught with their hands in the proverbial cookie jar, repeatedly violating the Electronic Communications Privacy Act.

Fear not, Obama administration legal eagles cobbled together a new theory justifying the practice and have created, yet another, accountability free zone for agents who violated the rules.

Neatly, seamlessly and silently Obama's Office of Legal Counsel (John Yoo and Judge Bybee's old stomping grounds) granted them, wait!, retroactive immunity for such lawbreaking. The trouble is, the OLC's ruling is classified so we haven't a clue what it entails or how far-reaching is its purview. So much for the new era of "openness" and "transparency."

But I digress...

The New York Times reported March 18, that work on parts of the Bureau's cracker-jack case management program known as Sentinel has been "temporarily" suspended.

While the "overhaul" was supposed "to be completed this fall," Times journalist Eric Lichtblau disclosed that the system will not be ready for prime time until "next year at the earliest."

Overall, American taxpayers have shelled-out some $451 million to an endless parade of contractors, Lockheed Martin being the latest. Delays are expected to cost "at least $30 million in cost overruns on a project considered vital to national security" Lichtblau wrote, citing Congressional "officials."

But problems have plagued the project since its inception. Lockheed Martin, No. 1 on Washington Technology's "2009 Top 100" list of Prime Federal Contractors, secured some $14,983,515,367 in defense-related contracts last year and was brought on-board to revamp the troubled case management project.

This is all the more ironic considering that the defense giant was hailed as Sentinel's savior, after an earlier incarnation of the program known as Virtual Case File (VCF), overseen by the spooky Science Applications International Corporation (SAIC), crashed and burned in 2006.

No slouches themselves when it comes to raking-in taxpayer boodle, SAIC is No. 7 on the Washington Technology list, pulling in some $4,811,194,880 in 2009, largely as a result of the firm's close political connections to the Defense Department and the secret state.

SAIC's work on VCF began in June 2001 and was expected to be completed in 36 months. However, after shelling out some $170 million over four years the Bureau concluded the system wouldn't work. Published reports fail to mention whether or not SAIC was forced to hand the loot back to cash-strapped taxpayers. Probably not.

Open-Ended Contracts: Hitting the Corporatist "Sweet Spot"

As with all things having to do with protecting their national security constituency from lean quarterly reports to shareholders, congressional grifters and secret state agencies alike are adept at showering giant defense and security corporations with multiyear, multibillion dollar contracts.

After all, high-end CEO salaries and lucrative remunerations for top executives in the form of handsome bonuses are based, not on a firm's actual performance but rather, on the critical up-tick in the share price; just ask Lehman Brothers or other outstanding corporate citizens such as Goldman Sachs. Or SAIC itself, for that matter!

Unfortunately, effective oversight is not the forte of a plethora of congressional committees; nor are crisp, objective evaluations, better known as due diligence, conducted by outside auditors before scarce federal resources, which could be used for quaint things such as health care, education or other reality-based programs, pour into any number of virtual black holes.

Take VCF as an example.

In a post-mortem of the SAIC program, The Washington Post revealed back in 2006, that after spending months writing 730,000 lines of computer code, corporate officers proclaimed VCF's roll-out "only weeks away."

The trouble was, software problem reports, or SPRs, "numbered in the hundreds." Worse for SAIC, as engineers continued running tests, systemic problems were multiplying quicker than proverbial rabbits.

As Post journalists Dan Eggen and Griff Witte disclosed, citing an unreleased audit of the program hushed-up by the Bureau, because "of an open-ended contract with few safeguards, SAIC reaped more than $100 million as the project became bigger and more complicated, even though its software never worked properly."

Despite evidence that the system was failing badly, SAIC "continued to meet the bureau's requests, accepting payments despite clear signs that the FBI's approach to the project was badly flawed."

Auditors discovered that the "system delivered by SAIC was so incomplete and unusable that it left the FBI with little choice but to scuttle the effort altogether."

David Kay, a former SAIC senior vice president and Bushist chief weapons inspector in Iraq tasked with finding nonexistent "weapons of mass destruction," told the Post even though top executives at the firm were aware the project was going "awry," they didn't insist on changes "because the bureau continued to pay the bills as the work piled up."

"From the documents that define the system at the highest level, down through the software design and into the source code itself," Aerospace, the independent firm that conducted the secretive FBI audit, "discovered evidence of incompleteness, lack of follow-through, failure to optimize and missing documentation."

Even more damning, a report by computer experts from the National Research Council and SAIC insider, Matthew Patton, removed from the program by top executives after posting critical remarks on VCF in an on-line forum, found that the firm "kept 200 programmers on staff doing 'make work'," when a "couple of dozen would have been enough."

SAIC's attitude, according to Patton, was that "it's other people's money, so they'll burn it every which way they want to."

As a cash cow, VCF was a superlative program; however, the IT security specialist told the Post: "Would the product actually work? Would it help agents do their jobs? I don't think anyone on the SAIC side cared about that."

Why would they? After all, $170 million buys much in the way of designer golf bags, pricey Hawaiian getaways or other necessities useful for navigating the dangerous shoals of America's "war on terror"!

As investigative journalist Tim Shorrock detailed in his essential book, Spies For Hire and for CorpWatch, SAIC "stands like a private colossus across the whole intelligence industry." Shorrock writes, "of SAIC's 42,000 employees, more than 20,000 hold U.S. government security clearances, making it, with Lockheed Martin, one of the largest private intelligence services in the world."

As the journalist revealed, while SAIC "is deeply involved in the operations of all the major collection agencies, particularly the NSA, NGA and CIA," failure also seems to come with the corporate territory.

"For example" Shorrock wrote, the firm "managed one of the NSA's largest efforts in recent years, the $3 billion Project Trailblazer, which attempted (and failed) to create actionable intelligence from the cacophony of telephone calls, fax messages, and emails that the NSA picks up every day. Launched in 2001, Trailblazer experienced hundreds of millions of dollars in cost overruns and NSA cancelled it in 2005."

Is there a pattern here?

No matter. Washington Technology reported March 31, that SAIC's fourth quarter revenues and overall gains for fiscal year 2010 were "$2.68 billion, a 7 percent increase, up from $2.52 billion in the fourth quarter of fiscal 2009, the company announced. Full-year revenues were $10.85 billion, up 8 percent from fiscal 2009. Fiscal 2010 ended Jan. 31."

"We are pleased to complete the fiscal year with improved operating margin, earnings per share and cash generation," Walt Havenstein, SAIC's chief executive officer said in a corporate press release.

"We enter fiscal year 2011 with our portfolio of capabilities well aligned with national priorities, emphasizing areas such as intelligence, surveillance, and reconnaissance (ISR), cybersecurity, logistics, energy, and health technology to fuel our growth and shareholder value prospects," Havenstein added.

If by "national priorities" SAIC's head honcho means the continued bleed-out of taxpayer funds into corporate coffers, then, by all means, 2010 was a banner year!

Which brings us full-circle to Lockheed Martin and Sentinel.

DOJ Inspector General: "Significant Challenges"

The Department of Justice Office of the Inspector General (OIG) disclosed in a redacted December 2009 report that the Lockheed Martin system "encountered significant challenges." As of August 2009, "the FBI and Lockheed Martin agreed to revise the project's schedule, increase Lockheed Martin's cost to develop Phase 2 to $155 million, and update the remaining costs for Phases 3 and 4."

Sound familiar?

"Consequently" the OIG reported, "the overall project completion date has been extended to September 2010, 3 months later than we previously reported and 9 months later than originally planned." In a new report released in late March, Department of Justice auditors revised their previous analysis. It wasn't a pretty picture.

According to the OIG, "As of March 2010, the FBI does not have official cost or schedule estimates for completing Sentinel. The remaining budget, schedule, and work to be performed on Sentinel are currently being renegotiated between the FBI and Lockheed Martin. While the FBI does not yet have official estimates, FBI officials have acknowledged that the project will cost more than its latest revised estimate of $451 million and will likely not be completed until 2011." That can only be music to Lockheed Martin's ears!

As the Times reported, work on the project has ground to a halt. This was confirmed by the OIG. "On March 3, 2010, because of significant issues regarding Phase 2 Segment 4’s usability, performance, and quality delivered by Lockheed Martin, the FBI issued a partial stop-work order to Lockheed Martin for portions of Phase 3 and all of Phase 4."

The latest set-back to taxpayers mean that the Bureau's "stop-work order returned Phase 2 Segment 4 of the project from operations and maintenance activities to the development phase."

In other words, after four years and nearly $500 million, its back to the drawing board!

After beating out their rivals for work on a program considerably more costly than SAIC's failed VCF, the OIG revealed that multiple issues and problems plague the system designed by the defense giant.

"First, there were significant problems with the usability of electronic forms that were developed for Sentinel." The forms are supposedly the heart of the system and the tools through which FBI repressors "manage" case-related information deployed across the Bureau, particularly when agents add or subtract data gleaned from the FBI's massive Investigative Data Warehouse (IDW).

Last year, Antifascist Calling reported on the Bureau's spooky "Library of Babel," IDW, that does yeoman's work as a virtual Department of Precrime.

A massive project, IDW already holds more than a billion unique, searchable records on American citizens and legal residents that the Electronic Frontier Foundation (EFF) said would be used to "data-mine ... using unproven science in an attempt to predict future crimes from past behavior."

The IDW is one of the data-mining projects that Sentinel will directly tap into, allowing the migration of data currently held in the FBI's antiquated Automated Case Support (ACS) system.

The OIG report revealed, "there were 26 critical issues related to the functionality of Sentinel that required resolution before deployment" and that "Lockheed Martin had deviated from accepted systems engineering processes in developing the software code for Sentinel."

According to a review of the program by the shadowy MITRE Corporation, more than 10,000 "inefficiencies" in the software code may collectively result in the diminished performance of the "product."

Do these problems pose a "challenge" to either the Bureau or Lockheed Martin executives? Hardly! The OIG disclosed that "FBI officials have stated that in order to meet any increased funding requirements, the FBI plans to request congressional approval to redistribute funds from other FBI information technology programs to Sentinel."

How's that for creative accounting!

Repression: A Game the Whole Corporate "Family" Can Play

With their fingers into everything from missile design and satellite surveillance technology to domestic spying or that latest craze consuming Washington, "cybersecurity," Lockheed Martin is, as they say, a "player."

On the domestic spy game front, Lockheed Martin were one of the contractors who supplied intelligence analysts for the Counterintelligence Field Activity office (CIFA), the secretive Rumsfeld-era initiative that spied on antiwar activists and other Pentagon policy critics.

CIFA was tasked with tracking "logical combinations of keywords and personalities" used to estimate current or future threats. When CIFA was shuttered after public outcry, its functions were taken over by the Defense Intelligence Agency, where Lockheed Martin runs a bidding consortium.

But as with CIFA, the DIA's Defense Counterintelligence and Human Intelligence Center, relies heavily on the unproven "science" of data-mining and its offshoot, link analysis.

Data-mining by corporate and secret state agencies such as the FBI seek to uncover "hidden patterns" and "subtle relationships" within disparate data-sets in order to "infer rules that allow for the prediction of future results," according to a 2004 Government Accountability Office (GAO) report.

Sentinel will undoubtedly deploy data-mining techniques insofar as they are applicable to "managing" alleged foreign "terrorism plots," but also domestic dissidents identified as national security "risks."

Although the Sentinel program has apparently hit a brick wall in terms of operability, it is also clear that the FBI and other national security agencies, will continue their quixotic quest for technophilic "silver bullets" to "manage" domestic dissent.

That such endeavors are illusory, as with the Pentagon's "Revolution in Military Affairs" that promised always-on "persistent area surveillance" of the "battlespace," the deployment of high-priced sensor technologies and data-mining algorithms assure securocrats that "total information awareness" is only a keystroke away.

While "situational awareness" may be an illusive commodity, when it comes to data storage and the indexing of alleged national security threats, systems such as Sentinel or the Investigative Data Warehouse, as well as the broader application of predictive data-mining to map so-called terrorist "nodes" expand the operation and intensification of the "surveillance society" ever-deeper into social life.

As Tim Shorrock revealed in CorpWatch, in 2004 and 2005 Lockheed Martin "acquired the government IT unit of Affiliated Computer Services Inc., inheriting several contracts with defense intelligence agencies and Sytex, a $425 million Philadelphia-based company that held contracts with the Pentagon's Northern Command and the NSA/Army Intelligence and Security Command. By 2007 the company employed 52,000 IT specialists with security clearances, and intelligence made up nearly 40 percent of its annual business, company executives said."

According to Shorrock, one of the firm's "most important intelligence-related acquisitions took place in the 1990s, when the conglomerate bought Betac Corporation. Betac was one of the companies the government hired during the late 1980s to provide communications technology for the secret Continuity of Government program the Reagan administration created to keep the U.S. government functioning in the event of a nuclear attack."

As readers are aware, secretive Continuity of Government programs went into effect after the 9/11 attacks. Details on these programs have never been revealed, although investigative journalists have discovered that some portions of COG have to do with the national security indexing of American citizens in a massive, classified database known as Main Core.

As investigative journalist Christopher Ketcham revealed in 2008, one "well-informed source--a former military operative regularly briefed by members of the intelligence community--says this particular program has roots going back at least to the 1980s and was set up with help from the Defense Intelligence Agency. He has been told that the program utilizes software that makes predictive judgments of targets' behavior and tracks their circle of associations with 'social network analysis' and artificial intelligence modeling tools."

Ketcham's source told him that "'the more data you have on a particular target, the better [the software] can predict what the target will do, where the target will go, who it will turn to for help,' he says. 'Main Core is the table of contents for all the illegal information that the U.S. government has [compiled] on specific targets.' An intelligence expert who has been briefed by high-level contacts in the Department of Homeland Security confirms that a database of this sort exists, but adds that 'it is less a mega-database than a way to search numerous other agency databases at the same time'."

Shorrock writes that "Under a 1982 presidential directive, the outbreak of war could trigger the proclamation of martial law nationwide, giving the military the authority to use its domestic database to round up citizens and residents considered threats to national security. The Federal Emergency Management Agency (FEMA) and the Army were to carry out the emergency measures for domestic security."

And one of the "biggest winners" was Betac Corporation, "a consulting firm composed of former intelligence and communications specialists from the Pentagon. Betac was one of the largest government contractors of its day and, with TRW and Lockheed itself, dominated the intelligence contracting industry from the mid-1980s until the late 1990s."

"Its first project for the Continuity of Government plan," Shorrock reveals, "was a sole-source contract to devise and maintain security for the system. Between 1983 and 1985, the contract expanded from $316,000 to nearly $3 million, and by 1988 Betac had multiple COG contracts worth $22 million. Betac was eventually sold to ACS Government Solutions Group and is now a unit of Lockheed Martin."

While it is de rigueur, particularly since the rise of the Obama administration, to deride critics who point out the perils of an out-of-control national security state armed with meta-databases such as Main Core and secretive COG programs as "conspiracy theorists," such "whistling past the graveyard" is done at great peril to an open and transparent democratic system of governance based on accountability and the rule of law.....

I have been following the "let's collect every piece of data on everyone in the world" invasion for some time now. What gets me is how STUPID it is. Any researcher worth their salt will tell you that it is not the amount of data one has, but the amount of GOOD data one has that gets valuable results. Mountains (literally) of data mean making sense of it impossible, and gives all kinds of spurious results. In other words, one is likely to see things that aren't there and miss things that are.....

THE DANGER OF DERIVATIVES


THE DANGER OF DERIVATIVES:

The danger is that, if one buys and trades too much derivatives, they will fluctuate all over the place, as markets tend to do. But, because a small variation of the derivative of a security corresponds to a huge variation of the security itself, varying the former significantly, one will guess, corresponds to enormous variations of the later.

When the value of crude oil rocketed towards $150 per barrel, there was a controversy about whether the futures (of oil) dragged the value of oil itself with them. Nobel laureate Krugman claimed he did not see the relationship. But it exists. In two ways. First, the futures indicate what the price will be, so, if the price of the future of f goes up, people who trade f will expect f to go up, so they will hold back, making f go up more (from "less offer, same demand, higher price").

Secondly, and more importantly, suppose someone wants to invest in the "oil sector". They have the choice between three possibilities: investing in oil itself, investing in oil companies, and, finally, investing in oil derivatives.

Suppose they invest in the later. Per the nature of derivatives, they get huge leverage, so little money gives a big effect. So it is much easier to drag up the price of oil in this indirect manner, and amplify other investments they made (if any) in the sector. The devil is in the details, so, I will advocate, to cut the devil out, take the details out first, especially those hidden in the Shadow.

To make matters worse, that money they invest in the derivatives is as much money that will not be invested durably in the real economy (namely, oil companies, and oil itself). Instead it is fast, Brownian motion money, supposed to work like Maxwell’s demon.

FROM SHADOW TO INVISIBLE, TO CO-CONSPIRACY:

Most of an influential bank’s balance sheet (like 97%) is made of ‘SHADOW BANKING". That is what has to be brought in the light, and then eradicated.

Indeed, what do big banks officially do? Shelter deposits, and invest in the real economy. But what do really influential banks really do, in the West? Mostly? Well, they invest, but not in the real economy. Instead, they invest in Shadow Banking.

Leverage in Shadow Banking through derivatives such as Credit Default Swaps transformed a housing correction, into the instantaneous annihilation of perhaps dozens of trillions of dollars, worldwide, dwarfing world GDP.

Why? Let’s consider an example. JP Morgan, led by (officially named thus) "co-conspirator" Jamie Dimon, has an 80 trillion dollars derivatives portfolio. His colleagues from big, influential banks were, and are, in similar positions.

These positions in the derivative universe dwarf completely the big influential banks’ real world investments. For example Citigroup claimed to have assets of 1.7 trillion dollars, or so, throughout the 2007-2009 crisis. This was part of Citigroup’s official balance sheet, in the real world. So why did Citigroup fail?

Because most of the balance sheet of Citigroup was in derivatives, and it was so by roughly two orders of magnitude, namely about 100 times more. But big influential banks use big, influential semantics made to hide their real situations, words such as off balance inventory, shadow banking, notional valuations, etc. When it is convenient to them, they incorporate these investments in describing themselves, and, when it’s not convenient, they don’t.

Big, influential banks have mostly investments in a shadow universe, which are leveraged onto the real world. They are made to allow the banks to claim great profits in the netherworld (thus justifying real bonuses, in the real world).

Hence banks, in the present system, are allowed to divert immense capital, most of existing world capital, to the netherworld (they will say, it ain’t real, except when bonus time, and the time to claim profits, come around). Thus, they starve the real economy. The netherworld investments dwarf the real world investment by a factor of ten (roughly: it’s all so secretive, we don’t know the exact quotient).

As I said before, part of the way out is just to remove the ability of private banks to use leverage insured by the State. Instead, let them just eat what they kill, without the regalian privilege of State insured leverage, and without the regalian privilege of using government money as seed capital.

Regalian leverage, and regalian capital, should be used only by the rex, the king, namely, the State. Render to Caesar what belongs to Caesar, as the other one supposedly said.

RENDER TO CAESAR WHAT BELONGS TO CAESAR:

Money creation is regalian, give it back to the ultimate authority, the State.

We need a monetary authority that is focused on the best policies for our planetary economy. This cannot be a central bank such as the US Federal Reserve: this one is infeodated to the private banks, in the mental state where they think they are the kings. Federal Reserve independence means mostly INDEPENDENCE FROM DEMOCRACY (enormous secret support from the Fed to the very bad actors was revealed recently, as I said above).

Other central banks are differently constructed: the ECB is different from the Fed.

Thus solution to private banking as rulers of the world, the way we have it today: all private banks should have zero leverage, and they would be able to invest their deposits, nothing more.

The national banks would be the only one allowed to use leverage, and thus create money, through debt. Bankers would be civil servants, but investment directors, and their helpers, would get bonuses, according to the long term profitability of the projects they invest in. No more giving money to friends, politicians, and themselves.

Only derivatives with a direct commercial interest, would be preserved. Others, and all Shadow Banking, would be unlawful. National investment directors would be allowed to invest in lawful derivatives, with smaller leverage than the commercial operators themselves.

Time to cut through the plutocracy, and cut all the heads of this hydra at once. We, People of the earth, technological and scientific progress, the cause of peace and sustainability, we all need a lot of capital. That capital is in the Shadow Banking universe, let’s go get it! We need it, they don’t!

Ukraine seeks pipeline threesome


Ukraine seeks pipeline threesome
By Robert M Cutler

MONTREAL - Ukraine's new government, formed by President Viktor Yanukovych after he was inaugurated in March, this week affirmed that the country's gas transportation network is for sale to no one, including Russian gas monopoly Gazprom.

At the same time, Russia has made it clear that it is willing to cooperate with the European Union in any project to modernize the network, which includes more than 60,000 kilometers of pipe plus 71 compressed air plants and 13 underground gas storage facilities. Last year, it carried over three-quarters of natural gas exports from Russia to Europe.

Fears were raised during Ukraine's hotly contested election in February that the gas system might be privatized or sold to Gazprom. Presidential candidate and then-prime minister Yuliya
Tymoshenko had personally written a law passed by the Ukrainian Rada (parliament) that set out everal different ways in which the gas transportation system could be alienated from state property, and forbade them all in detail. This law has the force of a constitutional provision.

In the event, the new government is seeking to work out a "three-sided" plan involving Ukraine, Russia and the European Union to upgrade the network.

As the head of the Ukrainian delegation to the European Union, Kostyantyn Yeliseyev, insisted in Brussels last week that his country would maintain ownership of the system, Ukraine's new energy minister, Yuriy Boiko, was beginning discussions with Russian authorities on means to avoid disputes over gas in the future.

Russia suspended gas supplies to Ukraine several times in the early 1990s in disputes over non-payment. More recently, in January 2006 (in a dispute with Ukraine over the country's alleged diversion of gas intended for European consumption) and again in January 2009 (in a dispute over the size of Ukraine's gas debt), Russia cut off gas supplies to Ukraine, leading to severe winter shortages in EU countries, since Russian gas also transits Ukraine in large quantities for consumption in the EU.

In its talks with Russia, Ukraine has four goals: to renegotiate current prices lower; to reconsider the June 2009 gas bilateral delivery contract; to ensure the "stability and predictability" of gas supply especially via Ukraine to Europe, and to consider options for modernizing the gas transit network.

In this last regard, an important normative document was signed with the EU in March 2009 in Brussels, which states that the gas transit system "is and will be" the property of the Ukrainian state. Russian Prime Minister Vladimir Putin had at the time criticized the failure of the agreement, negotiated by the Ukrainian government then headed by Yuliya Tymoshenko as prime minister, to include Russia.

Three major international financial institutions - the World Bank, the European Bank for Reconstruction and Development, and the European Investment Bank - are reported to have allocated US$1.7 billion for industrial modernization projects such as the replacement of old compressor stations responsible for important leakages. However, the prime minister has estimated the full cost of the system's modernization to be at least $15 billion to $20 billion.

The Russian ambassador to the EU, Vladimir Chizhov, told EurActiv on Tuesday that his country welcomed recent proposals by the new government in Kiev for a "three-sided" plan to modernize Ukraine's gas pipeline network, with Moscow's involvement.

Nevertheless, this willingness masks contradictory stakes that are involved.

Last month, the first pipe-laying ship for the Nord Stream pipeline left port to begin laying pipes off the Swedish coast. Nord Stream, passing under the Baltic Sea from Russia to Germany, is designed to circumvent Ukraine and Poland. The eventual Nord Stream throughput plus the potential increase in efficiency and security of a modernized Ukrainian gas transportation system to Europe (along with other European sources and those that will come on line in the meantime), make another Russia-sponsored project, the South Stream pipeline under the Black Sea from Russia to Bulgaria, extremely difficult to justify. South Stream is already a laggard in the race to supply gas along the Southern Corridor to Europe (see Locks turn in Nabucco door, Asia Times Online, March 12, 2010).

Russia has long sought a financial stake in Ukraine's pipeline system. Over the past 15 years, the pipeline systems of many other countries on former Soviet territory, including in Central Asia and the South Caucasus, have come into Russia's hands. This was often accomplished through the expedient of allowing the country to run up debt for gas imports. Russia would then offer to settle the debt in return for alienation of the national pipeline system. These events has been extensively studied by European and North American academics who have traced them as a conscious strategy for the extension of Russia's geo-economic influence throughout Eurasia.

In theory, if Russia or a Russian company owns the pipelines, then it has the right to say whose gas may and may not transit through the system. This is one reason Turkmenistan insists that no Russian firm may become proprietor of any pipeline in the country that it rebuilds or modernizes, such as the East-West Pipeline across the southern part of the country ( see Turkmenistan gas sets Ciceronian riddle, Asia Times Online, October 30, 2009).

At the beginning of April, Ukraine's new prime minister, Mykola Azarov, announced that his government would look for a three-sided approach that would include Russia. Such an approach could conceivably extend beyond industrial modernization to corporate management, if not to ownership (since the country's constitution now excludes this - unless amended again.)

Nearly 10 years ago, Ukraine and Russia began exploring the creation of a gas transport consortium with European partners for the purpose of managing and modernizing Ukraine's gas pipeline network. Those plans were put on hold after the "Orange Revolution" in 2004-2005 brought Viktor Yushchenko into the president's office.

Another factor that might complicate, in practice, Ukraine's goal of maintaining control over its pipeline network while forging partnerships with Europe and Russia, is that there is no such thing as an "EU" energy company, only national companies. If German energy companies are involved, then these have a long history of cooperation with Gazprom and other Russian companies stretching well back into the Soviet era. That is not a problem in itself, but it raises the issue whether Ukraine's national interests will be well respected. Would a German company hesitate to compromise them for financial gain if induced by a Russian offer?

Tuesday, April 6, 2010

China tilts resource balance


China tilts resource balance
By Michael T Klare

http://www.defensenews.com/story.php?i=4614211&c=AME&s=TOP

http://www.investors.com/NewsAndAnalysis/APOnline/Article/164999/201007242119/Gadget-makers-forced-to-look-at-links-to-Congo-war.aspx


Think of it as a tale of two countries. When it comes to procuring the resources that make industrial societies run, China is now the shopaholic of planet Earth, while the United States is staying at home. Hard-hit by the global recession, the United States has experienced a marked decline in the consumption of oil and other key industrial materials. Not so China. With the recession's crippling effects expected to linger in the US for many years, analysts foresee a slow recovery when it comes to resource consumption. Not so China.

In fact, the Chinese are already experiencing a sharp increase in the use of oil and other commodities. More than that, anticipating the kind of voracious resource consumption that goes with
anticipated future growth, and worried about the availability of adequate supplies, giant Chinese energy and manufacturing firms - many of them state-owned - have been on a veritable spending binge when it comes to locking down resource supplies for the 21st century. They have acquired oil fields, natural gas reserves, mines, pipelines, refineries, and other resource assets in a global buying spree of almost unprecedented proportions.

Like most other countries, China suffered some ill effects from the great recession of 2008. Its exports declined and previously explosive economic growth slowed from record levels. Thanks to a well-crafted US$586 billion stimulus package, however, the worst effects proved remarkably short-lived and growth soon returned to its previous high-octane pace. Since the beginning of 2009, China has experienced significant jumps in car ownership and home construction - along with worries about the creation of a housing bubble - among signs of returning prosperity. This, in turn, has generated a rising demand for oil, steel, copper, and other primary materials.

Take oil. In the United States, oil consumption actually declined by 9% over the past two years, from 20.7 million barrels per day in 2007 to 18.8 million in 2009. In contrast, China's oil consumption has risen in this same period, from 7.6 million to 8.5 million barrels per day. According to the most recent projections from the US Department of Energy, this is no fluke. The Chinese demand for oil is expected to continue climbing throughout the rest of this year and 2011, even as American consumption remains nearly flat.

Like the United States, China obtains a certain amount of oil from domestic wells, but must acquire a growing share from overseas suppliers. In 2007, the country produced 3.9 million barrels per day and imported 3.7 million barrels, but that proportion is changing rapidly. By 2020, it is projected to produce only 3.3 million barrels, while importing 9.1 million barrels. This situation has "strategic vulnerability" written all over it, and so leaves Chinese leaders exceedingly uneasy. In response, like American officials in decades past, they have moved to gain control over foreign sources of energy - and similarly many other vital materials, including natural gas, iron, copper, and uranium.

China binging on energy
Chinese energy companies initially started buying up foreign firms and drilling ventures (or, at least, shares in them) as the 21st century began. Three large state-owned oil companies - China National Petroleum Corp (CNPC), China National Offshore Oil Corp (CNOOC), and China Petroleum & Chemical Corp (Sinopec) - took the lead. These firms, or their partially privatized subsidiaries - PetroChina in the case of CNPC, and CNOOC International Ltd in the case of CNOOC - began gobbling up foreign energy assets in Angola, Iran, Kazakhstan, Nigeria, Sudan, and Venezuela. On the whole, these acquisitions were still dwarfed by those being made by giant Western firms like ExxonMobil, Chevron, Royal Dutch Shell, and BP. Nonetheless, they represented something new: a growing Chinese presence in a universe once dominated by the Western "majors".

Then along came the great recession. Since 2008, Western firms have, for the most part, been reluctant to make major investments in foreign oil ventures, fearing a prolonged downturn in global sales. The Chinese companies, however, only accelerated their buying efforts. They were urged on by senior government officials, who saw the moment as perfect for acquiring crucial valuable resources for a potentially energy-starved future at bargain-basement prices.

"The international financial crisis ... is equally a challenge and an opportunity," insisted Zhang Guobao, head of the National Energy Administration, at the beginning of 2009. "The slowdown ... has reduced the price of international energy resources and assets and favors our search for overseas resources."

As a policy matter, the Chinese government has worked hard to facilitate the accelerating rush to control foreign energy resources. Among other things, it has provided low-interest, long-term loans to major Chinese resource firms in the hunt for foreign properties, as well as to foreign governments willing to allow Chinese companies to participate in the exploitation of their natural resources. In 2009, for example, the China Development Bank (CDB) agreed to lend CNPC $30 billion over a five-year period to support its efforts to acquire assets abroad. Similarly, CDB has loaned $10 billion to Petrobras, Brazil's state-controlled oil company, to develop deep offshore fields in return for a promise to supply China with up to 160,000 barrels of Brazilian crude per day.

Prodded in this fashion and backed with endless streams of cash, CNPC and the other giant Chinese firms have gone on a global binge, acquiring resource assets of every imaginable type in staggering profusion in Central Asia, Africa, the Middle East, and Latin America. A very partial list of some of the more important recent deals would include:
  • In April 2009, CNPC formed a joint venture with Kazmunaigas, the state oil company of the energy-rich Central Asian state of Kazakhstan, to purchase a Kazakh energy firm, JSC Mangistaumunaigas (MMG), for $3.3 billion. This was just the latest of a series of deals giving China control over about one-quarter of Kazakhstan's growing oil output. A $5 billion loan-for-oil offer from China's Export-Import Bank made this latest deal possible.
  • In October 2009, a consortium led by CNPC and BP won a contract to develop the Rumaila oil field in Iraq, potentially one of the world's biggest oil reservoirs in a country with the third-largest reserves. Under this agreement, the consortium will invest $15 billion to boost Rumaila's daily yield from 1.1 million to 2.8 million barrels, doubling Iraq's net output. CNPC holds a 37% share in the consortium; BP 38%; the Iraqi government the remaining 25%. If the consortium succeeds, China will have access to one of the world's most-promising future sources of petroleum and a base for further participation in Iraq's underdeveloped oil industry.
  • In November 2009, Sinopec teamed up with Ecuador's state-owned Petroecuador in a 40:60 joint venture (with Petroecuador holding the larger share) to develop two oil fields in Ecuador's eastern Pastaza Province. Sinopec is already a major producer in Ecuador, having joined with CNPC to acquire the Ecuadorian energy assets of Canada's EnCana Corp in 2005 for $1.4 billion.
  • In December 2009, CNPC acquired a share of the Boyaca 3 oil block in the Orinoco Belt, a large deposit of extra-heavy oil in eastern Venezuela. In that month, CNOOC formed a joint venture with the state-owned company Petroleos de Venezuela SA to develop the Junin 8 block in the same region. These moves are seen as part of a strategic effort by Venezuelan President Hugo Chavez to increase his country's oil exports to China and reduce its reliance on sales to the US market.
  • That same December, CNPC signed an agreement with the government of Myanmar to build and operate an oil pipeline that will run from Maday Island in the western part of that country to Ruili, in the southwestern Chinese province of Yunnan. The 2,800 kilometer pipeline will permit China-bound tankers from Africa and the Middle East to unload their cargo in Myanmar on the Indian Ocean, thereby avoiding the long voyage to China's eastern coast via the Strait of Malacca and the South China Sea, areas significantly dominated by the US Navy.
  • In March 2010, CNOOC International announced plans to buy 50% of Bridas Corp, a private Argentinean energy firm with oil and gas operations in Argentina, Bolivia, and Chile. CNOOC will pay $3.1 billion for its share of Bridas, which is owned by the family of Argentinean magnate Carlos Bulgheroni.
  • In March, PetroChina joined oil major Shell to acquire Arrow Energy, a major Australian supplier of natural gas derived from coal-bed methane. The two companies are paying about $1.6 billion each and will form a 50:50 joint venture to operate Arrow's holdings.

    And that's only in the energy field. Chinese mining and metals firms have been scouring the world for promising reserves of iron, copper, bauxite, and other key industrial minerals. In March, for example, Aluminum Corp of China, or Chinalco, acquired a 44.65% stake in the Simandou iron-ore project in the African country of Guinea. Chinalco will pay Anglo-Australian mining giant Rio Tinto Ltd $1.35 billion for this share. Keep in mind that Chinalco already owns a 9.3% stake in Rio Tinto and has been prevented from acquiring a larger share mainly thanks to Australian fears that China is absorbing too much of the country's energy and minerals industries.

    Shifting the world's resource balance
    Chinese companies like CNPC, Sinopec, and Chinalco are hardly alone in seeking control of valuable foreign resource assets. Major Western firms as well as state-owned companies in India, Russia, Brazil, and other countries have also been shopping for such properties. Few, however, have been as determined or single-minded as Chinese firms in taking advantage of the relatively low prices that followed the global recession, and few have the sort of deep pockets available to such companies, thanks to the willingness of the China Development Bank and other government agencies to offer munificent financial backing.

    When the United States and other Western nations finally recover from the great recession, therefore, they will discover that the global resource chessboard has been tilted strongly in China's favor. Energy and mineral producers that once directed their production - and often their political allegiance - to the US, Japan, and Western Europe now view China as a major customer and patron. In one eye-catching sign of this shift, Saudi Arabia announced recently that it had sold more oil to China last year than to the United States, previously its largest and most pampered customer. "We believe this is a long-term transition," said Khalid A al-Falih, president and chief executive of Saudi Aramco, the state-owned oil giant. "Demographic and economic trends are making it clear - the writing is on the wall. China is the growth market for petroleum."

    For now, Chinese leaders are avoiding any hint that their recent foreign resource acquisitions entail political or military commitments that could produce friction with the United States or other Western powers. These are just commercial transactions, they insist. There is, however, no escaping the fact that growing Chinese resource ties with countries like Angola, Australia, Brazil, Iran, Kazakhstan, Saudi Arabia, Sudan, and Venezuela have geopolitical implications that are unlikely to be ignored in Washington, London, Paris, and Tokyo. Perhaps more than any other recent developments, China's global shopping spree reveals how the world's balance of power is shifting from West to East.

    Michael Klare is a professor of peace and world security studies at Hampshire College in Amherst, Mass., and the author, most recently, of Rising Powers, Shrinking Planet. A documentary movie version of his previous book, Blood and Oil, is available from the Media Education Foundation.
  • Saturday, April 3, 2010

    Trans Saharan Gas Pipeline: Mirage or real Opportunity?

    http://www.oilprice.com/article-tension-builds-in-the-gulf-of-guinea-as-competition-for-economic-resources-increases-247.html

    Summary: 8 % of worldwide gas reserves are located on the African continent. Its relative economic weakness and the almost total absence of gas networks leads to a very reduced interior consumption (almost nonexistent outside Algeria and Egypt) which permits an important export capacity of the continent’s gas. Linking Sub-Saharan-Africa and the European Union (EU) with a gas pipeline thus is a reasonable project in economic terms. The two sides are discussing the project with increasing intensity since the beginning of the 21st century. The strategy seems to be obvious. The European zone counts three important gas producing countries: Norway (not a member of the EU but closely associated to the Union’s energy policy), Great Britain and the Netherlands, with a respective production of 99.2, 69.5 and 67.5 billion cubic meters in 2008. However, the production of Norway and the Netherlands will start to decrease in a few years ; that of Great Britain is already diminishing significantly since 2000 and the British currently import a third of their gas in order to satisfy their needs for domestic consumption (93.9 billion cubic meters in 2008). Mathematically, EU imports will progressively increase. Fearing a dependence on Russian gas (today 25 % on average among the 27) in the near future has led the EU to develop a policy of diversification in sources of supply. If no diversification is put in place, Russia might supply about 70% of the European market (27 countries) by 2050. The option to multiply the number of re-gasification plants to import Liquefied Natural Gas (LNG) is currently clearly privileged by various EU member states such as France, Italy, Spain, the United Kingdom, the Netherlands and Poland. Persian Gulf countries, Egypt, Algeria and the United States will supply these new plants. The Trans-Saharan Gas Pipeline (TSGP), which will link Nigeria, Niger and Algeria, itself already connected to Spain and Italy by existing or under construction pipelines, could emerge as an additional source of supply in the long term. However, while this 4 128 km-long pipeline considered as a priority by the NEPAD is not a dream and not even a challenge in technical terms, solutions for several financial, security and geopolitical issues have to be found before a hypothetical formal decision can be made to further develop the project in the coming years.

    Dubai's debt woes expose flaws in governance model


    © Bloomberg via Getty Images
    Dubai's Burj Khalifa is the world's tallest building at over 800 metres and was officially opened by Shaikh Muhammad bin Rashid Al Maktum on 4 January 2010


    http://www.iiss.org/publications/strategic-comments/past-issues/volume-16-2010/march/dubais-debt-woes-expose-governance-model/


    The debt problems of Dubai World, an investment company owned by the Emirate of Dubai, have cast a pall over economic activity in the United Arab Emirates (UAE) and the Gulf. They have raised questions about relationships between the seven Emirates that constitute the UAE, as well as about Dubai’s ambitious economic model and the unclear boundaries between the public finances and those of the ruling Al Maktum family. As negotiations continue on restructuring $26 billion of debt, it is clear that greater transparency in governance may be needed in the Gulf to restore business confidence over the longer term.

    The confused situation surrounding Dubai World has highlighted the stresses involved in integrating regional political, regulatory and commercial practices with a global investment marketplace that places an increasing premium on disclosure and compliance. The extent of such tensions in the future may depend on how well the fall-out from Dubai World and difficulties in the Gulf property market can be contained.

    Payments halt

    Dubai World’s near-default was one of the aftershocks of the global economic downturn. It resulted from the collapse in real-estate prices, first in the US, triggering the 2008 financial crisis, and later in Dubai where prices had previously been spiralling. The company became unable to service the debts it had taken on to finance its heavy investment in property. On 25 November 2009 it requested a freeze on payments on $26bn of loans and bonds, and said it would seek to restructure the debts. Amid turmoil in local financial markets, a $10bn bailout loan from Abu Dhabi enabled Dubai World to meet Islamic bond (sukuk) obligations worth $4.1bn for its property-development subsidiary Nakheel that fell due on 14 December. Negotiations with about 100 creditors have since been under way, with a de facto payments standstill in place. According to media reports on 17 March, creditor banks are to be offered full repayment over seven years but at adjusted interest rates that would force banks to take losses in 2010. It is not yet clear whether this arrangement would be backed by a Dubai Emirate guarantee. The next key date is in May when another $980m Nakheel bond becomes due – a debt not guaranteed by its Dubai World parent. Some $12–13bn of Dubai’s debts fall due in 2010, and $25bn in 2011.

    Dubai World’s total liabilities are believed to be as much as $59bn and, according to Moody's Investors Service, it owes $15bn to banks in the UAE. Its assets are shrinking, as its overseas investment arm al-Istithmar has been losing prime New York properties to creditors following defaults in payments, including the former Knickerbocker Hotel building in Times Square. Meanwhile, the cost of insuring Dubai’s debt through credit default swaps has risen sharply, and prices of sukuk issued by Dubai have fallen. The total debts of all Dubai-related entities may exceed $100bn, more than Dubai’s GDP, but the precise figure is not known. Question marks hang over other conglomerates owned by the Emirate and its ruler, Shaikh Muhammad bin Rashid Al Maktum. These include the Investment Corporation of Dubai, owner of Emirates airline (with $28.3bn in bonds and outstanding loans), and Dubai Holding (with total debts of $15bn).

    Dubai World’s problems have raised a question mark over the Emirate’s model for economic development, with its emphasis on grandiose property schemes. Lacking oil and gas, Dubai has since the 1950s based its prosperity on all forms of private enterprise and its role as a laissez-faire city state serving the private-sector interests of its neighbours and the area. Its ambition is to become an international, not just a regional, hub – a goal it has supported by its impressive infrastructure. It has been run as a corporation, with the Emirate’s interests intermingling with those of the Al Maktum family so that the two have become hard to distinguish and disentangle. This mixing of corporatism and personal fiefdom into an unusual form of capitalism inhibits a more transparent approach and complicates debt restructuring.

    Abu Dhabi’s role

    The crisis has thrown a spotlight on the uneasy relationship between Dubai and Abu Dhabi, which supplies most of the UAE Federation’s income. Abu Dhabi is the capital of the UAE and its ruler is the Federation’s president. Following Dubai World's November announcement, the responses of both Dubai and Abu Dhabi were initially hesitant, confused and opaque. Abu Dhabi, which may not have been aware of the scale of the impending debt crisis, took more than two weeks to step in and questions remain about the conditions upon which its support rests.

    Outsiders find it hard to judge the personal and institutional dynamics in relations between the two Emirates and so were shocked by Abu Dhabi’s slow and grudging response. While each Emirate projects a different image and adopts divergent policies (especially towards Iran), the trend since full independence from Britain in 1971 has been towards federalisation and increased centralisation in Abu Dhabi. Against this background, most commentators assume that Abu Dhabi's December rescue will cost Dubai more than renaming the new and tallest tower ‘Burj Khalifa’ after Abu Dhabi’s ruler, Shaikh Khalifa bin Zayid Al Nahayan. The delay may have reflected a determination to drive a harder bargain, and to exert greater political and commercial leverage over Dubai in future. It is clear that Abu Dhabi does not intend to back all Dubai's past commitments and, despite the potential damage to the UAE's overall reputation, may be ready to see some Dubai government-related entities and large corporations go down if they are not commercially or financially viable.

    In the future, investors and lenders will differentiate more clearly and carefully between individual Emirates and between government and corporate entities, and will tend to evaluate the latter on a stand-alone basis. They had believed that Dubai stood four-square behind Dubai World and that Abu Dhabi stood behind Dubai – assumptions that government-related entities and Dubai itself had exploited in the past. Contractors and investors are now likely to insist on explicit government guarantees.

    One consequence has been that Abu Dhabi-linked entities, including the investment agency Mubadala Development Company and International Petroleum Investment Company, are being downgraded by international credit-rating agencies because of the lack of explicit guarantees of Emirate support under all circumstances. This increases their borrowing costs. However, in response to heightened international scrutiny, Abu Dhabi has established a debt-management office, recognising the need to be more professional and improve performance,asrecommended by the International Monetary Fund (IMF) in February.

    Ruling families

    A further consequence of Dubai World’s problems may be to accelerate the long drawn-out process of disentangling the personal interests of Gulf ruling families from those of the states they oversee. This traditional interweaving has included relationships between individual Gulf governments and enterprises with close but unformalised links to senior family members. The delineation between public and privy purses has been uncertain. Establishing clearer boundaries will be not only an economic but a highly political process.

    In several countries, senior members of ruling families have occupied prominent positions in commerce. Both local and international investors have naturally presumed that their activities enjoyed government backing, but such support was never articulated. In some instances the relationship between a commercial or financial enterprise and the ruler or his close relatives might never be formally or publicly acknowledged, with both sides benefitting from the privacy of these arrangements, and outsiders were content to assume government support. The easy availability of oil revenues in most Gulf countries compounded the problem of an opaque boundary between government and family funds.

    However, economic, fiscal and political pressures, as well as changing attitudes, are all encouraging greater transparency and scrutiny. For example, the IMF has suggested restructuring both the Investment Corporation of Dubai and Dubai Holding, Shaikh Muhammad’s personal investment vehicle, which has been downgraded by several credit-rating agencies because of a lack of transparency. The economic downturn and tighter international scrutiny and compliance will cause locals and outside investors to inspect Gulf government income, spending, and financial and business practices more carefully. Dubai World’s problems have illustrated the consequences for government- or ruling-family-related entities, which have traditionally been privately managed, of going to the international bond market. They may therefore prove an important step along the road to greater openness and accountability. The episode has shown how traditional ambiguities that appear acceptable, and even a potential source of strength, in good economic times can become sources of vulnerability and reputational damage when the tide turns.

    Investment climate

    Finally, the crisis has raised urgent questions about Gulf financial markets and regulation, and, in particular, about sukukas viable traded securities. Islamic bonds are structured to pay investors a return without violating Islam’s bar on interest payments. Local doubts about sukuk, based on the lack of any generally recognised Islamic authority to evaluate and standardise Islamic banking products, were compounded by a challenge to their compliance with Sharia law by Bahrain-based scholars in 2008. Because of the immaturity of the market, there is no established mechanism for resolving defaults, and the option available to partiesto English law for disputes to be heard in local courts must be open to doubt. Anxiety over the availability of legal recourse is preventing a secondary market in Dubai’s debt from developing.

    Whether or not Dubai World’s problems trigger a broader quasi-sovereign debt crisis in the region, the economic downturn and credit squeeze will increase pressure in the years ahead for greater transparency in the Gulf. This will come not only from foreign investors, but also from local business people and financiers who are conscious of international trends and eager to adapt local dispensations to the global climate. Forms of governance prevalent in the Gulf since the 1970s, which have developed fitfully and unevenly since, no longer seem well matched for the economic development activities, plans and ambitions of regional states. It is questionable whether the region can achieve its development goals without greater integration and rationalisation of its infrastructure, as well as of the roles championed by each individual Gulf state. These states may need to refashion their governance models and approach to each other if they and the region as a whole are to achieve their full potential.

    Thursday, April 1, 2010

    Argentina, Bolivia and Chile: The ABCs of Lithium

    http://www.dur.ac.uk/ibru/resources/south_atlantic/

    Argentina, Bolivia and Chile: The ABCs of Lithium

    http://www.livescience.com/technology/rare-earth-elements-supply-chain-100414.html

    Sean Goforth | Apr 2010

    With growth in Asia increasing the long-term demand for oil, the quest for energy conservation has increasingly focused attention on lithium, the key resource needed for the manufacture of energy-efficient ion batteries powering hybrid cars. Demand for lithium carbonate doubled from 2003 to 2007, and a report by Credit Suisse states (.pdf) that the market for lithium-ion batteries may expand to 14 times its 2009 size by 2030.

    Lithium is typically recovered from high-altitude desert areas, chiefly in the Andes Mountains, with roughly 80 percent of the world's known lithium reserves found in Argentina, Bolivia, or Chile. Alone, the salt flats of southwestern Bolivia contain more than half of the world's recoverable supplies, making it "the Saudi Arabia of lithium." But after two decades of piquing foreign interest in Bolivia's reserves, the country's natural resource policies, regional posture and poor infrastructure have caused investment in lithium recovery to increasingly favor Chile and Argentina.

    Shortly after riding a wave of indigenous populism to office in 2005, Bolivia's President Evo Morales made good on his vow to re-appropriate the country's natural resources from foreign commercial interests by nationalizing Bolivia's oil and natural gas industries. Morales views lithium, too, as a valuable resource that can help transform Bolivia into a modern society, which explains his insistence that, "The state will never lose sovereignty when it comes to lithium." Comibol, the state agency that oversees mining projects, is busy putting Morales' plan for lithium mining into action, with the goal being to eventually treat foreign industries as direct clients, thereby cutting out the extraction middlemen. This desire to keep foreigners out of the country's salt flats is widely supported in Bolivia, especially among indigenous groups and the rural poor.

    Another prominent, if less-covered, feature of the "Morales factor" is Bolivian revanchism. On March 23, Morales led the country in its national Sea Day Celebration, which commemorates the end of the 19th-century War of the Pacific that resulted in Chile annexing half of Bolivia -- including its Pacific coast. The celebration's recently adopted slogan, "Motherland or Death: We Shall Overcome," is just the latest reminder that Bolivians are still smarting from their territorial losses dating back more than a century.

    Ignoring such sentiment can be politically hazardous in Bolivia, as former President Gonzalo Sánchez de Losado discovered in 2001. To cover budget shortfalls, Sánchez de Losado decided to sell natural gas to the U.S. and Mexico via Chilean ports. Public outrage at the perceived capitulation to Chile led to widespread rioting, driving Sánchez de Losado -- as well as his interim successor -- to resign. Morales' tenure has coincided with louder calls for Bolivia to regain a Pacific coast, and while tolerating such sentiment may be a matter of political survival in Bolivia, it raises eyebrows in Santiago, adding to La Paz's isolation.

    If Bolivia's political environment is hostile, its geography is daunting. Landlocked since the war with Chile, most roads are steep and unpaved, making commercial trucking in Bolivia two to three times as expensive as it is in neighboring countries. Additionally, most workers are unskilled, and many don't speak Spanish. The cost of improving Bolivia's infrastructure to where it could reliably export lithium is estimated to be $600 million, roughly the yearly value of all lithium sales worldwide, giving credence to Parag Khanna's assertion that, "Independence without infrastructure is futile."

    As a result, foreign enterprise has begun to bypass Bolivia for its neighbors. Chile became the world's largest exporter of lithium more than a decade ago, a reflection not only of its large lithium deposits, but also of the sophisticated trade ties of firms like the Chemical & Mining Company of Chile, which exports to more than 100 countries. Incoming investment to Chile quadrupled from 2003 to 2008, based on strong business operations and close ties between Chile and the United States.

    Argentina has also become a force in the lithium market, albeit more recently. In January, Ford and Toyota announced separate ventures amounting to more than $110 million. Even before these investments begin operation, several other promising sites -- including a salt-flat mine in Jujuy Province that will become operational later this year -- are sure to swell Argentina's presence in the global lithium market. Industry scuttlebutt has it that Argentina will surpass Chile as the world's largest lithium exporter by 2012.

    Meanwhile, the window for cashing in on lithium is narrowing, as recovered supplies pace market demand. Though lithium is often likened to oil, the fact is that, unlike a barrel of oil, ion batteries last a long time, and relatively small amounts of lithium are needed per unit. For instance, manufacturing the new Chevy Volt's 400-pound battery pack requires less than 4 pounds of lithium. Another wild card likely to affect the long-term demand for lithium is recycling, as advances in ion battery recycling may greatly dampen the need for new supplies.

    Nevertheless, Bolivian policymakers seem to feel sure that their prodigious lithium reserves will remain in demand long into the future. They have signaled their intent to harvest the element according to the government's "own timetable," in order to ensure that the state retains utmost control. Currently, only one small-scale lithium recovery project -- whose funding has been variously estimated from roughly $6 million to $8 million, is under way.

    Weighing the political and logistical barriers to Bolivia's supplies, many business projections now sideline the country altogether. Lucie Bednarova Duesterhoft, of GM's Global Energy Systems, says, "Two countries -- Argentina and Chile -- could supply the whole world with cheap lithium past 2060." Fear of foreign exploitation, no matter how well-founded considering Bolivia's history, is putting the Bolivian government on track to deprive its people of a tremendous, albeit time-sensitive, opportunity for development.

    China joins imperialists in Guinea pressure play

    http://www.blackagendareport.com/?q=node/11705

    China joins imperialists in Guinea pressure play
    By John Helmer

    MOSCOW - China has joined an English peer, a George W Bush administration retiree, and a special Kremlin envoy in attempts to persuade or pressure the Guinean government into halting court proceedings, and checks for fraud and tax evasion, involving international mining companies and restoring concession rights to Guinea's resource treasures.

    At stake for China is access for Chinalco, the state-owned metals and mining company, to the Simandou concession, one of the world's largest unmined reserves of iron-ore.

    The move by China's embassy in Conakry, the Guinean capital, on Chinalco's behalf has been coordinated with Rio Tinto, the
    London-based miner, and the UK embassy in Guinea.

    On March 19, Chinalco and Rio Tinto announced that they had signed a "non-binding agreement" to jointly develop Simandou, in the southernmost corner of Guinea, which is estimated to contain 2.5 billion tonnes of iron ore - the equal to Rio Tinto's enormous Pilbara iron-ore mine in Australia.

    According to the company announcement, Chinalco would pay US$1.35 billion for a 47% in the project. "We have long believed that Rio Tinto and Chinalco could work together on major projects for mutual benefit," Rio Tinto's chief executive Tom Albanese said at the time. That announcement came just a fortnight before a Chinese court convicted and sent to prison four Chinese Rio Tinto employees on indictments for taking bribes, and for commercial espionage involving China's iron-ore import business.

    According to Xiong Weiping, Chinalco's president, China needs Guinea's iron-ore to increase global supply and reduce the power of Australian and Brazilian iron-ore miners to dictate prices, China needs the imports to feed its expanding steel industry, now the world's largest.

    "A successful development of the Simandou project will effectively increase the global supply of iron ore, balance the global iron ore market structure and promote the long-term, stable and healthy development of the global iron ore mining industry," announced Xiong.

    The Simandou joint venture between Rio Tinto and Chinalco follows the collapse of the much larger equity partnership between the two companies attempted last year, when Chinalco offered to invest $19.5 billion in Rio Tinto shares, only to be refused by the Rio Tinto board, backed by the Australian government and egged on by non-Chinese shareholders.

    Undisclosed in the Rio Tinto-Chinalco announcement on Simandou is the proviso that if the Guinean government revokes the original concession rights awarded to Rio Tinto, Chinalco would withdraw from the deal. Until that happens, the Chinese have undertaken to back Rio Tinto's campaign to lobby the Guineans to change their minds.

    According to Fassine Fofana, the Guinean Minister of Mines and Energy between 1994 and 2000, and at present chief executive of London-based Energy Equity Resources: "Rio converted the exploration licenses, which I granted them in 1997, that have a maximum seven-year duration, into a 25-year concession, without meeting the basic requirement for such conversion: submit a bankable feasibility study to the Ministry, according to Article 41 of the Guinea Mining Code.

    "Having failed to present a bankable feasibility study, the conditions for securing a concession were not met. The former president [Lansana Conte, who died in December 2008], who had issued it, rescinded the concession decree and Rio's Simandou titles reverted to being pure (but still exclusive) exploration licenses. As such, they were subject to the relinquishment provisions of the mining law - 50% at each renewal, until such time as a concession has been granted, if the concession conditions are met.

    "What the law does not allow for is for anyone to take the asset off the market by securing a concession before meeting the conditions set out in the law. This is what happened with Rio."

    Fofana added the warning: "If Rio does not move fast, they may have to relinquish their remaining 50% of the Simandou deposit, if the conditions are not met by the time the next license renewal comes up. There will be many takers for any portion of Simandou."

    Fofana's successor as mines minister, Mahmoud Thiam, was appointed by Guinean Army Captain Moussa Dadis Camara, who took power as Guinea's president after Conte died. Thiam was a US investment banker in New York before he agreed to return home and take over the resources portfolio. Last July, he issued Rio Tinto with a notice revoking 50% of the Simandou concession for failure to meet its obligations.

    When Rio Tinto began its counter-attack against Thiam and the government, he hinted that the company was plotting to destabilize the government: "We regret to observe," Thiam announced, "that Rio Tinto seems to ignore this sovereign decision from our government with a doggedness verging on defiance of the authority of the state. Such activities come dangerously close to destabilizing civil peace and weakening our socio-economic balance."

    A few weeks later, on September 28, a political demonstration in Conakry was attacked by troops, and at least 150 people were killed, and many more wounded or raped. An attempt at assassinating Camara followed on December 4. He is still recuperating from head wounds in neighboring Burkina Faso.

    Ex-minister Fofana has blamed the Western media for falling for "all the old cliches on Africa. Everything done by African governments is presented as an attempt to defraud 'innocent and well meaning' investors, and to scare off the companies allegedly best suited to develop the resources. The companies can do no wrong. As a former minister of mines from Guinea and as a leader of several resource projects across Africa, I beg to differ."

    Rio Tinto claims it has spent $450 million on exploration at Simandou, and has met its concession obligations. "Rio Tinto", according to a company release, "has in all its actions, public statements and letters to the Government of Guinea indicated its desire to conduct good-faith discussions. Rio Tinto is confident of its strong legal standing as well as the win-win nature of our agreements with Guinea for the development of this project."

    In a recent appearance at Chatham House, a foreign policy think-tank in London, the UK ambassador to Guinea, Ian Felton, reportedly said the Simandou revocation is unlawful; he also signaled the backing of the Foreign Office for a change of minister, or a change of Guinean government, if Rio Tinto's concession rights are not restored.

    Until now, it has been widely believed in Africa, as well as among China watchers around the world, that Chinese state policy favors African regimes, or regime change, if they agree to provide mining concessions and direct mineral export deals in return for cash, investments in local infrastructure, and political support. That has appeared to put the Chinese on a collision course with non-Chinese miners like Rio Tinto.

    Until now too, Minister Thiam had been accused of being pro-Chinese for his efforts at prosecuting the Russian aluminum monopoly Rusal, which operates bauxite and alumina concessions in Guinea. On Thiam's initiative, backed by Camara, the Guinean courts are currently considering revocation of Rusal's concessions, while international and Guinean government auditors have been examining Rusal's records for evidence of alleged fraud and tax evasion. According to Rusal, it has done everything right, and Thiam is acting as someone's puppet.

    Rusal has sent a former intelligence agent, now Rusal executive, Victor Boyarkin, to negotiate a deal with Thiam, or failing that, with his opponents in the Guinean government. After an attempt to oust Thiam from his ministerial post failed in January, Rusal announced on February 19 that it had agreed "to establish a joint high level commission aimed at providing a stable basis for long-term and mutually beneficial cooperation in the country. The decision to establish this commission was reached during negotiations between the Guinean Government and RUSAL. Guinean Prime Minister Jean-Marie Dore and RUSAL's Head of Alumina Division Pavel Ovchinnikov took part in the negotiations. The parties confirmed their strategic partnership and underscored the need to continue the cooperation between RUSAL and Guinea."

    With roughly 15% of Rusal's capital at risk in Guinea, the Russian stakes are high. Rusal is the largest Russian company currently operating in Africa. In January, Rusal became the first Russian company to list its shares on the Hong Stock Exchange. BOCI Asia Ltd was one of the initial Chinese subscribers to the placement; China Development Bank is one of the heavily indebted Rusal's creditors; and Hong Kong investor Kuok Hock Nien, owner of the South China Morning Post, holds Rusal shares. All have an interest in boosting the share price, which has fallen as much as 30% off the listing level in the first weeks of trading. So too does the Kremlin, because the state bailout bank VEB, chaired by Prime Minister Vladimir Putin, is Rusal's biggest creditor, and together with the state savings institution, Sberbank, they guaranteed the Hong Kong listing in January by buying the biggest bloc of shares on offer.

    And so next into the breach in Guinea, the Russians have sent a Kremlin emissary. Alexey Vasiliev, a Russian professor specializing in the history of Saudi Arabia, flew to Conakry last week. His mission was also to make it appear that the Kremlin wants Guinea to take its teeth out of Rusal. According to a resume posted on the website of the Institute for African Studies in Moscow, "since 2006 Prof Vasiliev is a Special Representative of the President of the Russian Federation for the Relations with African Leaders". The resume also reports several books Vasiliev has authored, including History of Saudi Arabia, Russia in the Near and Middle East: from Messianism to Pragmatism, and Egypt and Egyptians.

    Vasiliev was in Guinea from March 21 to 27, his spokesman at the Institute for African Studies confirmed. Vasiliev is also director of the institute.

    A Guinean source, in whom Vasiliev confided in Conakry, says Vasiliev told him that he was on a mission for Putin. Vasiliev's spokesman denied this, saying he was representing the "presidential administration". Vasiliev's office declined to say what the purpose of his mission to the Guinean government has been, and what he told Prime Minister Dore at their meeting.

    Sources privy to the meetings Dore has had with foreign emissaries in the past month say there is a concerted international effort to convince the Guineans that what is good for the foreign mining companies ought to be good for the government - or else there will be international sanctions.

    Lord David Owen, the former UK foreign secretary, is a member of the board of a US-based oil junior called Hyperdynamics. It is trying to pressure Dore into agreeing to terms of an offshore oil concession agreement, which have been rejected as unfair by Minister Thiam. Thiam's opposition is based on a legal opinion of the Hyperdynamics proposal commissioned from the Paris-based international law firm, Gide Loyrette Nouel.

    Lord Owen has told Dore that Guinea's future relations with the UK and US governments depend on its meeting Hyperdynamics' terms. The same message was conveyed in Conakry by Herman (Hank) Cohen, a former US assistant secretary of state during the George HW Bush administration. Cohen is also a board member of Hyperdynamics.

    The objective of Vasiliev's visit to Conakry was to join the other foreign emissaries in pressing Dore to agree that Guinea's future relations with the Kremlin are dependent on how the Russian commercial interest in Guinea is treated. This linkage with Rusal's interests in Guinea has been denied by the Russian Foreign Ministry in an official statement to Asia Times Online; and by the Kremlin's special emissary and troubleshooter in Africa, Senator Mikhail Margelov, who has been particularly acerbic in his criticism of Rusal's owner, Oleg Deripaska.

    Dore was appointed prime minister by the head of state, Captain Camara, in January. According to the terms agreed with Camara, Dore has a limited mandate to prepare for a new presidential election scheduled in October. Sources close to Dore acknowledge that he has little time to achieve what he wants from his post. Dore has also publicly claimed he is not bound by the terms of his deal with Camara. The latter has backed Thiam to remain in his post, and the campaign to enforce Guinean concession agreements with the foreign mining and energy companies.

    Vasiliev, sources in Conakry say, lobbied for Dore to halt litigation by the government in the Guinean courts against Rusal, and to drop claims for concession violations, fraud, and tax evasion by Rusal. A claim by Rusal that it had succeeded in its appeal against last September's court revocation of its Friguia alumina concession appeared in print on March 22, the day before the Guinean appellate court issued its ruling; that in turn followed the surprise withdrawal of the judge hearing the case.

    Rusal has announced that the "appellate court held that the Guinean courts lack jurisdiction over the case regarding the RUSAL's asset in Guinea and therefore reversed the ruling issued by the Guinean lower court in September 2009 ... RUSAL views this decision as providing a favourable step toward expanding the long-term and mutually beneficial cooperation between RUSAL and the Republic of Guinea."

    Guinean government sources have told Asia Times Online they believe the latest ruling will be rejected by the highest court, to which the government is now appealing. The sources also say that the compensation claims are an entirely different issue, and are unaffected by the appeal proceeding.