MARTIN COLLINS: John Durie | May 24, 2008
THIS week, the US Congress overwhelmingly passed the Gas Price Relief for Consumers Act to give the US Justice Department new powers to take action against international oil cartels and oil price gougers.
The bill, passed by a stunning majority of 324 to 84 votes, will be vetoed by President Bush for a very good reason: it completely misses the point about higher oil prices.
On the surface, the move should have been trumpeted as a chance to let the antitrust teams in the US Justice Department train their guns on oil cartels, but no one celebrated much because the debate has moved on.
Just like the federal Government's ill-conceived decision to impose a nationwide Fuel Watch program, complete with a taxpayer-funded oil price monitor, the US effort was just a bunch of politicians wanting to show their electorate they were doing something about higher prices.
The impact of the doubling of fuel prices in the last 12 months is nonetheless real and the politicians should be taking note of what the price rises are signalling.
This can best be described by two figures: the US has 250 million cars and China has 37 million.
Prices have moved faster than expected, but the speculators are simply doing what they always do and overreacting to clear indications that demand is outstripping supply.
Unfortunately, the regions which need to react to the price signals most have governments that impose artificial restraints, such as price controls (India and China) and subsidies (Indonesia, Malaysia and Taiwan).
Russia taxes its oil production so hard it is killing supply; at best, it hardly encourages new supply.
The debate in the US has turned once again to the push by oil companies to open up land protected on environmental grounds for oil drilling. No solution there.
As to the federal Opposition's move to cut excise taxes on petrol, certainly cutting any tax is good, but, as an attempt to alleviate the problems caused by higher oil prices, it also misses the point.
The answer is to either increase production or reduce demand. Hopefully, the market will produce this response in spite of all the politicking.
Goyder & McLeod show
WESFARMERS chief Richard Goyder's decision to grant his new Coles boss Ian McLeod a five-year contract is a double-edged sword.
The glass half-full version says it's better to lock the guy in for the full length of recovery lest he should make the same mistake as John Fletcher and go for short-term profits instead of long-term sustainable earnings.
The half-empty version says if the guy is a dud, then Goyder has to pay out big time on a contract, which will probably also mean a string of other departures as well. Football teams don't sign players on long-term contracts.
For now, Wesfarmers shareholders can rest easily knowing Goyder believes he has made the right call, and if he's wrong then he will probably be shown the door ahead of McLeod.
It's best to work from the proposition that McLeod will do what others before him have failed to do, and that's to get Coles back to retail basics.
This is no easy matter because the facts are that former boss John Fletcher didn't lay a finger on a fundamentally bad corporate culture, ripe with corruption and a management structure that was unresponsive. Coles under Fletcher was a bureaucratic nightmare and, according to some suppliers, he was always too busy to see them.
The next question to answer is, what is so good about British retailers?
Wesfarmers' Goyder, like John Fletcher before him, has put most of his Coles recovery eggs into the basket of former British retailers and in particular those who used to work for Wal-Mart offshoot Asda.
McLeod has worked for Asda, as have retail guru Archie Norman, who is on a contract to advise Goyder; operations boss Stuart Machin; new marketing boss Joe Blundell; and current Coles executive but new store format manager Gavin Parker.
John Durkan, a US retailer but most recently in the car phone game, will be the purchasing manager.
Wesfarmers rising star Terry Bowen will be the finance boss and former Shell executive and present supermarket boss Mick McMahon will run convenience stores, liquor, fuel and supply chain.
McLeod was asked yesterday what was so good about UK retailers, and he was modest enough to say there were good retailers everywhere. Obviously, there is cultural fit which attracts Australian managers to British retailers and they are available.
Given McLeod thinks Coles is not broken like ASDA was when he was there under Norman, who led the revival, the fact that so many of the new team came from the store smacks of old mates getting together. This can work, as the believers at Telstra would maintain.
The likeable McLeod is going to attack Coles from the store front first, which means he will get it back to retail 101. As he said yesterday, it's a long, slow process, and given the lack of past investment, an expensive one.
A new team under new ownership will hopefully bring the cultural overhaul the retailer needs, but its competitor Woolworths won't be sitting around watching it rebound.
Contrary to reports, Coles has no plans to get out of its Shell fuel business and its convenience network is being primed to boost returns.
After yesterday's bookbuild, Goyder now has $1.6 billion in new equity, and a new supermarket management team. Now the work begins.
Gunns and greens
The paper mill protesters dressed as cheerleaders outside ANZ's Melbourne headquarters this week missed the point big time. The reality is, Gunns may be a long-term client, but the bank was never going to hand John Gay a big cheque for his $2 billion paper mill. Those seeking confirmation from ANZ will also be disappointed because banks rarely put out press releases to say they won't be backing a client.
Gunns share price took a hammering yesterday, down some 6.5 per cent at $3 a share, putting its market capitalisation at $1.3 billion. On any stretch, for a company of that size to undertake a $2 billion expansion is a huge call, and given the environmental sensitivities, the banks have two good reasons to ignore the mills in these credit-constrained days.
John Gay is confident his mill is bankable, but the banks aren't and that's before you get into environmental concerns.
All the banks like to stress their green credentials, but the fact is they wouldn't let a couple of environmental issues get in the way of a big fee.
So the credit crunch and high risk nature of the project gave ANZ an easy way to avoid a decision which, in PR terms, was even higher risk.
The cheerleaders were in Collins Street celebrating the bank's non-decision and announcing the cancellation of yet another big anti-ANZ rally due on June 15.
Macquarie Bank was mentioned in dispatches recently as a potential lead book running on a debt deal, but this won't be happening. Gay has Pacific Road's Paul Espie on hand to manage the project financing, which will come from offshore backers.
At least that's the game plan.
BERITADARIGUNUNG: Shahrir, looking beyond the sticky issue, and it doesnt smell politic!