Tuesday, June 29, 2010

Flash Floods and Spin Doctoring

First, we had "Once in 50 years..."(21 November 2009)

Then we had the "choked drains". (17 June 2010)

The PM broke his silence and pronounced in sonorous tones that "Singapore can't be flood-free." (28 June 2010). You've got to hand it to the man. Such gravitas.

Finally, fresh off the press today, we have "More rain, less haze?", on the first page of the Home section. Sorry, no link here, it's too recent, so subscription is needed. I won't bother summarizing that article as the title is self-explanatory. Heck, I couldn't even summarize it if I wanted to, since I didn't read the article. Just like I didn't read the 3 articles I linked to above. No need to, since the intent behind the articles is transparent. I don't read crap, much less spin-doctored crap from the Straits Times.

Let's see...the first article was an excuse, but one which required no action on the part of the government. Invoking force majeure. Whocouldhaveknown? Nothing could have stopped the flooding. Cheap and easy. 

The second was a passing-the-buck kind of excuse, implicitly implicating say, the cleaners, the heavy construction around the Orchard area resulting in massive amounts of debris, and a myriad of other factors. Everything except poor planning and forethought. It's the 'we did everything right, but other factors were beyond our control' equivalent.

Everyone together now, cue roll eyes.

With the third article, the media shifts into the damage control phase. No question why. After all, this is the second major flooding incident in as many weeks.

The third article cited above was a classic managing-your-expectations spiel. I can spot this a mile away. It was the very first lesson I learnt in the corporate world when I was fresh out of university. The strange thing is, for whatever reason, people who like exhorting others to manage their expectations are always consternated when they realize that whatever they say applies both ways. To get, you must give, so if you don't give, you also don't get. Good thing to keep in mind the next time elections roll around. Expectations should be managed all round

The fourth article is the silver-lining argument, useful for mollifying the occasional petulant child. It has to strike just the right balance between being patronizing, remonstrating and yet count-your-blessings uplifting all at the same time. Otherwise it just comes across as patronizing. Which is the case here. It's too obvious, coming just the day after the third article.

If our nation-building press is hewing to the formula that it has set down in the past, the next slew of articles will probably involve Singaporeans 'doing our part'. You know, like when Mas Selamat escaped and we were all rebuked for being too "complacent".

Some possibilities (in case our ever imaginative press hits a mental block and feels the need to crib ideas from my humble blog):

  1. Recast these flooding incidents into a renewed anti-littering campaign. After all, litter could be what caused those culverts to get clogged. Right, PUB?
  2. Plea for public vigilance and appeal to the communitarian sense. Singaporeans should be proactive and call the NEA/PUB everytime they see clogged drains and culverts! How about a local variation of the "If you see something, say something" campaign in NYC? You could pay somebody $400000 and reuse the same tagline.
  3. Turn this into a platform promoting increased use of public transportation. There wouldn't be quite so many complaints if there weren't so many cars affected on the roads. After all, the MRT trains are immune to flooding. Never mind that our public transportation system is already bursting at the seams.

PS: To our press, if you do end up using any of my ideas, please do credit my blog. That is the professional thing to do, y'know?

Thursday, June 24, 2010

"Stuy Town - Who got 'stuffed'"

The story that follows my post below is clear enough if you understand a bit of finance. But for those who don't, here's the 'friendly' neighborhood analogy.

Imagine, if you will, Franny Maeck, a real estate investor in a run-down, broken town. The town mayor is offering "housing credits" - basically payments, to the investor to incentivize her into putting money into real estate in the town.

Franny agrees, and her investments take the form of loaning out funds to people to buy houses in the town. Franny has no problems raising funds, because she has the mayor himself backing her, so she can borrow at very favorable interest rates in the market. We'll leave aside the thorny issue of why the mayor, who is backing Franny, doesn't just invest in the real estate himself.

Back to the real estate investor. Now of course, Franny wants to get other investors on board to spread the risk and increase the investment pool of funds. So she ropes in Gullible InCorporated, from a faraway town that is swimming in wealth, but nonetheless has citizens that scrounge in trash bins for metal cans to sell.

Gullible InCorporated is only too happy to invest, thinking that Franny is an expert at these things, and what's more, Franny has put her own money in this. She has skin in the game!

Too bad for Gullible InCorporated though, that Franny knows only too well that the particular houses that they're investing in are run-down, prone to collapse, and could spontaneously burst into flames at any time.

Franny has wisely bought insurance on the houses, so she can collect when, not if, the houses burn down. So her money's safe. She didn't mention this to Gullible though, who's still blissfully unaware. Until, that is, months after the houses have already burnt down. In the meantime, she's toting up her insurance gains on her Abacus.


Good thing we don't have something called Gullible InCorporated here. It's such a relief we have really competent people looking after our money. After all, these are the people that keep our streets free of floodwater, our public transportation system secure, and limping, incapacitated would-be terrorists safely locked up. And if they didn't manage to do all these things, our nation-building press would certainly call them out on it and subject them to the strictest scrutiny.

And our very, very competent people certainly are worth every penny we pay them. Heck, if we want things cleaner and safer, just like our town councils, we should definitely pay them even more.

Stuy Town – Who Got “Stuffed”?
Via: zero hedge Posted: 2010-06-22

Stuyvesant Town in NYC is possibly the worst RE deal in US history. This 2006 vintage mega ($5.4b) deal finally went bust in January. Fannie and Freddie together hold $1.5 billion of the $3.0b senior mortgage bonds. The equity and mezzanine lenders have been wiped out. The WJS did a piece on this horrible deal back in January. In that article they had an interesting quote from a Freddie Mac spokeswoman:

"Freddie Mac doesn't expect any losses"

I thought at the time that this was one of those things that might come back and bite them in the ass. It was not clear to me that the senior mortgage was money good. If it were, then the mez. and equity guys would not have folded as fast as they did.

The Fannie and Freddie mortgage bonds were equal in legal status (parri passu) to a $1.5 mortgage loan provided by Wachovia. After the deal closed Wachovia put this debt into a much larger CMO. Fitch did an analysis of the CMO in April. The report concluded that the Wachovia/Stuy Town mortgage was not money good. I called Fitch and got a confirmation. The Fitch assessment of the property value is $1.8b. This value was based on a discounted analysis of the rent and future Capex requirements. (See 4/1 Fitch report, Wachovia C-30)

This information was in direct conflict with the Freddie claim back in January that they expected no loss. I thought I had a “gotcha” story. To confirm it I asked the FHFA some questions. Consider this exchange:

BK: Comment on Fitch value of 1.8B?
FHFA: This is Fitch’s estimate. Other firms estimates place the values between $1.6 and $2.2 billion depending on the cap rate.

BK: Did F/F put the securities in a larger CMO transaction?
FHFA: No, they did not put the securities into a CMO. The GSEs approached this as typical investors.

BK: Did F/F have other credit enhancement?
FHFA: F/F had enhancements for this deal that were typical for large loan deals. Other investors had the same enhancements.

BK: Did F/F do this to get low-income housing credits?
FHFA: They did receive housing goals credits and did so in the context of meeting their standard securities investment criteria.

Some thoughts on this.

-The market will ultimately determine the value of Stuy Town, but for the FHFA to provide a range of estimates that are all below the mortgage value is a confirmation that this deal is upside down.

-Consider the second and third comments together. They did not put the bonds in a CMO transaction where they would take back the highest rated tranches. They chose instead to obtain other “enhancements”. This means they bought a form of single name CDS protection. This information confirms the Freddie statement that they would not incur a loss. Color me shocked at this.

-F/F were arbitraging their balance sheet. They were able to borrow at spreads over treasuries back then. They bought risky Stuy Town bonds that had a fat coupon with taxpayer guaranteed money. But then they paid away most of that premium buying CDS protection. They did not trust the deal from the get go. So why did they do it? The answer is in the last response. A motivating factor for Fannie and Freddie to participate in a highly leveraged RE deal was to get housing credits. There is a lesson in this. These housing credits are ass backwards. They do not encourage low-income housing. They encourage speculation.

-The statement, “Other investors had the same enhancements” is interesting. The question comes to mind, “What other investors had the credit enhancements”? This is the list of suspects.

Wachovia Bank
Government of Singapore
Florida State Pension Fund
Church of England
S/L Green
Black Rock
Tishman Speyer
DG Hypo Bank
Hartford Financial
Allied Irish Bank

I am willing to put long odds that it was not Wachovia that bought the protection. They tried to enhance their position by putting the mortgage and a bunch of other crude in a CMO. It was not the Government of Singapore (GIC). They have confirmed that they have written off their investment of $675 million.

Someday we will know who those “other investors” are. I wonder if Singapore was aware of the fact that F/F was buying enhancements on their senior position at the time the deal was struck. If the senior guys were nervous, then the mez. guys should have been quaking. But that is not they way this played out. This disclosure issue is somewhat like the problem Goldman has with Abacus. Did everyone in the deal fully understand the interests/objectives of the other participants? Would any of the other investors backed out if they understood F/F were hedging their bets? Did everyone have the same objectives for participating?

-Having two government agencies provide $1.5b (25%) to a transaction gives the deal credibility. But the evidence suggests that the anchor lenders did not believe in the transaction. I’m sure the Singapore government is upset with the results. I wonder how they will feel knowing that some of the investors are getting out whole while they took a bath.

-I would love to know who was the provider of the CDS that enhanced the F/F Stuy Town bonds. Back in 2006 it could have been anyone. One name that comes to my mind is AIG. I hope it's not them. We have had enough financial Greek tragedies.

-F/F have no loss. Wachovia split its share of the mortgage up and sold it a hundred ways. The old mez debt and equity have tossed in the towel. A question to ask at this point is: why not resolve this problem by condoizing Stuy Town? The pricing would reflect the current value of ~$2b. The long-term renters would be able to benefit from this. Others would be able to find housing at an acceptable cost. Stuy Town was never worth $5.4b. F/F should move to get this off their books without loss. That way the people of NYC would be the beneficiaries of the worst RE deal ever.

Wednesday, June 23, 2010

Book List Refreshed!

I have removed:

The Pleasures and Sorrows of Work by Alain de Botton
Poorly Made in China by Paul Midler
Cheap: The high cost of discount culture by Ellen Ruppel Shell
Toolbox for Sustainable City Living by Scott Kellogg and Stacy Pettigrew

I have added:

The Art of Travel by Alain de Botton
Lessons from Private Equity any Company can Use by Orit Gadiesh and Hugh MacArthur
This Time is Different by Carmen Reinhart and Kenneth Rogoff
Power Hungry by Robert Bryce

"BP-Style Extreme Energy Nightmares to Come"

From TomDispatch.com

BP-Style Extreme Energy Nightmares to Come
Four Scenarios for the Next Energy Mega-Disaster
By Michael T. Klare

On June 15th, in their testimony before the House Energy and Commerce Committee, the chief executives of America’s leading oil companies argued that BP’s Deepwater Horizon disaster in the Gulf of Mexico was an aberration -- something that would not have occurred with proper corporate oversight and will not happen again once proper safeguards are put in place. This is fallacious, if not an outright lie. The Deep Horizon explosion was the inevitable result of a relentless effort to extract oil from ever deeper and more hazardous locations. In fact, as long as the industry continues its relentless, reckless pursuit of “extreme energy” -- oil, natural gas, coal, and uranium obtained from geologically, environmentally, and politically unsafe areas -- more such calamities are destined to occur.

At the onset of the modern industrial era, basic fuels were easy to obtain from large, near-at-hand energy deposits in relatively safe and friendly locations. The rise of the automobile and the spread of suburbia, for example, were made possible by the availability of cheap and abundant oil from large reservoirs in California, Texas, and Oklahoma, and from the shallow waters of the Gulf of Mexico. But these and equivalent deposits of coal, gas, and uranium have been depleted. This means the survival of our energy-centric civilization increasingly relies on supplies obtained from risky locations -- deep underground, far at sea, north of the Arctic circle, in complex geological formations, or in unsafe political environments. That guarantees the equivalent of two, three, four, or more Gulf-oil-spill-style disasters in our energy future.

Back in 2005, the CEO of Chevron, David O’Reilly, put the situation about as bluntly as an oil executive could. “One thing is clear,” he said, “the era of easy oil is over. Demand is soaring like never before… At the same time, many of the world’s oil and gas fields are maturing. And new energy discoveries are mainly occurring in places where resources are difficult to extract, physically, economically, and even politically.”

O’Reilly promised then that his firm, like the other energy giants, would do whatever it took to secure this “difficult energy” to satisfy rising global demand. And he proved a man of his word. As a result, BP, Chevron, Exxon, and the rest of the energy giants launched a drive to obtain traditional fuels from hazardous locations, setting the stage for the Gulf of Mexico oil disaster and those sure to follow. As long as the industry stays on this course, rather than undertaking the transition to an alternative energy future, more such catastrophes are inevitable, no matter how sophisticated the technology or scrupulous the oversight.

The only question is: What will the next Deepwater Horizon disaster look like (other than another Deepwater Horizon disaster)? The choices are many, but here are four possible scenarios for future Gulf-scale energy calamities. None of these is inevitable, but each has a plausible basis in fact.

Scenario 1: Newfoundland -- Hibernia Platform Destroyed by Iceberg

Approximately 190 miles off the coast of Newfoundland in what locals call “Iceberg Alley” sits the Hibernia oil platform, the world’s largest offshore drilling facility. Built at a cost of some $5 billion, Hibernia consists of a 37,000-ton “topsides” facility mounted on a 600,000-ton steel-and-concrete gravity base structure (GBS) resting on the ocean floor, some 260 feet below the surface. This mammoth facility, normally manned by 185 crew members, produces about 135,000 barrels of oil per day. Four companies (ExxonMobil, Chevron, Murphy Oil, and Statoil) plus the government of Canada participate in the joint venture established to operate the platform.

The Hibernia platform is reinforced to withstand a direct impact by one of the icebergs that regularly sail through this stretch of water, located just a few hundred miles from where the Titanic infamously hit an iceberg and sank in 1912. Sixteen giant steel ribs protrude from the GBS, positioned in such a way as to absorb the blow of an iceberg and distribute it over the entire structure. However, the GBS itself is hollow, and contains a storage container for 1.3 million barrels of crude oil -- about five times the amount released in the 1989 Exxon Valdez spill.

The owners of the Hibernia platform insist that the design will withstand a blow from even the largest iceberg. As global warming advances and the Greenland glaciers melt, however, massive chunks of ice will be sent floating into the North Atlantic on a path past Hibernia. Add increased storm activity (another effect of global warming) to an increase in iceberg frequency and you have a formula for overwhelming the Hibernia’s defenses.

Here’s the scenario: It’s the stormy winter of 2018, not an uncommon situation in the North Atlantic at that time of year. Winds exceed 80 miles per hour, visibility is zilch, and iceberg-spotter planes are grounded. Towering waves rise to heights of 50 feet or more, leaving harbor-bound the giant tugs the Hibernia’s owners use to nudge icebergs from the platform’s path. Evacuation of the crew by ship or helicopter is impossible.

Without warning, a gigantic, storm-propelled iceberg strikes the Hibernia, rupturing the GBS and spilling more than one million barrels of oil into rough waters. The topside facility is severed from the base structure and plunges into the ocean, killing all 185 crew members. Every connection to the undersea wells is ruptured, and 135,000 barrels of oil start flowing into the Atlantic every day (approximately twice the amount now coming from the BP leak in the Gulf of Mexico). The area is impossible to reach by plane or ship in the constant bad weather, meaning emergency repairs can’t be undertaken for weeks -- not until at least five million additional barrels of oil have poured into the ocean. As a result, one of the world’s most prolific fishing grounds -- the Grand Banks off Nova Scotia, New Brunswick, and Cape Cod -- is thoroughly poisoned.

Does this sound extreme? Think again. On February 15, 1982, a giant drillship, the Ocean Ranger (the “Ocean Danger” to its habitués), was operating in the very spot Hibernia now occupies when it was struck by 50-foot waves in a storm and sank, taking the lives of 84 crew members. Because no drilling was under way at the time, there were no environmental consequences, but the loss of the Ocean Ranger -- a vessel very much like the Deepwater Horizon -- should be a reminder of just how vulnerable otherwise strong structures can be to the North Atlantic’s winter fury.

Scenario 2: Nigeria -- America’s Oil Quagmire

Nigeria is now America’s fifth leading supplier of oil (after Canada, Mexico, Saudi Arabia, and Venezuela). Long worried about the possibility that political turmoil in the Middle East might diminish the oil flow from Saudi Arabia just as Mexico’s major fields were reaching a state of depletion, American officials have worked hard to increase Nigerian imports. However, most of that country’s oil comes from the troubled Niger Delta region, whose impoverished residents receive few benefits but all of the environmental damage from the oil extraction there. As a result, they have taken up arms in a bid for a greater share of the revenues the Nigerian government collects from the foreign energy companies doing the drilling. Leading this drive is the Movement for the Emancipation for the Niger Delta (MEND), a ragtag guerrilla group that has demonstrated remarkable success in disrupting oil company operations.

The U.S. Department of Energy (DoE) rates Nigeria’s innate oil-production capacity at about 2.7 million barrels per day. Thanks to insurgent activity in the Delta, however, actual output has fallen significantly below this. “Since December 2005, Nigeria has experienced increased pipeline vandalism, kidnappings, and militant takeovers of oil facilities in the Niger Delta,” the department reported in May 2009. “[K]idnappings of oil workers for ransom are common and security concerns have led some oil services firms to pull out of the country.”

Washington views the insurgency as a threat to America’s “energy security,” and so a reason for aiding the Nigerian military. “Disruption of supply from Nigeria would represent a major blow to U.S. oil security,” the State Department noted in 2006. In August 2009, on a visit to Nigeria, Secretary of State Hillary Clinton promised even more military aid for oil protection purposes.

Here, then, is scenario #2: It’s 2013. The Delta insurgency has only grown, driving Nigeria’s oil output down to a third of its capacity. Global oil demand is substantially higher and rising, while production slips everywhere. Gasoline prices have reached $5 per gallon in the U.S. with no end in sight, and the economy seems headed toward yet another deep recession.

The barely functioning civilian government in Abuja, the capital, is overthrown by a Muslim-dominated military junta that promises to impose order and restore the oil flow in the Delta. Some Christian elements of the military promptly defect, joining MEND. Oil facilities across the country are suddenly under attack; oil pipelines are bombed, while foreign oil workers are kidnapped or killed in record numbers. The foreign oil companies running the show begin to shut down operations. Global oil prices go through the roof.

When a dozen American oil workers are executed and a like number held hostage by a newly announced rebel group, the president addresses the nation from the Oval Office, declares that U.S. energy security is at risk, and sends 20,000 Marines and Army troops into the Delta to join the Special Operations forces already there. Major port facilities are quickly secured, but the American expeditionary force soon finds itself literally in an oil quagmire, an almost unimaginable landscape of oil spills in which they find themselves fighting a set of interlocked insurgencies that show no sign of fading. Casualties rise as they attempt to protect far-flung pipelines in an impenetrable swamp not unlike the Mekong Delta of Vietnam War fame.

Sound implausible? Consider this: in May 2008, the U.S. Army Training and Doctrine Command and the Joint Forces Command conducted a crisis simulation at the U.S. Army War College in Carlisle, Pennsylvania, that involved precisely such a scenario, also set in 2013. The simulation, “Unified Quest 2008,” was linked to the formation of the U.S. Africa Command (Africom), the new combat organization established by President Bush in February 2007 to oversee American military operations in Africa. An oil-related crisis in Nigeria, it was suggested, represented one of the more likely scenarios for intervention by U.S. forces assigned to Africom. Although the exercise did not explicitly endorse a military move of this sort, it left little doubt that such a response would be Washington’s only practical choice.

Scenario 3: Brazil -- Cyclone Hits “Pre-Salt” Oil Rigs

In November 2007, Brazil’s state-run oil company, Petróleo Brasileiro (Petrobras), announced a remarkable discovery: in a tract of the South Atlantic some 180 miles off the coast of Rio de Janeiro, it had found a giant oil reservoir buried beneath a mile and a half of water and a thick layer of salt. Called “pre-salt” oil because of its unique geological positioning, the deposit was estimated to hold 8 to 12 billion barrels of oil, making this the biggest discovery in the Western Hemisphere in 40 years. Further test drilling by Petrobras and its partners revealed that the initial find -- at a field called Tupi -- was linked to other deepwater “pre-salt” reservoirs, bringing the total offshore potential to 50 billion barrels or more. (To put that in perspective, Saudi Arabia is believed to possess reserves of 264 billion barrels and the United States, 30 billion.)

With this discovery, Brazil could “jump from an intermediate producer to among the world’s largest producers,” said Dilma Rousseff, chief cabinet official under President Luiz Inácio Lula da Silva and thought to be his most likely successor. To ensure that the Brazilian state exercises ultimate control over the development of these reservoirs, President da Silva -- “Lula,” as he is widely known -- and Rousseff have introduced legislation in the Brazilian Congress giving Petrobras control over all new fields in the basin. In addition, Lula has proposed that profits from the pre-salt fields be channeled into a new social fund to alleviate poverty and underdevelopment in the country. All this has given the government a huge stake in the accelerated development of the pre-salt fields.

Extracting oil a mile and half under the water and from beneath two-and-a-half miles of shifting sand and salt will, however, require the utilization of technology even more advanced than that employed on the Deepwater Horizon. In addition, the pre-salt fields are interspersed with layers of high-pressure gas (as appears to have been the case in the Gulf), increasing the risk of a blow-out. Brazil does not experience hurricanes as does the Gulf of Mexico, but in 2004, its coastline was ravaged by a surprise subtropical cyclone that achieved hurricane strength. Some climatologists believe that hurricane-like storms of this sort, once largely unknown in the South Atlantic, will become more common as global warming only increases.

Which brings us to scenario #3: It’s 2020, by which time the pre-salt area off Rio will be host to hundreds of deepwater drilling rigs. Imagine, then, a subtropical cyclone with hurricane-force winds and massive waves that suddenly strikes this area, toppling dozens of the rigs and damaging most of the others, wiping out in a matter of hours an investment of over $200 billion. Given a few days warning, most of the crews of these platforms have been evacuated. Freak winds, however, down several helicopters, killing some 50 oil workers and flight crew members. Adding to the horror, attempts to seal so many undersea wells at such depths fail, and oil in historically unprecedented quantities begins gushing into the South Atlantic. As the cyclone grows to full strength, giant waves carry the oil inexorably toward shore.

Since the storm-driven assault cannot be stopped, Rio de Janeiro’s famous snow-white beaches are soon blanketed in a layer of sticky black petroleum, and in a matter of weeks, parts of Brazil’s coastal waters have become a “dead ocean.” Clean-up efforts, when finally initiated, prove exceedingly difficult and costly, adding immeasurably to the financial burden of the Brazilian state, now saddled with a broken and bankrupt Petrobras. Meanwhile, the struggle to seal all the leaking pre-salt wells in the deep Atlantic proves a Herculean task as, month after month, oil continues to gush into the Atlantic.

Scenario 4: East China Sea -- A Clash Over Subsea Gas

At one time, most wars between states were fought over disputed borders or contested pieces of land. Today, most boundaries are fixed by international treaty and few wars are fought over territory. But a new type of conflict is arising: contests over disputed maritime boundaries in areas that harbor valuable subsea resources, particularly oil and natural gas deposits. Such disputes have already occurred in the Persian Gulf, the Caspian Sea, the East and South China Seas, and other circumscribed bodies of water. In each case, the surrounding states claim vast offshore tracts that overlap, producing -- in a world that may be increasingly starved for energy -- potentially explosive disputes.

One of them is between China and Japan over their mutual boundary in the East China Sea. Under the United Nations Convention on the Law of the Sea, which both countries have signed, each is allowed to exercise control over an “exclusive economic zone” (EEZ) extending 200 nautical miles (about 230 standard miles) from its coastline. But the East China Sea is only about 360 miles across at its widest point between the two countries. You see the problem.

In addition, the U.N. convention allows mainland states to claim an extended EEZ stretching to their outer continental shelf (OCS). In China’s case, that means nearly all the way to Japan -- or so say the Chinese. Japan insists that the offshore boundary between the two countries should fall midway between them, or about 180 miles from either shore. This means that there are now two competing boundaries in the East China Sea. As fate would have it, in the gray area between them houses a promising natural gas field called Chunxiao by the Chinese and Shirakaba by the Japanese. Both countries claim that the field lies within their EEZ, and is theirs alone to exploit.

For years, Chinese and Japanese officials have been meeting to resolve this dispute -- to no avail. In the meantime, each side has taken steps to begin the exploitation of the undersea gas field. China has installed drilling rigs right up to the median line claimed by Japan as the boundary between them and is now drilling for gas there; Japan has conducted seismic surveys in the gray area between the two lines. China claims that Japan’s actions represent an illegal infringement; Japan says that the Chinese rigs are sucking up gas from the Japanese side of the median line, and so stealing their property. Each side sees this dispute through a highly nationalistic prism and appears unwilling to back down. Both sides have deployed military forces in the contested area, seeking to demonstrate their resolve to prevail in the dispute.

Here, then, is Scenario #4: It’s 2022. Successive attempts to resolve the boundary dispute through negotiations have failed. China has installed a string of drilling platforms along the median line claimed by Japan and, according to Japanese officials, has extended undersea drill pipes deep into Japanese territory. An ultra-nationalistic, right-wing government has taken power in Japan, vowing finally to assert control over Japanese sovereign territory. Japanese drill ships, accompanied by naval escorts and fighter planes, are sent into the area claimed by China. The Chinese respond with their warships and order the Japanese to withdraw. The two fleets converge and begin to target each other with guns, missiles, and torpedoes.

At this point, the “fog of war” (in strategic theorist Carl von Clausewitz’s famous phrase) takes over. As a Chinese vessel steams perilously close to a Japanese ship in an attempt to drive it off, the captain of that vessel panics, and orders his crew to open fire; other Japanese crews, disobeying orders from superior officers, do the same. Before long, a full-scale naval battle ensues, with several sunken ships and hundreds of casualties. Japanese aircraft then attack the nearby Chinese drill rigs, producing hundreds of additional casualties and yet another deep-sea environmental disaster. At this point, with both sides bringing in reinforcements and girding for full-scale war, the U.S. president makes an emergency visit to the region in a desperate effort to negotiate a cease-fire.

Such a scenario is hardly implausible. Since September 2005, China has deployed a naval squadron in the East China Sea, sending its ships right up to the median line -- a boundary that exists in Japanese documents, but is not, of course, visible to the naked eye (and so can be easily overstepped). On one occasion, Japanese naval aircraft flew close to a Chinese ship in what must have seemed a menacing fashion, leading the crew to train its antiaircraft guns on the approaching plane. Fortunately, no shots were fired. But what would have happened if the Japanese plane had come a little bit closer, or the Chinese captain was a bit more worried? One of these days, as those gas supplies become even more valuable and the hair-trigger quality of the situation increases, the outcome may not be so benign.

These are, of course, only a few examples of why, in a world ever more reliant on energy supplies acquired from remote and hazardous locations, BP-like catastrophes are sure to occur. While none of these specific calamities are guaranteed to happen, something like them surely will -- unless we take dramatic steps now to reduce our dependence on fossil fuels and speed the transition to a post-carbon world. In such a world, most of our energy would come from renewable wind, solar, and geothermal sources that are commonplace and don’t have to be tracked down a mile or more under the water or in the icebound north. Such resources generally would not be linked to the sort of disputed boundaries or borderlands that can produce future resource wars.

Until then, prepare yourselves. The disaster in the Gulf is no anomaly. It’s an arrow pointing toward future nightmares.

Michael T. Klare is a professor of peace and world security studies at Hampshire College, TomDispatch.com regular, 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. 

Sunday, June 13, 2010

Lake Maninjau FunFly 2010

I was out of town a few weeks ago for a paragliding event, and spent the last couple of weeks catching up on work after that.

Despite being in a scenic, culturally rich and diverse region, I've always found it somewhat surprising that most Singaporeans do not venture beyond a few familiar destinations for their holidays. Perhaps it has to do with not wanting to leave their comfort zone, or the desire for a fuss-free vacation, but most Singaporeans generally would limit themselves to Phuket, Bali, Bangkok, Hong Kong and a few other places. The more adventurous might head to the Indochina region or to places in the Philipines. And the favorite activities of Singaporean tourists are typically shopping and eating, which is something of a pity since that's pretty much what most Singaporeans do on weekends in Singapore too.

On some level, I can identify with Singaporeans on this, but fortunately, as a result of taking up paragliding, I've had my eyes opened to the diversity of the region. There are just so many great places to fly in the region and as a result of my flying habit, I've been pushed to explore the region a bit more thoroughly.

I travelled to Lake Maninjau on Sumatra, Indonesia, for the annual FunFly festival a few weeks ago. As a novice pilot, the range of sites suitable for me to fly is limited and I had been told that Lake Maninjau offered wonderful flying even for novices.

And it was wonderful indeed. I logged 8 flights and doubled my airtime to date. And met some wonderful people as well.

Lake Maninjau is diminutive, but a real gem of a lake. See for yourself. These are views from Puncak Lawang, the launch site. 

What made my holiday unusual was that the annual paragliding event is billed as an "International Festival", which is really just an excuse for the local Indonesian authorities to throw a big shebang of a party to get media coverage, increase tourism exposure, and get some facetime for the local officials. The pilots (all seven of us) were just the accessories for the event. Not that I wasn't bemused by it all. It was funny when the officials had clearly recycled their speeches from previous years, as there were obviously no pilots from Hong Kong this year, contrary to their grandiose speechs at the podium. For the record, there were 2 Singaporeans, a Malaysian, a German, an American, and 2 Australians this year. Here's a pic of the procession at the opening of the Festival.

It wasn't all flying at Lake Maninjau though; on days with bad weather, like fog for instance in the morning:

we did other things, like drive around the lake. The earthquake devastation from the Padang earthquake of 2009 was still evident in some places.

And relaxing by the lake in the evenings with a Bintang was simply great.

The hotel was built right by the lake, so going for a dip at anytime was no problem at all, though the water was far from clear. Kind of like swimming in an aquarium. All green and murky with fish everywhere.

But as far as a tourist destination goes, I have to say that Lake Maninjau, while beautiful, has much less to offer to the non-pilot. There are no other activities there other than flying, and even Internet access is to be found only in small roadside shops. Tellingly, none of the other pilots had brought their spouses or significant others with them. For destinations with activities for non-pilots, Phuket and Bali (typical Singaporean tourist destinations), are still better bets.

Notes for pilots:

I went to Maninjau in May and the weather was ok, though comments from other pilots had it that the weather was better the previous year. There was a fair bit of parawaiting, but that's par for the course in this sport. One has to pay one's dues on occasion. The season doesn't end in May but extends for a few more months. Contact Sumatra Paragliding for details.

Launch is from Puncak Lawang, about 1000 m above the lake, and is relatively easy, even for a novice like myself. The pics at the beginning of this post of the lake were taken from Puncak Lawang. The LZ is a grass patch, muddy in some places, demarcated by a road, the lakeshore, and fish ponds/rice paddies on the other two sides. It is fairly large and landing is generally ok when there is wind coming from the lake. When the wind is cross or when there is no wind, it can get a little tricky, but is still manageable. Note that the LZ lies beyond powerlines, so it is imperative to fly over the power lines first. It is generally a bad idea to cross back over the power lines once one is over the LZ. Altitude can be lost over the lake before the final approach. Below is a zoomed in view of the LZ from Puncak Lawang. It is the grass patch 2 o'clock from the 4 red-roofed houses in the centre of the pic.

The flying is mostly ridge soaring, but thermic flying is possible. The air can be bumpy in some places, but the flying is mostly safe. On good days, the air just got really lifty and it was possible to see the volcanoes behind the launch far in the distance. No pics for that though; I like my hands on the controls when I'm flying.

At the time of my visit, a new launch site was being developed as an alternative to Puncak Lawang. Here is a pic of the lake from the new launch site, a zoomed in view of the same LZ from the new launch site, and finally, a zoomed in view of the Puncak Lawang launch site from the new launch site. Note that Puncak Lawang in the pic is at the grass patch at the very top of the pic, bordered by trees. The open field slightly below it, bordering the winding road up the mountain, is an LZ suitable for top landing, for those with the requisite skills.

Getting there:

Tigerair used to have direct flights from Changi to Padang Minangkabau Airport, but these were discontinued during the Great Recession of 2009. No word on when flights will resume, but I'm not holding my breath. Airasia still flies to Padang from Kuala Lumpur, for those based in KL.

The most direct way to get to Lake Maninjau if you're based in Singapore is to take the Penguin ferry to Batam Centre from Harborfront, then a taxi from Batam Centre to Batam Hang Nadim Airport, then a flight to Padang on Mandala Airlines. From Padang, it's about a three hour drive to Maninjau. The total journey time takes something like 7-9 hours inclusive of waiting time, which is amazing when you consider that on an atlas, Maninjau and Singapore are sooo close to each other.