Daily Sources 7/13

I chose an awfully big week to take a break from this! Back to the regularly scheduled programming, though new obligations will likely mean that posting will soon become much more infrequent and Daily Sources will either become simple links or be discontinued altogether.

1. CHINA UNVEILS ADDITIONAL ANTI-CORRUPTION MEASURES, XINJIANG REPORTEDLY CALMING DOWN AFTER WEEK OF VIOLENCE

Carlos Tejada at China Journal reports that the Chinese Communist Party unveiled new anti-corruption measures Sunday, calling for public leaders and executives at state owned companies to be ousted if major accidents or abuse happens during their watch due to negligence. Tejada observes:

"The new rules are the latest of a recent spate of efforts to rein in what even national leaders acknowledge is a serious problem. Chinese officials in recent weeks have put a bounty on corruption and cracked down on military officials with a taste for the luxurious.

The fear, observers say: Reports or actual cases of corruption and incompetence could cause even more unrest.

Conduct by local officials sparked occasional public clashes even in good times, before China’s juggernaut economy slowed. And times are especially sensitive now because of the upcoming 60th anniversary of the founding of the People’s Republic of China on Oct. 1, which is intended to be a grand celebration of Communist Party rule."

Meanwhile, Gordon Fairclough reports that Urumqi in Xinjiang seems to be calming down after the violence last week:

"The regional government over the weekend updated its casualty figures, saying 184 people were killed in last week's violence--137 of them Han Chinese and 46 Uighurs. One member of another Muslim minority, the Hui, also died. More than 1,600 people were injured, the government said.

After attacks by Uighurs on Han Chinese, some Han Chinese armed themselves and sought revenge. The government said to quell the violence it flooded the city with 20,000 security personnel and has spent days urging people not to take the law into their own hands."

2. ASO CALLS FOR GENERAL ELECTIONS NEXT MONTH, JAPANESE ELECTRICITY GENERATION DOWN 5.6% YOY IN JUNE

Blaine Harden at the Washington Post reports that Japanese Prime Minister Taro Aso has called for general elections next month. Meanwhile, Megumi Yamanaka at Bloomberg reports that Japanese electricity generation declined for the eleventh straight month in June, falling 5.6% from a year previous.

3. KIM JONG-IL RUMORED TO SUFFER FROM PANCREATIC CANCER

Choe Sang-Hun at the New York Times writes that the South Korean media is reporting the rumor that the North Korean leader Kim Jong-il, is suffering from pancreatic cancer.

4. NABUCCO PROJECT SIGNING IN ANKARA TODAY

Der Spiegel reports that the prime ministers of Austria, Bulgaria, Hungary, Romania and Turkey have met in Ankara today to formally sign on to the Nabucco pipeline project.

"The European Union is backing Nabucco and EU Commission President Jose Manuel Barroso, who was at the ceremony, described the project as of 'crucial importance for the EU's and Turkey's energy security.'

He voiced his confidence in the viability of the project, saying 'I believe this pipeline is now inevitable rather than just probable.'"

Ed Crooks at FT Energy Source has a decent breakdown on the sourcing issues facing the pipeline and this fantastic graphic:



Rob Verdonck and Steve Bryant at Bloomberg note:

"Turkey wants Iran to join Nabucco, Erdogan said at the signing ceremony. Iran is able to supply Europe with 31 billion cubic meters of natural gas a year via the link, the Oil Ministry’s Shana news agency said today.

'We don’t believe today that Iran should be a part' of Nabucco, [Richard] Morningstar [US envoy for Caspian energy matters] said.

Iraq will aim to supply 15 billion cubic meters of gas to the pipe, Iraqi Prime Minister Nuri al-Maliki said at today’s ceremony, according to an aide."

"The five governments partnered in Nabucco can bid for up to 50% of the gas flowing through the route, Turkish Energy Minister Taner Yildiz said at a press conference today. He declined to comment on how much of the gas Turkey might request."

5. LLOYD'S BANKING GROUP EXPECTED TO POST LOSSES OF £6.3 BILLION IN 1H

Iain Dey and John Waples at the London Times report that Lloyd's Banking Group will post its numbers in three weeks and is likely, according to UBS analysts, to announce losses of £6.3 billion on its loans to commercial property, businesses and mortgage holders for the first half.

"The writeoffs for the first six months of the year would match the losses recorded by Lloyds TSB and HBOS in 2008, as they consummated their disastrous merger. The expected bad debt charge is almost twice what Lloyds paid for HBOS when they came together under the government’s watch last autumn. Total writeoffs for this year at Lloyds could exceed £20 billion."

(h/t Yves Smith at naked capitalism.)

6. GERMAN ECONOMICS MINISTRY ESTIMATES GDP GROWTH WAS 0% IN 2Q

Der Spiegel reports that the Economy Ministry in Berlin's internal report concluded that GDP growth for the second quarter was 0%--meaning that the recession is over.

"If confirmed, the data could allow the German government to revise its current predictions of minus 6% growth for 2009 and forecast a smaller contraction."

7. ITALIAN PARLIAMENT MANDATES RE-NUCLEARIZATION

Dan Yurman at the energy collective reports that Italy's parliament passed a law last week which officially puts the country back on the path of nuclear power, mandating that sties be identified in the next six months for new nuclear power plants.

"Energy Minister Scajola isn’t kidding when he says Italy needs to build at least eight-to-ten new nuclear power plants (10-12 GWe) to significantly reduce its dependence on imported oil and natural gas. However, the country also needs to avoid building more coal-fired power plants. One of the earliest options may be to buy a 12% share in a new Areva 1,600 MW EPR being built in France."

In February, Rome signed a nuclear power cooperation pact with France-- see Daily Sources 2/24 #2. In October 2008, Scajola indicated that Italian electricity prices were 80% above France's--which sources about 80% of its electricity generation from nuclear--and 30% above the European average. He noted that the cost of phasing out nuclear had come to €50 billion-see Daily Sources 10/17 #3.

8. RAINFALL RECOVERING IN INDIA

Yi Tian at Bloomberg reports that the rainfall deficit in India for the week ended July 8 narrowed to 8% from 29% the week earlier on stronger monsoons. Indian oil refiners had been worried that the low rainfall was causing diesel consumption to remain flat in a general environment of falling oil demand, and that it would grow as farmers turned to the fuel for pumping, digging, and electricity generation--see Daily Sources 7/1 #4.

9. PAKISTAN SEEKING $15 BILLION IN E&P INVESTMENT OVER NEXT 5 YRS

Khalid Qayum and Khaleeq Ahmed at Bloomberg reports that Pakistan is seeking $15 billion in investment in oil exploration and development over the next five years. Islamabad is reportedly offering generous returns as it tries to offset its import requirement, and will focus its licensing on blocks offshore its southern coast, as onshore exploration has been hampered by security concerns.

"Pakistan wants to boost domestic fuel production to reduce its oil import bill and meet energy demand, which is growing 5% annually. Gas production of 4.1 billion cubic feet a day meets about 60% of demand.

The government will try to improve security for explorers as it also seeks to attract investment in new fields in the country, ... [Asim] Hussain [adviser to the prime minister on the oil industry] ... said in [an] interview on July 10."

10. THE ROOTS OF THE PARADOX IN IRAN'S CONSTITUTION, REZAI CALLS FOR RECONCILIATION AMONGST CONSERVATIVE IRRITATION WITH AHMADINEJAD, TEHRAN SEEKING CHINESE INVESTMENT IN REFINERY EXPANSIONS

Jonathan Lyons has a post on informed comment which provides an analysis of how Khomeini's ideology of the rule of the best qualified cleric presented problems to the regime at the start of the 1979 revolution:

"Among the most influential of opponents to Khomeini’s revolutionary project of placing his new republic under the direct leadership of a senior cleric – in this case, himself--were his fellow grand ayatollahs, men who had attained the highest levels of religious learning and popular support and acclaim. And the most important among them was Grand Ayatollah Seyyed Mohammad Kazem Shariat-Madari, based in Tabriz, in Iran’s Azeri region.

Shariat-Madari, then the leading ayatollah resident in Iran, was adament: the clergy should not exercise political power as this could only lead to religious tyranny. The grand ayatollah had sided with the revolution against the shah, but he was not prepared to see the clerics in government. This was, of course, in perfect keeping with Shi’ite political theory: the clerics had united to defeat the pro-Western shah as a threat to the Muslim faithful; but their work was now done and it was time to withdraw and leave the dirty work of governance to others.

Khomeini was furious and he unleashed his militant supporters on his rival in December 1979, provoking pitched battles in the streets of Tabriz. Once the 'political mullahs' backing Khomeini were in control, the leader of the revolution undertook a punitive measure that no imperial shah had ever dared: he engineered the stripping of Shariat-Madari’s clerical rank and privileges.

In traditional practice, the rank of Grand Ayatollah--formally, the marja-e taqlid, or a source of emulation for others to follow--requires both the respect of one’s fellow clerics and the acclaim of believers, each of whom paid their religious taxes to support the ayatollah and his religious mission.

In fact, Iranian clerics often point to this system as an indigenous democratic institution, and it certainly gives the grand ayatollahs a huge measure of independence from the autocratic state and from one another while recognizing the importance of popular support and public opinion. What’s more, believers are free to choose their own marja, and even to switch their allegience as they see fit. Khomeini, himself a marja, trampled this system in the name of revolutionary expediency."

(Very much worth reading.) Robert F. Worth at the New York Times reports that opposition candidate Mohsen Rezai--and former chief of the Revolutionary Guards--issued a statement on his website yesterday

"in which he called for reconciliation and spoke about the danger of 'imprisoning' the legacy of the Islamic Revolution in divisive and shortsighted politics. The statement was posted on his Web site.

Although his message was largely nonpartisan, Mr. Rezai hinted that the government response after the election had been unfair, and he urged protesters to continue their work in legal and nonviolent channels."

"Other conservative figures have made gestures in recent days indicating their displeasure with the government’s tactics or their desire for more forgiving policies. On Saturday, Ayatollah Reza Ostadi, a senior member of a conservative clerical group, delivered a stinging criticism of a cleric who had organized a rally supporting Mr. Ahmadinejad, the Mehr news agency reported."

Meanwhile, Chen Aizhu at Reuters reports that Iran is seeking investment from China in its refinery expansion plans designed to eliminate its dependence on gasoline imports by 2012. (This is kind of old news, but there are some new developments/details:)

" An official with National Iranian Oil Company's (NIOC) Beijing office said last week's forum, chaired by Iran's deputy petroleum minister, Shahnazi Zadeh, was to be followed by detailed discussions with Chinese firms. He did not elaborate.

Hossein Noghrekar Shirazi, NIOC's refining head, was quoted by a Chinese newspaper as saying that Chinese investors would enjoy policy sweeteners such as a 5% discount in raw materials purchased in Iran and 8-year tax break for investments made in its free trade zones."

11. CANBERRA SUMMONS CHINESE AMBASSADOR FOR INFORMATION ON RIO TINTO EXECUTIVE CHARGES

Rachel Pannett and Alex Wilson at the Wall Street Journal reports that Canberra has summoned the acting Chinese ambassador to Australia for further details on the detention of a Rio Tinto employee on espionage charges.

"The Australian government, and in particular the Mandarin-speaking Prime Minister Kevin Rudd who is a former China diplomat, are under mounting pressure from opposition lawmakers to intervene at a higher level.

'This is the third time that [the Department of Foreign Affairs and Trade] has spoken to the acting ambassador since last Monday,' Mr. Smith said, adding that Australian officials are seeking similar information in Beijing.

Despite this, Australia's Finance Minister Lindsay Tanner said the government won't be changing its process for assessing foreign investment in Australia despite China's detention of Mr. Hu."

12. NIGERIA RELEASES HEAD OF MEND

Dulue Mbachu at Bloomberg reports that Abuja released the head of MEND today.

"The Movement for the Emancipation of the Niger Delta, or MEND, made the release of Okah one of its conditions for ending its armed rebellion."

Meanwhile, Jacques Lhuillery reports that international oil companies are nervous about the proposed tax changes in Nigeria on oil and gas, arguing that new oil and gas production projects will likely fall by 50% on the reduced returns.

"The petroleum industry Bill, which went through its second reading and debate in the senate last week, is intended to overhaul the regulatory and operational systems of the industry, the lifeline of the West African powerhouse.

It plans to transform the existing joint ventures between the transnational oil firms and the state Nigeria's National Petroleum Company (NNPC), and turn NNPC into an autonomous and internationally profitable entity.

It also wants to improve on tax collection--decoupling oil from gas taxes as well as develop a system responsive to fluctuations in oil prices so as to capture on any windfall profits.

According to leader of the Senate Teslim Folarin, the Bill is designed to 'simplify the collection of oil revenue through shifting emphasis to easily collectible revenue as royalties and rents'."

(h/t Kate MacKenzie at FT Energy Source.)

13. HONDURAS DOESN'T EXPECT MUCH DISRUPTION DUE TO CHAVEZ'S EMBARGO OF PRODUCTS EXPORTS

Evidently, Chavez didn't just stop exports of crude to Honduras (which were zero) but also of petroleum products. Honduras is a member of Petrocaribe and as such received products at discounted rates and under very easy financial terms. Robert Mayer at Platts reported Friday that Tegucigalpa doesn't expect too much disruption as a result of the cut off.

"The effect, however, will be negligible, a source with the Honduran government said Friday, as the Petrocaribe shipments constituted a small fraction of the overall supply for the local operations of Shell, Chevron and Dippsa.

'We're using (Petrocaribe refined products) as a top-off, so we're in good shape,' a source with Dippsa-Puma said Friday."

(Puma Energy is a vertically integrated oil company active globally, but which was formed to develop an independent network of oil products storage and distribution facilities in Latin America and is owned by Trafigura, a major oil--and other commodities--trading company incorporated in the Netherlands, but whose headquarters are located in Switzerland.)

14. HOME MORTGAGE MONTHLY FORECLOSURE RATES UP 8% ON THE YEAR, ROBERT REICH ARGUES THAT THE RECESSION IS NOT LIKELY TO END AS LONG AS CONSUMERS ARE STRUGGLING WITH HUGE NET WORTH DECLINES

Rebecca Wilder at News N Economics on Sunday picked up on the story by the LA Times that 26% of home mortgage defaults are strategic and 22% of homeowners are straddled with negative equity and notes that monthly foreclosure rates are 8% higher than they were last year. She plots a graph showing the monthly foreclosure rate of single family homes by state--



--and comments:

"Going forward, though, the monthly foreclosure rate is likely to grow in some economies, like those seen in Connecticut and Hawaii, as recessionary pressures of rising unemployment and falling income pass through to the housing market."

Wilder's blog is always worth a look. Robert Reich comments on the prospects for recovery in a consumer based economy facing steep falls in net worth:

"Problem is, consumers won't start spending until they have money in their pockets and feel reasonably secure. But they don't have the money, and it's hard to see where it will come from. They can't borrow. Their homes are worth a fraction of what they were before, so say goodbye to home equity loans and refinancings. One out of ten home owners is under water--owing more on their homes than their homes are worth. Unemployment continues to rise, and number of hours at work continues to drop. Those who can are saving. Those who can't are hunkering down, as they must.

Eventually consumers will replace cars and appliances and other stuff that wears out, but a recovery can't be built on replacements. Don't expect businesses to invest much more without lots of consumers hankering after lots of new stuff. And don't rely on exports. The global economy is contracting."

15. SAN JOAQUIN VALLEY HAS LOST 60 MILLION ACRE FEET OF GROUNDWATER SINCE 1961, LEGISLATION INTRODUCED WHICH WOULD MAKE IOU'S LEGAL TENDER FOR OBLIGATIONS TO STATE, IN EFFECT A STATE CURRENCY

Matt Weiser at the Sacramento Bee reports that California's San Joaquin Valley has lost 60 million acre feet of groundwater since 1961, according to a new federal study.

"The Central Valley is America's largest farming region; it's also the single-largest zone of groundwater pumping. About 20% of groundwater pumped in America comes from under the Central Valley, said Claudia Faunt, the study's project chief.

In the Sacramento Valley, the study found groundwater levels have remained stable. Virtually all of the groundwater loss has occurred in the San Joaquin Valley, where aquifer levels have dropped nearly 400 feet since 1961, she said."

California is the only state in the union which does not regulate groundwater use. The USGS chose the Central Valley because it is so critical to the country's food supply. A must read. Meanwhile, Mark Thoma at Economist's View notes that the Californian assembly on Friday introduced legislation which would make the IOUs with which it is currently paying its employees with legal tender for all taxes and other fees owed to the state. Thoma notes that that is tantamount to the establishment of a state currency. He quotes from Marshall Auerback's post on the subject:

"It will be interesting to see what the exchange rate is between California IOU and US currency--the IOUs do offer a yield, so should be less than par by design. I wonder if NY is next."