Posts by Sandra Morris

AGL to Build $400 Million Gas-Fired Power Plant in NSW

AGL will build a $400 million gas-fired power plant near Newcastle, NSW to replace the ageing Liddell coal-fired station.

The energy company said it is assessing sites for a 252-megawatt facility development, due for completion in the end of 2022.

“AGL is committed to supporting the orderly transition of Australia’s electricity generation capability to modern, clean and reliable energy supply,” said AGL chief executive Andy Vesey.

“That’s why we gave seven years’ notice of when we intend to close the Liddell power station at the end of 2022 and we are pleased to commit today to build the power station near Newcastle.”

AGL also said there were plans to “assess the potential” to develop a further 500 megawatts of gas-fired generation capacity, pending commercial and industrial demand.

The company’s announcement to the Australian stock exchange followed pressures from the federal government to sell Liddell power plant instead of closing it. Rivalling company Alinta has expressed interest in acquiring the power plant to keep it open until 2029.

Federal Environment Minister Josh Frydenberg said Liddell’s closure would still bring blackout risk, even with the replacement plan. “That’s why it’s really important that the executives of AGL consider on its merits this offer that comes from Alinta,” Frydenberg said.

The Australian Energy Market Operator (AEMO) said there would be a potential shortfall in capacity of 850 megawatts if Liddell was to be closed, but it also said AGL’s replacement plan “would deliver sufficient dispatchable resources to fill the identified 850MW resource gap”.

Will Rio Tinto’s Bid to Escape from Its Contracts with Rusal Succeed?

Mark Giancaspro, University of Adelaide

Mining giant Rio Tinto is attempting to use new American sanctions on Russia to walk away from an agreement with a Russian aluminium company, Rusal. But if the contract is not worded precisely, the law may actually work to Rio’s detriment.

Many companies have successfully ended contracts when war has broken out or the government has changed the law in ways that significantly impacted the contract. However, the fact a government’s actions have made a contract harder or more expensive to complete does not automatically mean it will be terminated.

Rio Tinto’s case depends on whether it can invoke a “force majeure” clause in its contracts with Rusal. This kind of clause allows parties to suspend or end a contract when unique and unforeseen events beyond their control occur.

Under the new sanctions, companies and individuals within the United States have until May 7 to divest or transfer any debt, equity or other holdings in Rusal. Rusal is controlled by Russian billionaire Oleg Deripaska, who has previously been investigated for money laundering, extortion, bribery and alleged links to organised crime groups.

Rio Tinto has a joint venture with Rusal that could be affected by the US sanctions.

The effect of force majeure

Typically, when unique or unforeseen events occur, the contract may be legally “frustrated” and end automatically. Frustration is the legal term for a contract being so radically affected by unforeseeable events outside the control of the parties that it is terminated.

A force majeure clause generally prevents this happening because the inclusion of the clause is regarded as “foresight” of the event. However, force majeure clauses typically allow parties to end the contract if the event lasts for a given time, and don’t always require “radical change” like the frustration doctrine does.

It all turns upon the wording of the particular clause in the Rio Tinto contracts.

Force majeure through history

A successful claim of force majeure was made in the American case of Eastern Airlines v McDonnell Douglas Corp. In this case aircraft manufacturer McDonnell Douglas argued that US government policy during the Vietnam War (occurring at the time) caused the government to prioritise military contracts over civilian ones.

As a result, McDonnell Douglas’s contract with Eastern Airlines was delayed. It invoked a force majeure clause covering “acts of government” to avoid liability for the airline’s lost profits.

The court ruled that McDonnell Douglas was entitled to rely upon the force majeure clause and walk away from the agreement due to the government’s policy.

Importantly, just because a contract has a force majeure clause, this does not mean it can be used freely. Some English cases suggest that parties must still make reasonable efforts to keep the contract alive before resorting to force majeure. Evidence of attempts to preserve its contracts with Rusal would likely work in Rio Tinto’s favour.

The courts have also stressed that force majeure cannot be relied upon where there were reasonable alternative ways to complete the contract.

In the Australian case of European Bank Ltd v Citibank Ltd, Citibank was unsuccessful in claiming force majeure when it transferred European Bank’s deposit to a New York account and the funds were seized by the United States Marshal. The force majeure clause allowed Citibank to escape liability if it could not perform due to “reasons beyond its reasonable control”.

The court held that Citibank could have refunded European Bank’s deposit from other accounts or made other arrangements, so the situation could have been avoided.

In Rio Tinto’s case, its efforts to make alternative arrangements will be of critical importance. If there are no feasible options other than to cancel the Rusal contracts, force majeure will likely apply.

When force majeure doesn’t work

But there are plenty of examples where force majeure events such as government intervention have not been regarded as sufficient grounds to end a contract.

In 1962, a court in the United Kingdom found that the closure of the Suez Canal was not sufficient to end a contract requiring 300 tonnes of Sudanese nuts to be shipped between Port Sudan and Hamburg.

The Suez Canal would have been the cheapest and fastest shipping route. However, it was still possible to deliver the nuts by sailing around the Cape of Good Hope, even if this increased the cost for the seller and took more time.

Inadequate wording in a force majeure clause can also backfire, as in the Kriti Rex case. Here a force majeure clause covering ‘“events beyond the control of the parties” was deemed inapplicable because the courier hired by the purchaser (which damaged the goods) was regarded as being within the purchaser’s control.

So what for Rio Tinto?

Ultimately, the success of Rio Tinto’s attempt to invoke force majeure depends entirely upon the wording of the clauses and whether these account for events such as sanctions being imposed.

But it is highly unlikely the clauses would be this specific as the circumstances are unique. Traditional inclusions in force majeure clauses are things like natural disasters, labour strikes or war, not a foreign government’s political sanction of a company’s controller.

Force majeure clauses are also interpreted quite narrowly by courts, so cannot just be stretched to cover every situation.

If the clauses in Rio’s contracts are deemed not to account for the US sanctions, Rio must rely on the doctrine of frustration. It would need to demonstrate that contracting with a company controlled by a Russian oligarch who has been subsequently sanctioned by the US was a reasonably unforeseeable event when the contract was made, and this event radically altered the contract.

It would not be enough for Rio Tinto to argue it might lose money or be inconvenienced. Though the US government’s actions might have been unexpected, the broader effects of Rusal’s suspension upon Rio Tinto’s operations remain to be seen.

The ConversationIf the consequences are purely financial or inconvenient, Rio Tinto’s legal mettle might be tested.

Mark Giancaspro, Lecturer in Law, University of Adelaide

This article was originally published on The Conversation. Read the original article.

Noosa’s Property Market Growth Continues

Noosa real estate market has continued to grow, thanks to limited land supply and increasing demand from international visitors and expats.

The median house price in the suburb grew by 6.2 per cent in 2017, just around $15,000 under Brisbane LGA’s median price.

In February, a record $22 million deal was made for a seven-bedroom beachfront estate at 21-23 Webb Road. Only two weeks earlier, Pat and Lara Rafter’s beachside mansion was sold for $18 million. In November, a property in Noosa’s north shore and another at Noosaville each sold for over $10 million.

Michelle van der Splinter, sales agent at Tom Offermann Real Estate said Noosa’s performance was at its best over this summer season.

“Wealthy sea-changers, those from interstate and overseas, make up nearly half of our interested buyers for top end houses along the beachfront and canals, and are adding to the strengthening market,” said van der Splinter.

Offermann himself said the tourist destination’s attraction reaches way beyond the local population. “Many think of it as a northern suburb of Sydney; even ‘Toorak in shorts’ for Melburnians,” he said. “But expats from London, Dubai, Hong Kong, Shanghai and Singapore have been very active in the past year.”

Real Estate Institute of Queensland CEO Antonia Mercorella said Noosa’s natural topography is what makes the property market both desirable and limited in supply. “Noosa’s world-class beaches, stunning natural bushland settings and wonderful warm community are factors that are fanning the flames of buyer demand,” said Mercorella.

“It is inevitable that this will push up prices.”

Do You Really Need Private Health Insurance? Here’s What You Need to Know Before Deciding

Sophie Lewis, UNSW and Karen Willis, La Trobe University

Every year at the end of March and early in April, the 11 million Australians who have private health insurance receive notification that premiums are increasing.

Premiums will increase by an average of 3.95% from April 1 and will vary with the insurer and the product. The increase is lower than previous years but still higher than any wage growth, leaving consumers wondering if they should give it up or downgrade to save money.


Read more:
Private health insurance premium increases explained in 14 charts


Why go private?

Australia has a universal health care system, Medicare. Health care is available to all and is financed, in part, through a 2% tax on our wages (the Medicare levy). Access to general practitioners and public hospitals are just some of the benefits.

The Commonwealth government encourages Australians to have private health insurance. It imposes penalties for not taking it out (paying more income tax: the Medicare levy surcharge) and offers incentives for those who do (rebates on premiums).

Some 45.8% of Australians have private health insurance, a rise from 31% in 1999.

Australians have different reasons for taking out private health insurance. For some, it makes financial sense to take out policies to avoid paying the Medicare levy surcharge.


Read more:
Explainer: why do Australians have private health insurance?


Others choose to take out policies to avoid waiting times for elective treatment (predominantly surgery); to choose their own specialist or hospital; or to have the option of a private room, better food or more attractive facilities.

Some people perceive that private health insurance will give them access to better care in the private system. Many are fearful they won’t get the services they need in the public system.

Shorter waits than the public system

A universal health system is based on people with the most clinical need gaining access to the services required.

Most emergency treatment is provided in public hospitals. The case is different for “non-urgent” or elective surgery, with patients encouraged to use their private health insurance, mainly because of waiting times for such surgery in the public system.

Elective surgery waiting times for public hospitals vary according to whether patients are publicly or privately funded. In 2015-2016, the median waiting time (the time within which 50% of all patients are admitted) was 42 days for public patients, 20 days for patients who used their private health insurance to fund their admission, and 16 days for those who self-funded their treatment.

Bear in mind, however, that waiting times vary according to clinical urgency. In 2016-17 in New South Wales, 98% of public patients were admitted within the clinically recommended time frame.

Differences in waiting times also vary according to the type of procedure. In 2015-2016, cardiothoracic (heart) surgery had a median waiting time of 18 days for public patients and 16 days for all other patients. In contrast, the median wait for public patients needing total knee replacement was 203 days, and 67 days for all other patients.

The question of choice

Choice of provider is a leading reason people take out private health insurance.

The idea that consumers should have choice in the services they receive has been promoted by government and private health insurance companies for some years, with great success. Many consumers now believe that more choice is better and private health insurance is an “enabler of choice”.

But do people really have choice? Choice is not equally distributed, and not everyone with private health insurance gets the choices they desire.


Read more:
Private health insurance and the illusion of choice


Private health insurers reserve the right to restrict benefits, or provide maximum benefits for using their “preferred providers”. This, in fact, limits the choices consumers can make.

A recent example of this is the announcement from Bupa that, from August 1, members will face higher out-of-pocket costs in private hospitals that don’t have a special relationship with the company, and some procedures will be excluded from particular policies.

Finding the best policy

If you decide to keep your private health insurance, make sure you’re getting the best deal on a policy that’s right for you. Shop around for a policy that meets your needs.

Take note of what is excluded. If you are thinking about starting a family, you may want to look at whether obstetrics care is covered. For those who are older, inclusions such as hip replacements and cataract removal may be more important.

The Australian government website PrivateHealth.gov.au or the Choice health insurance finder are good places to start. These include all registered health funds in Australia and allow you to compare what is covered in each policy.

Other “free” comparison sites may compare only some health funds and policies, or earn a fee per sale from insurers.


Read more:
Here’s what’s actually driving up health insurance premiums (hint: it’s not young people dropping off)


Before taking out extras cover, see whether you are better off to self-insure: setting aside money for if and when you need to pay for extras such as dental or optical care.

Review your policy each year and talk to your health insurance fund about your changing needs. Seek redress if something goes wrong.

If you need a procedure, find out the waiting period in the public system, rather than assuming it will be quicker in the private system. Check the out-of-pocket costs if you choose to use your private health insurance. Then you can assess whether the price tag is worth getting your surgery a few weeks earlier.

The Conversation* This article originally said more than half of Australians had private health insurance. This has now been corrected to 45.8%.

Sophie Lewis, Senior Research Fellow, Centre for Social Research in Health, UNSW and Karen Willis, Professor, Allied Health Research, Melbourne Health, LaTrobe University, La Trobe University

This article was originally published on The Conversation. Read the original article.

Should You Buy Off the Plan?

More off the plan houses and apartments are on the market today – but are they truly a good investment? We lay down the facts.

The Positives

The first off the plan properties to be released are usually offered at cheaper prices than the established ones, as the developers need cash fast to begin the project. This is great if you’re looking for a more competitive price and can afford to wait.

You can also use the time needed to finish building the property to reorganise your finances and moving out plans.

In some states and territories, you can also claim stamp duty concessions for the purchase of off the plan properties, as local governments are looking to support development of new residential buildings. There are also some tax deductions for investors.

The sooner you get involved in an off the plan transaction, the more likely it is that you can customise your property, such as the location, the floor plans and the finishes.

The Risks

Even with the most meticulous plan, the resulting product may be different from what you expected. The finish date can also be delayed, meaning that you may need to reschedule and change your plans.

Off the plan properties may not be the most profitable investment, too. According to BIS Oxford Economics, most off the plan buyers who resell in a few years are either facing loss or getting less capital gain than those who buy established properties.

Tips

Research the developer to evaluate their credibility and trustworthiness. Visit the site in person to see how living in the area will be like.

Always read the fine print and double check the contract. Things to look out for include the cooling off period, deposit, estimated completion time, defects, deposit and insurance.

Australia’s Housing Market is Worth $6.87 Trillion

Australia’s housing market is now valued at $6.87 trillion, according to the Australian Bureau of Statistics.

The ABS house price index found that the average Australian residential property prices increased by 1 per cent in the three months to December, gaining almost $93 billion. The average home price in Australia is now $686,700.

Despite this record number, the market is finally slowing down after years of growth. The national annual average gain of residential property prices in eight capital cities now stands at 5 per cent, down from 10.2 per cent rise in the year to June.

In the year to December 2017, Sydney property prices grew 3.8 per cent while Canberra rose 5.7 per cent, Melbourne 10.2 per cent and Hobart 13.1 per cent. The only capital experiencing decline was Darwin with 6.3 per cent year-on-year fall.

Flexible Working Hours Might Not Be So Beneficial

Flexible working hours has been championed as a way to give employees more work-life balance – however, a study found that it may not be very beneficial for workers and employers alike.

A new research from the University of Melbourne found that the ‘4/10’ arrangement, where workers do four ten-hour days per week, can actually be damaging to employee satisfaction. Around 35 per cent of surveyed workers reported low satisfaction levels.

“These kinds of arrangements can actually be damaging in some cases, with workers experiencing fatigue from the longer daily hours and working extra hours,” wrote researchers Edward Hyatt and Dr Erica Coslor.

“There are [also] other downsides of flexible work practices including social pressure to conform to more traditional roles at the same time as working a ‘flexible’ schedule, the propagation of negative stereotypes about less committed mothers, and assumptions about availability and ‘face time’ hampering promotion and development prospects.”

Hyatt said employers often apply the 4/10 arrangement in order to cut expenses on opening the office. “What they were trying to do was save money, especially on utilities,” Hyatt told the ABC. “We found out that they did save money but it was very marginal compared to what they were hoping for.”

To gain the most optimum result from compressed working week, the researchers suggest giving employees more true freedom to determine their work time.

“An example of a truly flexible work schedule might be one that allows employees to determine their work time around a core set of designated business hours,” the researchers wrote. “If everyone is working in a truly flexible manner, the stigma that can hamper careers or make women feel like they ‘have’ to be available no longer applies. And expectations around meeting times can be limited by only scheduling them during core hours.”

How to Ask for a Pay Rise

Mara Olekalns, Melbourne Business School

When Reserve Bank governor Philip Lowe argued that the real source of workers’ unhappiness was an unwillingness to lobby for higher wages, he overlooked a key tenet of negotiation: we negotiate most successfully when we have highly valued (and scarce) skills.

Negotiation is all about who has the power. If your skills are not in high demand or are readily found elsewhere, you have less power. It would be unrealistic, for example, to suggest a secondary school student working on an hourly rate, or a semi-skilled factory worker whose industry is in decline, is able to negotiate higher wages.

To assert, as Lowe has, that the low jobless rate should encourage workers to ask for higher wages ignores the possibility that the jobless rate is not evenly distributed across sectors. You would only know who had the power to negotiate if you found out where the demand for skills was, sector-by-sector.

If you have skills in high demand, you should be able to negotiate a personalised employment contract that offers you a mix of economic and other benefits based on your skills. Much of the advice about renegotiating employment contracts is aimed at people who have skills to offer.

You can make your case for a pay rise by highlighting your unique skills and contributions to the organisation. You should provide a well-reasoned case for increased wages and explore some non-economic ways to enhance your overall remuneration package. A caveat on this approach is that it works better for men than for women, who violate the stereotype-based expectations that they display warmth and concern when they ask.

However, if your skills are the type that’s found elsewhere, a different strategy is called for. The traditional advice is to build your negotiating power by identifying alternative options, so you’re less dependent on your current employer.

The risk with this is your employer may decide they also have many alternatives and may be willing to lose an employee who asks for a wage increase. So the usual advice for these employees is to build alliances to strengthen their position – in short, collective bargaining.

The big ask

Here are some practical tips for negotiating a pay rise.

Prepare

Start from the perspective that more of the world is negotiable than you might expect. Be clear about what you want. Help the other person to understand what you want and why you want it.

Do your homework. Gather information about what is a reasonable pay rise and use this information to develop a strong rationale for your request.

Build the relationship

We are better able to influence others when they like us. You should establish a rapport with whomever you’re asking. Try to send them signals that you’re trustworthy and approachable. This will not only help you now but down the track.

Be sure that you don’t damage your relationships when tensions surface in a negotiation. Rather than respond negatively or competitively, use points of tension to gather more information about your boss’s rationale.

Show them you’re listening

Understanding the other person’s concerns and constraints usually results in better outcomes for both negotiators. If your boss doesn’t agree with your proposal, try to understand if something is holding him or her back. Are there external constraints that make it difficult for them to agree?

Frame your requests from the other person’s perspective. How will agreeing to your pay rise benefit them? And try to understand the reasons behind their questions.

The moral question

In the absence of a strong collective voice, recent research suggests that low-power workers may improve their outcomes if they elicit concern from their employers by, for example, expressing sadness or seeking sympathy. Appealing to an employer’s emotions may make them more open to renegotiating wages, because it shifts the framing of the request from a pragmatic (economic) perspective to a moral one.

Lowe’s comment actually raises a broader moral question: where does the onus for fair compensation lie? Placing responsibility on employees is likely to disadvantage the already disadvantaged: groups such as women, who are reluctant to ask and who are derogated when they do.

So perhaps organisations, which have a duty of care towards their employees, bear some of the responsibility for ensuring fair compensation. Employment relationships are underpinned by a social (psychological) contract and the expectation that each party will “do right” by the other.

The ConversationAt a time when company profit shares are at an all-time high and wages growth is flat, perhaps organisations should think a little harder about their side of the social contract.

Mara Olekalns, Professor of Management – Negotiations, Melbourne Business School

This article was originally published on The Conversation. Read the original article.

When is the Best Time of the Year to Buy Property?

As 2017 is ending soon, it is the perfect time to set your financial goals and plans for the next year. This might include buying property. However, what time of the year would be the best to purchase real estate in Australia?

Experts vary on their opinion. Advantage Property Consulting director Frank Valentic said the end of the year marks the “prime buying time”, due to the lead-up to the Christmas holiday.

“At this time of the year, particularly leading up to Christmas, some vendors are getting very keen to be done and dusted … They want to get a deal done this side of Christmas and go off on holidays and not worry about inspections and cleaning the house,” Valentic told news.com.au.

John Cunningham, president at Real Estate Institute NSW, also has similar views. “Many sellers will have already bought their next home and will be under a lot of pressure to sell before the real estate industry shuts down over January,” Cunningham told the Daily Telegraph.

However, the right time to buy also depends on other matters, such as seasons and personal conditions. For example, spring and summer are the best times to inspect coastal houses, while winter and autumn would be better suited for regional villas.

If you need more advice on property buying, consider consulting local real estate agents to find out more information about market trends and best purchasing times.

Rio Tinto Appoints Simon Thompson as New Chairman

Rio Tinto has appointed former investment banker Simon Thompson to be its new chairman starting March 2018.

Serving as a non-executive director in the company’s board since 2014, Thompson will be replacing 63-year-old Jan du Plessis.

“Mr Thompson has over 20 years’ experience working across five continents in the mining and metals industry,” the mining company said in a statement. Thompson has also chaired private equity firm 3i Group and British exploration company Tullow Oil.

Du Plessis also welcomed the changeover. “I am really pleased to be succeeded by Simon, especially given how closely we have worked together since he joined the board some three years ago,” said du Plessis. “I am handing over the baton at a time when the business is in great shape and Rio Tinto has the strongest balance sheet in the sector.”

Thompson said: “I look forward to leading the board as we work with [chief executive Jean-Sebastien Jacques] and his team to ensure that Rio Tinto continues to deliver superior returns for its shareholders by maintaining its capital discipline and ‘value-over-volume’ approach.”

Upon taking over the position, Thompson is expected to deal with increased scrutiny surrounding issues like alleged coverup of losses in Mozambique in 2011 and corruption in the Republic of Guinea.