International
Friday Newspaper Review - Irish Business News and International Stories
By Finfacts Team
Apr 21, 2006, 07:27

Experts said there was no sign of the overall upward spiral abating, and a military strike on Iran could push oil prices well above $100 (€81) per barrel.

Small business group ISME said further rises would be "catastrophic" and lead to company closures.

One world-renowned expert on oil told a conference in Limerick that western countries needed to change their energy consumption habits in preparation for further price rises and possible oil shortages.

The price of a barrel of Brent crude soared to a record high of $74.22 yesterday morning, raising the prospect of even greater fuel price hikes.

Petrol prices have risen sharply since March, when the average recorded nationally by the Automobile Association was 107.7c for a litre of unleaded fuel.

Prices at the pumps have already hit an average of 117c a litre, with some filling stations charging 129c.

Oil prices fell back slightly in world markets at the end of trading. Analysts saw this as short-term profit-taking, not an indication that prices will retreat in weeks ahead. Further rises will feed through to higher gas and home heating fuel bills.

ISME, representing the small business community, said those involved in manufacturing were particularly vulnerable to the hikes, and are fearful that energy costs will drive some firms out of business unless urgent action is taken.

Association chief Mark Fielding said small firms had been hit with exorbitant rises in energy costs in the last number of years, with a 51pc rise in electricity costs, 46pc increase in gas and 43pc increase in petrol and diesel costs since 2002 - a huge burden on production outlays.

He said the Government could do little to influence oil prices, but did have power to influence the cost of business inputs including electricity and gas.

"The Government should immediately introduce a national energy policy to incentivise and promote alternative sources of energy to alleviate the impact of future oil prices," Mr Fielding said.

In Limerick yesterday, an industry expert warned there may be further crude price rises on the way.

Speaking at a conference in the University of Limerick yesterday, Mathew Simmons, an investment banker and expert on global oil reserves, warned that production from giant oil fields in Saudi Arabia and other Gulf states may already have peaked, meaning imminent oil shortages.

Oil prices have risen to record levels in the face of the threat of US strikes at Iranian nuclear facilities.

The rise was also fuelled by a report from the US of a larger-than-expected drop in petrol stocks, adding to the concerns of a market already fretting over the shutdown of almost a quarter of Nigeria's oil output and the row over Iran's nuclear programme.

Venezuelan President Hugo Chavez's promise to blow up oilfields if the US invaded, which he considers a real possibility, also threatens to push prices. Mr Chavez added his voice to the oil price debate by suggesting prices could soon reach $100, without any US invasion.

Iran is a leading oil producer. Any interruption in its production would send prices soaring to over $100 a barrel and possibly to $200, experts have warned.

Oil prices have nearly tripled since 2002 and analysts see few signs of the rally coming to an end as levels push closer to the inflation-adjusted peak for 1980 of $82 a barrel.

Mr Simmons said, however, that there was no need to fear a recession.

He pointed out that higher oil prices meant more revenue for producing countries, which in turn would help to fuel global growth.

To prove the point, the International Monetary Fund yesterday raised its forecast for global economic growth this year to 4.9pc, the best since 1976.

Mr Simmons said record oil costs so far have yet to derail growth in oil demand or the world economy. He said western countries needed to adjust consumption patterns.

He suggested that rather than hitting a ceiling at $100 a barrel, prices needed to go "far, far higher" in order to help change consumption patterns and to fund the development of alternative energy sources. Sources which could not compete with oil available at $40 a barrel were now becoming economic.

Countries also needed to take measures such as changing work practices to cut down on wasteful commuting.

The Irish Independent also reports that inflation in the eurozone eased as expected in March as energy prices grew at a slower annual pace, data showed yesterday, but economists still expect the European Central Bank (ECB) to raise rates in June.

Expectations in financial markets for the ECB to raise its key interest rate in June are broadly in line with the central bank's policy, ECB chief economist, Otmar Issing, said yesterday.

"Market views are more in line with our assessment," Issing said in an interview with the 'International Herald Tribune'.

The ECB this month knocked down market pricing for an ECB rate hike in May, but its president, Jean-Claude Trichet, gave a clear signal that an increase in the benchmark rate, currently at 2.50pc, was likely in June. In the interview, Issing said he was watching trade union negotiations to see whether wage settlements build in the higher energy costs and price increases.

Eurostat said consumer prices in the 12 countries using the euro grew by 0.6pc in March against February. The year-on-year and monthly rises were in line with market consensus, but economists said the relatively benign data would not prevent the ECB from upping interest rates by 25 basis points in June to 2.75pc.

"The eurozone inflation outlook remains steady and benign, but hardly offers any argument to the ECB to soften their rate tightening intentions over the coming months," said David Brown, chief European economist at Bear Stearns.

The Irish Times reports that a global energy war could become a reality unless governments and people make painful adjustments to cope with dwindling oil reserves, an international energy expert has predicted.

Matthew Simmons, a former energy adviser to US president George Bush, warned that global oil production was now close to "peak" level and would decline irreversibly.

Mr Simmons who is chairman of Simmons & Co - a US-based investment bank that specialises in the energy industry - was speaking at the University of Limerick. As crude prices hit a record high of $74 a barrel yesterday, Mr Simmons claimed that oil was still selling at a price far below its true value.

In an address entitled "Will 'Twilight in the Desert' mean Economic Eclipse for Europe", Mr Simmons dismissed suggestions that oil prices were rising too fast and said he believed the real price of oil should peak at $180 a barrel in the next decade.

He pointed out that the price of a cup of oil on international markets was now less than the price of a cup of coffee and he said that that situation was unsustainable.

"The price of oil just seems high because it was so cheap for so long. If you convert a barrel into a gallon and then divide gallons into cups, then $74 a barrel is about 10 cents a cup. I don't believe we sell anything in the world anymore for as little as this. Oil is a finite scarce resource so I think the price needs to go way up from here," he said.

The international energy expert said that global demand for oil has grown by 15 million barrels per day in the past decade to the present level of 90 million barrels per day.

He predicted that global demand for oil would reach 120 million barrels per day by 2020, which could trigger a global energy war unless urgent action was taken.

"If you look at the history of the 20th century, every war we had was anchored on one country trying to get energy security so I don't think the concept of a global energy war is farfetched, but it doesn't have to happen."

Mr Simmons suggested that a global energy conference would be a major first step in addressing dwindling oil supplies allied to increased demand. "Unless we want to have a terrible vicious energy war we better work on a concerted way to actually start using less oil, particularly in the way we transport people and goods," he said.

Mr Simmons outlined a series of conservational approaches and "painful adjustments" which he said needed to be implemented to avoid a global energy war.

He advocated a major shift in the way goods are transported in the marketplace from a dependence on road infrastructure to rail and water transport.

"We have to stop this trend we have today of wanting to move goods by large trucks over long distances. This is the most energy inefficient way we use oil today."

He also suggested that another way to preserve dwindling oil supplies was to "liberate" the workforce by allowing people to work from home to reduce petrol consumption and associated energy costs with car manufacturing.

Mr Simmons said that two decades of poor data and analyses of poor data on oil production and supplies were major contributors to any possible energy crisis.

"The longer we wait then the less time we have to react. We need to decide today to get going on a solution and if we turn out to be three years premature about the prospect of peak oil production, then all the better."

The Irish Times also reports that the security of the new Chip and Pin system was queried yesterday after a retailer told a customer he could access her bank account without her express permission.

Ann Doupe noticed that the amount being charged to her account was €10 shy when she was asked to enter her PIN number at a petrol station.

She alerted the retailer to the anomaly and says she was told not to worry because he would have her bank details on the machine and would be able to debit the balance to her account later without requiring the Pin number.

Ms Doupe says she was unable subsequently to get clear answers from her bank or card provider about the validity of the petrol station's actions.

A spokeswoman for the Irish Payment Services Organisation (Ipso), which represents the banks in relation to card and other payments, yesterday confirmed that retailers were able to access customer details without their Pin but said this was designed only to facilitate payment online or by phone.

"There are distinct rules in place for 'card not present' situations that facilitate the growing phone and online retail market and for 'card present' transactions, where the Pin is required," Jennifer Chamberlaine said.

She said Ipso had yet to receive a single complaint of the type recounted by Ms Doupe but added that any formal complaint would be pursued.

But, she said customers should check their bank statements on a regular basis to ensure that no unauthorised or incorrect payments are taken from their accounts. Such transactions could be challenged by the cardholder and the money refunded where the merchant was unable to provide proof of permission to debit the account - such as a Pin activated transaction.

Ms Doupe says her experience makes a mockery of the enhanced security promised for customers under Chip-and-Pin which is being rolled out across the Irish banking market at a cost of close to €100 million.

Spokespeople for the banks said merchants operated under "strict contracts" and were liable to "severe penalties" if they transgress. AIB spokesman Ronan Sheridan said: "If a merchant operates outside the terms of his contract, his 'acquiring facilities' can ultimately be withdrawn."

Banks have checks in place to catch unusual transactions, such as the type raised by Ms Doupe, an industry spokesman said.

The Irish Examiner reports that  thousands of small and medium businesses in Ireland will become exempt from costly external audits under new proposals being actively considered by Minister for Enterprise Micheál Martin.

At present, all companies in Ireland with a turnover in excess of €1.5 million are obliged by law to have their accounts audited externally.

The figure is five times lower that the corresponding EU exemption threshold of €7.3m which applies in Britain and the North.

Mr Martin told the Irish Examiner that he is giving serious thought to increasing the Irish limit above its present mark to nearer the €7.3m turnover figure.

An estimated 10,000 Irish companies would benefit from the shift, according to informed sources. With companies paying some 2.5% of turnover in audit fees, the move - if implemented - would mean savings of well over €500m for smaller Irish businesses.

Business organisations IBEC and ISME have campaigned for the exemption threshold to be increased. They say the current limit puts Irish businesses at a competitive disadvantage.

The change forms part of a radical new policy initiative by Mr Martin to lessen the regulatory burden on businesses in Ireland.

He told the Irish Examiner that Irish competitiveness in global markets would require lighter regulation in many areas.

“I am taking a rigorous look at the amount and necessity of regulation in today’s business world,” he said.

“It is accepted that costs are proportionately higher for smaller business employing less than 50 people. To that end, we need comprehensive analysis of existing regulatory load on business.”

Mr Martin said he would base the reforms on a model developed by the Dutch government, which has also been adopted in Britain and in Denmark. It had, he said, been very effective in identifying where excessive regulations can be reduced.

Ireland is ranked 11th out of 144 countries in terms of competitiveness but there are some areas in need of improvement, said Mr Martin.

“There is a big gap between the Irish audit exemption limit and the EU one. You can take it that we are looking at that. There are thousands of companies with less than 50 employees in the economy,” he said.

The Financial Times reports that an expansion of civil nuclear power offers the best hope of tackling global energy insecurity, the west’s energy watchdog is expected to show in a study that will strengthen the hand of governments looking to build new reactors.

The International Energy Agency, which represents 26 developed countries, is to support a study highly likely to make the case for greater reliance on nuclear power. The body is likely to conclude that nuclear power also offers the best solution for those governments wishing to meet emissions targets.

The agency’s move comes as European concerns over the stability of Russian gas supplies intensify. This week Gazprom, the world’s biggest gas producer, threatened to ship gas elsewhere if its European expansion plans were blocked.

Earlier this year Moscow halted gas supplies to Ukraine in a price dispute, cutting the flow of gas to Europe for a brief period.

The industrialised developed world’s energy watchdog is looking to nuclear power to deliver guarantee security amid growing fears about the reliability of natural gas supplies, particularly out of Iran and Russia.

Fatih Birol, the IEA’s chief economist, said on Thursday that security of supply and climate change were the main concerns in the years ahead: “We think security of supply will be a big problem.” The decline of gas production in North America and in the North Sea would leave Europe and many other parts of the world hostage to a shrinking number of suppliers, reducing energy security, he warned.

One diplomat called the study a small step on the road to nuclear acceptance, while others noted that the de facto endorsement of nuclear by the IEA – which has never put its weight behind it – marked a major shift.

All 26 members of the agency support the study, although their policies on nuclear power differ widely. Austria, Germany and Ireland oppose the use of nuclear fuel, while Spain, the UK, Italy and Sweden are reviewing whether to build new reactors.

Britain is carrying out a review of energy needs that is expected to back building new nuclear power plants. The review is due to be completed by the summer.

The decision to allow the next World Energy Outlook, the IEA’s flagship yearly publication, to analyse and probably support the use of nuclear power marks a big shift towards “the nuclear solution” by the world’s developed countries.

Andrew Wright, analyst at UBS, said: “The IEA is a respected, august body and when confronting opposition, national governments may well use the independent OECD agency [IEA] in support of their argument in favour of nuclear.”

Europe has become increasingly reliant on gas from a few, increasingly distant suppliers as many of its nuclear reactors are near the end of their lives.

Meanwhile, most of Iran’s vast gas reserves remain untapped as its dispute with the west over Tehran’s nuclear ambitions thwarts investment progress.

On Thursday the European Commission urged Gazprom to stick to its contractual commitments and warned it against threatening European energy supplies.

The IEA, established after the oil shocks of the 1970s, is charged with advancing energy security and helping inform the members of the Organisation of Economic Co-operation and Development on energy policy.

The FT also reports that Peter Mandelson, trade commissioner for the European Union, on Friday labels the US the biggest single block to the faltering Doha round of trade negotiations.

In a speech in Finland on Friday, Mr Mandelson says that World Trade Organisation member countries must make realistic demands and offers of cuts in tariffs and subsidies. “At this point in the talks I am looking first to the US for more of this,” he will say, according to an advance copy of his speech.

While the EU has begun to reform its farm subsidy schemes, Mr Mandelson says, “the US has yet to cut a single dollar or dime from its escalating farm spending”.

The talks, which started in 2001, received another jolt this week when Rob Portman, US trade representative (USTR), was moved to the White House and succeeded by his deputy, Susan Schwab.

Though Friday’s speech does not mention the personnel change, Mr Mandelson made it clear that he thought the timing of the move was unhelpful.

Some officials said the EU was trying to shift responsibility for slow progress to the US, having been on the back foot for much of the negotiations.

“The blame game seems to have started already,” said one Geneva-based diplomat.

A USTR spokesperson said: “The seamless transition at USTR does not change the need for others to match the offer the US has made,” and said the onus remained on the EU to cut its high tariffs.

The EU has been targeted by the US, Brazil and other agricultural exporters who want farm tariffs lowered, with higher tariffs subject to bigger cuts.

The Group of 20 developing countries has asked for average cuts of 54 per cent in farm tariffs and the US has demanded 75 per cent, but the EU has refused, saying such deep cuts are unacceptable both to the EU and to many developing countries that want to protect their farmers.

Ambassadors to the WTO will decide on Thursday whether the talks will meet a deadline of April 30 to agree percentage cuts in tariffs and subsidies.

Most think it extremely unlikely. Peter Balas, deputy director-general in Mr Mandelson’s trade department, recently told a European parliament committee that the end-April date was doomed.

He added: “The real deadline is the end of July.”

If they agree the end-April deadline is impossible, ambassadors will debate whether a planned meeting of ministers in Geneva next week should be cancelled or postponed.

Mr Mandelson said a ministerial would make sense only when agreement was imminent. “We are not fixated on the dates for a meeting, but we do want a result,” he said.

Talks on farm trade at the WTO this week have so far focused on peripheral issues such as the agricultural marketing boards used by countries like Canada and Australia, regarded by some other countries as distorting trade. Similarly, talks on industrial goods trade, though not as contentious as the farm talks, appear some way from resolution, officials said.

The New York Times reports that the apprehension on Wednesday of more than 1,100 illegal immigrants employed by a pallet supply company based in Houston, as well as the arrest of seven of its managers, represented the start of a more aggressive federal crackdown on employers, Homeland Security Secretary Michael Chertoff said Thursday.

Describing the hiring of millions of illegal workers, in some cases, as a form of organized crime, Mr. Chertoff said the government would try to combat the practice with techniques similar to those used to shut down the mob.

"We target those organizations, we use intelligence to define the scope of the organization, and then we use all of the tools we have — whether it's criminal enforcement or the immigration laws — to make sure we come down as hard as possible and break the back of those organizations," Mr. Chertoff said at a news conference.

The arrests took place just days before the Senate reconvenes with immigration laws on its agenda. Earlier this month, the Senate faltered in its efforts to develop a proposal that would have given most illegal immigrants a chance to become citizens while intensifying border patrol and deportation efforts. And in recent weeks, hundreds of thousands of immigrants and their supporters have demonstrated in response to a bill passed in the House in December that would speed deportations, tighten border security and criminalize illegal immigrants.

In the action on Wednesday, federal officials detained 1,187 illegal immigrants working in 26 states for IFCO Systems North America, a subsidiary of a company based in the Netherlands that supplies plastic containers and wood pallets used to ship a variety of goods, from fruit to computers.

Of the 1,187 detained workers, 275 have already been deported to Mexico. The rest are being processed for deportation, although many may be released on bond.

Homeland Security Department officials said company supervisors knowingly hired illegal immigrants, provided some of them housing and transportation to and from work, and even reimbursed an undercover agent for the cost of obtaining fraudulent identity documents.

An examination of the company's payroll of 5,800 employees found that just over half of them had Social Security numbers that were either invalid, belonged to a dead person or did not match names on file, the department said.

The investigation started in February 2005, when agents received a tip that IFCO Systems workers in Guilderland, N.Y., were seen ripping up federal tax-related employment verification forms, and then an assistant manager present explained that they were illegal immigrants who did not intend to file tax returns.

No senior executives at the company were arrested, but officials filed criminal charges against seven current or former lower-level managers and a foreman. The supervisors, from New York, Massachusetts, Ohio and Texas, were accused of conspiring to transport, harbor and induce illegal immigrants to come to the United States, charges that carry maximum sentences of up to 10 years in jail.

Mr. Chertoff made clear that the investigation was continuing and that further charges might be filed, leaving open the possibility of action against the company. Last year, Wal-Mart paid an $11 million civil fine to settle charges that it had knowingly hired illegal immigrants who worked as floor-cleaning crews through independent contractors. The fine surpassed the sum of all administrative fines from the previous eight years.

A spokeswoman for IFCO Systems, which had $576 million in sales globally last year and whose customer list includes such companies as Dell Computer, Winn Dixie supermarkets and Target stores, did not respond to messages left at her office and on her cellphone.

As part of the campaign against illegal hiring, Mr. Chertoff and Julie L. Myers, assistant secretary at Immigration and Customs Enforcement, plan to hire 171 more work-site enforcement agents. There are now the equivalent of 325. They have also asked Congress for legal authority to get routine access to Social Security records in order to identify companies in which large numbers of new employees submit fake numbers.

Separately, the department is adding 17 special teams of investigators, for a total of 52, to search for some of the 590,000 immigrants in the country who have ignored orders to leave. The department is also working with state and local officials to try to identify and, if possible, deport many of an estimated 630,000 foreign-born individuals who are arrested on criminal charges and put into jail.

Nationally, there were 127 criminal convictions last year — up from 46 the year before — against employers who knowingly hired illegal immigrants, the department said.

Bill Bernstein, deputy director of Mosaic Family Services, a nonprofit group in Dallas that works with refugee and immigrant families, said that simply apprehending workers who might be here illegally was not the answer to the immigration problem.

"There is a reason why these people were doing that job," Mr. Bernstein said, "and that is there are a lot of jobs in this county that Americans aren't taking."

Mr. Bernstein said the timing of the announcement of the arrests was probably not a coincidence. "The reason this is being done now is to look good politically," he said. "The administration wants to make it clear they have an enforcement side as well as an amnesty side."

Michael W. Cutler, a fellow at the Center for Immigration Studies, a research group that supports tougher immigration laws, said Mr. Chertoff's enforcement blitz was more about public relations than substance.

"All they are doing is hanging window dressing on a building that is condemned," said Mr. Cutler, who is a former federal immigration enforcement officer. Even with additional agents, he said, the department will still have far too few enforcing immigration laws.

Except for a small pilot program, Mr. Chertoff acknowledged that the federal government had not provided a way for employers to verify employees' immigration status quickly. That makes it difficult to hold employers criminally liable when workers present valid-looking but falsified documents.

"We have to admit from the get-go that we've got to provide employers with the necessary tools to verify the legal status of their employees," he said.

The NYT also reports that Google returned to favor among investors yesterday as its profit for the first quarter increased 60 percent, well above expectations.

Three months ago, the company disappointed investors, even though its profit grew 82 percent, and its stock sagged. This time, Google's ascent was enough to satisfy.

"Investors, surprisingly, acted rationally this quarter and had low expectations," said Safa Rashtchy, an analyst at Piper Jaffray & Company. Google's stock rose about 8 percent in after-hours trading after the announcement, recouping its losses since the last earnings report.

Pointing to particulars behind its successful quarter, the company said its share of the search market continued to grow around the world, as did the money it earned from advertising for each search result displayed.

Eric E. Schmidt, Google's chief executive, said the market share increase might be related to the use of some of the company's new products, like Google Video, Google Earth and Google Maps, as well as the introduction of Google News in several countries.

These services attract people to Google's site, where they may also conduct searches, he said in an interview. "All of a sudden Google is top of mind again, over and over again."

Google continued to make substantial capital investments, mainly in computer servers, networking equipment and space for its data centers. It spent $345 million on these items in the first quarter, more than double the level of last year. Yahoo, its closest rival, spent $142 million on capital expenses in the first quarter.

Google has an enormous volume of Web site information, video and e-mail on its servers, Mr. Schmidt said. "Those machines are full. We have a huge machine crisis."

Jordan Rohan, an analyst for RBC Capital Markets, called Google's capital spending "unfathomably high," noting that it spent the same percentage of its revenue on equipment as a company in the telephone business, an industry traditionally seen as far more capital-intensive than the Internet.

He said investors would tolerate this high spending level as long as Google's results continued to be so strong.

"If Google's market share continues to increase, and its position as the central hub of the Internet is reinforced, an extra $1 billion is a worthwhile investment," Mr. Rohan said. "The day market share peaks, we have a problem."

Investors saw little problem in the latest numbers. Google earned $592 million in the first quarter, compared with $369 million in the year-earlier period.

Excluding charges for stock-based compensation and payments to the plaintiffs' lawyers in the settlement of a class-action lawsuit, earnings were $2.29 a share, well ahead of the $1.97 that analysts had anticipated.

Gross revenue was $2.25 billion, up 79 percent. Analysts prefer to look at Google's revenue after deducting the payments it makes to services like America Online, which display its advertisements and keep most of the money from them. Using this measure, Google's revenue was $1.53 billion, compared with the $1.44 billion that analysts had estimated.

The company's stock, which ended regular trading at $415, up $4.50, rose after hours to $448.31 It reached a high of $475.11 in January and was at $432.66 before its last earnings report, then fell back as far as $337.06 in March.

Google saw faster growth on the Web sites it owns, which are far more profitable because it does not have to share advertising money. Google's sites posted revenue of $1.3 billion, up 97 percent.

Revenue from partner sites was $928 million, up 59 percent. Google kept 22 percent of the revenue for ads shown on partner sites, compared with 21 percent a year ago.

Revenue is growing faster overseas. Revenue from outside the United States was 42 percent of total revenue, compared with 39 percent a year ago. The company said that it noted particular growth in Britain, France and elsewhere in Northern Europe.

Mr. Rohan said that in the first quarter, Google's search revenue in the United States grew 10 percent from the fourth quarter of 2005, about the same growth as Yahoo. Google has long grown substantially faster than Yahoo, and it is still increasing its share of user searches, he said. That means Yahoo is starting to catch up on technology to generate more advertising revenue for each search, he said.

Google added $825 million to its cash hoard, giving it $8.4 billion in cash at the end of the quarter. In April, it raised another $2.1 billion by selling shares to the public and spent $1 billion to buy 5 percent of AOL.

The company also continued to hire at a breakneck pace. It added 1,110 workers in the quarter for a total of 6,790 full-time employees.

In a conference call with investors, Mr. Schmidt highlighted several areas for future growth.

One was advertising from local businesses on the company's main search service, as well on its local search and maps products. The delivery of such advertising is based on an inference of the user's location from the search query or Internet protocol address.

"Locally targeted ads are an increasingly meaningful contributor to revenue, and much more is coming," Mr. Schmidt told the investors.

Mr. Rashtchy, the Piper Jaffray analyst, estimated that 10 percent of Google's advertising was local.

Mr. Schmidt also said the company saw great opportunity in developing services for mobile phones. It has developed a system called a transcoder that will reformat Web pages for display on the small screens of cellphones.

The company has started delivering advertising on its mobile service in Japan and it is negotiating with wireless carriers to put advertising on its services in other countries as well, Mr. Schmidt said in an interview.