May 2010

BP Reverts to Attempting to Contain Oil Spill After Plugging Effort Fails

May 30, 2010

By Jim Polson and David Wethe May 30 (Bloomberg) — BP Plc began outlining its plan to contain oil leaking from its Gulf of Mexico oil well after the company and U.S. government officials abandoned a three-day effort to plug the hole. In a two-step process, underwater robots will shear away sections of damaged pipe, according to a BP illustration posted today on the spill command’s web site. That should permit BP to install a “snug seal” to a new pipe that would carry “a great majority of the oil” to a drill ship on the surface, Doug Suttles , the BP executive in charge of the spill response, said yesterday in a press conference. The job will take four to seven days, he said. Failure to plug the well from the top, a method dubbed “top kill,” means “the real solution is a relief well,” Mary Landry , the government’s on-scene spill coordinator, said yesterday. Drilling a relief well to intersect the damaged well near the bottom of the hole will give BP better control over the pressurized flow of oil and gas, allowing it to inject drilling mud and cement to plug the flow. BP’s “best forecast” for finishing the first of two relief wells it has begun drilling is early August, Suttles said. Meantime, curbing the amount of oil spilled will reduce pollution, he said. The undersea gusher already is estimated to be the biggest oil spill in U.S. history, and more than twice as big as the Exxon Valdez disaster in 1989. Cutting off the damaged pipe may result in a “small increase” in flow from the well, BP Managing Director Robert Dudley said today on CNN’s “State of the Union.” “We would not expect to see a large increase, if any, by cutting this off and making a clean surface.” Dudley’s statement contradicted the assessment of White House energy adviser Carol Browner, who said today on CBS’s “Face the Nation” that the operation could increase the leak by as much as 20 percent for as long as a week. “What our experts are saying is that when you cut the riser, the kink may be holding some of the oil in, and so we could see an increase,” Browner said. “Our experts are saying as much as 20 percent.” BP has no choice but to continue trying to stop the spill, even if it risks increasing the flow, Jason Kenney , an Edinburg- based analyst ING Commercial Banking, said today in an interview. “This is war,” Kenney said. “As in all wars, it very rarely goes smooth. This has never been done before at this water depth. Ultimately, containment and all the rest of it will be options that have to be used in future deep water drilling. It has to be more secure.” BP hasn’t abandoned trying to stop the leak completely before August, spokesman David Nicholas said today in an interview. “We got a huge amount of data out of the top kill and we will be analyzing that to inform our future options,” Nicholas said. Alternatives include installing a second piece of equipment on top of the well at the seabed with valves that could shut off the pipe. If those are successful, it may still be a month before the flow is stopped, Les Ply, a retired mud engineering consultant for the oil industry, said in a telephone interview yesterday. “I think we’re looking at a week to 10 days to get this riser and cap in place.” BP had diverted 22,000 barrels of oil to the drill ship through a smaller pipe before top kill failed to stop the gusher with jets of mud. That earlier recovery “gives us confidence” more oil can be routed to the ship, Suttles said. He wouldn’t quantify how much they might capture, or the odds of success the so-called lower marine riser package cap will work as intended. Kenney, the ING analyst, revised his estimate today of how much the spill will cost BP to $22 billion, should the spill persist to August, compared with $5.3 billion if top kill had succeeded. Nevertheless, he reiterated a “buy” rating on the stock and doesn’t own the shares. “BP can digest whatever cost this is going to take,” Kenney said today in an interview. Energy Secretary Steven Chu and Interior Secretary Ken Salazar agreed to allow BP to revert to a containment strategy. After BP’s first containment effort, a 100-ton steel box, failed, it devised a smaller alternative called “top hat” and another device that was eventually used, a small pipe inserted in the broken pipe leaking oil. “Every day that this leak continues is an assault on the people of the Gulf Coast region, their livelihoods, and the natural bounty that belongs to all of us,” President Barack Obama said in a statement yesterday after the top kill effort failed. “It is as enraging as it is heartbreaking.” To contact the reporter on this story: David Wethe in Houston at dwethe@bloomberg.net ; Jim Polson in New York at jpolson@bloomberg.net .

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Australia May Leave Key Rate at 4.5% as Steepest Increases in G-20 `Bite’

May 30, 2010

By Jacob Greber and Daniel Petrie May 31 (Bloomberg) — Australia’s central bank may keep its benchmark interest rate unchanged this week after the most aggressive round of increases in the Group of 20 restrained retail sales and slashed mortgage lending by a quarter. The central bank will leave the overnight cash rate target at 4.5 percent at 2:30 p.m. in Sydney tomorrow, according to all 22 economists surveyed by Bloomberg News. A separate report this week may show economic growth slowed to 0.6 percent last quarter from 0.9 percent in the previous three months, analysts predict. The Reserve Bank of Australia’s decision may be echoed across Asia this week as central banks from Indonesia to Thailand and the Philippines are forecast to hold off on rate increases as they gauge fallout on the global economy from Europe’s debt crisis. Investors boosted bets this month that Governor Glenn Stevens will keep Australia’s policy rate unchanged until 2011. “Uncertainty has increased regarding the global economic outlook,” said Shane Oliver , senior economist in Sydney at AMP Capital Investors, which manages $90 billion in assets. “The rate hikes to date are starting to bite.” Stevens increased rates six times since early October from a half-century low of 3 percent, citing surging Asian demand for Australian commodities and a jobs boom that has pushed down unemployment to around half that of the U.S. and Europe. European Rescue The interest-rate moves helped stoke a 27 percent gain in Australia’s dollar in the 12 months through April 30, making it the second-best performer among the world’s 16 most-traded currencies. The currency has since pared around half of those gains as European Union policy makers scrambled this month to prevent a potential Greek debt default. Thailand’s central bank will probably maintain its benchmark rate at 1.25 percent on June 2 and Bank Indonesia may keep borrowing costs at 6.5 percent on June 4, according to separate Bloomberg surveys. The key rate in the Philippines is forecast to be held at 4 percent on June 3. Australia’s economy, which skirted last year’s global recession and surged in the final three months of 2009, shows signs of slowing as higher borrowing costs and the end of government stimulus weigh on domestic demand. First-quarter GDP figures will be published at 11:30 a.m. in Sydney on June 2. “It’s now clear that the Reserve Bank should have left rates on hold in May and arguably in April,” said Craig James , a senior economist at Commonwealth Bank of Australia in Sydney. “And it’s not just the volatility on global markets. The one common element across businesses is the reluctance to spend.” ‘Rapid Deterioration’ Virgin Blue Holdings Ltd., Australia’s No. 2 carrier, cut its profit forecast last week on a “rapid deterioration” in leisure travel and rising industrywide capacity. Reports to be released ahead of tomorrow’s rate decision will show retail sales increased 0.3 percent in April, matching the weakest growth rate in a year, and building approvals fell for the third month in four, analysts forecast. Those figures will be published at 11:30 a.m. in Sydney. The nation’s property market, which surged 20 percent in the year to March 31, is also showing signs of weakening. Home- loan approvals dropped 25 percent in the six months through March to the lowest level in nine years. “The slowdown in the housing market over the past month is a real concern,” said David Airey, president of the Real Estate Institute of Australia. “Since early April, we’ve seen the market change from buoyant to slow and depressed.” Consumer Behavior Australia’s monetary policy is now “well placed” and interest-rate increases so far are “beginning to affect behavior” of consumers, central bank officials said in the minutes of their last meeting on May 4. Investor bets that Stevens will resume boosting rates in coming months because of faster inflation have all but evaporated this month. Traders are betting there is no chance of a quarter-point rate increase at central bank monthly meetings until December, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange. There is also a 14 percent chance of a rate cut tomorrow, the futures showed at 11:42 a.m. on May 28. Keeping rates on hold in coming months may assist Prime Minister Kevin Rudd ’s campaign to win an election that is likely to be called this year. “With rates now broadly neutral and risk aversion so elevated, we see little reason for tightening” soon, said Tim Toohey , chief economist at Goldman Sachs JBWere Ltd. in Melbourne. Still, the “risk of meaningful financial spillovers from European sovereign concerns to the domestic economy is limited,” he said, adding that the bank may resume tightening monetary policy as early as August. To contact the reporters for this story: Jacob Greber in Sydney at jgreber@bloomberg.net ; Daniel Petrie in Sydney at dpetrie5@bloomberg.net

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U.S. Payrolls May Have Climbed in May for Fifth Month

May 30, 2010

By Shobhana Chandra May 30 (Bloomberg) — Employment grew in May for a fifth consecutive month, pointing to gains in wages that will help U.S. households ride out the turmoil in financial markets, economists said before reports this week. Payrolls climbed by 508,000 workers last month, the biggest increase since 1997, according to the median estimate of 64 economists surveyed by Bloomberg News. The gain reflected a surge in government hiring of temporary help to conduct the census and a 180,000 rise in private employment, according to the survey. Other reports may show the economic rebound is broadening beyond manufacturing as service providers, including retailers and construction firms, see a pickup in demand. General Electric Co. is among companies hiring, saying the European debt crisis is unlikely to derail the recovery from the worst global recession in the post-World War II era. “The labor market is clearly improving,” said James O’Sullivan , global chief economist at MF Global Ltd. in New York. “At this point, there’s enough momentum in the economy to outweigh the drag from the turmoil in Europe.” The Labor Department’s jobs report is due June 4. The Census Bureau had said it would take on 970,000 temporary workers from April through June to conduct the population count that occurs every 10 years. The bulk of the hiring likely took place last month. Census Effect Census employment may keep distorting the payroll figures for months as the government dismisses workers when the population count is done. For that reason, economists say private payrolls, which exclude government jobs, will be a better gauge of the state of the labor market for much of 2010. The report will probably also show the unemployment rate fell to 9.8 percent last month, according to the survey median, from 9.9 percent. The rate, which reached a 26-year high of 10.1 percent in October, will take time to recede as the number of previously discouraged jobseekers returning to the labor force exceeds the number of available jobs. Factory payrolls increased in May for the fifth straight month, according to the survey. “This is a point in time when the world needs the U.S. to be a beacon of stability, a beacon of reliability,” GE Chief Executive Officer Jeffrey Immelt said in an interview on May 6. Fairfield, Connecticut-based GE, the world’s largest maker of jet engines, power-generation equipment and locomotives, this month increased the number of jobs it plans to add in Michigan to more than 1,300. Adding a Shift Chrysler Group LLC, the automaker controlled by Fiat SpA and based in Auburn Hills, Michigan, said it will add a second shift to a Detroit factory that makes Jeep Grand Cherokees and hire 1,100 workers at the plant. On June 1, the Institute for Supply Management’s manufacturing index will show factories continued to expand this month after growing in April at the fastest pace since 2004, according to economists surveyed. Manufacturing accounts for about 11 percent of the economy. Two days later, Commerce Department figures may show orders placed with factories rose in April for the eighth consecutive month, according to the survey. The manufacturing rebound has helped underpin shares. The Standard & Poor’s Supercomposite Industrial Machinery Index of 52 companies, including Caterpillar Corp. and Deere & Co., has increased 7 percent this year compared with a 2.3 percent decline in the broader S&P 500. Shares Retreat Since reaching a 19-month high on April 23, the S&P 500 Index has lost 11 percent on mounting concern efforts to trim government deficits in Europe will slow the global recovery. The gains in manufacturing are now being accompanied by a rebound among service industries, which make up about 90 percent of the economy. The Tempe, Arizona-based ISM’s index of non- manufacturing businesses, due on June 3, rose last month to the highest level in almost four years, economists surveyed projected. Housing is getting a boost from the extension of a buyer tax credit of as much as $8,000, figures may show on June 2. The National Association of Realtors’ index of signed purchase agreements, or pending home resales, rose in April for the third straight month, according to the Bloomberg survey. Construction spending, due from the Commerce Department on June 1, rose 0.1 percent in April after a gain of 0.2 percent, economists projected. A slump in commercial building is restraining in the industry. To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net

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Colin Powell Says Stepped Up UN Sanctions Won’t End Iran’s Nuclear Program

May 30, 2010

By Mike Dorning May 30 (Bloomberg) — Former Secretary of State Colin Powell said that proposed stricter United Nations sanctions won’t bring an end to Iran’s nuclear program. “I don’t see that this causes sufficient pain,” Powell said on ABC’s “This Week” program. U.S. Secretary of State Hillary Clinton said on May 18 that the permanent members of the UN Security Council — Russia, China, the U.S., U.K. and France — and Germany have drafted a sanctions resolution designed to pressure Iran into stopping its pursuit of enriched uranium, a material that can be used for a bomb. “The Iranians have been around for thousands of years, trading and selling and getting around various constraints and what not,” Powell said. “They’re very clever. And they know what sanctions might be coming. And I’m sure that they have done their own planning and have their own counter-sanction strategy.” Powell’s comments echoed those of a top Iranian dissident, Mohsen Kadivar, a senior cleric and a visiting professor at Duke University’s department of religion, who predicted last week that “they will not manage to isolate Iran with sanctions.” Kadivar was a student of the late Ayatollah Hossein Ali Montazeri, a top cleric and dissident whose death in December reignited anti-government demonstrations. Legitimacy of Sanctions Iran says its nuclear program is aimed at generating electricity for a growing population. It also complains of a double standard on international nuclear agreements, saying Israel hasn’t been prevented from developing atomic weapons, and has called the proposed new sanctions “illegitimate.” Iran is already under three sets of UN sanctions for defying the council’s demands to suspend the enrichment of uranium. The proposed economic sanctions would bolster an arms embargo, restrict financial transactions and enhance authority to stop and seize Iranian cargo. Iran has experience in evading sanctions, and found ways to get hold of arms during the war against Iraq in the 1980s when it was under similar restrictions, Kadivar said. It will use oil revenue to counter the new measures, boosting inflation and hurting the Iranian public, he said. Powell was secretary of state to Republican President George W. Bush during the run-up to the Iraq War and the first years of the conflict and considered running for president as a Republican candidate in 1996. In the 2008 election, he crossed party lines to endorse Democrat Barack Obama for president. He was the chairman of the Joint Chiefs of Staff during the first Gulf War against Iraq in the early 1990s. Iraq Withdrawal Powell also said on ABC that recent violence in Iraq should not dissuade the White House from proceeding with plans to reduce the U.S. troop presence in the country. “I think the president is correct to keep it on track and continue with the draw-down,” Powell said. “We cannot maintain this level of deployment forever. It not only is a burden on our troops, it is enormously expensive in a time of budget deficits and national debt.” Powell said the Iraqi government and military “is ready” to function with fewer U.S. troops. “If they continue to show the effectiveness that their army has shown recently, they should be able to contain this and hold it as we continue our withdrawal,” Powell said. Powell said the success of efforts to bring stability to Afghanistan will depend heavily on establishing an effective national army, reducing corruption and building public confidence in the government. “We can do just so much,” Powell said. “It ultimately is going to be in the hands of the Afghans.” To contact the reporter on this story: Mike Dorning in Washington at mdorning@bloomberg.net

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Treasury Is Said to Pick Lead Bank for GM Offering as Soon as This Week

May 30, 2010

By Serena Saitto and David Welch May 29 (Bloomberg) — The U.S. Treasury and General Motors Co. may choose a lead underwriter for the automaker’s initial public offering as soon as next week, two people familiar with the matter said yesterday. GM, 61 percent owned by the U.S., must decide soon on an underwriter in order to sell shares publicly by the fourth quarter, said the people, who asked not to be identified revealing private information. The Treasury, which helped pay for the automaker’s restructuring last year, probably will have more say than the automaker in the selection, the people said. Chief Executive Officer Ed Whitacre , appointed chairman when GM emerged from bankruptcy in July, has said the automaker may sell shares to the public as early as this year. GM needs to begin shortly to sell stock before the Nov. 2 congressional elections, said Joe Phillippi , president of AutoTrends Consulting in Short Hills, New Jersey. “If they want to get it done in the fourth quarter, they have to start now,” he said yesterday in an interview. “This isn’t some little tech company. It’s a big story. This will be a global road show.” Randy Arickx , a GM spokesman, said yesterday that he wasn’t aware of any imminent decision. Andrew Williams , a spokesman at the Treasury Department, didn’t return telephone calls or an e- mail request seeking comment yesterday before the Memorial Day holiday weekend. GM and Treasury officials met with senior executives from Goldman Sachs Group Inc. , Bank of America Corp. , Citigroup Inc. , JPMorgan Chase & Co. and Morgan Stanley this month in Washington about hiring a lead underwriter, said one of the people. Strategy Questions Banks were asked questions on their strategy for the IPO, including how much stock they recommend selling, how much GM may be worth and what obstacles may emerge along the way, one of the people said. Whitacre wants to secure an automotive lending unit before a public offering in the fourth quarter, people familiar with the plan have said. Detroit-based GM hasn’t had such a subsidiary since former CEO Rick Wagoner sold 51% of GMAC to private-equity firm Cerberus Capital Management LP in 2006. Whitacre was installed as chairman by President Barack Obama ’s automotive task force when it replaced more than half of the directors in July. Choosing a lead underwriter in the next week or two would allow GM to file an S-1 initial registration form by July and sell shares in October or early November, one of the people said. Treasury Stake The Treasury has hired Lazard Ltd. for $500,000 a month to advise on selling its stake, according to a document on the Treasury’s website. The Treasury Department has about $40 billion of its $50 billion investment in GM tied up in the company’s equity. Ron Bloom , who took over as chief of the U.S. autos task force after Steven Rattner stepped down last year, is a former Lazard vice president. GM Chief Financial Officer Chris Liddell said May 17 the automaker’s $865 million first-quarter net profit, the first since 2007, was a “good, useful step” on the way to an initial public offering that may come this year. He also said at the time that it wouldn’t be necessary to have an automotive financing unit before going public. GM management has been preparing for an IPO so they will be ready whenever the timing is right, said a GM executive who asked not to be identified discussing internal matters. To contact the reporters on this story: David Welch in Southfield, Michigan, at dwelch12@bloomberg.net ; Serena Saitto in New York at ssaitto@bloomberg.net .

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Alcoa, Steelworkers Union Work on Labor Pact as Contract Expiration Nears

May 30, 2010

By Edmond Lococo May 30 (Bloomberg) — Alcoa Inc. , the largest U.S. aluminum maker, and the United Steelworkers union said they are working to reach a labor agreement before expiration of the current contract tomorrow night. “Still hard at it,” Jim Robinson, the union’s lead negotiator, said in an e-mail from the talks in Cincinnati today. He declined to offer more details. Kevin Lowery , a spokesman for Alcoa, offered no details on the talks in an e-mail today. Gerald Dickey, a spokesman for the union that represents almost 6,000 workers at 11 plants, said he didn’t have any information on the status of the negotiations. Alcoa and the union are working to avoid the first strike at plants covered by the contract since 1986. The union has said that it would resist New York-based Alcoa’s initial contract proposal that would have more than tripled health-care costs for some families. The union yesterday said it was confident it could achieve a “fair” contract by the expiration of the current contract at midnight U.S. central time tomorrow. Both Alcoa and the union yesterday declined to offer details on any updated proposal. To contact the reporter on this story: Edmond Lococo in Boston at elococo@bloomberg.net

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U.S. Telling BP `What to Do’ as Company Seeks to Contain Majority of Oil

May 30, 2010

By Steve Geimann and Carol Wolf May 30 (Bloomberg) — BP Plc said it will seek to contain a majority of oil gushing from its Gulf of Mexico well with a new tactic to plug the leak as a White House adviser said the U.S. is now telling the company “what to do.” The company encountered “too much flow” and the “top kill” using 30,000 barrels of mud was abandoned in favor of placing a cap over the well, Managing Director Robert Dudley said today on CNN’s “State of the Union” program. “We believe we will get a majority of the oil and gas,” Dudley said. U.S. engineers, led by Energy Secretary Steven Chu , yesterday told BP of “grave concerns” about drilling mud, and the company halted the process, White House energy and climate adviser Carol Browner said on CBS’s “Face the Nation” broadcast. “At the end of the day, the government tells BP what to do,” Browner said on NBC’s “Meet the Press.” BP had put the chances of the top kill succeeding at 60 percent to 70 percent. The company made three attempts before giving up last night. “We failed to wrestle this beast to the ground,” Dudley said on “Fox News Sunday.” Containment has “no certainty” of success, he said on Fox. “The percentages are better” than forcing mud into the well, he said. Chu met BP engineers yesterday and told them “it was too dangerous” to continue forcing mud into the well, Browner said on CBS’s “Face the Nation” broadcast. After the scientists met and “we told them of our very, very grave concerns,” the company abandoned the process, Browner said. 4 to 7 Days BP didn’t provide an estimate of when the flow might be stopped with the new method. Installing the cap should take about four to seven days, and after that the company will begin installing a new blowout preventer, a series of valves designed to cut off the flow from the well, Doug Suttles , chief operating officer of BP America Inc., said yesterday. BP’s failure using drilling mud was “enormously frustrating and really maddening” while the federal response to protect the coast is failing, Senator David Vitter , a Louisiana Republican, said on CNN. The federal government needs to accelerate delivery of containment booms and start emergency dredging of barrier islands to block oil from reaching coastal marshes, Vitter said. A plan proposed by state and local officials two weeks ago has been approved by the Army Corps of Engineers, though only for about 2 percent of the plan, Vitter said. “That’s really the federal response to oversee and lead that effort to protect the coast and the marsh,” he said. “It has been a failure so far.” Louisiana Sand Booms Louisiana Governor Bobby Jindal , who with Vitter met President Barack Obama on May 28, said the U.S. should require BP to pay the costs to build 40 miles of sand boom protecting his state’s wetlands from oil. “The federal government shouldn’t be making excuses for BP,” said Jindal on ABC’s “This Week” broadcast. “This is their spill, their oil. They’re the responsible party. Make them responsible.” Representative Edward Markey , a Massachusetts Democrat, today endorsed a suggestion by House Speaker Nancy Pelosi made on Bloomberg Television’s “Political Capital With Al Hunt” to lift the financial liability limit for oil companies such as BP. “I do not believe that large energy companies should be able to escape having unlimited liability for the catastrophes which they create,” Markey said on CBS. “If the oil industry wants to drill in ultra-deep waters, we need ultra-safe technologies as well.” Lower-Marine Riser In the Gulf, BP has started deploying a containment device known as a lower-marine riser package cap. The cap will attach to the top of the well’s existing blowout preventer and will then funnel oil and gas into a pipe that extends to a ship on the surface, Suttles said. After the attachment of the lower-marine riser package cap, BP plans to install the new blowout preventer on top of the existing one, Suttles said. BP will then try to use the valves on the new blowout preventer to stop the flow. “We’re still looking at a month before we get this thing killed,” Les Ply, a retired mud engineering consultant for the oil industry, said yesterday in a telephone interview. “I think we’re looking at a week to 10 days to get this riser and cap in place.” The new method, if successful, would stop the leak long enough for a so-called relief well to be drilled nearby and provide a permanent seal. ‘Enormous Mistakes’ BP has made “enormous mistakes and probably cut corners,” leading up to the April 20 explosion on the Deepwater Horizon drilling platform, Vitter said. “There were some horrible things that went wrong and it seems like horrible decisions that led to the initial event,” he said. Dudley, in response to a question on “Fox News Sunday” about cutting corners, said “I don’t believe they did” and that the company used well and drilling designs adopted by other companies. “What’s happened out in the Gulf today is something that is an industry issue to understand this failsafe use of equipment,” Dudley said. “It’s going to have implications for the drilling industry not in the U.S. only, but all around the world. Everyone’s going to step back and learn from this.” To contact the reporter on this story: Steve Geimann in Washington at sgeimann@bloomberg.net

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David Isenberg: There is More Than One Way to Use a Maritime PSC

May 30, 2010

On May 27 I wrote about the pros and cons of using private security contractors to fight piracy. But that article considered just the use of putting armed guards aboard ship. That is not the only way, or even the best way, private security firms can be involved in fighting pirates. Using private contractors help provide security against pirates is an increasingly popular notion. Congressman Rep. Ron Paul (R-Tex.) called on Congress to “issue letters of marque and reprisal, deputizing private organizations to act within the law to disable and capture those engaged in piracy.” Indeed, this idea is grounded in the U.S. Constitution, which expressly invests Congress with authority to define piracy on the high seas and to issue letters of marque. (Art. I, § 8, cls. 10, 11). For detail let’s consider the article ” Reconsidering the Letter of Marque: Utilizing Private Security Providers Against Piracy ” by Maj. Theodore Richard, which was published in the Spring issue of the Public Contract Law Journal. Richard is an Air Force Judge Advocate and is currently serving as trial attorney in the Air Force Commercial Litigation Division in Washington, As Richard notes, piracy thrives in coastal regions where people are drawn towards criminality by desperate circumstances combined with an absence of law-enforcement authorities. The pirate scourge originated in the failure of the rule of law and international institutions to prevent exploitation of Somali waters. The now sophisticated and aggressive pirate operations are thought to have morphed out of a self-help police or military function into piracy earlier this decade. Somali fisherman started out trying to deter illegal dumping and fishing and graduated from attacking vessels to seizing them for ransom, with the Hawiye clan, based around Haradere in central Somalia, emerging as the dominant group of pirates in 2004. When the short-lived Union of Islamic Courts government took over the Haradere area in 2006, they suppressed local piracy, so the Darod clan, with strongholds around the east coast of Somalia and in the semi-autonomous Puntland region on the Gulf of Aden, took over the piracy role. By 2008 a United Nations report described the pirates as “loosely organized and poorly trained,” with a fluid membership. The report described two significant overlapping networks: one in Puntland, mainly consisting of the Majerteen clan, and another in central Somalia, mainly consisting of the Habar Gidir clan. Puntland’s current president, Abdirahman Mohamed Farole, has made fighting piracy a priority. During a meeting with an international delegation in February 2009, President Farole explained that military operations against the pirates would not be sufficient to end the piracy problem. Instead he “strongly suggested that the world must first address the root causes of piracy, including illegal overfishing and toxic waste dumping.” It is not excuse for piracy to point out that it is not well realized that illegal fishing by foreign vessels is a significant concern for Somali leaders: a United Nations Secretary General report lamented the “pillage of Somali Indian Ocean and Red Sea waters by literally hundreds of vessels from a variety of nationalities” and expressed concerns of overfishing and depletion of fish stocks. In 2005 some of the intruding vessels attacked local Somali fishermen and destroyed their boats and equipment. It should be no surprise that another United Nations report described the Somali fishery situation as resembling “naval warfare”: “Fishing boats are typically mounted with heavy anti-aircraft canons and many of the crews are armed.” This analogy has become even more appropriate in recent years, with reports of international naval vessels firing on local fisherman and protecting their own vessels illegally fishing in Somali waters. Richard points out that Puntland has employed a number of different security contractors since 2000, meeting with various levels of success. It first contracted the British company Hart Security (“Hart”) from 2000 to 2001. Hart was hired “mainly to protect Puntland’s maritime resources against illegal foreign fishing by providing training as well as on-ship support to the local Coast Guard.” The company’s force consisted of one boat and seventy men, primarily Somalis with a balanced composition from the local clans. Hart was financed through the sale of fishing licenses. “Hart was very successful: the frequency of piracy declined, and the nucleus of a relatively efficient coast guard was formed with its spine consisting of British advisors and British-trained Somali militia acting as boarding parties. Hart successfully tapped British legal resources to settle international disputes. For example, when the Somali coast guard detained a Spanish ship for illegal fishing, Hart contacted a British law firm and resolved the matter through arbitration. Hart did not simply ransom the vessel, but made use of a legal international dispute resolution forum, strengthening Puntland’s legal authority. Hart stood apart from its successors by respecting the rule of law; it actively sought legal advice and followed fisheries guidelines. Internal conflicts within Puntland ultimately doomed the Hart Group. Other companies — such as SOMCAN, Al Hababi Marine Services, TopCat Marine Security, Northbridge Services Group, Secopex, Odyssey Consulting SA — that followed Hart did less well, for a variety of reasons; some their own fault, and others beyond their control. The point here is that maritime security contractors can be hired for a variety of purposes. Putting armed guards aboard ships is just one of them. As that is a defensive measure it is inherently a reactive, rather than a proactive one. In medical terms it is a cure and not a preventive measure. Using contractors to help provide a comprehensive coast guard force is likely a better way to go. If governments, rather than commercial shipping companies, hired private security contractors for that purpose we might see real progress in fighting pirates. But that, as Richard notes “must be centrally organized and controlled.” In that regard letters of marque might be a useful tool. Richard concludes that: Littoral governments should reconsider letters of marque to license and control privatized maritime security. The letters can be used to license defensive weapons on merchant vessels, and could even be used to authorize active anti-piracy operations. Furthermore Somali governments can use the letters to deputize their security contractors. Maritime security contractors can be part of the solution to piracy–especially if they are properly licensed and regulated through letters of marque.

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Simon Johnson: The Consensus On Big Banks Shifts Around The World, But Not At Treasury

May 30, 2010

Attitudes towards big banks are changing around the world and across the political spectrum. … Yet top Obama administration officials refuse to change their opinions in the slightest.

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BP Begins New Well-Capping Strategy After &lsquoTop Kill&rsquo Failure

May 30, 2010

By David Wethe May 30 (Bloomberg) — BP Plc began working on a new plan to cap a leaking oil well in the Gulf of Mexico after a three-day effort to stop the flow with a blast of pressurized fluids was unsuccessful. The company started using high-horsepower pumps on May 26 to ram a mixture of mud-like drilling fluid and rubber scrap into the oil and gas that’s been gushing for more than five weeks, a process known as “top kill.” At a press conference yesterday, Doug Suttles , the BP executive in charge of the spill response, said the top kill strategy didn’t work. BP will now try a containment device known as a lower-marine riser package cap, Suttles said. “Obviously we’re very disappointed,” by the failed approach, Coast Guard Rear Admiral Mary Landry said at the press conference. She said efforts to stop the leak have been “a little bit of a roller coaster ride.” At the outset of the top kill effort, BP put the chances of it succeeding at 60 percent to 70 percent. The company made three pumping attempts, injecting more than 30,000 barrels of mud into the hole, Suttles said. “I am disappointed that this operation did not work,” BP Chief Executive Tony Hayward said yesterday in a statement. “The team executed the operation perfectly, and the technology worked without a single hitch. We remain committed to doing everything we can to make this situation right.” Salazar to Return “Every day that this leak continues is an assault on the people of the Gulf Coast region, their livelihoods, and the natural bounty that belongs to all of us,” President Barack Obama said in a statement yesterday after the top kill effort failed. “It is as enraging as it is heartbreaking.” Obama said May 28 his administration is exploring “any and all reasonable contingency plans” should BP fail to stop the spill, estimated to be more than twice as big as the Exxon Valdez disaster in 1989. Interior Department Secretary Ken Salazar will visit Houston later this week, while Environmental Protection Agency Administrator Lisa Jackson will go to Louisiana, Mississippi and Alabama, the Joint Information Center said yesterday in a statement. BP didn’t provide an estimate of when the flow might be stopped with the new method. Installing the cap should take about four to seven days, and after that the company will begin installing a new blowout preventer, a series of valves designed to cut off the flow from the well, Suttles said. The cap will attach to the top of the well’s existing blowout preventer and will then funnel oil and gas into a pipe that extends to a ship on the surface. New Blowout Preventer After the attachment of the lower-marine riser package cap, BP plans to install the new blowout preventer on top of the existing one, Suttles said. BP will then try to use the valves on the new blowout preventer to stop the flow. “We’re still looking at a month before we get this thing killed,” Les Ply, a retired mud engineering consultant for the oil industry, said yesterday in a telephone interview. “I think we’re looking at a week to 10 days to get this riser and cap in place.” The new method, if successful, would stop the leak long enough for a so-called relief well to be drilled nearby and provide a permanent seal. Relief Wells Crews are ahead of schedule in drilling a relief well and are about halfway to the end, with approximately 6,000 feet left to go, Suttles said. Completion of the well is still expected by around early August, he said. Drilling on the second of two relief wells, which was temporarily suspended so that its blowout preventer could be available if the top kill failed, is expected to resume “shortly,” David Nicholas , a spokesman for BP, said yesterday in a telephone interview. Six state agencies in Louisiana said yesterday they’ve asked BP for $300 million to lessen the impact from the oil spill on their communities. The well has gushed 12,000 barrels to 19,000 barrels of oil a day, making it the largest oil spill in U.S. history, a government panel estimated May 27. Hearings wrapped up yesterday in Louisiana into the death of 11 workers killed in the April 20 drilling rig explosion that triggered it. BP fell 5 percent to 494.8 pence in London trading on May 28 and has lost 25 percent of its market value since the blast. The stock rose 5.9 percent a day earlier, the biggest gain in more than a year, after reports of progress on the top kill. Oil from the spill may have spread underwater for 22 miles toward Mobile, Alabama, researchers aboard a University of South Florida vessel reported May 27. Initial tests aboard the Weatherbird II show the highest concentrations of “dissolved hydrocarbons” were 400 meters (1,312 feet) below the surface. To contact the reporter on this story: David Wethe in Houston at dwethe@bloomberg.net .

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Payrolls in U.S. Likely Increased for Fifth Month, Helping to Boost Wages

May 30, 2010

By Shobhana Chandra May 30 (Bloomberg) — Employment probably grew in May for a fifth consecutive month, pointing to gains in wages that will help U.S. households ride out the turmoil in financial markets, economists said before reports this week. Payrolls may have climbed by 508,000 workers last month, the biggest increase since 1997, according to the median estimate of 64 economists surveyed by Bloomberg News. The gain reflected a surge in government hiring of temporary help to conduct the census and a 180,000 rise in private employment, according to the survey. Other reports may show the economic rebound is broadening beyond manufacturing as service providers, including retailers and construction firms, see a pickup in demand. General Electric Co. is among companies hiring, saying the European debt crisis is unlikely to derail the recovery from the worst global recession in the post-World War II era. “The labor market is clearly improving,” said James O’Sullivan , global chief economist at MF Global Ltd. in New York. “At this point, there’s enough momentum in the economy to outweigh the drag from the turmoil in Europe.” The Labor Department’s jobs report is due June 4. The Census Bureau had said it would take on 970,000 temporary workers from April through June to conduct the population count that occurs every 10 years. The bulk of the hiring probably took place last month. Census Effect Census employment may keep distorting the payroll figures for months as the government dismisses workers when the population count is done. For that reason, economists say private payrolls, which exclude government jobs, will be a better gauge of the state of the labor market for much of 2010. The report will probably also show the unemployment rate fell to 9.8 percent last month, according to the survey median, from 9.9 percent. The rate, which reached a 26-year high of 10.1 percent in October, will take time to recede as the number of previously discouraged jobseekers returning to the labor force exceeds the number of available jobs. Factory payrolls probably increased in May for the fifth consecutive month, according to the survey. “This is a point in time when the world needs the U.S. to be a beacon of stability, a beacon of reliability,” GE Chief Executive Officer Jeffrey Immelt said in an interview on May 6. Fairfield, Connecticut-based GE, the world’s largest maker of jet engines, power-generation equipment and locomotives, this month increased the number of jobs it plans to add in Michigan to more than 1,300. Adding a Shift Chrysler Group LLC, the automaker controlled by Fiat SpA and based in Auburn Hills, Michigan, said it will add a second shift to a Detroit factory that makes Jeep Grand Cherokees and hire 1,100 workers at the plant. On June 1, the Institute for Supply Management’s manufacturing index may show factories continued to expand this month after growing in April at the fastest pace since 2004, according to economists surveyed. Manufacturing accounts for about 11 percent of the economy. Two days later, Commerce Department figures may show orders placed with factories rose in April for the eighth consecutive month, according to the survey. The manufacturing rebound has helped underpin shares. The Standard & Poor’s Supercomposite Industrial Machinery Index of 52 companies, including Caterpillar Corp. and Deere & Co., has increased 7 percent this year compared with a 2.3 percent decline in the broader S&P 500. Shares Retreat Since reaching a 19-month high on April 23, the S&P 500 Index has lost 11 percent on mounting concern efforts to trim government deficits in Europe will slow the global recovery. The gains in manufacturing are now being accompanied by a rebound among service industries, which make up about 90 percent of the economy. The Tempe, Arizona-based ISM’s index of non- manufacturing businesses, due on June 3, probably rose last month to the highest level in almost four years, economists surveyed projected. Housing is getting a boost from the extension of a buyer tax credit of as much as $8,000, figures may show on June 2. The National Association of Realtors’ index of signed purchase agreements, or pending home resales, rose in April for the third straight month, according to the Bloomberg survey. Construction spending, due from the Commerce Department on June 1, rose 0.1 percent in April after a gain of 0.2 percent, economists projected. A slump in commercial building is restraining in the industry. To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net

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Qatar Shares Advance After Oil Climbs Orascom Surges as MTN Deal Nears

May 30, 2010

By Zahra Hankir and Dana El Baltaji May 30 (Bloomberg) — Qatar stocks rose, leading Gulf Arab markets higher, on speculation this month’s decline may have been overdone as economic growth picks up and global markets rallied as concerns over Europe’s debt crisis eased. Industries Qatar, the second-biggest petrochemicals maker in the Middle East, surged the most in more than two months. In Abu Dhabi, Emirates Telecommunications Corp. , the phone company known as Etisalat, gained after its long-term corporate credit rating was raised by Standard & Poor’s. Qatar’s QE Index gained 2.1 percent, the biggest advance since May 10, to 6,825.89. The gauge slumped 9.2 percent this month. The Bloomberg GCC 200 Index , which tracks 200 equities in the region, climbed 0.2 percent. Egypt’s EGX 30 Index surged 3.3 percent at 1:19 p.m. in Cairo. “We continue to focus on international markets and oil, which were generally higher over the Thursday to Friday period,” said Ali Khan , head of cash-equity trading at Dubai- based Arqaam Capital Ltd. “Qatar was the worst performing market in the region month-to-date.” European stocks posted a weekly gain as the Stoxx Europe 600 Index rebounded from an eight-month low on speculation the economy is strong enough to weather the region’s government-debt crisis. U.S. stocks also rose last week, paring the biggest Dow Jones Industrial Average decline in May since 1940, as consumer confidence and home sales rose, and China said its $300 billion sovereign wealth fund will maintain its investments in Europe. Spain Downgrade Crude oil for July delivery increased $3.93, or 5.6 percent, to $73.97 a barrel last week on the New York Mercantile Exchange. The six nations of the Gulf Cooperation Council, made up of the U.A.E., Qatar, Saudi Arabia, Kuwait, Oman and Bahrain, supply about a fifth of the world’s oil. Spain lost its AAA credit grade at Fitch Ratings last week. The ratings company on May 28 cut the grade one step to AA+ and assigned it a “stable” outlook, according to a statement from London. Spain has held the top rating at Fitch since 2003. “The Spain downgrade news came after Europe closed,” Khan said. “I would remain cautious as headline risk from Europe still remains.” Industries Qatar rose 4.7 percent, the most since March 17, to 100.5 riyals. Etisalat, the biggest phone company in the United Arab Emirates, gained 0.5 percent to 10.55 dirhams after it was upgraded to AA-from A+ at S&P. Orascom Surges Orascom Telecom Holding SAE , the biggest mobile phone operator in the Middle East by users, jumped 14 percent, the most since Jan. 31, to 6.18 Egyptian pounds. The result of talks between Orascom and MTN, Africa’s largest cellular phone operator, may be known in about a week, Al Mal newspaper reported today, citing Orascom Telecom Chairman Naguib Sawiris . Orascom spokeswoman Manal Abdel Hamid confirmed the remarks. “Investors expect the final outcome of the deal with MTN to be clear soon,” said Ashraf Akhnoukh , a senior equity trader at CIBC brokerage in Cairo. The DFM General Index dropped 0.3 percent, and Abu Dhabi’s ADX General Index declined 0.2 percent. Oman’s index gained 0.2 percent and the Kuwait Stock Exchange Index rose less than 0.1 percent. Saudi Arabia’s Tadawul All Share Index dropped 1.6 percent. To contact the reporter on this story: Zahra Hankir in Dubai at zhankir@bloomberg.net ; Dana El Baltaji in Dubai at 1021 or delbaltaji@bloomberg.net

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Meteoric Resources (ASX:MEI) Acquisition Of A Major, 40km-Long, Iron Ore Opportunity At Coorara, Western Australia

May 30, 2010

Meteoric Resources (ASX:MEI) Acquisition Of A Major, 40km-Long, Iron Ore Opportunity At Coorara, Western Australia

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Kairiki Energy Limited (ASX:KIK) Announces Oil Flows At Tindalo Field

May 30, 2010

Kairiki Energy Limited (ASX:KIK) Announces Oil Flows At Tindalo Field

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Iron Road Limited (ASX:IRD) Completed Stage I Exploration Drilling At Gawler Iron Project, South Australia

May 30, 2010

Iron Road Limited (ASX:IRD) Completed Stage I Exploration Drilling At Gawler Iron Project, South Australia

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Europe Ahead: Dominate sectors in Europe for release alongside euro zone GDP

May 30, 2010

Europe Ahead: Dominate sectors in Europe for release alongside euro zone GDP

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Central Banks decisions might calm Asian markets this week

May 30, 2010

Central Banks decisions might calm Asian markets this week

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Busy Week for U.S. Markets Highlighted by the Infamous Jobs Report

May 30, 2010

Busy Week for U.S. Markets Highlighted by the Infamous Jobs Report

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Brazil halts processed meat exports to US

May 30, 2010

Brazil halts processed meat exports to US

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OIC, Civilizations Alliance Forum sign agreement

May 30, 2010

OIC, Civilizations Alliance Forum sign agreement

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Ply Gem files for $300m IPO

May 30, 2010

Ply Gem files for $300m IPO

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AltaGas signs agreement with BC Hydro

May 30, 2010

AltaGas signs agreement with BC Hydro

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IMF: Turkey should unwind rescue measures

May 30, 2010

IMF: Turkey should unwind rescue measures

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US consumer confidence edges up in May

May 30, 2010

US consumer confidence edges up in May

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Chile eyes zero budget deficit by 2014

May 30, 2010

Chile eyes zero budget deficit by 2014

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Taiwan reduces income tax to 17%

May 30, 2010

Taiwan reduces income tax to 17%

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Toyota sales worldwide jump 21.3% in April

May 30, 2010

Toyota sales worldwide jump 21.3% in April

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Swiss exports climb 3.2% in April

May 30, 2010

Swiss exports climb 3.2% in April

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Shell acquires East Resources for $4.7 billion

May 30, 2010

Shell acquires East Resources for $4.7 billion

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GM eyes 50% rise in China sales by 2015

May 30, 2010

GM eyes 50% rise in China sales by 2015

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Daimler to set up factory in China

May 30, 2010

Daimler to set up factory in China

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Toys "R" Us to raise $800m in IPO

May 30, 2010

Toys “R” Us to raise $800m in IPO

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Iran, Pakistan sign gas supply agreement

May 30, 2010

Iran, Pakistan sign gas supply agreement

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Gazprom may create JV with Ukraine’s Naftogas

May 30, 2010

Gazprom may create JV with Ukraine’s Naftogas

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Illinois SURS Hires ExOhio BWC Chief

May 30, 2010

Illinois State Universities Retirement System has appointed William Mabe as executive director

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Japan Social Democrats Quit Coalition Hatoyama Upper House Majority Pared

May 30, 2010

By Sachiko Sakamaki and Takashi Hirokawa May 30 (Bloomberg) — Japan’s Social Democratic Party will leave the government after Prime Minister Yukio Hatoyama dismissed its only Cabinet minister, weakening the ruling coalition less than two months before parliamentary elections. The Social Democrats voted to bolt, party leader Mizuho Fukushima said today in Tokyo, two days after Hatoyama fired her for refusing to endorse his agreement with the U.S. to relocate a Marine base to Henoko, Okinawa. The party sought to move the base off the island in line with local sentiment. “We are leaving the government,” Fukushima said at a news conference televised by Tokyo Broadcasting System Holdings Inc. “The Social Democratic Party promised the people of Okinawa that a base wouldn’t be built in Henoko and we must take responsibility for that promise.” The move reduces the Democratic Party of Japan -led coalition’s majority to two seats in the upper house ahead of elections for half the chamber’s seats set for July. Hatoyama’s approval ratings have plunged since the DPJ’s landslide August victory in the more powerful lower house, with voters disenchanted over campaign finance scandals and his vacillating over where to move the Futenma Marine Air Base. “This is a blow but it may be temporary because there’s another month until the race starts,” said Hirotada Asakawa , a Tokyo-based independent political commentator. “It’s already expected that the DPJ cannot gain a majority and the party will need a new coalition framework.” Plunging Popularity Hatoyama’s cabinet has an approval rating of 19 percent, Kyodo News reported today, citing its own poll conducted on May 29-30. Fifty-one percent of respondents said Hatoyama should resign over the Futenma relocation issue, Kyodo said. The prime minister commanded a 71 percent approval rating when he took office in September. Half of the 242 upper-house seats are at stake in the July balloting. The DPJ and its other junior partner, the People’s New Party , have 122 legislators, and losing that majority could slow Hatoyama’s legislative goals of increasing social welfare spending while aiming to cut the world’s largest public debt. The U.S. and Japan agreed on May 28 to most parts of an existing plan to relocate the Futenma base on the island to the Henoko coastal area. Hatoyama has repeatedly apologized for breaking a campaign pledge to transfer the facility off of Okinawa. The island, 950 miles (1,530 kilometers) south of Tokyo, houses 75 percent of the American bases and more than half of the 50,000 U.S. troops stationed in Japan to provide for the country’s defense under a 50-year-old security treaty. 2006 Agreement The U.S. pushed Japan to uphold a 2006 agreement to move Futenma within Okinawa by 2014, as part of a $10.3 billion plan that would also transfer 8,000 Marines to Guam. The people of Okinawa want it moved elsewhere, citing increased crime, pollution and noise. U.S. President Barack Obama and Hatoyama spoke before the agreement was announced, and Obama expressed appreciation for the Japanese leader’s move to end an eight-month dispute that frayed ties between the allies. To contact the reporters on this story: Takashi Hirokawa in Okinawa at thirokawa@bloomberg.net ; Sachiko Sakamaki in Tokyo at Ssakamaki1@bloomberg.net

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Rio Chief Says Australian Mining Tax Makes Government His `Silent Partner’

May 30, 2010

By Shani Raja May 30 (Bloomberg) — Tom Albanese , chief executive officer of Rio Tinto Group , said Australia’s plan to boost taxes on resources producers would make the government a “silent partner” in businesses such as itself. The proposal for a 40 percent super profits tax on resource companies has also damaged Australia’s reputation overseas and added to sovereign risk, Albanese said in an interview broadcast today on ABC’s “Inside Business.” “This is half our balance sheet at risk because we have someone now coming in to say, ‘I want to be your silent partner: I want 40 percent of your pretax profits and largely written-off assets,’” Albanese told the program. He said the related cost was difficult to assess because of the complexity of the tax, and may amount to “well over 50 percent.” The government set aside A$38.5 million ($32.6 million) in its May 11 budget to promote an overhaul of the nation’s tax system, including the resources levy. Mining companies oppose the tax, scheduled to take effect in 2012, placing full-page advertisements in Australian newspapers to lobby for changes. Last week, the government said it will run its own advertising campaign to counter the “misinformation.” Treasurer Wayne Swan said in an e-mailed statement today that the super profits tax, or RSPT, wouldn’t be retroactive. ‘Misleading’ Claims “There has been much comment from mining companies in recent weeks about the supposed ‘retrospectivity’ of the RSPT,” Swan said. “These claims are clearly misleading, as the RSPT will apply to mining profits from 1 July 2012. It does not apply to past profits.” Rio’s CEO said it was important to reconsider the proposal and he’s ready to work with Prime Minister Kevin Rudd ’s government on a fundamentally different approach. The world’s third-largest mining company is already paying almost 35 percent tax plus royalties, and will publish independently audited data on its tax payments later in the week, he said. “Albanese left no doubt he’s willing to engage on a long- term, workable solution, arguably a process companies like Rio should have been involved in before the tax was announced,” said Tim Schroeders , a fund manager at Pengana Capital Ltd. in Melbourne. Core Elements The government “won’t back away” from the core elements of its proposal, Finance Minister Lindsay Tanner told Channel Ten’s “Meet the Press” program today. Still, Swan told parliament last week that the government was continuing to consult with industry as criticism of his administration’s proposed advertising campaign mounted. The Shadow Minister for Employment and Workplace Relations, Eric Abetz , today called for a senate inquiry into the government’s handling of its advertising campaign. “Labor is breaking its own guidelines in order to run a partisan political campaign,” he said in a media release. “This has all the stench of a desperate government facilitating false excuses to run a political campaign at taxpayers’ expense.” The government’s use of taxpayer money to get its message across is “a scandalous situation,” billionaire businessman Clive Palmer said on “Meet the Press” today. The super-tax proposal itself is also hurting overseas investment and is likely to damage Australian jobs and livelihoods, he said. ‘National Interest’ Rudd told journalists in Melbourne yesterday the campaign is in the national interest, while Tanner said Australia’s economy could be harmed if misinformation about the tax went unanswered. Wal King , the head of Leighton Holdings Ltd. , Australia’s biggest construction company, said builders are also worried about the tax, the Weekend Australian reported yesterday. He made the comments in a statement as president of the Australian Constructors Association, the newspaper said. The mining-tax plan has prompted Rio Tinto to re-evaluate all its projects in Australia, Albanese said in the ABC interview. “I have said to each of my managers, including during discussions this week while I’ve been in Australia, that every single project in Australia needs to be tested and retested and recalibrated, basically remodeled, on a worst-case tax assumption,” he said. Minerals Council The Minerals Council of Australia ran an advertisement on YouTube and began a radio campaign on May 24 against the tax, saying Australian miners will pay a levy of 58 percent, “by far the world’s highest tax on mining.” It compares with the 23 percent paid in Canada, 30 percent in Russia and 33 percent in South Africa, the council said. Rudd’s government and resources companies are also clashing over the definition of a “super” profit, which the proposed tax sets at returns above the long-term Australian government bond rate of about 6 percent. Rudd’s Labor party and the Liberal-National opposition coalition led by Tony Abbott are tied in the polls, according to a Newspoll survey of 1,159 people taken between May 14 and 16 and published in the Australian newspaper on May 17. Voter dissatisfaction with Rudd rose to 51 percent, from 40 percent in February, in the lead up to a national ballot that must be called by April. Rudd would lose an election called now, according to a Herald/Nielsen poll published on May 10. To contact the reporter on this story: Shani Raja in Sydney at sraja4@bloomberg.net .

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Arizona commercial real estate brokers: Some lenders ignore crisis

May 30, 2010

Arizona’s housing market is deep into the process of flushing out its bad mortgage debt. But lenders and borrowers of troubled commercial real-estate loans continue to live a lie. Commercial real-estate brokers have coined a phrase, …

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BP Abandons &lsquoTop Kill&rsquo Plan That Failed to Cap Leak

May 29, 2010

By David Wethe May 29 (Bloomberg) — BP Plc said it will switch to a new strategy to cap a leaking oil well in the Gulf of Mexico after a three-day effort to stop the flow with a blast of pressurized fluids was unsuccessful. Since May 26, BP has been starting and stopping high- horsepower pumps that rammed mixtures of mud-like drilling fluid and rubber scrap into the oil and gas that’s been gushing for more than five weeks, a process known as “top kill.” At a press conference today, Doug Suttles , the BP executive in charge of the spill response, said the top kill strategy didn’t work. BP will now try a containment device known as a lower-marine riser package cap, Suttles said. “Obviously we’re very disappointed in today’s announcement,” Coast Guard Rear Admiral Mary Landry said at the press conference. She said efforts to stop the leak have been “a little bit of a roller coaster ride.” At the outset of the top kill effort, BP put the chances of it succeeding at 60 percent to 70 percent. The company made three pumping attempts, injecting more than 30,000 barrels of mud into the hole, Suttles said. “I am disappointed that this operation did not work,” BP Chief Executive Tony Hayward said in a statement. “The team executed the operation perfectly, and the technology worked without a single hitch. We remain committed to doing everything we can to make this situation right.” Salazar to Return “Every day that this leak continues is an assault on the people of the Gulf Coast region, their livelihoods, and the natural bounty that belongs to all of us,” President Barack Obama said in a statement today after the top kill effort failed. “It is as enraging as it is heartbreaking.” Obama said yesterday his administration is exploring “any and all reasonable contingency plans” should BP fail to stop the spill, estimated to be more than twice as big as the Exxon Valdez disaster in 1989. Interior Department Secretary Ken Salazar will visit Houston next week, while Environmental Protection Agency Administrator Lisa Jackson will go to Louisiana, Mississippi and Alabama, the Joint Information Center said today in a statement. BP didn’t provide an estimate of when the flow might be stopped with the new method. Installing the cap should take about four to seven days, and after that the company will begin installing a new blowout preventer, a series of valves designed to cut off the flow from the well, Suttles said. The cap will attach to the top of the well’s existing blowout preventer and will then funnel oil and gas into a pipe that extends to a ship on the surface. New Blowout Preventer After the attachment of the lower-marine riser package cap, BP plans to install the new blowout preventer on top of the existing one, Suttles said. BP will then try to use the valves on the new blowout preventer to stop the flow. “We’re still looking at a month before we get this thing killed,” Les Ply, a retired mud engineering consultant for the oil industry, said today in a telephone interview. “I think we’re looking at a week to 10 days to get this riser and cap in place.” The new method, if successful, would stop the leak long enough for a so-called relief well to be drilled nearby and provide a permanent seal. Crews are ahead of schedule in drilling a relief well and are about halfway to the end, with around 6,000 feet left to go, Suttles said. Completion of the well is still expected by about early August, he said. Drilling on the second of two relief wells, which was temporarily suspended so that its blowout preventer could be available if the top kill failed, is expected to resume “shortly,” David Nicholas, a spokesman for BP, said today in a telephone interview. Biggest U.S. Spill Six state agencies in Louisiana said today they’ve asked BP for $300 million to lessen the impact from the oil spill on their communities. The well has gushed 12,000 to 19,000 barrels of oil a day, making it the largest oil spill in U.S. history, a government panel estimated May 27. Hearings wrapped up today in Louisiana into the death of 11 workers killed in the April 20 drilling rig explosion that triggered it. Oil from the spill may have spread underwater for 22 miles toward Mobile, Alabama, researchers aboard a University of South Florida vessel reported May 27. Initial tests aboard the Weatherbird II show the highest concentrations of “dissolved hydrocarbons” were 400 meters (1,312 feet) below the surface. BP’s Costs BP’s costs from the spill rose to $940 million, the London- based company, the largest producer of oil and gas from the Gulf of Mexico, said today. BP leased the rig destroyed in the explosion, the Deepwater Horizon, from Geneva-based Transocean Ltd. , the world’s largest deep-water driller. BP has a 65 percent stake in the field, known as Macondo. Its partners in the project are Anadarko Petroleum Corp. and Japan’s Mitsui & Co. About 26,000 damage claims have been filed and 11,650 have already been paid, BP said yesterday. To contact the reporter on this story: David Wethe in Houston at dwethe@bloomberg.net .

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China’s Wen Says Defusing Korea Tension `Urgent Task,’ Vows Cooperation

May 29, 2010

By Bomi Lim May 30 (Bloomberg) — Chinese Premier Wen Jiabao warned against letting the sinking of a South Korean warship lead to conflict in the region, giving no sign of joining other nations in blaming North Korea for the event in which 46 sailors died. “It is the most urgent task to gradually ease tensions following the incident, and especially to avoid conflict,” Wen said today on the South Korean resort island of Jeju after two days of talks with President Lee Myung Bak and Japanese Prime Minister Yukio Hatoyama . China will “help resolve the incident in a way that benefits peace and security.” Japan and South Korea have been pressing China to agree with the May 20 findings by a multinational team that North Korea torpedoed the 1,200-ton Cheonan. Lee said the three countries agreed to cooperate on the issue, remarks echoed by Hatoyama at a joint press briefing. “Wen Jiabao basically reaffirmed China’s stance of maintaining ambiguity, giving little indication of the possibility of taking South Korea’s side,” said Kim Yong Hyun, professor of North Korean studies at Seoul-based Dongguk University. The third three-way summit between the countries has been overshadowed by the accusations that North Korea sank the Cheonan. Wen on May 28 said that while China won’t protect anyone found guilty of causing the ship to sink, it is still assessing the evidence. China is North Korea’s largest trading partner and main political ally, having fought alongside the North and against the U.S. in the 1950-1953 Korean War. The sinking poses an “important global challenge,” which needs to be “properly dealt with,” Lee said. “I expect very wise cooperation in dealing with this incident from both China and Japan as responsible countries.” Wen stressed today that China was a responsible country and would take account of other nations’ responses to the investigation results, Lee’s spokesman Lee Dong Kwan told reporters. South Korea’s government hopes to write a letter to the chairman of the United Nations Security Council as soon as this week setting out its claims, Yonhap News reported, citing a government official it didn’t identify. The exact timing for taking the case to the UN hasn’t been set yet as there are still further discussions needed with related nations, Yonhap cited the official saying. Tensions have risen since President Lee said on May 25 South Korea will cut off most trade with North Korea as punishment for the attack. The communist country responded with an announcement that it will sever all ties with the southern neighbor and threatened “all-out war” against any punitive action. “While we are not afraid of war, we don’t want war either,” Lee told Wen and Hatoyama today, according to his spokesman. South and North Korea remain technically at war since their conflict ended in a cease-fire, which was never replaced by a peace treaty. The two countries had naval skirmishes in 1999, 2002 and November last year off their west coast near to the area where the Cheonan sank. South Korea’s military suspended the dropping of propaganda leaflets into North Korea, Yonhap News said today, citing an unidentified person at the Defense Ministry. The South last week broadcast a four-hour radio program across the border and has set up loudspeakers to blast propaganda across the demilitarized zone. So far, the government has refrained from using them. North Korea said it would shell any positions that used the speakers. To contact the reporter on this story: Bomi Lim in Seoul at blim30@bloomberg.net

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Rio Chief Says Australian Mining Tax Forces `Silent Partner’ on Businesses

May 29, 2010

By Shani Raja May 30 (Bloomberg) — Tom Albanese , chief executive officer of Rio Tinto Group , said Australia’s plan to boost taxes on resources producers would make the government a “silent partner” in businesses like its own. The proposal for a 40 percent super profits tax on resource companies has also damaged Australia’s reputation overseas and added to sovereign risk, Albanese said in an interview broadcast today on ABC’s “Inside Business.” “This is half our balance sheet at risk because we have someone now coming in to say, ‘I want to be your silent partner. I want 40 percent of your pretax profits and largely written- off assets,’” Albanese told the program. The government set aside A$38.5 million ($32.6 million) in its May 11 budget to promote an overhaul of the nation’s tax system, including the resources levy. Mining companies have been the fiercest opponents to the tax, scheduled to take effect in 2012, taking full-page advertisements out in Australian newspapers to lobby for changes. Last week, the government said it will run its own advertising campaign to counter mining-industry “misinformation,” and Treasurer Wayne Swan said in an e- mailed statement today that any suggestion the super profits tax, or RSPT, would apply to past profits was “misleading.” ‘Misleading’ Claims “There has been much comment from mining companies in recent weeks about the supposed ‘retrospectivity’ of the RSPT,” Swan said. “These claims are clearly misleading, as the RSPT will apply to mining profits from 1 July 2012. It does not apply to past profits.” The mining-tax plan has prompted Rio Tinto to re-evaluate all its projects in Australia, Albanese said in the ABC interview. “I have said to each of my managers, including during discussions this week while I’ve been in Australia, that every single project in Australia needs to be tested and retested and recalibrated, basically remodeled, on a worst-case tax assumption,” he said. Albanese said it was important to reconsider the proposal “holistically,” and that he stands “ready to engage” with Prime Minister Kevin Rudd ’s government on a fundamentally different approach. “Albanese left no doubt he’s willing to engage on a long- term, workable solution, arguably a process companies like Rio should have been involved in before the tax was announced,” said Tim Schroeders , a fund manager at Pengana Capital Ltd. in Melbourne. “It’d be imprudent not to re-assess the viability of existing and prospective projects in the light of such a large potential change to the Australian tax system.” To contact the reporter on this story: Shani Raja in Sydney at sraja4@bloomberg.net .

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Payrolls in U.S. May Have Increased for Fifth Month, Helping Boost Wages

May 29, 2010

By Shobhana Chandra May 30 (Bloomberg) — Employment probably grew in May for a fifth consecutive month, pointing to gains in wages that will help U.S. households ride out the turmoil in financial markets, economists said before reports this week. Payrolls may have climbed by 508,000 workers last month, the biggest increase since 1997, according to the median estimate of 64 economists surveyed by Bloomberg News. The gain reflected a surge in government hiring of temporary help to conduct the census and a 180,000 rise in private employment, according to the survey. Other reports may show the economic rebound is broadening beyond manufacturing as service providers, including retailers and construction firms, see a pickup in demand. General Electric Co. is among companies hiring, saying the European debt crisis is unlikely to derail the recovery from the worst global recession in the post-World War II era. “The labor market is clearly improving,” said James O’Sullivan , global chief economist at MF Global Ltd. in New York. “At this point, there’s enough momentum in the economy to outweigh the drag from the turmoil in Europe.” The Labor Department’s jobs report is due June 4. The Census Bureau had said it would take on 970,000 temporary workers from April through June to conduct the population count that occurs every 10 years. The bulk of the hiring probably took place last month. Census Effect Census employment may keep distorting the payroll figures for months as the government dismisses workers when the population count is done. For that reason, economists say private payrolls, which exclude government jobs, will be a better gauge of the state of the labor market for much of 2010. The report will probably also show the unemployment rate fell to 9.8 percent last month, according to the survey median, from 9.9 percent. The rate, which reached a 26-year high of 10.1 percent in October, will take time to recede as the number of previously discouraged jobseekers returning to the labor force exceeds the number of available jobs. Factory payrolls probably increased in May for the fifth consecutive month, according to the survey. “This is a point in time when the world needs the U.S. to be a beacon of stability, a beacon of reliability,” GE Chief Executive Officer Jeffrey Immelt said in an interview on May 6. Fairfield, Connecticut-based GE, the world’s largest maker of jet engines, power-generation equipment and locomotives, this month increased the number of jobs it plans to add in Michigan to more than 1,300. Adding a Shift Chrysler Group LLC, the automaker controlled by Fiat SpA and based in Auburn Hills, Michigan, said it will add a second shift to a Detroit factory that makes Jeep Grand Cherokees and hire 1,100 workers at the plant. On June 1, the Institute for Supply Management’s manufacturing index may show factories continued to expand this month after growing in April at the fastest pace since 2004, according to economists surveyed. Manufacturing accounts for about 11 percent of the economy. Two days later, Commerce Department figures may show orders placed with factories rose in April for the eighth consecutive month, according to the survey. The manufacturing rebound has helped underpin shares. The Standard & Poor’s Supercomposite Industrial Machinery Index of 52 companies, including Caterpillar Corp. and Deere & Co., has increased 7 percent this year compared with a 2.3 percent decline in the broader S&P 500. Shares Retreat Since reaching a 19-month high on April 23, the S&P 500 Index has lost 11 percent on mounting concern efforts to trim government deficits in Europe will slow the global recovery. The gains in manufacturing are now being accompanied by a rebound among service industries, which make up about 90 percent of the economy. The Tempe, Arizona-based ISM’s index of non- manufacturing businesses, due on June 3, probably rose last month to the highest level in almost four years, economists surveyed projected. Housing is getting a boost from the extension of a buyer tax credit of as much as $8,000, figures may show on June 2. The National Association of Realtors’ index of signed purchase agreements, or pending home resales, rose in April for the third straight month, according to the Bloomberg survey. Construction spending, due from the Commerce Department on June 1, rose 0.1 percent in April after a gain of 0.2 percent, economists projected. A slump in commercial building is restraining in the industry. To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net

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South Korea Calls for Permanent Central-Bank Currency Swaps as Safety Net

May 29, 2010

By Eunkyung Seo May 30 (Bloomberg) — South Korea proposed a permanent arrangement for central banks to swap foreign currencies to help address the type of funding shortages that emerged during the global financial crisis. The “broadening and institutionalization” of the measures could help establish “a global financial safety net,” Bank of Korea Governor Kim Choong Soo said in the text of a speech to be delivered tomorrow in Seoul at a conference of central bankers. Kim’s proposal comes five days before Group of 20 finance chiefs gather to discuss strengthening efforts to prevent financial crises. Federal Reserve Chairman Ben S. Bernanke , who’s among officials due to speak to the Korean forum, has opposed swaps as a “permanent service,” seeking instead to pressure banks into better managing their funding needs across different currencies. South Korea’s Kim said his proposal could cut the need for emerging economies to hold large quantities of foreign-exchange reserves as insurance at a “substantial” economic cost. His comments were for a two-day forum, hosted by his bank, on “The Changing Role of Central Banks.” A reemergence of financing strains, sparked by the European debt crisis, spurred the Fed to resuscitate currency-swap arrangements with the central banks of the euro region, U.K., Switzerland, Canada and Japan this month. The step came just three months after the Fed had closed its swap lines from the crisis sparked by the collapse in U.S. mortgage securities. Funding Squeeze The rate banks pay for three-month loans in dollars rose to the highest level since July 2009 last week as the European Union’s near-$1 trillion support plan in the wake of Greece’s budget crisis failed to encourage banks to step up lending. The London interbank offered rate , or Libor, for such loans increased to 0.538 percent on May 27. Bernanke said last week in Japan that while swap lines played an important role in establishing stability during the global financial crisis, “we don’t necessarily want to be providing a permanent service for financial markets.” “There’s a good case that we should put pressure, or at least try to influence, banks to better manage these currency mismatches, or if not currency mismatches the fact that they are relying on dollar funding and there are difficulties in achieving the funding that they need,” the Fed chief said. ‘Some Shortcomings’ In October 2008, the Fed added South Korea, Brazil, Mexico and Singapore to its swaps. Korea also had arrangements with the central banks of China and Japan. In the swaps, central banks exchange foreign currency with an agreement to reverse the transaction at a later date. The central banks will then lend the money at fixed rates to firms in their countries. Kim said that while his nation had benefited greatly from the arrangements, they had shortcomings including their ad-hoc nature and “the high selectivity of the counterparties involved.” He cited East Asia’s so-called Chiang Mai Initiative, a currency swap arrangement between South Korea, Japan, China and the Association of Southeast Asian Nations as “significant regional progress.” The forum in Seoul is also to be addressed by European Central Bank President Jean-Claude Trichet , who, like Bernanke, is to speak via video. To contact the reporters on this story: Eunkyung Seo in Seoul at eseo3@bloomberg.net ;

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Transocean Liability Cap Request `Unconscionable,’ Justice Department Says

May 29, 2010

By Jesse Westbrook May 30 (Bloomberg) — Transocean Ltd. ’s request that its liability in connection with what may be the largest oil spill in U.S. history be limited to $26.7 million is “simply unconscionable,” the Justice Department said. U.S. Assistant Attorney General Tony West , in a May 24 letter to Transocean attorney Frank Piccolo, questioned the company’s legal argument that the 150-year-old Limitation of Liability Act caps its damages. The owners of the RMS Titanic , a passenger ocean liner that sank in 1912 after hitting an iceberg, also tried to use the law to avoid making payments to the ship’s survivors and the estates of those who died. “It is simply unconscionable, in the circumstances of this case, that Transocean is attempting to use the same shield of liability, potentially leaving thousands of people who have been damaged by your clients’ actions with no remedy,” West wrote in his letter, which the Justice Department released under a Freedom of Information Act request. The April 20 explosion of Transocean’s Deepwater Horizon oil drilling rig, which BP Plc leased, killed 11 men and ruptured a well that began spewing as much as 19,000 barrels a day into the Gulf of Mexico, according to U.S. estimates. BP, which has pledged to pay all legitimate claims tied to the spill, said it will work through the weekend to plug the leak. Transocean, in a statement yesterday, said it never asserted that the Limitation act insulates the company from legal claims showing its property contributed to the oil contamination. “We have clarified that” to the Justice Department, the company said. Responsibility The U.S. Coast Guard designated Transocean a “responsible party” for the spill and the company has accepted that for any contamination caused by the rig, Rachel Clingman , Transocean’s acting co-general counsel, told lawmakers May 27. “There has been no indication thus far of any contamination from the rig itself,” she said in testimony before the House Judiciary Committee. “We stand ready to meet any legal obligation that arise from that status.” Geneva-based Transocean , the world’s largest deep-water driller, filed its request for limited liability on May 13 in federal court in Houston. The company’s petition, written by Piccolo, denied responsibility for the explosion and spill. “Any and all injury, loss, destruction and damage arising out of or related to the above described casualty event was not caused or contributed to by any fault, negligence or lack of due care on the part of the petitioners or unseaworthiness or fault of the MODU Deepwater Horizon or any person in charge of her,” the filing said. Deepwater Horizon Transocean said Deepwater Horizon had no present value and had accrued $26.7 million in unpaid rental fees. West, in his letter, said Congress in 1990 repealed the ability for businesses to cite the Limitation act in oil-spill cases. He asked Transocean to modify its request on legal liability and tell the Justice Department within 10 days what course of action the company plans to take. “We also ask that, should you decline our offer of a prompt and amicable resolution of these concerns, you provide in your letter whatever case law and arguments, if any, you believe might support your position,” West wrote. Executives of BP, Transocean and Halliburton Co ., the contractor involved in cementing the well, have pointed at each other in testimony before Congress in assigning blame for the explosion. BP said in a statement May 28 that responding to the spill, trying to contain it and related payments to the government have already cost the London-based company $930 million. BP, the largest producer of oil and gas from the Gulf of Mexico, said yesterday it will switch to a new strategy to cap the well because a three-day effort to stop the flow with a blast of pressurized fluids was unsuccessful. To contact the reporter on this story: Jesse Westbrook in Washington at jwestbrook1@bloomberg.net .

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