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May 2010

News Letter - 18th May 2010

The UAE sovereign wealth fund is valued at USD 328Bn and the government are looking to use some of it in Turkmenistan gas reserves. This could mean UAE having a stake in gas supplies to Europe. For those who are not familiar with Turkmenistan it is a country with Iran and Afghanistan to the south, Uzbekistan and Kazakhstan to the north and the Caspian Sea to the west. They are reputed to have large gas reserves and gas is now the fuel of choice by many countries and industries.

The US government is clearly targeting BP over the Deepwater Horizon sinking. However we question whether there has been any analysis of who is to blame. It looks like kneejerk finger pointing by the Obama administration. Nothing should stop the response at this stage but later on a proper analysis needs to be done. Is it BP; or Halliburton; or Transocean? Most likely the result will be a combination of the vested parties will have to sort out the clean up and lawsuits that surely result. BP has experienced several major safety failures in their operations over the last decade. They were found to have had significant unreported small leaks on their Alaskan pipeline. They were severely criticized over their safety operating standards at the Texas refinery which suffered an explosion two years ago. For those of you in the shipping (tanker) industry you will recall the rigor of their inspections of others owned vessels – yet their safety record is far from good. More is likely to come out of the eventual investigation into the destruction of Deepwater Horizon!!

The Dubai Financial Market was the poorest performer in the region in April. As we predicted the market “rally” seen immediately after the DW debt plan announcement was merely a blip. The DFM general index dropped 5.6 percent in April and is down 3.5% on the same period last year. Why? Well quelle surprise – pundits blame “a lack of information about the progress of the debt restructuring negotiations having had the effect of reducing the initial gains inspired by the announcement of the plan” Oh dear!!! Didn’t you see that coming??? We at Carmania did. It is a reflection of what we have said many times – it is not sufficient to talk transparency in business but you must be seen to be transparent. How much longer will it take the Middle East to learn and act on this simple truth?

DP World is looking to invest as much as $1Bn in Kochin port in India. The terminal, which is due to open in August, will be able to handle container ships of up to 13,000 TEU and the intention is to challenge Colombo’s grip on the Asia – Europe trade. DP World has already spent $288M on the first phase of development. How this will affect the ports of the AG (including Jebel Ali) remains to be seen.

We have reported on the situation with regards to the property units coming on-line this year in Dubai and now Bank of America Merrill Lynch reports Dubai will have at least 44000 vacant residential units this year. Meanwhile the Institute of International Finance reports that the UAE economy “could” grow by 2.7% this year “with a successful resolution of Dubai’s debt issues, especially if this sparks an acceleration of reforms”. As it stands they are predicating the UAE economy will grow by 2% this year, with 2.7% next year following a contraction of 1.6% in 2009. They add that Dubai’s economy could shrink 0.5% this year after an estimated contraction of 3% last year.

While we don’t understand the use of the word “could” in the above statements we appreciate having some numbers to put against the situation. Also we wholeheartedly agree with the statement about reform and this is something we’ve been calling for since the start of this crisis. We shall see how this develops.

A container ship reported coming under fire on the 12th of May at 1520 UTC while underway in position 09:59.12S – 042:16.27E, approximately 300NM southeast of Dar es Salaam, Tanzania.  Suspected pirates opened fire on the vessel with two RPG rounds.  The vessel conducted evasive maneuvers and increased to its maximum speed of 17 knots.

Russian Special Forces have acted to free a hijacked tanker. The Russian crew took shelter in a safe room (citadel); the pirates were captured and are to be taken to Russia for trail!!! Again we stress that to solve the piracy problem we must make life more difficult and dangerous for these evil people. Is taking the pirates to Russia to stand trial enough of a deterrent to start ‘turning the tide’ on piracy? We think not – there is only one way to eliminate’ this problem? Four vessels have been successfully hijacked this month already but with monsoon season approaching we should see a reduction in pirate activity in the region. We certainly hope so and would like to see some progress made in how to handle piracy during this lull. However realistically we don’t expect to!!!