27 March 2013 | Vol. 4, № 9.

From the Editor’s Desk

Dear FDI supporters,

Welcome to the Strategic Weekly

Analysis. This week, we begin in South

Asia. First, we examine the burgeoning

Chinese arms industry and its relevance to

Indo-Pakistani relations. We then analyse

Sri Lanka’s drift towards China, finding it a

consequence of policy failure in New

Delhi. Still on the subject of Indo-Lankan

relations, we explore the implications of

the withdrawal of the Dravida Munnetra

Kazhagam party from the coalition

government of Prime Minister Dr

Manmohan Singh.

Next we look at Africa, with analysis of

Egypt’s ambition to join the BRICS

grouping of emerging economies and the

agreement reached by Sudan and South

Sudan to restart oil production including

the prospects for co-operation between

the two countries. We then analyse the

situation in Swaziland, where people are

sourcing drinking water from dirty rivers,

despite a seeming abundance of wells,

because they are unable to pay for the

upkeep of the wells.

We conclude this week’s SWA with a

report on an innovative new energy

development in Perth, in which wave

energy will be harnessed to power

Australia’s largest naval base.

Our next Strategic Analysis Paper, to be

released this week, will be an analysis by

FDI Visiting Fellow Balaji Chandramohan

of India’s Special Forces, paying particular

attention to their structure and possible

future deployments.

I trust that you will enjoy this edition of

the Strategic Weekly Analysis.

Major General John Hartley AO (Retd) Institute Director and CEO Future Directions International

*****

Page 2 of 14

Pakistan in the Middle, China’s Balancing Act and India’s

Dilemma

The Stockholm International Peace Research Institute (SIPRI) has published its latest

quadrennial report on the trends in International Arms Transfers. The report indicates that

China may be using its position as a major arms exporter to prop up Pakistan and so

counterbalance India’s influence.

Background

Pakistan and India are currently enjoying a highpoint in bilateral relations, but there is no

guarantee that it will last. Pakistan and India share a tenuous history and, as the latest SIPRI

Trends in International Arms Transfers report, published on 18 March 2013, demonstrates,

both are building up their armed forces. As the largest supplier to Pakistan, Beijing has a

strategic interest in supplying arms to India’s rival.

Comment

Fifty per cent of all Pakistani arms imports are from the Middle Kingdom. As a world share,

Pakistan now imports five per cent of conventional arms, increasing its share by three per

cent since the 2003-07 period. Given Pakistan’s often fragile security environment, porous

borders and rivalry with its giant neighbour India, it should come as no surprise that it is a

major arms importer. The main interest lies in where Islamabad acquires its defence

materiel.

Any action taken by China in the wider Indo-Pacific region is frequently interpreted as a

classic struggle for power. In that light, Beijing’s connection to Pakistan can be viewed as

more than simply good business. Beijing, often labelled an “über-realist”, is keenly aware

that its supplies to Pakistan are strategically important. By supplying Pakistan with arms, it

achieves two main aims of its Indian Ocean foreign policy. The first is that it consolidates its

relationship with Pakistan, as weapons sales are highly political affairs. Second, and perhaps

more important, is that it enables Pakistan to maintain a certain degree of military

equilibrium with India, thus ensuring that India remains pre-occupied with Pakistan, rather

than with the giant to its north-east.

India’s position as the worldwide number one importer of arms, illustrates an important

aspect of the China-India rivalry. India’s doubling of its global share of imported arms may be

indicative of inherent failings in the Indian system, preventing it from sufficiently developing

an indigenous defence industry. Whereas China was the world’s largest arms importer in

2003-07, it has since decreased its reliance on imports. China’s indigenous defence industry,

though, is still reliant to a large extent on foreign technology, adapting it to fit Chinese

requirements. As China continues to develop its industry, its reliance on foreign – mainly

Russian – technology will diminish.

The escalation in arms procurements is not limited to Pakistan and India. The Indo-Pacific as

a whole is the largest recipient of arms shipments, receiving 47 per cent of the world total.

The primary underlying reason is the ongoing levels of high tension surrounding China’s

Page 3 of 14

claim to much of the South China Sea (named the Eastern Sea by Vietnam and the West

Philippine Sea by the Philippines). These tensions have resulted in an increase in the

indigenous defence capabilities of the countries in the region with particular note of South

Korea’s export of their heavily modified version of the German Type-209 diesel-electric

submarine to Indonesia. Indonesia’s order is not uncommon, with an increasing number of

East Asian states, such as Vietnam, Singapore, Malaysia, Thailand and the Philippines all

seeking to acquire or upgrade their submarine capabilities.

The Pakistani armed forces use a mix of US and Chinese materiel. For example, the Pakistani

Air Force operates the American F-16, alongside the Chinese and Pakistani co-developed JF-

17 Thunder. The joint production of the JF-17 is important to Pakistan. It marks a significant

development in its arms industry and may be presumed to bring Pakistan closer to Beijing,

rather than relying on Washington, with which it has something of an on-off relationship.

Additionally, Pakistan and China are suspected of being in the planning stages for the joint

development of a 4.5-generation successor to the JF-17, in response to India’s acquisition of

the French Rafale.

A new South Asian arms race may ensue if New Delhi perceives Islamabad’s military

acquisitions and closeness to China to be primarily directed towards it. Conversely, though,

India’s own military expansion may, in turn, be fuelling Pakistan’s worries. With India in the

process of developing an indigenous anti-ballistic missile defence shield, there is the

possibility of a Cold War-type standoff emerging again between Pakistan and India.

Gustavo Mendiolaza Research Analyst Indian Ocean Research Programme gmendiolaza@futuredirections.org.au

*****

Growing Sino-Lankan Co-operation Stems from India’s Failed

Approach

The growing relationship between Sri Lanka and China can, in large part, be attributed to

the lack of an integrated approach to political decision-making in New Delhi.

Background

According to media reports, India is becoming increasingly concerned about the growing

rapprochement between Sri Lanka and China. The relationship extends from political co-

operation to economic, military and now technological co-operation. Apparently, Indian

strategists are worried about Sri Lanka’s collaboration with China in space. It is especially

worrying for New Delhi because Sri Lanka has implicitly rejected India’s well-established

space programme at Sriharikota in Andhra Pradesh, only 750 kilometres from Colombo.

Page 4 of 14

Comment

India has long viewed Sri Lanka as a major element of its security aspirations in the Indian

Ocean Region. That perspective, though, was usually filtered through a Tamil-tinted lens.

While India had no reason to support the Liberation Tigers of Tamil Eelam (LTTE), the more

so after members of that group assassinated ex-Prime Minister Rajiv Gandhi, it also could

not be seen to work directly against them, given the general support for Sri Lankan Tamils in

India’s own Tamil Nadu state.

It is difficult, however, to dismiss the argument that India has viewed itself as the dominant

regional power, with a self-given role to play in Sri Lanka’s domestic affairs. This was made

clear after a meeting between the then Chief Minister of Tamil Nadu, Muthuvel Karunanidhi,

and M.K. Narayanan, National Security Advisor, at the end of May 2007. When asked what

India would do if Sri Lanka approached China to obtain the armaments that India refused to

sell it, Mr Narayanan replied:

‘We are the big power in this region. Let us make it very clear. We strongly believe

that whatever requirements the Sri Lankan government has, they should come to us.

And we will give them what we think is necessary. We do not favour their going to

China or Pakistan or any other country.… We will not provide the Sri Lankan

government with offensive capability. That is the standard position ... radar is seen

as a defensive capability. If a country wants us to help them with defensive

capabilities, we will provide them. That is our position. We have provided them

radars,’ he said, adding that India's relations with Sri Lankan government were “good

enough” for Sri Lanka to follow the line that India wanted (emphasis added).1

Little wonder, then, that Sri Lanka, while recognising India’s Tamil predicament, had few

alternatives to approaching China to obtain the resources it required to negate the problems

posed by the LTTE. The Stockholm International Peace Research Institute (SIPRI), in its 2009

Yearbook, states that Sri Lanka received armaments worth US$140 million from China.

In the aftermath of the defeat of the LTTE, the Sino-Sri Lankan relationship has grown. This

again may be attributed to poor politics in New Delhi vis-à-vis Sri Lanka. Where New Delhi

sought to influence its smaller neighbour, China has invited it to join the Shanghai Co-

operation Organisation as a sovereign state in its own right, thus moving beyond a purely

military relationship. When the international community sought to condemn Sri Lanka for

human rights abuses, China worked with the government of President Mahinda Rajapakse to

minimise the fallout from any adverse findings. More recently, India’s UPA coalition

government sought a middle path between upsetting a coalition partner, Karunanidhi’s

DMK, and retaining its influence in Sri Lanka in the face of growing Chinese influence there.

India did side with the United States, the United Kingdom and other members of the

international community in signing a watered-down condemnation of Sri Lanka.

1 ‘Centre considering unified command for armed forces’, The Hindu, 1 June 2007.

<http://www.thehindu.com/todays-paper/centre-considering-unified-command-for-armed-forces/article1850313.ece>.

Page 5 of 14

It is hardly surprising then, that Sri Lanka has allowed China to build a maritime facility in

Hambantota in the south of the country. This facility allows China to further secure the Sea

Lines of Communication carrying its energy imports from the Middle East. It also adds to

India’s worries over a growing Chinese presence in the Indian Ocean. Chinese firms also

found immediate access to oil and gas exploration in Sri Lanka and another market for their

goods.

The foregoing is not to deny India’s continuing political, military and economic influence in

Sri Lanka, or Sri Lanka’s desire to enhance economic relations with India. The relationship,

though, could have been vastly improved had the various Indian governments put aside

short-term domestic gains and concentrated on strategies designed to enhance the

perceptions and influence of India in the region. To do that, though, would also have

required regional parties, such as the DMK and AIADMK, to find solutions to local issues

while keeping national objectives firmly in sight. In short, India requires a whole-of-nation

approach to meet its strategic objectives.

Lindsay Hughes Research Analyst Indian Ocean Research Programme

lhughes@futuredirections.org.au

*****

India: Withdrawal of Key Coalition Ally Reflects Greater

Regional Challenges

A vital party has withdrawn from India’s national ruling coalition, following the

government’s reluctance to support a United States-sponsored resolution against war

crimes allegedly committed in the final days of Sri Lanka’s civil war.

Background

Both sides have been accused of war crimes during the final days of the Sri Lankan

government’s civil war against the Liberation Tigers of Tamil Eelam (LTTE) in 2009. New

Delhi’s intervention in the civil war made India unpopular among Sri Lankan Tamils and also

amongst Tamils in India. The Dravida Munnetra Kazhagam (DMK) party is based in the

southern state of Tamil Nadu. It finds its support amongst the Tamil people there, who share

a cultural affinity with Sri Lankan Tamils. The Indian Government’s reluctance to support a

US-sponsored resolution in the United Nations Human Rights Council (UNHCR) is behind the

DMK decision to withdraw from the governing coalition.

Page 6 of 14

Comment

Although the DMK wants the resolution to call the atrocities “war crimes” and “genocide”,

and take a hard-line approach towards Sri Lanka, the Indian Government has sought to

weaken the resolution. Evidence is available that reveals that New Delhi sought international

backing for changes to the resolution, which originally mandated an independent

international investigation into the alleged abuses.2 A revised version of the resolution uses

weaker language, simply encouraging Colombo to conduct an independent and credible

investigation.

As the largest ally in the coalition government of Prime Minister Manmohan Singh, the

withdrawal of the DMK will threaten the government’s parliamentary majority. The

resolution also has the potential to create larger problems for New Delhi. While the US is a

key ally of India, Sri Lanka is an important strategic neighbour. The possible consequences of

a powerful resolution would threaten India’s interests in the region.

This resolution places New Delhi in a difficult position, caught between the interests of the

US and Sri Lanka. A strong resolution would threaten Sri Lanka with the prospect of

international isolation and would only serve to push it further into Chinese influence. Sri

Lanka’s civil war strained its ties with India, as LTTE rebels trained in southern India and

received support from Tamils there. A powerful US-sponsored resolution, supported by

India, would appear threatening to the Sri Lankan Government; and that would be contrary

to India’s interests.

Additionally, if the resolution is successful, there could be other implications for the Indian

Government. It could prompt a future resolution, proposed by a state unfriendly to India,

alleging crimes committed by Indian forces in the disputed province of Kashmir. An

international investigation could result in embarrassment for India.

But the DMK has also proposed another option for the Indian Government: a resolution

passed through the Indian Parliament urging Sri Lanka to devolve power to the Tamils. The

Sri Lankan Government has committed itself to this step in the past. Greater political rights

for the Tamils would be a step forward, as progress on that front has been slow. Such a

resolution would not only win back the support of elements of the DMK, but would also

reflect wiser diplomacy. Progress made through bilateral communication between the two

countries, would avoid the prospect of Sri Lanka facing isolation from the international

community over this issue, as is the risk with the resolution in the UNHRC. As noted, this

would only drive Sri Lanka further into the arms of China, a result that India does not desire.

James Davies Research Assistant Indian Ocean Research Programme

***** 2 ‘India’s Government Loses Key Ally over UN Resolution against Sri Lanka’, Washington Post, 19

March 2013. <http://www.washingtonpost.com/world/indias-government-loses-key-ally-over-un-resolution-against-sri-lanka/2013/03/19/08e988ae-9071-11e2-9173-7f87cda73b49_story.html>.

Page 7 of 14

Egyptian President Sets Sights on Joining BRICS, But Economy

Too Shaky

Egyptian President Mohamed Morsi wants his country to join the BRICS grouping of large

emerging economies. But, with ongoing instability and a shaky economy, Egypt has a long

way to go before it becomes a serious BRICS candidate.

Background

Egyptian President Mohamed Morsi has said he hopes his country will soon join BRICS, the

grouping of the world’s largest emerging economies which includes Brazil, India, Russia,

China and South Africa. The ambitious remarks, made in an interview with The Hindu on 20

March 2013, outline Cairo’s desire to be considered a rising economic power. In reality,

however, his bold proposal is unlikely to be realised any time soon, especially given the vast

challenges currently facing the Red Sea state.

Comment

During the interview, Morsi said he hoped his country could soon join those in the BRICS

group. ‘I am hoping BRICS becomes E-BRICS, with “E” standing for Egypt’ he said, ending a

two-day visit to India aimed at promoting bilateral trade and investment. According to

Morsi, ‘this will help [Egypt] achieve political stability and start a new era of development’.

He also said he expected to ratchet up bilateral trade with New Delhi to US$8 billion a year,

up from US$5.5 billion now.

Morsi’s bold pitch failed to garner much enthusiasm among BRICS members, however. The

Kremlin issued a tepid response, with a Foreign Ministry spokesman taking to Twitter to

simply confirm that ‘Russia has noted President Mohamed Morsi’s statement about Egypt’s

interest in joining the BRICS association’. It is also unclear whether Morsi broached the

subject in his meetings with Indian Prime Minister Manmohan Singh. Indeed, though Egypt

was invited to attend the BRICS Summit in Durban on 26-27 March, it has a long way to go

before it is thought of as a serious BRICS candidate.

For starters, Egypt’s economy pales in comparison to other BRICS economies. With an

overall GDP of US$230 billion, it is a fraction of the size of Brazil (US$2.5 trillion), Russia

(US$1.9 trillion), India (US$1.9 trillion), and China (US$8 trillion). Even South Africa, with a

total GDP of just over US$400 billion, is almost double that of Egypt, despite faltering growth

of late. In addition to this, Egypt’s lingering instability has seen its development halt to a

glacial pace; its economic growth was a meagre two per cent in 2012. While its economy is

finally showing signs of improvement, with growth expected to be around 3.3 per cent in

2013, these are hardly the sort of figures one might expect from a rising economic power.

All this has meant investor confidence has remained low. With a soaring budget deficit and

foreign currency reserves at a critically low level, the international credit ratings agency,

Moody’s, downgraded Egypt’s bond rating from B3 to CAA on 21 March. By their definition,

Egypt’s bonds were ‘judged to be of poor standing and … subject to high credit risk’. In

Page 8 of 14

explaining the downgrade, Moody’s warned that continuing instability within Egypt and its

‘vulnerability to economic and political shocks has widened the risk of default’. Such news

will do little to boost confidence in Egypt’s fragile economy.

Yet growth and investor confidence could soon be boosted if Egypt can finally secure a loan

from the International Monetary Fund (IMF), though negotiations been ongoing for almost

two years. Egypt has said it needs a loan of US$4.8 billion to address its budget and currency

crisis. The problem for Cairo, however, is that while the IMF is generally supportive of a loan,

it wants to get parliamentary elections out of the way. Nobody knows for certain when that

may be following a further delay in the courts on 25 March. Until an election date is set in

stone, uncertainty and instability will continue, effectively keeping any loan offer on ice.

With its large population and strategic location, Egypt is right to harbour ambitions of one

day joining such groups. But, given its recent instability and shaky economy, it has a long

way to go before that might happen. For now, at least, Morsi’s comments appear more

starry-eyed than realistic.

Andrew Manners Research Analyst Indian Ocean Research Programme amanners@futuredirections.org.au

*****

A New Pax Oleum, or a False Dawn? The Future of South

Sudanese Oil Exports

Despite the resumption of South Sudanese oil exports via Sudan on 12 March 2013, a

stable economic partnership between Sudan and South Sudan requires an enduring “Oil

Peace” based on a sound economic relationship.

Background

Although South Sudan achieved independence from Sudan on 9 July 2011, the process of

separating the two Sudans remains far from complete. The lack of agreement on border

demarcation has made territorial integrity a difficult issue for both countries. Along with

other disputes, it has perpetuated tensions between them since South Sudanese

independence. Their mutually-integrated oil economies have been shut down as a

consequence of these disputes, with the two governments agreeing to resume oil exports

only in March 2013. This agreement must be expanded and formalised to allow the

economic and political relationship between the two countries to grow.

Page 9 of 14

Comment

Whatever the final position of the mutual border, the oil-rich, but land-locked and

infrastructure-poor, South Sudan will have to continue to rely on Sudan to export its oil.

Despite its relative good endowment of pipelines, coastal access and port facilities, only

between 20 to 25 per cent of the formerly united Sudan’s oil reserves are now located

within the north’s borders. Before the split, oil accounted for over 98 per cent of Sudan’s

revenue. Oil reserves are

therefore both economically

vital, and unevenly distributed,

and that situation has provoked

the current economic tensions.

South Sudan stopped its oil

production in January 2012, in

response to a dispute over oil

transmission fees, together with

ongoing border tensions. The

two governments reached an

agreement over the resumption

of oil exports from South Sudan

on the sidelines of the African

Union (AU) summit in Addis

Ababa in January this year. The

agreement is tentative,

however. Not only must it hold,

but it must also be formalised

and expanded if the two Sudans

are to succeed in developing

their respective countries.

In the Addis Ababa talks, disagreements largely fell into two broad areas: border

demarcation and oil transmission. The issue of oil transmission is itself an aggregate of

several issues, including alleged diversions, over-charging and lack of service reliability.

These issues are mainly commercial or economic in nature; they are inherently in flux and

are, therefore, subject to perpetual revision and re-negotiation. Although the two

governments have recommenced oil flows, the economic aspects have not yet been

completely resolved.

Ongoing border tensions have not been conducive to the two parties bargaining in good

faith. The issue of border demarcation largely centres on the oil-rich Abyei region, located

near the centre of the nominal border. This region is, in many ways, a microcosm of South

Sudan itself. Land-locked and lacking infrastructure, Abyei contains two oilfields in its east

and one in the north. Together, these fields accounted for approximately 25 per cent of

Sudan’s oil production before the separation. Despite the fact that both governments

agreed to recommence oil flows back in September 2012, failure to settle the Abyei dispute

has, until now, prevented the start-up. At that time, agreement was reached on

Page 10 of 14

demilitarising the nominal border region and holding a referendum to settle the status of

Abyei. But the agreement then led to another, as-yet unresolved, problem: that of

determining who may vote in the referendum. The two parties also agreed, in principle, to a

plan brokered by the African Union to distribute Abyei’s oil revenues between the Abyei

region itself, the surrounding regions, and whichever government has authority over the

region after the referendum. The exact distribution arrangements and the timeframe for the

referendum, however, remain to be determined.

The governments of Sudan and South Sudan are likely to find other facets of their mutual

relationship improving as ongoing economic co-operation establishes a working relationship

that can be built on. While economic co-operation is a force for better relations, nonetheless

there are many idiosyncratic forces still acting against it. Unrest in Darfur, ethnic tensions

between communities, a lack of rule of law and the ever-present threat of disease and

famine, all loom over a new “oil peace”. Perhaps most threatening is separatist sentiment in

the Kordofan region, which lies on the northern side of the notional border and contains the

smaller Abyei district. This has the potential to completely throw into disarray the

agreements currently being negotiated between the two Sudans.

In their relatively short history as separate entities, the relationship between the two Sudans

has been one of slow and fitful progress, but this is by far preferable to impasse and

stagnation. Negotiations, and thus progress, continued even as the oil stopped, and that is

why oil is once again flowing. It is also for this reason that only comparatively minor, but still

contentious, details now remain to be worked out. Both governments will have to stay the

course, as the plethora of ethnic, religious and historical tensions within and between the

two Sudans have the potential to derail co-operation at any time. Now that the oil is flowing

again, it remains to be seen whether mutual economic interest will be enough to buttress

against such events.

Jeff McKinnell Research Assistant Indian Ocean Research Programme

*****

Boreholes Plentiful in Swaziland but Lack of Drinking Water a

Serious Economic Threat

One of the world’s poorest nations, Swaziland has long suffered from many social,

economic and political problems to which it has thus far failed to achieve any semblance of

resolution. Now people in the land-locked southern African country are struggling with the

problem of sourcing drinking water, despite a seeming abundance of wells.

Page 11 of 14

Background

Locals in Swaziland are forced to bypass government-developed boreholes to access dirty

rivers to source drinking water, despite an attempt by the government to overcome the

problem through the Umtfombo Wekuphila Water Scheme. The scheme was responsible for

the drilling of hundreds of boreholes throughout various regions in the country, but passed

on responsibility for funding the maintenance of the wells to their users. As Swaziland is one

of the world’s poorest nations, most locals could not afford to contribute to these upkeep

costs; the result has been that many of the wells have broken down and remain unrepaired.

Comment

At first glance, a monthly payment of around about US$1.60 does not seem a particularly

burdensome obligation in exchange for a clean water source. When put in the context that

sixty-three per cent of Swaziland’s population lives below the poverty line of two US dollars

per day, however, it becomes apparent that such an obligation is simply unaffordable for

many of the people that use the wells. Now, due to neglect and lack of maintenance, the

cost of repairing one such borehole, in the village of Ekuphakameni, is up to seventeen

dollars per person – a huge sum for the locals.

Due to the concentration of salt in the water, the hand-operated pumps that accompany

many of the wells often corrode and break down. Others simply run out of water altogether.

Swaziland’s Rural Water department claims that 69 per cent of the population has access to

clean water; however the Water Project, an NGO that assists African countries to access

clean water, says that around ninety per cent of community water projects in Swaziland are

not working. In the Matsanjeni constituency, of which Ekuphakameni is a part, 75 of the 175

boreholes were not working; the remaining 100 were insufficient to cater for the population

of 17,000.

According to Water Sanitation and Hygiene (WASH), most of the government water schemes

have collapsed due to mismanagement. The escalating costs of pumping the water out of

the wells have been passed to the communities. The government is, apparently, attempting

to fix the problem through a process of assessment of the borehole network. The aim is to

establish how many are functioning and how many are not. According to the Rural Water

Department, five out of the country’s fifty-five constituencies have so far been investigated.

The government will also show rural communities how to run the pumps efficiently.

This emerges after recent revelations that the government has been selling maize donated

by Japan as food aid and banking the cash in the Central Bank of Swaziland. The country has

not produced enough food to feed itself since the 1970s. It depends on international food

aid to bridge a varying gap between the needs of the country’s 1.2 million people and the

ability of the land to produce crops even after recent better than average rainfall.

As a country that experiences similar difficulties with water availability and extraction, many

Australian organisations and individuals are well placed to provide advice and assistance to

Swaziland. Many regions in Western Australia, in particular, would be well suited to

providing solutions to comparable problems faced in the arid regions of the north-west.

Page 12 of 14

Tom Davy Research Manager Global Food and Water Security Research Programme tdavy@futuredirections.org.au

*****

New Perth Wave Energy Project Begins

The Perth Wave Energy Project is ready to begin construction next month at the HMAS

Stirling Naval Base and will become the world’s first functioning CETO Wave Energy

System.

Background

Perth-based renewable energy developer Carnegie Wave Energy, in conjunction with the

State and Commonwealth Governments, is about to commence construction of the Perth

Wave Energy Project (PWEP), at Australia’s largest naval base, HMAS Stirling, at Garden

Island. The PWEP will be the first example of a grid-connected, commercial-sized use of

Carnegie’s patented CETO technology. It will provide the company’s first energy-derived

income, from exclusive sales to the Department of Defence when energy production begins

early next year.

Comment

CETO, named after the Greek goddess of the ocean, is the energy system developed by

Carnegie. It works by using an underwater pump system, where a buoy located

approximately one to two metres beneath the surface is used to power a pump mounted on

the ocean floor. As the waves cause the buoy to move, the underwater pump system drives

a high pressure, water-based, liquid approximately three and a half kilometres through a

subsea pipeline to the onshore processing plant. There it is used to power a hydroelectric

Page 13 of 14

turbine connected to the power grid. The remaining low pressure liquid is then returned to

the ocean floor using a second subsea pipeline. The CETO technology can then be used to

produce zero emission electricity, as well as zero emission desalinated water.

The PWEP was not designed purely as a commercial project; its primary purpose is to

demonstrate the effectiveness and efficiency of the CETO technology to Australia and the

world at large. Costing approximately $31.2 million, the PWEP was partially funded by

Commonwealth and State Government grants and international private sector investors. The

success of the project hinges on Carnegie’s ability to develop, construct and bring the CETO

technology into operation and so create the world’s first grid-connected wave energy

project.

Hoping to begin energy production in early 2014, Carnegie has already made plans to sell the

energy created by the PWEP exclusively to the Australian Defence Force, to power the

Garden Island base. Initial estimates claim that the CETO system will have the capacity to

generate at least two megawatts of renewable energy, the equivalent of powering

approximately 1,000 homes, while simultaneously reducing Australia’s carbon dioxide

emission levels by almost 3,500 tonnes per year.

If successful, the project has the potential to catapult Carnegie and Perth to the forefront of

the wave energy market, as well as expanding the project to a state-wide level. With other

projects currently in development in Canada, Ireland, Bermuda and the French Indian Ocean

island of La Réunion, and further projects planned for Western Australia, Carnegie is

counting on a productive demonstration of the CETO wave energy system. For Perth, and

Australia at large, Carnegie’s labours may also pay off by providing opportunities in the

engineering, infrastructure and manufacturing industries. If successful, the PWEP could bring

with it a tidal wave of investors and position Perth as a leading site for wave energy

technology.

Robert Keenan Research Assistant Energy Security Research Programme

*****

Page 14 of 14

Any opinions or views expressed in this paper are those of the individual author, unless stated to be those of Future Directions International. Published by Future Directions International Pty Ltd. 80 Birdwood Parade, Dalkeith, WA 6009 Tel: +61 8 9389 9831 Fax: +61 8 9389 8803 E-mail: lluke@futuredirections.org.au Web: www.futuredirections.org.au

What’s Next?

• The fifth BRICS summit, bringing together the leaders of Brazil, Russia, India, China and South Africa finishes today in Durban.

• The 24th Arab League Summit winds up today in Doha, Qatar.

• Indian External Affairs Minister Salman Khurshid today completes an official visit to Japan. He and Japanese Foreign Minister Fumio Kishida are attending the seventh annual India-Japan Strategic Dialogue.

• CAPE V, the fifth triennial African Petroleum Congress and Exhibition, runs until 28

March at Cité de la Démocratie in Libreville, Gabon. This year’s theme is “Perspectives for Hydrocarbons in Africa: Equilibrium between Production and Sustainable Development”. For more, visit: www.cape-africa.com.

• The Thai Government will begin peace negotiations with the Barisan Revolusi Nasional, one of several insurgent groups operating in the south of the country on 28 March.

• US Assistant Secretary of State for Economic and Business Affairs Jose W.

Fernandez is in the United Arab Emirates until 29 March to participate in the third session of the US-UAE Economic Policy Dialogue. He is also meeting with economic policy officials and business representatives to discuss deepening US-UAE bilateral trade and investment relationships.