Government introduces its stellar defence procurement skills to energy sector!

+ + UPDATED + +   - see below

Defence projects are the bane of the taxpayer's existence.  (Along with NHS IT projects, PPS procurement etc etc etc).  Astonishing delays, budget over-runs, faulty products - all followed by rinse-and-repeat with exactly the same contractors.  Learn nothing; repeat; and get the same results.  Never fails.

And now we have HMG's pathetic attempts to get a new generation of nukes up and running.  I say 'new', but the EPR is by now a pile of discredited and distinctly old crap.  And yet, conned by EDF, stitched up by George Osborne, bullied by Francois Hollande and betrayed by her own personal weakness of character, in 2016 Theresa May signed up for the Hinkley Point 'C' contract, the exact terms of which we may never learn: but we know enough to say they are awful.  All the optionality - and it's very great indeed - lies with EDF.  What's more, EDF knows that if it huffs and puffs and lies a bit more, it can get unilateral, favourable changes to this one-sided contract that are even further in its favour.  For example, not long ago it obtained a three-year relaxation to the back-stop date for start-up, from 2033 to 2036.  That's for a project it initially said would start up by year-end 2017! (sic)

So after this week's update from EDF, where are we now?  Start-up-date maybe 2031 or 2032 ... cost, well anyone's guess really, but wildly higher than any number floated before.  And this just days after HMG put around £2.5 bn cash (that's c.a.s.h., upfront, not just a high HPC-type electricity price) into Sizewell 'C', the next monstrous would-be product of EDF's nuclear fantasy.  The big difference with SZC being that, unlike HPC where EDF has to swallow the over-runs, with SZC the taxpayer will do that because EDF has no intention of taking on any construction risk at all.  And Boris signed up for that (not just May, then, who's an airbrained git).  

Did I say EDF has to swallow the over-runs on HPC?  Well, thus far, that's what the contract says and that's how it looks.  But, lo!  The contract doesn't commit them to finish the project at all !  They just don't get to sell that pre-priced electricity if they don't.

However, we can all picture the scene.  It is 2034.  HPC looks sort-of finished, but beneath those big domes and concrete silos, vital bits are not yet ready - and EDF knows full-well they ain't gonna be finished by 2036.  So there will be no juicy, HMG-underwritten, 35-year electricity contract.  They've been cap-in-hand to President Le Pen for more money, but she's sent them away empty-handed.

They know what to do.  "Get Starmer in here" they shout, and he's duly brought in to hear their story.  

"Look here, Starmer, we've run out of money.  But you need the electricity really badly, right?  This HPC delay, and the parallel delay at SZC, have already scuppered your energy strategy, which assumed that BOTH plants would be up and running by 2030! (aside: hah!  that Ed Miliband, eh?  Sucker!!)  You've had three years of patchy blackouts already.  So: we need another, errr, let's say £4bn - well, make it £5bn, what's that between friends, hmm?  Now.  Cash.  And then - we PROMISE - we'll be up and running by Xmas 2037, just, errr, 20 years late.   And we'll have another little meeting - about SZC - next month.  Whadya say?  You don't really want to leave this thing standing here like a radioactive white elephant, do you??"

Watch and wait...

ND

UPDATE     ... but you won't be waiting for long!  See this story - published after I wrote the above post.  You (maybe) read it here first

Nuclear Finance: Stuffed by the French Again

Later this week, we're told, the long-trailed announcement will be made of a new approach to financing nuclear power plants in the UK.

As we've long been warmed up to accept, no company is willing to take upon itself nuclear construction risk.  That was just about all that remained in the lap of developers, after EDF had blazed the trail with the outrageous Hinkley Point C contract that May so cravenly signed back in 2016 under stern instruction of the miserable tadpole Hollande (thereby proving to the entire watching world she was unfit to conduct the Brexit process).  But EDF itself quickly signalled that if we wanted any more nukes the next deal would need to be even better.

(Note always that HPC is a not-quite-free option for EDF - they still have no obligation to complete construction of the plant.  It can be argued they have no idea how to do it anyway, seeing that Flammanville has been put back yet another few years ...)

Still, the frogs are dangling the next one, Sizewell C, before the desperate eyes of HMG - and of course the Chinese and Japs and Koreans can all make their own offerings - if the contract is rich enough, and free of risk for themselves.

The chosen financing model to gratify their rapacity is the Regulated Asset Base model.  Details are awaited; but it's a familar enough tool, used across the USA in various forms for decades, and latterly for that grotesque and unnecessary project, the Thames Tideway.  But familarity alone is no recommendation.

The lazy headlines are that the 'taxpayer' stands to pick up the tab for the inevitable monstrous cost overruns.  Maybe; but it's even more likely it will be the poor old electricity bill-payer, which may seem a fine distinction but it highlights an important point.  Everyone needs electricity (and water) and their utility value to all of us is so great, we can be made to pay almost anything for them.  No new taxes required.  By these means we can be, have been, and will again be screwed into the ground, giving foreign firms the right to enjoy themselves on a grand scale at our expense for many decades to come.

The only possible argument in favour is that nukes have only ever been built by public finance, so we may as well don the nose-pegs and get on with it.  That assumes we need them at all - and I say we don't.  Or, if we do, we're f****d, because manifestly the French don't know how to build them within, say, 10 years of their airy estimates - so we'll always need large-scale Plans B, C and D.  Why not just settle for a good, cost-effective Plan B and have done?

Anyhow, knowing that several of our BTL regulars actually favour new nukes - have at it in the comments!

ND

Nuclear Winter

I am on record as musing that there will be no more nukes built in the UK - including, just to make it interesting, Hinkley Point C.  News that Moorside has fallen by the way (*until someone else steps into Toshiba's shoes*, yeah, right) is clearly grist to that mill.  

However, the government's arithmetic on electrification of just about everything forces them down the nuclear road.  So all attention will now be on what they will come up with for the remaining "prospects" (Wylfa, Sizewell, Bradwell) by way of a financial package.  The counter to my negative hypothesis is of course that with enough government money you can indeed suspend the laws of gravity - for a time. 

But one has to suppose the developers will insist it is up-front money next time.  Which brings us back to Hinkley.  EDF has certainly been beavering away - the civil engineering is moving along purposefully.  But, famously, although the French screwed a handsome electricity price out of George Osborne, they don't get to trouser it until the beast is up and running.  And never mind all that dredging, earthmoving and concrete: construction of the Hinkley reactors is nowhere near being started. 

Hinkley Point C: mud, concrete, but not much else

In short, the sunk costs of Hinkley, whilst by now probably a couple of billion (they'd sunk nearly one billion before they started any work at all) would not be ruinous for EDF if they decided it wasn't worth the candle.  Obviously, Plan B would be to steam round to our resolute Prime Minister and demand some cash, threatening that Plan C would be to walk away: seeing how *helpful* she was back in 2016, when Hollande wagged his finger at her.

Still, it's not clear this would succeed a second time, not least because unless they get motoring, the chance to browbeat May could disappear forever.

ND

Clamouring to be Best Friends

As we wonder whether the UK has any friends left willing to do a bit of trade with us, and whether we have simply to content ourselves with China, up pops Evgeny Lebedev (proprietor of the Inde and the Standard), advocating that we cosy up to Russia, too!

Shouldn’t Britain be that very thing, the trusted intermediator, that Russia seeks..?  Britain should not be leaving it to the French [*spits*] to mediate between Russia and the West. For all the greatness of this island nation, for all its hard and soft power, there is a laxity in our approach to the Syrian crisis. Meanwhile, a plague is spreading, bringing terror to our shores. As we become smaller, others grow; and we should join all our allies in fighting the real threat to humanity now, which is Islamist terror. Picking up the phone to Moscow would be a good start.

Could use some friends ...

See - everyone wants to be friends!  And, as well as trying to pip us to the Putin post, Hollande has shot off to Beijing for a bit of his own Xi action too (which reminds me, I need to write about the Paris Climat 2015 thing).

Oh and Merkel offers to be friends, too!  Does this mean no-one wants to play with her in the German playground any more?  Wonder why that could be ... (h/t Raedwald).

ND

Themes for a Grey Monday Morning

Damp and grey in London here today, and the news is varied: sublime, ridiculous ... and probably quite significant.  In reverse order:

Ukraine

Did anyone notice a massive event on Friday?  Putin, Merkel and Hollande convened in Paris, complete with dragoons in shiny armour, to solve Ukraine ...  except that there was no communique afterwards - search the web as you will.  That, friends, is not a trivial matter.

We are left to speculate.  Did they make so much progress that they are minded to keep schtumm and keep at it?  Did Putin come in waving his Syrian-bombing willy in the expectation M + H would immediately remove sanctions?  Prior to the meeting, the WSJ quoted Merkel thus:  “We don’t associate the question of Syria with Minsk, these questions are not linked.”  She was obviously asked about it afterwards but the French press seem to think the issue was marginal at the meeting.  What about Ukraine then, eh?  Putin must be so hoping to have sanctions lifted.

Green Grauniad

Flushed with the success of its campaign for divestment of fossil fuel stocks, the Grauniad is launching Phase II of its mighty climate-change campaign!  Keeps them occupied, I suppose.  Come December, we shall all be occupied - perhaps physically - by climate protestors, with yet another Hollande vanity-extravaganza in Paris to come in Nov-Dec, of course.  And there really will be a communique after that one! - however empty and *disappointing* it may be (and it will).  Both Hollande and Obama want it to be their legacies, Heaven help us.  Must write about that soon.

Pesto to leave Beeb!

We all remember Pesto's dominance of the airwaves and BBC website back in '08-09, when the banking crisis was in full swing.  Then, somehow, everything started to go a bit flat, and it was unkindly rumoured his scoops had dried up because a Prominent Treasury Figure was no longer briefing him in real-time.   (Here at C@W we could calibrate this: in 2008, a link from the Pesto blog was worth a massive number of hits, even more than Guido or Worstall.   Couple of years later and the effect of a Pesto-link couldn't even be detected.)

Still: Peston on the ITV ... didn't work for Morecambe & Wise, did it?

ND
  

An Eye-opening Factoid on Economic Migrants

Here at C@W towers we get sent all manner of press releases and very very few of them make it beyond the inbox.  But here are some data from www.emolument.com which get onto the blog-page forthwith.  According to their survey of front-office staff in the City, (that's the City of London), of the top 20 universities providing graduates for these jobs, 7 are French !  (and all the others UK). 

The top French school for sending its alumni onto our trading desks, coming in at no.6 (providing 4% of total sample), is EDHEC Business School.  Top 5 (all UK) are LSE (by a head, 9%), Cambridge 5%, Oxford 5%, LBS 5% and Imperial 4%.

Over to you, M. Hollande (currently riding unaccustomedly high in the polls following the dreadful affaire Charlie Hebdo).  What's happening to your brightest and best, eh?  Fact is, for all the socialist indoctrination, they know where le pain really meets le beurre.

I have just returned from Paris where the phrase 'crawling with police' scarcely does justice to the situation.  And troops, tens of thousands of 'em.  They won't be able to keep up that degree of patrolling for long.

ND

M.Hollande and the Adventure of the Laffer Curve

Hollande heureux

Chapitre 1

France's 75% super-tax could be revived in Hollande's new year message 

François Hollande is expected to use his televised new year message to vow that his flagship 75% super-tax on the mega-rich will go ahead despite being rejected by France's highest constitutional court.
Angelique Chrisafis in Paris theguardian.com, 31 December 2012

*   *   *   *   *

Hollande plus sage

Chapitre 2

France forced to drop 75% supertax after meagre returns

François Hollande’s unpopular tax changes that imposed a 75% rate on earnings above €1m  will quietly disappear into the history books from Thursday. The sums obtained from the supertax were meagre, standing at €260m in 2013 and €160m in 2014.
Anne Penketh in Paris The Guardian, 31 December 2014

What a difference a couple of years of reality makes, eh?

ND 

What A Man! Hollande Dispels the Winter Gloom

Ah the French, what style, what panache.

And going to assignations on an official government motorbike !  

What can our own politicians offer to rival this ?

Obama is not very popular

US is today preparing for Government shutdown. It is an interesting concept when the lawmakers will not vote to keep paying the staff. I cannot imagine in the UK for a minute how it would even be possible for the Government to stop paying the staff in the NHS, there would be a march on Parliament to burn the place down again.

America though, is a foreign land, and there the needs of party political point scoring rise even to the level of not paying peoples' wages. It is very peculiar and breaks the first and most important rule of business too, always pay the staff. So why he shutdown, well it comes down to Obama being a lame duck President without control over congress and so their being able to stop his key initiatives, such as Medical Insurance reform - Obamacare.

He is in the position of leading a minority Government in UK terms. All this will have the side effect of crashing the markets this week, how far I am not sure, but enough as the toppy markets are always looking in September and October for reasons for a nice old correction, prior to accelerating into the year end.

It is also interesting to see just how far Obama's star has fallen, the man is a fantastic orator but a poor decision maker and in many ways not even a very good politician. Ed Milliband should take note of Obama and also President Hollande in France; indeed I think he has already. He can see that making wild populist anti-capitalist statements can get you elected. I wonder though how he plans to change the end of the story, where the wild ideas prove impossible to implement and instead the populism dies?

The Socialists are right - end austerity in Europe and watch the collapse

(...and maybe start some in the UK - another post for this later in the week though).

The Sweeping victory for Flanby has culminated in him saying it was a decisive vote against austerity. ( I not what Boris won with the same level of votes, but apparently he scraped in - media translation is everything!).

I must say, I can't agree more. Austerity is the last thing the broken Eurozone needs. Countries with unemployment approaching 30% and GDP sinking year after year. There is no need for this to happen at all.

Clearly, these countries are bust and it is time they woke up to that fact. The whole population will have to hand over 50% of their wealth - but in return they will get an economic boom and the chance to get back to these levels of wealth within a decade or so.

This process, called devaluation, will also be helped by leaving the euro and starting afresh with a new currency. Greece, Spain, Portugal all need to do this - probably Ireland too.

The Victory of the left parties will as ever prove the beginning of the end. The People's of Europe did not believe the Right wing parties when they said it was necessary to make cuts - too much do people rely on the help of others for their lifestyles. Now, they have voted for fantasy they will infact bring forth reality.

Euro exit is going to be very painful and the markets are going to have a hissy fit. Banks are hoarding money so it looks like we may get a credit crunch and the devaluations. This could make 2008 look like a tea party. At least in the UK the process of devaluation that will be forced on us will be relatively painless - another 20% or so is needed if the Euro collapses.

Hard hats to come, FTSE will drop 2% tomorrow, maybe more with days of this to come.


And you thought this summer was going to be about the Jubliee, Euro's and the Olympics.

Eurofudge part 96

So here we are, another day and another Euro.

David Cameron comes back from Europe having not signed anything and is being accused of "selling us down the River" according to no lesser authority than Ed Milliband.

meanwhile in the real world, the next President of France, Francois Hollande, has said he will re-negotiate the treaty anyway..

But what is this treaty - a final fix to the debt crisis, a burst of liquidity and debt forgiveness to restore some vitality to the PIGS? No, nothing of the sort, it is a treaty to stop Countries from borrowing too much in the future (Europe had one of these before, called the Stability Pact, which worked so well in the 2000's that we are where we are today).

The real deal will have to wait as this one is to help Angela Merkel persuade the Germans that they can put more money up to save the Euro. Safe in the knowledge that they will get it back again in the future.

I can't really see any progress since March 2010 when the problems in Greece first emerged and showed signs of being terminal. That makes the crisis nearly 2 years old and with nothing but hot air created to try and fix it.

Amazing to watch such inept people in action.