Energy, energy, energy

Last Friday was a fine day to bury bad news. Purely co-incidentally, as the UK government debt market was in turmoil, BMW announced that Oxford would no longer be “the home of the Mini” as the posters around the Cowley site proclaim. Instead, the cars will be produced in China, where energy (and, doubtless, labour) is so much cheaper. Cowley will keep making the petrol cars, but in little more than eight years, such cars will not be allowed to be sold in the UK. It would be perverse indeed to make a product that could not be sold in its home market.

Like almost everyone else in our rapidly dwindling manufacturing sector, BMW had asked for a bung from the taxpayer, to help pay to scale up the plant to make it competitive, but it has not been forthcoming. Perhaps the politicians were distracted by the crisis, or they were looking at Britishvolt, the company set up to make batteries for electric cars, which the same day asked for £200m, just to keep it going until next summer.

Britishvolt has yet to build a factory, let alone actually produce any batteries, but it is not hard to see the spark connecting these two pieces of green news – energy. Right across Europe, high energy prices are killing off manufacturing, although the damage in Britain is compounded by the extra costs from green levies. Last month Made UK, the manufacturers’ trade body, estimated that six out of every 10 UK businesses were at risk of closure thanks to soaring energy bills.

Everyone (rightly) blames Putin’s war on Ukraine, but the more subtle war on hydrocarbons has made things much worse. The pressure on listed oil majors to do less oil is relentless, and is producing results. Rather than try and find more, they are returning capital to shareholders. It is the non-listed, private businesses that are making the running.

Barclays estimates that despite the high crude price, public companies are raising output at only five per cent a year, while the private companies which escape being harassed by the demonstrators are expanding at 20 per cent a year. To rub home the point, Harold Hamm, the majority shareholder in Continental Resources, wants to take the company private so he can explore and grow the business. In other words, he thinks it will be able to invest more and build a more successful company without the capital market than he can with it.

This is nuts. Whatever happens in Ukraine, we are going to need all the oil and gas we can find for decades yet. There is no plausible route to net zero, let alone one that takes the UK there by 2050. Manufacturing industries can make all the efficiency savings they can think of, but if they are competing with countries where energy costs are a fraction of theirs – there is no long-term future for them. Successive governments can go on interminably about creating high-value green jobs, but as the demise of the Mini shows, existing ones are being destroyed, far faster than subsidies can create them.

Eye-watering in Yorkshire

Encouraging signs, in the encircling gloom, that Ofwat has put its dentures in and is prepared to sink its gnashers into the scandal that is the British water industry. Yorkshire Water has tended to escape the opprobrium which is frequently handed out to Thames Water, the baddest bad boy of the nine remaining privatised companies, but the regulator has forced Yorkshire to reverse some of its more shocking bits of financial engineering, and to use the proceeds to improve its awful performance.

In the financial equivalent of admitting to disgraceful behaviour, the company said the money “will include capital injections and cash generated in Yorkshire Water that could otherwise have been distributed to shareholders via dividends.” Of the £940m flowing back down the corporate chain to the operating company, £100m will go to try and prevent sewage going into Yorkshire’s rivers.

It’s a start. And let us hope Ofwat decides to use its powers properly to force better behaviour in an industry where consumers have been comprehensively screwed by its private equity owners. It is hardly a coincidence that of the nine (Welsh Water, the tenth, is owned by a co-op) the least-worst offenders are the three companies which are still listed on the London Stock Exchange. Their managements cannot hide behind opaque share structures, and must physically face their shareholders every year.

It would be relatively simple to oblige the other six to return to the stock market, and ensure that at least a quarter of the shares were in public hands. At present, Yorkshire’s balance sheet is so weak the shares would be uninvestable for the institutions, but the miscreants could be given time to build their finances back towards the strong position they were in when they were privatised. Besides, if they were forced to sell shares cheaply to comply, they would know who to blame.

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