By Stephanie Kirchgaessner
Published: July 28 2008 03:02
Energy and the price of a gallon of petrol will no doubt be at the forefront of Nancy Pelosi’s mind this week when – as is her routine – she travels in from her regular hair appointment in Georgetown to Capitol Hill in a convoy of two SUVs.
The Speaker of the House of Representatives has a tough task at hand before Congress begins its August recess: ensuring that Democratic legislators do not return home empty-handed, without any proof that they are taking action to tackle record petrol prices.
One Democratic proposal that would have required the government to sell 70m barrels of light sweet crude oil from the Strategic Petroleum Reserve failed to pass the House last week.
In the meantime, Republicans appear to be gaining traction in their call to expand offshore drilling – putting pressure on Ms Pelosi to keep her caucus unified, including conservative Democrats who might be tempted to side with the Republicans on that issue.
Steering the Democrats’ response to the energy crisis without alienating environmentalists or the struggling middle class could prove to be one of the biggest tests Ms Pelosi will face this year. Her record suggests that the speaker will respond to the challenge with astute political manoeuvring, showing once again that, though she is labelled a “San Francisco liberal”, the roots of her political education lie in the rough and tumble world of Baltimore, where her father was mayor.
Outside Washington, Hillary Clinton’s historic run for the White House conveyed the sense that the New York senator and former first lady was the most powerful woman in the capital, perhaps even the world. Inside the beltway, it is no secret that crown belongs to Ms Pelosi.
In the 20 months since she became the first female speaker of the House, a position that puts her second in the line of succession to become president, the congresswoman from San Francisco has proven herself to be a pragmatic and iron-fisted leader of the traditionally fractious Democratic caucus.
Under her leadership, Democrats have backed the majority position 91 per cent of the time, the highest so-called “unity score” Democrats have achieved in 51 years.
She achieved that, says one senior Republican lobbyist, by taking cues from the former Republican speaker Newt Gingrich: centralising power in her office and, when necessary, side-stepping powerful committee chairmen by creating ad hoc committees to tackle sensitive issues such as global warming.
When earlier this year President George W. Bush sought to put Ms Pelosi “in a box” by forcing a vote on the Colombia Free Trade agreement, the lobbyist says, she shut him down by scrapping the so-called fast-track procedure that allowed trade deals a swift passage through the House for 30 years, in order to save Democrats from having to take sides on a controversial issue in an election year.
She has proved herself to be more pragmatic on economic issues, where she forged deals with the administration on a broad stimulus package and housing legislation.
When the prolonged battle for the Democratic presidential nomination threatened to weaken her party’s chances of winning the White House, Ms Pelosi, along with Harry Reid, the Senate leader, declared that the race would have to end in June.
Though she did not offer Barack Obama, her party’s presumptive nominee, an outright endorsement, the move closed Mrs Clinton’s window of opportunity to clinch the nomination.
If she gets her way, Ms Pelosi’s job could become even more challenging. Although the public appears to have as much disdain for Congress as it does for Mr Bush, perhaps even more, Democrats could win between five and 10 seats this year.
This would increase the potential for clashes between the liberal wing of the Democratic party and the so-called “Blue Dogs”, moderate and conservative Democrats from the south whose views on issues ranging from gun control to abortion rights often diverge from those of the party’s base.
“A drawback [to winning more seats] is now they will have a bigger tent to have to satisfy and settle, and it becomes more of a challenge keeping everyone happy,” says David Wasserman, House editor for the Cook Political Report.
Copyright The Financial Times Limited 2008
Monday, 28 July 2008
ITM the alternative pick (alternative fuel cars)
Talking of oil, other companies are looking to benefit from the search for alternative fuel sources. Investors in ITM Power will learn a bit more today about some interesting plans the company announced this month. It launched its bi-fuel petrol and hydrogen car and home refuelling system, but was in a close period until now, so provided little more information. Its technology reduces the costs for hydrogen-powered cars, and it has also developed a home refuelling system to answer questions by sceptics of how to keep the wagon topped up. The stock has taken a bit of a hammering this year as the lack of news flow sent its shares plummeting to all-time lows. The news this month should prove good for the company, but as broker Panmure Gordon pointed out, any shareholder has to be in it for the long term; the days of the major car companies producing hydrogen cars – and hence its chance to properly commercialise its technology - could well be some time away.
Texas to Tel Aviv (alternative energy)
By Thomas L. Friedman
Published: July 27, 2008
What would happen if you cross-bred J.R. Ewing of "Dallas" and Carl Pope, the head of the Sierra Club? You'd get T. Boone Pickens.
What would happen if you cross-bred Henry Ford and Yitzhak Rabin? You'd get Shai Agassi. And what would happen if you put together T. Boone Pickens, the green billionaire Texas oilman now obsessed with wind power, and Shai Agassi, the Jewish Henry Ford now obsessed with making Israel the world's leader in electric cars?
You'd have the start of an energy revolution.
The only good thing to come from soaring oil prices is that they have spurred innovator/investors, successful in other fields, to move into clean energy with a mad-as-hell, can-do ambition to replace oil with renewable power. Two of the most interesting of these new clean electron wildcatters are Boone and Shai.
Agassi, age 40, is an Israeli software whiz kid who rose to the senior ranks of the German software giant SAP. He gave it all up in 2007 to help make Israel a model of how an entire country can get off gasoline and onto electric cars. He figured no country has a bigger interest in diminishing the value of Middle Eastern oil than Israel.
On a visit to Israel in May, I took a spin in a parking lot on the Tel Aviv beachfront in Agassi's prototype electric car, while his sister watched out for the cops because it is not yet licensed for Israeli roads.
Agassi's plan, backed by Israel's government, is to create a complete electric car "system" that will work much like a mobile-phone service "system," only customers sign up for so many monthly miles, instead of minutes. Every subscriber will get a car, a battery and access to a national network of recharging outlets all across Israel - as well as garages that will swap your dead battery for a fresh one whenever needed.
His company, Better Place, and its impressive team would run the smart grid that charges the cars and is also contracting for enough new solar energy from Israeli companies - 2 gigawatts over 10 years - to power the whole fleet. "Israel will have the world's first virtual oilfield in the Negev Desert," said Agassi. His first 500 electric cars, built by Renault, will hit Israel's roads next year.
Agassi is a passionate salesman for his vision. He could sell camels to Saudi Arabia. "Today in Europe, you pay $600 a month for gasoline," he explained to me. "We have an electric car that will cost you $600 a month" - with all the electric fuel you need and when you don't want the car any longer, just give it back. No extra charges and no CO2 emissions.
His goal, said Agassi, is to make his electric car "so cheap, so trivial, that you won't even think of buying a gasoline car." Once that happens, he added, your oil addiction will be over forever.
You'll be "off heroin," he says, and "addicted to milk."
T. Boone Pickens is 80. He's already made billions in oil. He was involved in some ugly mischief in funding the "Swift-boating" of John Kerry. But now he's opting for a different legacy: breaking America's oil habit by pushing for a massive buildup of wind power in the United States and converting our abundant natural gas supplies - now being used to make electricity - into transportation fuel to replace foreign oil in our cars, buses and trucks.
Pickens is motivated by American nationalism. Because of all the money we are shipping abroad to pay for our oil addiction, he says, "we are on the verge of losing our superpower status." His vision is summed up on his Web site: "We import 70 percent of our oil at a cost of $700 billion a year ... I have been an oil man all my life, but this is one emergency we can't drill our way out of. If we create a renewable energy network, we can break our addiction to foreign oil."
Pickens made clear to me over breakfast last week that he was tired of waiting for Washington to produce a serious energy plan. So his company, Mesa Power, is now building the world's largest wind farm in the Texas Panhandle, where he's spent $2 billion buying land and 700 wind turbines from General Electric - the largest single turbine order ever. The United States could secure 20 percent of its electricity needs from wind alone.
But Pickens knows he's unique. Unless, he says, "Congress adopts clear, predictable policies" - with long-term tax incentives and infrastructure - so thousands of investors can jump into clean power, we'll never get the scale we need to break our addiction. For a year, Senate Republicans have been blocking such incentives for wind and solar energy.
If only we had a Congress and president who, instead of chasing crazy schemes like offshore drilling and releasing oil from our strategic reserve, just sat down with Boone and Shai and asked one question: "What laws do we need to enact to foster 1,000 more like you?" Then just do it, and get out of the way.
Published: July 27, 2008
What would happen if you cross-bred J.R. Ewing of "Dallas" and Carl Pope, the head of the Sierra Club? You'd get T. Boone Pickens.
What would happen if you cross-bred Henry Ford and Yitzhak Rabin? You'd get Shai Agassi. And what would happen if you put together T. Boone Pickens, the green billionaire Texas oilman now obsessed with wind power, and Shai Agassi, the Jewish Henry Ford now obsessed with making Israel the world's leader in electric cars?
You'd have the start of an energy revolution.
The only good thing to come from soaring oil prices is that they have spurred innovator/investors, successful in other fields, to move into clean energy with a mad-as-hell, can-do ambition to replace oil with renewable power. Two of the most interesting of these new clean electron wildcatters are Boone and Shai.
Agassi, age 40, is an Israeli software whiz kid who rose to the senior ranks of the German software giant SAP. He gave it all up in 2007 to help make Israel a model of how an entire country can get off gasoline and onto electric cars. He figured no country has a bigger interest in diminishing the value of Middle Eastern oil than Israel.
On a visit to Israel in May, I took a spin in a parking lot on the Tel Aviv beachfront in Agassi's prototype electric car, while his sister watched out for the cops because it is not yet licensed for Israeli roads.
Agassi's plan, backed by Israel's government, is to create a complete electric car "system" that will work much like a mobile-phone service "system," only customers sign up for so many monthly miles, instead of minutes. Every subscriber will get a car, a battery and access to a national network of recharging outlets all across Israel - as well as garages that will swap your dead battery for a fresh one whenever needed.
His company, Better Place, and its impressive team would run the smart grid that charges the cars and is also contracting for enough new solar energy from Israeli companies - 2 gigawatts over 10 years - to power the whole fleet. "Israel will have the world's first virtual oilfield in the Negev Desert," said Agassi. His first 500 electric cars, built by Renault, will hit Israel's roads next year.
Agassi is a passionate salesman for his vision. He could sell camels to Saudi Arabia. "Today in Europe, you pay $600 a month for gasoline," he explained to me. "We have an electric car that will cost you $600 a month" - with all the electric fuel you need and when you don't want the car any longer, just give it back. No extra charges and no CO2 emissions.
His goal, said Agassi, is to make his electric car "so cheap, so trivial, that you won't even think of buying a gasoline car." Once that happens, he added, your oil addiction will be over forever.
You'll be "off heroin," he says, and "addicted to milk."
T. Boone Pickens is 80. He's already made billions in oil. He was involved in some ugly mischief in funding the "Swift-boating" of John Kerry. But now he's opting for a different legacy: breaking America's oil habit by pushing for a massive buildup of wind power in the United States and converting our abundant natural gas supplies - now being used to make electricity - into transportation fuel to replace foreign oil in our cars, buses and trucks.
Pickens is motivated by American nationalism. Because of all the money we are shipping abroad to pay for our oil addiction, he says, "we are on the verge of losing our superpower status." His vision is summed up on his Web site: "We import 70 percent of our oil at a cost of $700 billion a year ... I have been an oil man all my life, but this is one emergency we can't drill our way out of. If we create a renewable energy network, we can break our addiction to foreign oil."
Pickens made clear to me over breakfast last week that he was tired of waiting for Washington to produce a serious energy plan. So his company, Mesa Power, is now building the world's largest wind farm in the Texas Panhandle, where he's spent $2 billion buying land and 700 wind turbines from General Electric - the largest single turbine order ever. The United States could secure 20 percent of its electricity needs from wind alone.
But Pickens knows he's unique. Unless, he says, "Congress adopts clear, predictable policies" - with long-term tax incentives and infrastructure - so thousands of investors can jump into clean power, we'll never get the scale we need to break our addiction. For a year, Senate Republicans have been blocking such incentives for wind and solar energy.
If only we had a Congress and president who, instead of chasing crazy schemes like offshore drilling and releasing oil from our strategic reserve, just sat down with Boone and Shai and asked one question: "What laws do we need to enact to foster 1,000 more like you?" Then just do it, and get out of the way.
A blot of turbines
The rush for more green energy via wind farms risks sacrificing our most beautiful landscapes
Michael Berkeley
The Guardian,
Monday July 28 2008
Those of us who support the government's determination to lower CO2 emissions, yet care passionately about preserving our most beautiful landscapes, are in a serious quandary. Labour has turned to offshore wind farms as the most productive way of harvesting nature's own supply of energy. Sadly, we are not capable of realising anything like the goal of 7,000 offshore turbines in the near future. So pressure is being applied to nod through 4,000 onshore. Objectors to complex applications running to hundreds of pages are given a meagre 21 days to register dissent. At this rate we may sacrifice areas of rare beauty thanks to governmental panic and a landscape protection policy that predates 400ft turbines.
Take the countryside where I live and work, the Welsh Marches near Knighton - the town that straddles Offa's Dyke - whose hills have been immortalised in lines by AE Houseman and Francis Kilvert. Ten years ago, an application to Powys and Herefordshire for 14 turbines right on the border was turned down by both councils because the visual damage to an important landscape could not be justified. Local feeling was intense and pretty well unanimous. Since then the landscape has not changed, so how could the decision?
With the greater sense of urgency that climate change has fostered - not to mention the incomprehensibly vast subsidies available - the same farmer (Sir Simon Gourlay - an ex-NFU president) has put together a new application to Herefordshire for four turbines. Since he admits that this is "not an ideal site", they will need to be 105m high (dwarfing Nelson's Column at 55m). These massive industrial towers, counterbalanced by thousands of tons of concrete and complemented by a sub-station and overhead cabling, would reach further into the sky than any building in Wales.
Writing in Country Living in 1991, Gourlay eloquently described the views from his farm as "a spectacular landscape". By the time he wrote his first environmental submission in 1994 this landscape had become "uninteresting, dull" and even "barren".
We need a better and more objective way of defining areas that demand to be protected as part of our national heritage, not only because they themselves are ravishingly beautiful, peaceful and full of protected wildlife, but because they are overlooked by important and priceless countryside - in this case, the Black Mountains, the Brecon Beacons, Clee Hill, the Wrekin, Radnor Forest, the Malverns and, critically, the internationally important ancient monument, Offa's Dyke. Explaining his intention to speed up the planning process, John Hutton, the business and energy minister, said that it is essential that the voice of local people be heard, particularly in environmentally sensitive areas. But with its latest renewable "push", the government is clearly at odds with itself in trying to uphold democracy while simultaneously garnering more turbines, regardless of local opposition.
Objecting to the application, novelist Ian McEwan wrote: "To industrialise an area of great and fragile beauty for a near negligible gain is entirely against the spirit of any environmental policy rooted in common sense and practical solutions. On a small and crowded island like ours, we count ourselves lucky that there remain still places of such tranquillity and loveliness as Reeves Hill. We owe it to our children's children to preserve such treasures and at the same time take rational steps to limit our greenhouse gas emissions."
Several communities in the British Isles are fighting similarly, but without access to writers or the national media. For all of us, the Reeves Hill case is pivotal.
· Michael Berkeley's latest composition Slow Dawn is at the Proms on August 10. Contact the campaign at www.shcg.co.uk
Michael Berkeley
The Guardian,
Monday July 28 2008
Those of us who support the government's determination to lower CO2 emissions, yet care passionately about preserving our most beautiful landscapes, are in a serious quandary. Labour has turned to offshore wind farms as the most productive way of harvesting nature's own supply of energy. Sadly, we are not capable of realising anything like the goal of 7,000 offshore turbines in the near future. So pressure is being applied to nod through 4,000 onshore. Objectors to complex applications running to hundreds of pages are given a meagre 21 days to register dissent. At this rate we may sacrifice areas of rare beauty thanks to governmental panic and a landscape protection policy that predates 400ft turbines.
Take the countryside where I live and work, the Welsh Marches near Knighton - the town that straddles Offa's Dyke - whose hills have been immortalised in lines by AE Houseman and Francis Kilvert. Ten years ago, an application to Powys and Herefordshire for 14 turbines right on the border was turned down by both councils because the visual damage to an important landscape could not be justified. Local feeling was intense and pretty well unanimous. Since then the landscape has not changed, so how could the decision?
With the greater sense of urgency that climate change has fostered - not to mention the incomprehensibly vast subsidies available - the same farmer (Sir Simon Gourlay - an ex-NFU president) has put together a new application to Herefordshire for four turbines. Since he admits that this is "not an ideal site", they will need to be 105m high (dwarfing Nelson's Column at 55m). These massive industrial towers, counterbalanced by thousands of tons of concrete and complemented by a sub-station and overhead cabling, would reach further into the sky than any building in Wales.
Writing in Country Living in 1991, Gourlay eloquently described the views from his farm as "a spectacular landscape". By the time he wrote his first environmental submission in 1994 this landscape had become "uninteresting, dull" and even "barren".
We need a better and more objective way of defining areas that demand to be protected as part of our national heritage, not only because they themselves are ravishingly beautiful, peaceful and full of protected wildlife, but because they are overlooked by important and priceless countryside - in this case, the Black Mountains, the Brecon Beacons, Clee Hill, the Wrekin, Radnor Forest, the Malverns and, critically, the internationally important ancient monument, Offa's Dyke. Explaining his intention to speed up the planning process, John Hutton, the business and energy minister, said that it is essential that the voice of local people be heard, particularly in environmentally sensitive areas. But with its latest renewable "push", the government is clearly at odds with itself in trying to uphold democracy while simultaneously garnering more turbines, regardless of local opposition.
Objecting to the application, novelist Ian McEwan wrote: "To industrialise an area of great and fragile beauty for a near negligible gain is entirely against the spirit of any environmental policy rooted in common sense and practical solutions. On a small and crowded island like ours, we count ourselves lucky that there remain still places of such tranquillity and loveliness as Reeves Hill. We owe it to our children's children to preserve such treasures and at the same time take rational steps to limit our greenhouse gas emissions."
Several communities in the British Isles are fighting similarly, but without access to writers or the national media. For all of us, the Reeves Hill case is pivotal.
· Michael Berkeley's latest composition Slow Dawn is at the Proms on August 10. Contact the campaign at www.shcg.co.uk
Subsidies help Germany stay top of world's solar power league
By Hugh Williamson in Berlin
Published: July 28 2008 03:00
Germany has reinforced its status as the world leader in solar power generation, after less stringent cuts in renewable energy subsidies than had been anticipated.
Although not the world's sunniest country, Germany is among the global leaders when it comes to the number of solar panels adorning household roofs.
Germans have cashed in on generous government incentives to boost the country's reliance on the sun's energy.
Yet the industry needs to adapt to growing international competition to secure long-term growth, experts argue.
In what is seen as a victory for Germany's growing legion of solar cell makers and suppliers, proposed cuts in subsidies of up to 30 per cent have been watered down to only 9-10 per cent a year until 2011.
The cuts replace annual reductions of about 5 per cent at present, under plans endorsed by the parliamentary upper house this month, after lower house approval.
Germany boasts more than 50 per cent of the world's installed solar power capacity, thanks to the subsidies, known as feed-in tariffs that give households with solar panels a fixed income for 20 years from electricity sold to the national grid.
The resulting industry, with about 60,000 employees, has a turnover that could rise to €13bn (£10.2bn, $20.4bn) a year by 2010, compared with about €7bn in 2007, according to industry estimates.
The country is the third largest producer of solar cells, with a 20 per cent market share, compared with China with 28 per cent.
Experts predict that in the long term solar energy may provide up to 30 per cent of Germany's power needs for electricity and hot water, compared with less than 1 per cent today.
This is seen as vital, both to reduce greenhouse gas emissions, and for energy security after oil price increases and the decision to phase out nuclear power.
Spiralling energy costs globally have spurred German demand for solar equipment used to heat household water.
Many regional authorities have backed this sector - which is separate from the industry built around the feed-in subsidies - and Marburg in central Germany this month became the first city to require households to install such equipment as part of house construction or renovation. They face €1,000 fines if they refuse.
Yet companies that have profited richly from Germany's solar boom will in future have to adapt more quickly to continued pressure for subsidy cuts and lower prices, according to Michael Schmela, editor of Photon International, a solar industry magazine.
"Germany will remain the world leader in installed capacity for some time, but companies based here will increasingly produce in cheap locations, such as Asia, to cut costs," he says.
Other countries, especially Spain and the US, are rapidly expanding solar power generation, leading to a shift in focus in this increasingly global industry.
According to a report this month by IMU, a Berlin-based think-tank, Germany's share of the world's newly installed capacity will fall to 28 per cent in 2010, from 58 per cent in 2006. The US is set to double its share to 18 per cent over the same period.
Mr Schmela argues that the feed-in subsidies should be cut more rapidly, to force companies to reduce costs in producing panels and the necessary solar cell production machinery.
The German government - and ultimately the country's taxpayers - may face a total bill for feed-in tariffs of up to €100bn, he calculates. This official backing for solar power is highly expensive compared with other environmental initiatives, he says.
Carsten Körnig, head of BSW-Solar, the sector's business association, says companies are getting ready for lower subsidies but need a smooth transition.
Cuts that were "too abrupt could severely damage the industry's development," he says.
The industry is also under pressure over trade union complaints of low pay and tough working conditions in solar cell factories.
Many companies, from the US and elsewhere, have set up solar plants in eastern Germany, the country's weakest economic region, with pay as low as €7-8 per hour, notes the IMU report.
Copyright The Financial Times Limited 2008
Published: July 28 2008 03:00
Germany has reinforced its status as the world leader in solar power generation, after less stringent cuts in renewable energy subsidies than had been anticipated.
Although not the world's sunniest country, Germany is among the global leaders when it comes to the number of solar panels adorning household roofs.
Germans have cashed in on generous government incentives to boost the country's reliance on the sun's energy.
Yet the industry needs to adapt to growing international competition to secure long-term growth, experts argue.
In what is seen as a victory for Germany's growing legion of solar cell makers and suppliers, proposed cuts in subsidies of up to 30 per cent have been watered down to only 9-10 per cent a year until 2011.
The cuts replace annual reductions of about 5 per cent at present, under plans endorsed by the parliamentary upper house this month, after lower house approval.
Germany boasts more than 50 per cent of the world's installed solar power capacity, thanks to the subsidies, known as feed-in tariffs that give households with solar panels a fixed income for 20 years from electricity sold to the national grid.
The resulting industry, with about 60,000 employees, has a turnover that could rise to €13bn (£10.2bn, $20.4bn) a year by 2010, compared with about €7bn in 2007, according to industry estimates.
The country is the third largest producer of solar cells, with a 20 per cent market share, compared with China with 28 per cent.
Experts predict that in the long term solar energy may provide up to 30 per cent of Germany's power needs for electricity and hot water, compared with less than 1 per cent today.
This is seen as vital, both to reduce greenhouse gas emissions, and for energy security after oil price increases and the decision to phase out nuclear power.
Spiralling energy costs globally have spurred German demand for solar equipment used to heat household water.
Many regional authorities have backed this sector - which is separate from the industry built around the feed-in subsidies - and Marburg in central Germany this month became the first city to require households to install such equipment as part of house construction or renovation. They face €1,000 fines if they refuse.
Yet companies that have profited richly from Germany's solar boom will in future have to adapt more quickly to continued pressure for subsidy cuts and lower prices, according to Michael Schmela, editor of Photon International, a solar industry magazine.
"Germany will remain the world leader in installed capacity for some time, but companies based here will increasingly produce in cheap locations, such as Asia, to cut costs," he says.
Other countries, especially Spain and the US, are rapidly expanding solar power generation, leading to a shift in focus in this increasingly global industry.
According to a report this month by IMU, a Berlin-based think-tank, Germany's share of the world's newly installed capacity will fall to 28 per cent in 2010, from 58 per cent in 2006. The US is set to double its share to 18 per cent over the same period.
Mr Schmela argues that the feed-in subsidies should be cut more rapidly, to force companies to reduce costs in producing panels and the necessary solar cell production machinery.
The German government - and ultimately the country's taxpayers - may face a total bill for feed-in tariffs of up to €100bn, he calculates. This official backing for solar power is highly expensive compared with other environmental initiatives, he says.
Carsten Körnig, head of BSW-Solar, the sector's business association, says companies are getting ready for lower subsidies but need a smooth transition.
Cuts that were "too abrupt could severely damage the industry's development," he says.
The industry is also under pressure over trade union complaints of low pay and tough working conditions in solar cell factories.
Many companies, from the US and elsewhere, have set up solar plants in eastern Germany, the country's weakest economic region, with pay as low as €7-8 per hour, notes the IMU report.
Copyright The Financial Times Limited 2008
MPs seek windfall tax on energy profits
By George Parker, Ed Crooks and Vanessa Houlder
Published: July 28 2008 00:04
There is a “compelling rationale” for a windfall tax on the profits of energy companies, MPs argue in a report on Monday.
They also claim businesses and households are paying excessive fuel bills because of failures in the British energy market.
Unless the energy market functions more efficiently, British companies will suffer falling competitiveness and there will be “serious consequences for millions of households, especially the fuel poor”, the report says.
The Commons business and enterprise committee calls on Ofgem, the regulator, to toughen its approach and – if necessary – to refer key parts of the energy market to a Competition Commission inquiry.
The MPs also lend their weight to calls for a windfall tax on energy companies, which were estimated by Ofgem to have benefited by £9bn from the free allocation of permits under phase two of the EU’s emissions trading scheme.
Political pressure for a windfall tax was reinforced on Friday when EDF, one of the “big six” suppliers raised its prices for the second time this year, by 17 per cent for electricity and 22 per cent for gas.
The other suppliers are expected to follow suit over the next few weeks.
Study findings
● Ofgem failed to investigate wholesale gas market, where producers were unwilling to trade in the forward market
● Government failed to invest in storage facilities to tackle dependency on gas imports
● Lack of liquidity in the wholesale electricity market, penalising new retailers
● Possible abuse of the market for SME electricity supply by the “Big Six” companies
Although the report disputes the £9bn Ofgem figure, it says “there is a compelling rationale for at least a one-off top-slicing of these gains to help fund action to reduce the energy bills of vulnerable families in the long term”.
Trade unions demanded a windfall tax during this weekend’s Labour Party policy forum, although Alistair Darling, chancellor, backed away from a windfall tax in this year’s Budget.
Mr Darling’s aides said the idea was still “an option” for this autumn’s pre-Budget report, although it was not receiving a great deal of official time. Gordon Brown has also promised action to address fuel poverty.
John Hutton, business secretary, unveiled an accord in April in which the “Big Six” power suppliers would commit an extra £225m over the next three years to help those in fuel poverty, de-fined as anyone who spends more than 10 per cent of their income on fuel bills. Poverty campaigners de-scribed the deal as “failing the most vulnerable”.
However, energy suppliers have argued that windfall taxes and other attacks on their profitability will damage the industry.
Duncan Sedgwick, Chief Executive of the Energy Retail Association, said on Sunday: “As the Committee acknowledges, if we are serious about keeping the lights on for future generations then companies need to be given the freedom and opportunity to innovate and invest for our long-term needs.”
Meanwhile, a windfall tax has been attacked as “economically illiterate” by an eminent economist who says it is the worst possible option for tackling fuel poverty.
Dieter Helm, a professor at Oxford University, said the prospect of a windfall tax undermines “a host of investment decisions” and would inflict further damage on Britain’s reputation for stability.
Copyright The Financial Times Limited 2008
Published: July 28 2008 00:04
There is a “compelling rationale” for a windfall tax on the profits of energy companies, MPs argue in a report on Monday.
They also claim businesses and households are paying excessive fuel bills because of failures in the British energy market.
Unless the energy market functions more efficiently, British companies will suffer falling competitiveness and there will be “serious consequences for millions of households, especially the fuel poor”, the report says.
The Commons business and enterprise committee calls on Ofgem, the regulator, to toughen its approach and – if necessary – to refer key parts of the energy market to a Competition Commission inquiry.
The MPs also lend their weight to calls for a windfall tax on energy companies, which were estimated by Ofgem to have benefited by £9bn from the free allocation of permits under phase two of the EU’s emissions trading scheme.
Political pressure for a windfall tax was reinforced on Friday when EDF, one of the “big six” suppliers raised its prices for the second time this year, by 17 per cent for electricity and 22 per cent for gas.
The other suppliers are expected to follow suit over the next few weeks.
Study findings
● Ofgem failed to investigate wholesale gas market, where producers were unwilling to trade in the forward market
● Government failed to invest in storage facilities to tackle dependency on gas imports
● Lack of liquidity in the wholesale electricity market, penalising new retailers
● Possible abuse of the market for SME electricity supply by the “Big Six” companies
Although the report disputes the £9bn Ofgem figure, it says “there is a compelling rationale for at least a one-off top-slicing of these gains to help fund action to reduce the energy bills of vulnerable families in the long term”.
Trade unions demanded a windfall tax during this weekend’s Labour Party policy forum, although Alistair Darling, chancellor, backed away from a windfall tax in this year’s Budget.
Mr Darling’s aides said the idea was still “an option” for this autumn’s pre-Budget report, although it was not receiving a great deal of official time. Gordon Brown has also promised action to address fuel poverty.
John Hutton, business secretary, unveiled an accord in April in which the “Big Six” power suppliers would commit an extra £225m over the next three years to help those in fuel poverty, de-fined as anyone who spends more than 10 per cent of their income on fuel bills. Poverty campaigners de-scribed the deal as “failing the most vulnerable”.
However, energy suppliers have argued that windfall taxes and other attacks on their profitability will damage the industry.
Duncan Sedgwick, Chief Executive of the Energy Retail Association, said on Sunday: “As the Committee acknowledges, if we are serious about keeping the lights on for future generations then companies need to be given the freedom and opportunity to innovate and invest for our long-term needs.”
Meanwhile, a windfall tax has been attacked as “economically illiterate” by an eminent economist who says it is the worst possible option for tackling fuel poverty.
Dieter Helm, a professor at Oxford University, said the prospect of a windfall tax undermines “a host of investment decisions” and would inflict further damage on Britain’s reputation for stability.
Copyright The Financial Times Limited 2008
Coking-Coal Firms Offer a Way To Play China's New Price Caps
By YVONNE LEEJuly 28, 2008
HONG KONG -- Despite a near doubling in global spot-coal prices in the first half, listed coal producers in China -- the world's biggest coal consumer -- have been market laggards as a result of price caps imposed by the state to regulate supply.
The Hong Kong shares of China Shenhua Energy, the country's largest integrated coal producer by output, have slumped 38% so far this year, while industry No. 2 China Coal Energy lost 43% amid concerns of the price-control risks.
Analysts say these stocks may be susceptible to further near-term losses following measures the government announced Thursday to cool red-hot domestic thermal-coal prices by artificially capping spot prices at major ports.
The new steps affect producers of thermal coal, used mainly for electricity production. However, producers of coking coal -- the key ingredient for metals processing -- aren't affected.
Shares of Hong Kong-listed coking-coal maker Hidili Industry International Development have outperformed both its thermal-coal peers and the Hang Seng Index, which is down 18% this year.
Sichuan-based Hidili, which listed last September, is down 10% in 2008. But many analysts say now is a good time to accumulate the stock, thanks to expectations coking-coal prices will continue to rise and to attractive valuations.
Four analysts that cover the company have an average price target for the stock of 18.69 Hong Kong dollars (US$2.40), or 74% above its Friday close of HK$10.76.
"We are bullish on China's coking-coal sector because of the current tight-market-supply situation," says UOB KayHian analyst Karen Li. "We believe HK$11 or below is a good entry point to gain exposure to this booming industry."
Hidili, which raised US$525.4 million from its initial public offering, supplies coal to steelmakers in southern and western China, including Panzhihua Iron & Steel Group and Liuzhou Iron & Steel Group. Analysts say Hidili is attractive because of rising coking-coal prices, which have almost doubled in the first half on strong demand both in domestic and global markets.
Xu Hui, Hidili's company secretary, says its coking-coal prices in the first half jumped 90% from the previous year and reached 1,500 to 1,600 yuan (US$220 to US$235) a metric ton at the end of June. He didn't give any forecast for prices in the second half.
Liu Jianzhong, deputy general manager of Shanxi Coking Coal Group, China's biggest coking-coal producer by output, told state media earlier this month that he expects coking-coal prices in the second half to rise 200 to 300 yuan a metric ton.
Coal prices will also likely be supported by the government's effort to crack down on smaller mines in hopes of reducing the number of deaths from accidents.
The government plans to shut more than 4,000 small coal mines and reduce their numbers to below 10,000 by 2010, from about 16,000 currently, the Xinhua News Agency reported this month. Of the total, 90% of the coking-coal mines are considered small ones, with much lower safety standards than larger, more established operations, Xinhua said.
Goldman Sachs says Hidili's share weakness, and its differentiation from thermal-coal producers, provide a good opportunity for investors to buy into the stock.
"The key advantage of coking coal verses thermal coal is a better demand profile and lower risk of government price control," Goldman analyst Song Shen wrote in late June. "We believe Hidili shares have been weak given the higher risk premium due to government price controls on thermal coal."
Analysts say the Chinese government won't likely intervene in the coking-coal industry, given the nature of the domestic metals market.
"The setting of power tariffs is regulated by the government in order to curb the country's rising inflation," says Nomura analyst Donovan Huang. "As China's steel prices are largely market-driven, coking-coal producers have lower government price-control risks."
Beijing last month imposed temporary price ceilings on thermal coal to protect the profitability of power producers using it. China's thermal-coal mines can't sell at prices higher than those reached June 19.
Aside from the booming market for coking coal, Hidili's shares are also attractive because of the company's acquisition plans, analysts say. Hidili intends to raise its reserves by acquiring mines in western Guizhou province.
The company said it aims to boost coal output to eight million metric tons by 2011, more than twice this year's target of 3.2 million tons. In 2007, it produced 2.27 million tons.
Given those projections, analysts are generally upbeat on Hidili's earnings for the next two years. Goldman Sachs said it expects the company's net profit to more than double this year, followed by a 75% increase in 2009, due by higher sales volume and prices.
In 2007, Hidili's net profit jumped more than sixfold to 570.3 million yuan from a year earlier.
Hidili's valuations are lower than those of peers. According to Thomson Reuters, the stock is trading at about 16.11 times projected 2008 earnings, compared with 18.95 times for Shenhua Energy and 17.08 times for China Coal.
Nonetheless, concerns that growth in China's steel industry could slow amid rising prices for raw materials might hurt Hidili's near-term share performance, analysts say.
"If steel-production growth slows down sharply, we could see coking-coal prices coming down," Goldman Sachs says.
Citigroup projects Chinese steel production at 640 million tons next year, up 16% from its 2008 forecast of 553 million tons. The nation accounts for slightly more than one-third of the world's demand for steel.
Mr. Xu, Hidili's company secretary, says he expects China's steel production will grow strongly until 2010 as "we have confidence Beijing will maintain sound economic growth over next two years."
Write to Yvonne Lee at yvonne.lee@wsj.com
HONG KONG -- Despite a near doubling in global spot-coal prices in the first half, listed coal producers in China -- the world's biggest coal consumer -- have been market laggards as a result of price caps imposed by the state to regulate supply.
The Hong Kong shares of China Shenhua Energy, the country's largest integrated coal producer by output, have slumped 38% so far this year, while industry No. 2 China Coal Energy lost 43% amid concerns of the price-control risks.
Analysts say these stocks may be susceptible to further near-term losses following measures the government announced Thursday to cool red-hot domestic thermal-coal prices by artificially capping spot prices at major ports.
The new steps affect producers of thermal coal, used mainly for electricity production. However, producers of coking coal -- the key ingredient for metals processing -- aren't affected.
Shares of Hong Kong-listed coking-coal maker Hidili Industry International Development have outperformed both its thermal-coal peers and the Hang Seng Index, which is down 18% this year.
Sichuan-based Hidili, which listed last September, is down 10% in 2008. But many analysts say now is a good time to accumulate the stock, thanks to expectations coking-coal prices will continue to rise and to attractive valuations.
Four analysts that cover the company have an average price target for the stock of 18.69 Hong Kong dollars (US$2.40), or 74% above its Friday close of HK$10.76.
"We are bullish on China's coking-coal sector because of the current tight-market-supply situation," says UOB KayHian analyst Karen Li. "We believe HK$11 or below is a good entry point to gain exposure to this booming industry."
Hidili, which raised US$525.4 million from its initial public offering, supplies coal to steelmakers in southern and western China, including Panzhihua Iron & Steel Group and Liuzhou Iron & Steel Group. Analysts say Hidili is attractive because of rising coking-coal prices, which have almost doubled in the first half on strong demand both in domestic and global markets.
Xu Hui, Hidili's company secretary, says its coking-coal prices in the first half jumped 90% from the previous year and reached 1,500 to 1,600 yuan (US$220 to US$235) a metric ton at the end of June. He didn't give any forecast for prices in the second half.
Liu Jianzhong, deputy general manager of Shanxi Coking Coal Group, China's biggest coking-coal producer by output, told state media earlier this month that he expects coking-coal prices in the second half to rise 200 to 300 yuan a metric ton.
Coal prices will also likely be supported by the government's effort to crack down on smaller mines in hopes of reducing the number of deaths from accidents.
The government plans to shut more than 4,000 small coal mines and reduce their numbers to below 10,000 by 2010, from about 16,000 currently, the Xinhua News Agency reported this month. Of the total, 90% of the coking-coal mines are considered small ones, with much lower safety standards than larger, more established operations, Xinhua said.
Goldman Sachs says Hidili's share weakness, and its differentiation from thermal-coal producers, provide a good opportunity for investors to buy into the stock.
"The key advantage of coking coal verses thermal coal is a better demand profile and lower risk of government price control," Goldman analyst Song Shen wrote in late June. "We believe Hidili shares have been weak given the higher risk premium due to government price controls on thermal coal."
Analysts say the Chinese government won't likely intervene in the coking-coal industry, given the nature of the domestic metals market.
"The setting of power tariffs is regulated by the government in order to curb the country's rising inflation," says Nomura analyst Donovan Huang. "As China's steel prices are largely market-driven, coking-coal producers have lower government price-control risks."
Beijing last month imposed temporary price ceilings on thermal coal to protect the profitability of power producers using it. China's thermal-coal mines can't sell at prices higher than those reached June 19.
Aside from the booming market for coking coal, Hidili's shares are also attractive because of the company's acquisition plans, analysts say. Hidili intends to raise its reserves by acquiring mines in western Guizhou province.
The company said it aims to boost coal output to eight million metric tons by 2011, more than twice this year's target of 3.2 million tons. In 2007, it produced 2.27 million tons.
Given those projections, analysts are generally upbeat on Hidili's earnings for the next two years. Goldman Sachs said it expects the company's net profit to more than double this year, followed by a 75% increase in 2009, due by higher sales volume and prices.
In 2007, Hidili's net profit jumped more than sixfold to 570.3 million yuan from a year earlier.
Hidili's valuations are lower than those of peers. According to Thomson Reuters, the stock is trading at about 16.11 times projected 2008 earnings, compared with 18.95 times for Shenhua Energy and 17.08 times for China Coal.
Nonetheless, concerns that growth in China's steel industry could slow amid rising prices for raw materials might hurt Hidili's near-term share performance, analysts say.
"If steel-production growth slows down sharply, we could see coking-coal prices coming down," Goldman Sachs says.
Citigroup projects Chinese steel production at 640 million tons next year, up 16% from its 2008 forecast of 553 million tons. The nation accounts for slightly more than one-third of the world's demand for steel.
Mr. Xu, Hidili's company secretary, says he expects China's steel production will grow strongly until 2010 as "we have confidence Beijing will maintain sound economic growth over next two years."
Write to Yvonne Lee at yvonne.lee@wsj.com
Nuclear dismemberment
Published: July 27 2008 18:15
Ministers like to fulminate about the UK’s “buy now, pay later” culture. But when it comes to the sale of the state’s own assets, the government seems quite happy to take an IOU. Shareholders in British Energy, the nuclear power group 35 per cent-controlled by the government, look likely this week to be offered a share of the company’s future profits in a plan that should clear the way for it to be carved up between France’s EDF and Centrica of the UK.
As a way of breaking a stalemate over price, solutions such as these can be pragmatic. Contingency terms function like a call option, allowing the buyer to commit some money up front and then wait and see what the outcome is. They also usually create incentives for managers to stay on and work hard after the acquisition.
But the usage in this case seems odd. “Earn-outs” are normally seen in creative and knowledge-intensive industries such as technology and pharmaceuticals, where there may be genuine differences of opinion over the value of the intellectual capital the seller is bringing to the table. Here, there are hard (albeit ageing) assets in the form of eight nuclear plants, sites for a lot more, and a tangible trading history. The only unknowable is the degree to which nuclear power will be used in the future, but this government – and its putative Conservative successor – has assured British Energy there are no plans to reverse a commitment to supporting new building on its sites.
If a structure emerges as reported, it will reflect a cash-strapped Treasury’s determination to keep buyers onside – at a time when it is openly pondering one-off windfall taxes for energy companies. Meanwhile, minority shareholders should be wary. As long as an earn-out lets a value discrepancy stand between buyer and seller, both sides are forestalling the inevitable. As with the consumer credit bubble, somebody will win eventually and somebody will lose.
Copyright The Financial Times Limited 2008
Ministers like to fulminate about the UK’s “buy now, pay later” culture. But when it comes to the sale of the state’s own assets, the government seems quite happy to take an IOU. Shareholders in British Energy, the nuclear power group 35 per cent-controlled by the government, look likely this week to be offered a share of the company’s future profits in a plan that should clear the way for it to be carved up between France’s EDF and Centrica of the UK.
As a way of breaking a stalemate over price, solutions such as these can be pragmatic. Contingency terms function like a call option, allowing the buyer to commit some money up front and then wait and see what the outcome is. They also usually create incentives for managers to stay on and work hard after the acquisition.
But the usage in this case seems odd. “Earn-outs” are normally seen in creative and knowledge-intensive industries such as technology and pharmaceuticals, where there may be genuine differences of opinion over the value of the intellectual capital the seller is bringing to the table. Here, there are hard (albeit ageing) assets in the form of eight nuclear plants, sites for a lot more, and a tangible trading history. The only unknowable is the degree to which nuclear power will be used in the future, but this government – and its putative Conservative successor – has assured British Energy there are no plans to reverse a commitment to supporting new building on its sites.
If a structure emerges as reported, it will reflect a cash-strapped Treasury’s determination to keep buyers onside – at a time when it is openly pondering one-off windfall taxes for energy companies. Meanwhile, minority shareholders should be wary. As long as an earn-out lets a value discrepancy stand between buyer and seller, both sides are forestalling the inevitable. As with the consumer credit bubble, somebody will win eventually and somebody will lose.
Copyright The Financial Times Limited 2008
Hungry miners reap rich harvest from potash
Carl Mortished, World Business Editor
It is being called the Saudi Arabia of fertiliser, farmers are yelling about cartels and a massive land grab is under way to exploit the riches of the world's latest commodity shortage. The mineral in high demand is potash, the main source of potassium, an essential ingredient in fertiliser, and the global spotlight has settled on Saskatchewan.
A third of the world's potash is found in the Canadian province, where temperatures can plunge to an un-Arabian -40C in winter and where the mineral is extracted by mining it from salt deposits in ancient seabeds.
Last week, Rio Tinto, the mining giant, declared that it wanted 10 per cent of the world market in potash. Rio is looking elsewhere, at developing Potasio Rio Colorado, a large potash deposit in Argentina, the only significant resource in Latin America. It is targeting the plantations of Brazil. This comes two months after BHP Billiton, Rio's great rival, launched a C$284 million (£141 million) bid for Anglo Potash to gain full ownership of a Canadian potash joint venture.
The miners' enthusiasm comes from soaring potash prices in a world hungry for food and desperate for the means to grow more food as quickly as possible. The price of potash has jumped fivefold in three years - and farmers are getting anxious. Indeed, in the emerging markets of Asia, where landholdings are small and agriculture is dominated by peasant producers, the cost of fertiliser is becoming a political issue. In India, where the Government subsidises fertiliser, the budget of 310 billion rupees (£4billion) is expected to triple to 950 billion rupees.
Potash Corporation, the Canadian company that dominates the global market, signalled recently that it had shipped cargoes to Asian markets at spot prices of $1,000 per tonne. Last week Potash Corp revealed quarterly earnings of $900 million (£451 million), up 60 per cent on last year
At a recent fertiliser conference in Vienna, U.S. Awarthi, managing director of the Indian Fertiliser Co-operative, one of the world's leading buyers, accused producers of combining against consumers to create cartels of suppliers. “There is a control of phosphate suppliers and control of potash which are creating havoc with agriculture,” he said. “We are appealing to the United Nations to put some fear of God in these cartels.”
The world consumes about 60million tonnes of potash and since the late 1970s demand for potash has been fairly stable. According to Barry Bain, a director of Fertecon, the fertiliser consultancy, a small group of suppliers in Canada, Russia and Germany has been able to manage supply. “It's an oligopoly,” he said. “Three marketing organisations represent about 70 per cent of sales of potash.”
These comprise Canpotex, the marketing organisation for the Canadian triumvirate of Potash Corporation, Mosaic and Agrium; BPC, representing the Belarussian and Russian producers Uralkali and Belaruskali; and K+S Kali, the German producer.
Rio considers that the present spot price is not sustainable and will subside, but it is expecting prices to remain high, above $700 per tonne. The additional production it is building in Argentina will be mopped up quickly. “We are optimistic that demand will take up the new supply,” Kevin Fox, Rio's general manager in Argentina, said.
“This is a supply-and-demand story,” Mr Bain said. “When crop prices are high and a farmer can see he will lose yield if he doesn't add fertiliser, he is prepared to absorb the extra cost. There is a net gain in yield from adding potash to crops.”
Grain prices, which had been soaring, have subsided, but they remain high and demand for more food in the world is still strong. That suggests that the potash sheikhs of Saskatchewan, deep in the sometimes frozen hinterlands of Canada, will continue to reap a good harvest.
It is being called the Saudi Arabia of fertiliser, farmers are yelling about cartels and a massive land grab is under way to exploit the riches of the world's latest commodity shortage. The mineral in high demand is potash, the main source of potassium, an essential ingredient in fertiliser, and the global spotlight has settled on Saskatchewan.
A third of the world's potash is found in the Canadian province, where temperatures can plunge to an un-Arabian -40C in winter and where the mineral is extracted by mining it from salt deposits in ancient seabeds.
Last week, Rio Tinto, the mining giant, declared that it wanted 10 per cent of the world market in potash. Rio is looking elsewhere, at developing Potasio Rio Colorado, a large potash deposit in Argentina, the only significant resource in Latin America. It is targeting the plantations of Brazil. This comes two months after BHP Billiton, Rio's great rival, launched a C$284 million (£141 million) bid for Anglo Potash to gain full ownership of a Canadian potash joint venture.
The miners' enthusiasm comes from soaring potash prices in a world hungry for food and desperate for the means to grow more food as quickly as possible. The price of potash has jumped fivefold in three years - and farmers are getting anxious. Indeed, in the emerging markets of Asia, where landholdings are small and agriculture is dominated by peasant producers, the cost of fertiliser is becoming a political issue. In India, where the Government subsidises fertiliser, the budget of 310 billion rupees (£4billion) is expected to triple to 950 billion rupees.
Potash Corporation, the Canadian company that dominates the global market, signalled recently that it had shipped cargoes to Asian markets at spot prices of $1,000 per tonne. Last week Potash Corp revealed quarterly earnings of $900 million (£451 million), up 60 per cent on last year
At a recent fertiliser conference in Vienna, U.S. Awarthi, managing director of the Indian Fertiliser Co-operative, one of the world's leading buyers, accused producers of combining against consumers to create cartels of suppliers. “There is a control of phosphate suppliers and control of potash which are creating havoc with agriculture,” he said. “We are appealing to the United Nations to put some fear of God in these cartels.”
The world consumes about 60million tonnes of potash and since the late 1970s demand for potash has been fairly stable. According to Barry Bain, a director of Fertecon, the fertiliser consultancy, a small group of suppliers in Canada, Russia and Germany has been able to manage supply. “It's an oligopoly,” he said. “Three marketing organisations represent about 70 per cent of sales of potash.”
These comprise Canpotex, the marketing organisation for the Canadian triumvirate of Potash Corporation, Mosaic and Agrium; BPC, representing the Belarussian and Russian producers Uralkali and Belaruskali; and K+S Kali, the German producer.
Rio considers that the present spot price is not sustainable and will subside, but it is expecting prices to remain high, above $700 per tonne. The additional production it is building in Argentina will be mopped up quickly. “We are optimistic that demand will take up the new supply,” Kevin Fox, Rio's general manager in Argentina, said.
“This is a supply-and-demand story,” Mr Bain said. “When crop prices are high and a farmer can see he will lose yield if he doesn't add fertiliser, he is prepared to absorb the extra cost. There is a net gain in yield from adding potash to crops.”
Grain prices, which had been soaring, have subsided, but they remain high and demand for more food in the world is still strong. That suggests that the potash sheikhs of Saskatchewan, deep in the sometimes frozen hinterlands of Canada, will continue to reap a good harvest.
Egypt to squeeze growth out of desert
By Heba Saleh in Cairo
Published: July 27 2008 22:57
For about six weeks from mid-May every year, grapes from the Shorouk farm in the Egyptian desert fill a gap on the shelves of European supermarkets waiting for southern European growers to begin sending grapes their way.
Shorouk is one of many modern farms in the re-claimed lands of the West Delta desert region driving a boom in Egyptian agricultural exports that reached $1.5bn (€955m, £750m) in 2007, up some 55 per cent over the previous year.
Egypt's grapes find space on European shelves
Behind the boom is the country’s cheap labour, proximity to Europe and its ability to grow high-value crops such as grapes, citrus fruit, vegetables and ornamental plants.
But for the desert farmers of Egypt the main challenge remains how to maximise the return on their water usage.
“The game here is how to get the maximum yield with the best quality . . . using the minimum amount of water,” Adel El Ghandour, one of the Shorouk farm’s owners, says.
At the moment the 500,000 cultivated acres in the West Delta are watered from an aquifer that is quickly becoming depleted.
A World Bank-funded project to supply piped water from the Nile is under way. But before it can be implemented Egypt had to obtain the agreement of the other nine Nile basin states.
Egypt’s share of the river is fixed by international agreements and Egyptian authorities are increasingly aware of the importance of using water judiciously if the needs of their expanding population are to continue to be met.
In the West Delta the farmers use modern methods such as drip irrigation which delivers exactly the right amount of water to each plant. Very little is lost.
But it is a very different picture in the ancient lands of the Delta and the Nile Valley.
Here the soil is fertile and the farmers use the age-old method of flood irrigation. It means water is used to cover the entire surface of the land to be irrigated. Almost half of it is wasted.
Experts say it is ironic that an acre in the old lands uses three times as much water as one in the reclaimed desert farms.
Another problem is the choice of crops. Rice and sugar cane, for instance, consume enormous amounts of water, but they are grown extensively.
There is consensus that agriculture in the old lands can be made more water-efficient but that conditions there cannot replicate those in the reclaimed desert farms.
Land holdings in the old areas are tiny and the farmers do not have the ability to keep abreast of international markets such as those of the West Delta.
In addition, small farmers are often too poor to make the necessary investments in modern irrigation systems.
Laws passed after the 1952 revolution broke up the big feudal estates into small holdings which were further divided up as the land was passed down through generations of children and grandchildren.
But the Egyptian government says it plans to embark on a project to overhaul irrigation in some 5m acres in the Delta in order to reduce lost water.
“I think with the prices of crops today and with the level of income from agricultural products where it is, this project is very feasible,” Rachid Mohamed Rachid, the minister of trade and industry, says.
“If we can economise on water usage this can give us the chance to increase our agricultural land by 2m-3m acres through desert reclamation.” Food security remains an important plank of the Egyptian government’s policy.
Crops that do not provide the maximum return on water are still grown because it is not certain they can be bought on the world market.
Egypt grows half the wheat it consumes, but it is still the world’s largest importer of the cereal.
With the recent increases in food prices internationally, many countries have slapped export bans on strategic crops such as wheat and rice to ensure that there are affordable supplies for local populations.
There is now a ban on the export of Egyptian rice.
“Food security is coming back as a main issue of concern of many countries because the ability to flow goods across borders is not guaranteed,” Mr Rachid says.
Copyright The Financial Times Limited 2008
Published: July 27 2008 22:57
For about six weeks from mid-May every year, grapes from the Shorouk farm in the Egyptian desert fill a gap on the shelves of European supermarkets waiting for southern European growers to begin sending grapes their way.
Shorouk is one of many modern farms in the re-claimed lands of the West Delta desert region driving a boom in Egyptian agricultural exports that reached $1.5bn (€955m, £750m) in 2007, up some 55 per cent over the previous year.
Egypt's grapes find space on European shelves
Behind the boom is the country’s cheap labour, proximity to Europe and its ability to grow high-value crops such as grapes, citrus fruit, vegetables and ornamental plants.
But for the desert farmers of Egypt the main challenge remains how to maximise the return on their water usage.
“The game here is how to get the maximum yield with the best quality . . . using the minimum amount of water,” Adel El Ghandour, one of the Shorouk farm’s owners, says.
At the moment the 500,000 cultivated acres in the West Delta are watered from an aquifer that is quickly becoming depleted.
A World Bank-funded project to supply piped water from the Nile is under way. But before it can be implemented Egypt had to obtain the agreement of the other nine Nile basin states.
Egypt’s share of the river is fixed by international agreements and Egyptian authorities are increasingly aware of the importance of using water judiciously if the needs of their expanding population are to continue to be met.
In the West Delta the farmers use modern methods such as drip irrigation which delivers exactly the right amount of water to each plant. Very little is lost.
But it is a very different picture in the ancient lands of the Delta and the Nile Valley.
Here the soil is fertile and the farmers use the age-old method of flood irrigation. It means water is used to cover the entire surface of the land to be irrigated. Almost half of it is wasted.
Experts say it is ironic that an acre in the old lands uses three times as much water as one in the reclaimed desert farms.
Another problem is the choice of crops. Rice and sugar cane, for instance, consume enormous amounts of water, but they are grown extensively.
There is consensus that agriculture in the old lands can be made more water-efficient but that conditions there cannot replicate those in the reclaimed desert farms.
Land holdings in the old areas are tiny and the farmers do not have the ability to keep abreast of international markets such as those of the West Delta.
In addition, small farmers are often too poor to make the necessary investments in modern irrigation systems.
Laws passed after the 1952 revolution broke up the big feudal estates into small holdings which were further divided up as the land was passed down through generations of children and grandchildren.
But the Egyptian government says it plans to embark on a project to overhaul irrigation in some 5m acres in the Delta in order to reduce lost water.
“I think with the prices of crops today and with the level of income from agricultural products where it is, this project is very feasible,” Rachid Mohamed Rachid, the minister of trade and industry, says.
“If we can economise on water usage this can give us the chance to increase our agricultural land by 2m-3m acres through desert reclamation.” Food security remains an important plank of the Egyptian government’s policy.
Crops that do not provide the maximum return on water are still grown because it is not certain they can be bought on the world market.
Egypt grows half the wheat it consumes, but it is still the world’s largest importer of the cereal.
With the recent increases in food prices internationally, many countries have slapped export bans on strategic crops such as wheat and rice to ensure that there are affordable supplies for local populations.
There is now a ban on the export of Egyptian rice.
“Food security is coming back as a main issue of concern of many countries because the ability to flow goods across borders is not guaranteed,” Mr Rachid says.
Copyright The Financial Times Limited 2008
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