Comment: Unscrupulous energy utilities try to lock customers in at peak tariffs

The Daily Express today ran the headline " £100 OFF GAS BY CHRISTMAS" this predicted cut in gas bills comes after the wholesale cost of gas dropped 30 per cent from its summer peak. In a message of hope to households, TheEnergyShop.com said power giants should soon pass on these lower prices to their customers.

This headline came as no big surprise to me, since I had rather expected a falling off in gas prices after the summer peak in wholesale prices began to soften. While I have certain doubts over how swiftly utilities companies are likely to pass these savings on to customers since they are always quick to pass on costs but slow to pass back savings, I was surprised and concerned to receive a direct marketing call from British Gas around the time that wholesale prices started softening, aggressively pushing a pricing plan that would lock me into current gas rates at for the next year.

When I asked the sales person "what happens if gas prices go down?!" his only answer was "When did your gas bill last go down, this is an opportunity you should not miss - lock your prices in now". Despite my concern at the danger of locking in prices at peak level the sales person aggressively pushed this plan (the contract I discovered when I really pushed also including a £70 escape fee).

Call me cynical, but my concern is, that British Gas knew very well - far better we may reasonably presume than myself - that prices had likely peeked and were thus expecting downward pressure on rates, and were actively trying to lock customers in at peak level while they could. I never had an offer to lock prices before, but then prices were going up before. I happened to be on the whole informed thanks to the nature of my job, had I not been, I may very well have taken the guys point and locked myself in to a very disadvantageous deal and found myself unable to benefit from falling energy prices amidst a deepening recession.

This sort of shameless abuse of the inevitably often under informed customer seems to be relatively common practice across many service providers all of whom make extensive use of direct marketing campaigns. A consultation of other utility company web sites like EDF reveils that many are recommending fixed price plans.

I would be interesting to investigate further the direct marketing strategies of these firms in particular, and the consumer groups and demographics they are target ting.

News: Russia to buy Iceland!

Reuters just published that Iceland's central bank announced today Russia's agreement to provide the country with loans of 4 billion euros ($5.4 billion) - about half of Iceland's c.$11 billion GDP.

The central bank said the loans were for 3-4 years on terms that would be 30-50 points above Libor rates (very attractive loan terms).

The Icelandic Kroner has stabilised dramatically following this announcement and regained some of the value it has lost over recent days.

Figure 1: Icelandic currency









The big question is why? And what does this mean for the future? The loan terms etc. suggest Russia is not pricing risk for the well run but high risk Icelandic economy the same way the market is (see Figure 2). This however, is not a financial investment for Russia - the geopolitical implications for the world may be far more significant than are the economic implications (though for Iceland of course both economic and geopolitical implications are likely to be significant!).


Figure 2: Iceland - Credit Default Swaps (market price for risk of default)










Shall write on this as soon as I have a moment!

Analysis: The return of history and the beggining of the end for US empire?

Does Wall Street’s crack-up presages the beginning of the end for American power and global dominance? Empires of the past have seen their ideologies corrupt, their economies corrupt, their currencies devalue, finally loosing their military supremacy. The US increasingly is relying on its military. Cracks appearing here as well (Georgia etc.).

The US is short of metals, short of oil, increasingly short of water for agriculture, has debt beyond belief, a crippled and dysfunctional financial system, a population accustomed to living beyond there means, consuming things they do not need and cannot afford, as well as the most powerful military force in the world.

Russia has heaps of savings, no liquidity concerns given the cash government is sitting on, natural resources - oil, gas, minerals, vast agricultural land and resources etc. Russia is increasingly challenging the value of foreign investment, (macro economic problem according to Russia, other countries may follow) for less volatile internal investment and displaying increasingly assertive foreign policy. I have to say, long term, if I were a betting man, my money would not be on the USA.

There is increasing posturing for control and resources - new players, China, Russia, as well as non state players like islamist movements - this is leaving Americans feeling increasingly insecure. Unfortunately, the American reaction seems to be to fall back on military power as recent global events (Georgia etc.) seem to be pushing voters more and more to the "reassuring" figure of McCaine - veteran generation - but this is not going to help America's relationship with the world. If America wants to retain its grip on power it needs to display a little more benevolence. If I were America I would be doing everything I could right now to make sure I had some friends ahead of when the revolution comes, since it is obviously going to be America first with its back up against the wall - Scary thoughts.

News: Norway's wealth fund blacklists Rio Tinto

Ethics of investing, can activist shareholders make a difference? Here a major investor talks with its feet by walking away from Rio Tinto for stomping all over local environment in Indonesia with its heavy mining boots.

Reuters reported today that Norway's sovereign wealth fund sold out its stake in Rio Tinto - the worlds largest mining company - in protest against its environmental credentials.

Specific reference was made to the Grasberg mine in Indonesia, and the Finance Ministry is reported as having said yesterday Rio Tinto was a joint venture partner in this mine with US-based Freeport McMoRan Copper & Gold, which was blacklisted by the Norwegian fund in 2006, and as having referred to the "severe environmental damage'' being inflicted at this site.

Rio Tinto spokesman Nick Cobban is reported as saying that the environmental measures at the mine were deemed satisfactory by independent audits. He also said that even though Rio Tinto owns a 40% stake in the mine, it is Freeport which runs the operations. "We are surprised and disappointed by the ministry's decision,'' Mr Cobban said.

The ministry also said however that it decided to continue its investments in US-based Monsanto, which develops genetically modified plants, despite recommendations by their ethics council to exclude the firm over concerns it was using child labor in India.

According to the ministry, Norway's ownership activities in Monsanto "have contributed to a significant reduction in the use of child labour in the company's hybrid cotton seed production in India.''

Rio shares had another bad day, losing 5.1%, or $5.47, to close at $102.03, their lowest since September. Major investors and minor stake holders should get active!

Event: Media Talk - Is Somalia the new Front in the War on Terror?

Thu 11th September, 7.30pm Price: £10.00

Chaired by Patrick Smith (Africa Confidential)

Ahmed Abdisalam (TFG)
Mohamed Gure (Somali Concern Group)
Sally Healy (Chatham House)
Mary Harper (BBC)


Location: 13 Norfolk Place, London W2 1QJ

This event will be webcast live on Fontline Club's website - you can view it for free via the link - www.frontlineclub.com


Since 1991, Somalia has been a dangerous, violent and lawless place, home to numerous conflicts and civil war. From localised inter-tribal and clan warfare, to regional tensions and international disputes, Somalia remains a highly complex battleground. Is Somalia really the new home to Al-Qaeda and the next front in the War on Terror?

Somalia's intricate and fiercely loyal clan-based system means that the country is primarily under the control of clan militia. On a regional level, the longstanding tensions with Ethiopia continue, while the proxy war between the US-backed Ethiopian government and the Eritrean government - which backs the Islamic Courts Union (ICU) - adds an international dimension to the wars.

As power struggles and violent clashes continue between the Transitional Federal Government (TFG) and the ICU in the centre and south of the country, the emergence of Al-Shabab - whom the US have branded a terrorist group linked to Al Qaeda - has exacerbated the situation and fuelled speculation that Somalia is the new front on terror and harbouring international terrorist networks.

While the risk of new fighting between Ethiopia and Eritrea is apparently higher than ever as the UN ends its border peacekeeping mission, we examine and demystify the many wars in which Somalia is involved, and which make it such a violent and politically charged country. Is Somalia really the new front on terror?

Ahmed Abdisalam is Deputy Prime Minister and Minister of Information, Youth & Sports for the Somali Transitional Federal Government.

Mohamed Gure is a Somali political activist and one of the founders of the Somali Concern Group (SCG) - a political organization that represents the interests of Somalis at home and abroad. The SCG was established in June 2003 and is a voluntary non-governmental, non-profit organization established to promote peace and reconciliation between warring Somali groups through dialogue.

Mary Harper is an African specialist for the BBC.

Sally Healy OBE is an Associate Fellow of the Africa Programe at Chatham House. She was formerly an East Africa specialist at the Foreign Office. She led a collaborative study of conflict in the Horn of Africa, the findings of which were published by Chatham House in June 2008: Lost Opportunities in the Horn of Africa: how Conflicts Connect and Peace agreements unravel.

Patrick Smith is editor of Africa Confidential

Links

Africa Confidential
http://www.africa-confidential.com/home

Frontline Club
http://www.frontlineclub.com/index.php

Blogger: Somalia
http://crigler-somalia.blogspot.com/

Analysis: Has oil gone M.A.D?

Economic mutually assured destruction? What do trends in high oil prices
mean for global geopolitical stability? Who can afford to disrupt oil
production or supplies? Importers cannot sustain higher prices and fear the
pain, exporters cannot afford the damage higher prices would do to their
export markets and inevitable demand side adjustment.

Given the mutual
interdependence of Russian and European markets, rumoured threats published today (Kommersant and the Telegraph in the UK) that Russia could cut some oil supplies to Europe as soon as Monday in response to European threats of sanctions seem unlikely to materialise, as do the sanctions themselves. Since August 8th and the outbreak of the current Georgia conflict, un-surprisingly there has been a Westward flight of money from Russia. Renaissance Capital suggest US$8-20bn has left the country August 8th to 15th and the flight continues in response to geopolitical destabilisation.
What do trends in high oil prices mean for geopolitical stability?

The world has witnessed a string of "oil wars" as concerns over energy
security rise and major economic powers vie to secure resources for present
and future. With oil prices now as high as they are however, and
threatening to shoot back up to their recent record levels and beyond at
the slightest provocation, the geopolitical situation seems to have grown
increasingly precarious, precarious to the point perhaps, where it is not
unreasonable to speculate that where oil has precipitated conflict, at
current prices oil may have a certain geopolitical stabilising affect -
after all with oil prices already at nose-bleed levels, the pain that would
inevitably be induced by any conflict in an oil region and the consequent
disruption to supply/production, seems likely to have an inhibiting effect
(not least of course for a major oil importing economy such as the US).
This is not a happy or a comfortable equilibrium however, since it is an
order bound together only by a principle of mutually assured destruction
(M.A.D) and increasing competition for resources will increasingly stress
this balance.

With ever more fractious power manoeuvres in eastern Europe, and the Arctic
increasingly crowded with a buzz of survey ships and submarines from all
sides of the circle fighting over where continental shelves begin and end
etc. it seems clear that, current bickering over who is starting the new
cold war aside, we are clearly returning to a cold war type geopolitics.
While things have clearly been brewing for some time, it is sobering to
speculate on the significance of the latest developments in the Georgia
conflict which apparently marks a clear aggressive shift in Russian foreign
policy: an ever more confident and assertive Russia has declared itself
"not afraid of another cold war" and Russia's representative to NATO Dmitri
Rogozin declaring that "There are two dates that have changed the world in
recent years: September 11, 2001, and August 8, 2008," Mr Rogozin explained
that the West has not fully grasped how the Georgia conflict has heightened
Russians' fears about being surrounded by NATO. "They are basically
identical in terms of significance. September 11 motivated the United
States to behave really differently in the world," he said. "That is to
say, Americans realised that even in their homes, they could not feel safe.
They had to protect their interests, outside the boundaries of the US. For
Russia, it is the same thing."

The undeniable economic interdependence of Russia and the west as suppliers
and markets is bound we must expect, to keep this a cold war and to keep
the situation from escalating beyond certain bounds, but given the shift in
Russian sentiment and confidence, there seems to be something of a question
mark over what to expect next from Russia which cannot be good for business
relations and this incident may well demonstrate how tied, in many ways,
Europe's hands are as they are forced to accept the situation.

Event: The Credit Crunch

Graham Turner in conversation with economics editor for The Guardian Larry Elliot

Thursday, September 11, 2008, 6:30pm - 8:00pm
Waterstone's, 82 Gower St

Something else for your diary. I will review this book and raise some questions concerning the credit crunch and global economy post event. For now here is a brief outline of book and event for any body interested to check it out or come along:

This book argues that the current financial turmoil signals a crisis in globalisation that will directly challenge the free market economic model. Graham Turner claims to show that the housing bubbles in the West were deliberately created to mask the damage inflicted by companies shifting production abroad in an attempt to boost profits. As these bubbles burst, economic growth in many developed countries will inevitably tumble he says. The Japanese crisis of the 1990s shows that banks and governments may struggle to contain the fallout he argues, stating that the problem has not been limited to the US, UK and Europe but that housing bubbles have become endemic across wide swathes of emerging market economies. As the West slides, Elliot says, these countries will see an implosion of their credit bubbles too, shaking their faith in the free market.

Turner is an economic forecaster, who founded and runs an independent financial and economic consultancy - GFC Economics (See link below).

Graham will be discussing and signing his new book with Larry Elliot of The Guardian

Tickets £2 redeemable against the price of the book

Links:

Book
http://www.plutobooks.com/cgi-local/nplutobrows.pl?chkisbn=9780745328102&main=

GFC Economics
http://www.gfceconomics.com/index.html