Archive for the ‘Business’ Category

Saudi oil policy has ensured the survival of the shale oil producers

January 1, 2016

WTI Crude Oil Price. $107 in June 2104 and $37 yesterday (graphic Bloomberg).

WTI Crude oil price 2014-2015 (Bloomberg)

WTI Crude oil price 2014-2015 (Bloomberg)

In years to come the Saudi strategy through the last 2 years will form the basis of case-studies in business school about classic strategies which back-fired.

The Saudi overproduction has not managed – as they hoped – to kill off the US shale oil producers during 2015. They have reduced their costs much more sharply than the Saudi’s calculated for. They have also developed the ability to “mothball” and restart their wells at short notice. Iranian oil will come into the market in 2016 and their production costs are even lower than the Saudi cost.

Fighting for market share – while the market is down – is an expensive business. But I think the fundamental error in the Saudi strategy is believing that they will be able to retain market share when the market turns up. Not only will they have to fight off the Iranians but with an increase in demand, all the shale producers will be back. Moreover new shale producers in the UK and Asia are waiting in the wings. The Saudi attack on the shale oil producers has only made them far more competitive, very much faster than they ever expected. With the US experience to draw on, the learning curve for new producers in new countries will be that much easier and faster to traverse.

Reuters:

The U.S. shale industry, meanwhile, surprised the world again with its ability to survive rock-bottom crude prices, churning out more supply than expected, even as the sell-off in oil slashed by two-thirds the number of drilling rigs in the country from a year ago.

The United States also took a historic move in repealing a 40-year ban on U.S. crude exports to countries outside Canada, acknowledging the industry’s growth.

“You do have to tip your hat to the U.S. shale industry and their ongoing ability to drive down costs and hang in there, albeit by their fingernails,” said John Kilduff, a partner at Again Capital, an energy hedge fund in New York.

The bottom line is that Saudi oil is no longer without alternatives. That shale oil producers will disappear is a Saudi fantasy. In fact they have now helped the shale oil industry to become lean and mean enough such that their survival is guaranteed. The oil prices during 2015 were insufficiently low to drive an economic recovery but that could well come in 2016. The number of oil producers will only multiply and Saudi oil revenues will be permanently impaired.

Tax avoidance is a measure of the incompetence of the lawmaker and the competence of the taxpayer

December 23, 2015

Taxation is fundamentally a confiscation of private assets for public purposes. It may well be necessary. Tax laws may be fair or unfair. Good citizenship – individual or corporate – then requires that prevailing rules of taxation law be followed, due amounts calculated and paid. Individuals and companies are required to cooperate in calculating the taxes they owe to their tax jurisdictions under existing rules and to pay such amounts in a timely manner.

I find it irritating when the lawmakers then criticise taxpayers for the deficiencies of the laws they have formulated. It has become popular for politicians to criticise large companies and wealthy individuals for “tax avoidance” (which is perfectly legal) as being cases of “not paying your fair share of tax”. It strikes me as a rather irrational – if populist – argument. Tax laws are not inherently, and of themselves, “fair”. In fact the question of “fairness” is not a criteria when it comes to paying or not paying tax. It comes into play only in the formulation of the enabling law. Once a tax law is passed, all legal entities within the jurisdiction are required to pay – whether or not it is “fair” in somebody’s opinion. Many tax laws are intentionally “unfair” to try and implement some policy or other, or to encourage some particular behaviour. When politicians start referring to the “spirit of the law” not being followed, it is just a confession of their own incompetence in formulating laws to implement their intentions.

As law-abiding individuals and companies, we calculate and pay our taxes according to the rules that prevail. We use all available rules of allowable deductions and off-sets and deferred taxes and tax-breaks to minimise the amount of personal assets that are to be confiscated by the State. We use accountants and experts to navigate the complexities and intricacies of tax legislation. No individual is ever expected to pay more than the prevailing rules require. Any individual who does pay more than required, and assuming his perfectly rational objective is to minimise the tax to be payed, is fundamentally incompetent. Any company which pays more tax than it should also demonstrates incompetence and is not demonstrating due care of its investors’ assets.

Individuals and corporations are not required or expected to pay more than what is due under the rules prevailing. The issue of ethics is in play when the rules are formulated and is also involved in the following of the rules. The act of payment is an ethical issue but minimisation of tax due is a matter of competence, not of ethics. Paying more taxes than are due demonstrates incompetence and gains no ethical credits. So when there is criticism of companies for “not paying enough tax”, the real failure is with the politicians who have made the deficient rules – not with the individuals or companies who have followed the prevailing rules to their own best advantage.

I would certainly not wish to invest in any company which was not sufficiently competent to keep its taxes to a minimum.

Tax evasion is illegal and demonstrates a lack of ethics with the taxpayer. Tax avoidance is a measure of the incompetence of lawmakers and of the competence of the taxpayer. I would go so far as to say that to pay more tax than is due is not just incompetent, but also unethical in being deficient in the due care of resources to be expected of any responsible entity.

India still ranks abysmally low in the ease of doing business

September 18, 2015

Two reports have just been issued. The first is the World Bank’s assessment of doing business in India where India’s ranking among countries is depressingly low (considering the size of India’s economy). At 142nd of 189 countries India is in the bottom quartile of all countries. The second report assesses the relative success of the various Indian states in implementing business reforms and is issued by the World Bank and the Indian Government.

  1. Doing Business India 2015 World Bank
  2. State Assessment Report 14 September 2015

The WB assessment is broken down into 10 main areas and they have ranked 189 countries. In most categories the Indian ranking is embarrassingly low. (Even where the ranking is not too embarrassing, I note that there is a downside. Getting credit is apparently not too difficult but the other side of the coin is that the banks are sitting with a great deal of bad debt. Similarly minority interests are well protected but there are many cases of tyranny by the minority). I show the Indian rankings alongside those for Russia, China, Bangladesh and Mexico for reference.

In the overall ranking for Setting up a business India comes in at a lowly 142 of 189 countries. (Mexico 39, Russia 62, China 90, India 142, Bangladesh 173)

The rankings in the 10 main sub-categories are

  1. Starting a business –  Russia 34Mexico 67, Bangladesh 115, China 128, India 158
  2. Dealing with construction permits – Mexico 108, Bangladesh 144, Russia 156, China 179, India 184
  3. Getting electricity – Mexico 116, China 124, India 137, Russia 143, Bangladesh 188
  4. Registering property – Russia 12, China 37, Mexico 110, India 121, Bangladesh 184
  5. Getting credit – Mexico 12, India 36, Russia 61, China 70, Bangladesh 131
  6. Protecting minority investors – India 7, Bangladesh 43, Mexico 62, Russia 100, China 132
  7. Ease of paying taxes – Russia 49, Bangladesh 83, Mexico 105, China 120, India 156
  8. Trading across borders – Mexico 44, China 98, India 126, Bangladesh 150, Russia 155
  9. Enforcing contracts – Russia 14, China 35, Mexico 57, India 186, Bangladesh 188
  10. Resolving insolvency – Mexico 27, China 53, Russia 65, India 137, Bangladesh 147

The second report deals with the performance of the different states in implementing reforms. Of course the states ranked high are now crowing over those ranked lower down. The hope of the Indian government is that this league table will enhance competition between states and will add an impetus to development.

State rankings September 2015

The ranking of the NCR of Delhi is almost pathetic and lies even behind an Uttar Pradesh (boosted by Noida) and a Haryana (boosted by Gurgaon). And while Gujarat is crowing over Bihar and Tamil Nadu peevishly questions the data, they all seem to forget that these are just state rankings for a country ranking which is abysmally low. States lying below 50% are at levels comparable to the lowest 10% of the 189 countries that have been ranked.

GE gets approval from the EC and Ansaldo gets Alstom GT technology

September 8, 2015

UPDATE:

More details are now emerging of what exactly will go to Ansaldo. It seems that Ansaldo will get PSM, technology for the GT26 and the GT36 (which does not exist yet) including the test facilities at Birr and the LTSA’s for 34 GT26s sold by Alstom. It is good that it is settled but the European Commission has not – in my opinion – got it quite right.

  1. The technology seems to be restricted to 50Hz technology (after all, all of Europe is 50Hz). So a current GT26 and its potential upgrades should – theoretically – be available from Ansaldo but not the GT24 (60 Hz). It is the US market (60 Hz) which has access to cheap gas and the 50Hz market will take a while and will be dependant on fracking taking off in Europe. Ansaldo will probably need to take all liabilities to get their first 2 or 3 GT26 engines placed. And even then finding a suitable utility customer to host the machines will pose a challenge.
  2. GE will face no competition in the US from an Ansaldo GT24 and probably Ansaldo is not permitted to enter 60 Hz markets except with engines they develop themselves.
  3. The development of the GT36 is a long way from being commercialised and the assumption by the EC that this development will be completed by Ansaldo is almost “pie in the sky”. Of course it is theoretically possible! A 60Hz GT34 is even less likely.
  4. The EC’s assumption that PSM will be able to service engines like the GE 9FA under Ansaldo ownership is flawed. It is one thing to have an Alstom owned PSM servicing such engines considering that Alstom was the main source of GE 9FA until 2000 (when they acquired the ABB gas turbine business), and quite another to have an Ansaldo owned PSM doing such service.

I suspect that GE and Alstom have talked down the difficulties that Ansaldo will face and the EC have bought the sales pitch. Or it could be that the EC does know that this commercialisation of the GT36 (and maybe even the production of the GT26) by Ansaldo will likely not happen, but it gives them a face saving way of approving the GE bid.

Money talks. And we need to bear in mind that GE pays only €300 million less which must now presumably come to Alstom from Ansaldo. Just €300 million as the price for the ongoing service business and the assets at the R &D facilities at Birr does not leave much over actually for the technology that has been purchased.

But

  1. does Ansaldo have the additional €500+ million that they will need to get a GT26 into production?
  2. And do they have another €2 billion (at least), along with the will and the capability, to bring a commercial GT36 into being??

PowerMag:

The commission’s in-depth review, which focused on markets for the sale and servicing of heavy-duty gas turbines operating at 50 Hz, revealed that a GE-Alstom merged entity would have accounted for more than 50% of the European Economic Area market.

It was also specifically concerned that the merger would have risked eliminating an important innovator. “The transaction as notified would have reduced customer choice, R&D [research and development] and innovation, with serious risks that certain Alstom heavy duty gas turbine models would be discontinued and that the newly developed and most advanced model (GT 36) would not be commercialised. This was of concern for many market participants, including major European power utilities,” the commission said.

The merger was approved on the condition that the parties offered to divest Alstom’s GT 26 and GT 36 turbine technology, existing upgrades and pipeline technology for future upgrades, a large number of Alstom R&D engineers, and two test facilities for the GT 26 and GT 36 turbine models in Birr, Switzerland.

The parties will also need to divest long-term servicing agreements for 34 GT 26 turbines recently sold by Alstom, and Alstom’s Power System Manufacturing (PSM) subsidiary. The commission was concerned that if GE absorbed PSM, it would have eliminated competition for the servicing of GE’s mature heavy-duty gas turbines (like its 9FA model) that are installed in existing plants. “As GE is the dominant player in this market and PSM its most significant potential competitor, this would have created a risk of higher prices and less innovation,” it said.

34 gas turbines is a small part of Alstom’s fleet but it may be enough to give Ansaldo a fighting chance of building up experience over – say – 5 years or so.

I remain of the opinion that this is a good deal for Alstom and GE. However, I also remain of the opinion that some 8,000 jobs of those being transferred from Alstom to GE or to Ansaldo will be at risk. Ansaldo surely has a chance for becoming one of the “big 4”. But they may have difficulty chewing or swallowing what they have just bitten off.

Another thought that occurs to me is that the EC process is itself flawed. The solution (divestment to Ansaldo), which has delayed the deal by a year, smacks more of ego and politics rather than protection of competition. The actual protection of competition achieved is minimal.

WSJ: ……. GE already manufactures gas turbines of corresponding size to the two Alstom models, and the company says it will retain licenses that will enable it to compete for business servicing turbines made by other manufacturers—an opportunity for future earnings growth.

The U.S. company will also divest the long-term servicing contracts for 34 turbines that have already been installed by Alstom. GE has said that Alstom’s servicing contracts were a key attraction of the deal, but a person close to the deal said the divested contracts amounted to only 4% of Alstom’s total installed base.

“I am glad that we can approve this transaction, which shows that Europe is open for business and that Europe-based technology can thrive and attract foreign investment,” Ms. Vestager said.


 

Well, the European Commission has given GE approval for the acquisition of Alstom’s power and grid businesses. But Ansaldo will now get Alstom’s large GT technology (it’s not clear to what extent), the testing facilities in Birr and some substantial service business. Whether Ansaldo actually gets the GT24 and GT 26 engines or just technology is not clear yet.

Previous posts: https://ktwop.com/tag/alstom/

Bloomberg:

As part of GE’s offer, Ansaldo will acquire Alstom’s technology for large and very large gas turbines. Alstom will also cede two test facilities for these turbine models in Birr, Switzerland, the EU said.

“Ansaldo will have a true fighting chance” of competing in the European market, Margrethe Vestager, the EU’s competition commissioner, told reporters in Strasbourg, France.

The Italian firm should gain a foothold in the maintenance business by taking over long-term contracts Alstom holds to service 34 previously-sold gas turbines, the commission said. Ansaldo will also acquire Alstom’s Power Systems Manufacturing unit which can service gas turbines of different makes, the regulator said.

With PSM going to Ansaldo, Shanghai (via PSM) gets a foothold in the US for 3rd party engine service – for whatever that may be worth. But I am not very hopeful. As an owner, I would not be very keen on asking an Ansaldo owned PSM to service a Siemens or a GE engine or even an old Westinghouse engine.

Good luck to Ansaldo anyway.

It will be interesting to see if Shanghai Electric can provide sufficient influence to make this work. Ansaldo on its own would have very little chance to make it, I think. It will still take them the best part of a decade and by then GE, Siemens and Mitsubishi would have moved on. I think the EC’s competition commissioner is fooling herself more than a little when she states that “Ansaldo will have a true fighting chance”. She is being far too optimistic, but maybe Shanghai can make the difference.

The Ec’s conditions does not have a great impact on the jobs that will be lost. This will stay at around 8,000 I think for GE. Of the jobs shifted to Ansaldo, I am not very optimistic.

A pity, because I think this marks the end of sequential combustion with a viable player.

I wouldn’t mind being proved wrong – but the probability is rather low.

But it’s good news for both Alstom and GE. For Ansaldo, it may be too much of a mouthful.

12% job losses to be expected post approval of GE – Alstom deal

September 4, 2015

Everything points to GE getting approval next week from the European Commission (deadline 11th September) for its acquisition of Alstom’s Power and Grid businesses – subject to some of the remedies proposed by GE to meet EC concerns about competition. The specific nature of the remedies have not been made public but rumours indicate that these comprise divestment of a service company and a facility in Switzerland to Ansaldo along with some IP, (see previous posts).

Around 65,000 Alstom employees would be transferred (though I am assuming that the JV’s being set-up (Grid, Renewable Power and Nuclear) are just a step along the way to complete divestment. Alstom can exit the Grid and Renewable Power businesses (50% minus one share) by September 2019 for an exit price not less than the acquisition price +3% per year. Alstom has windows for exit from the Nuclear JV (20% minus one share) “for 3 months after the 5th and 6th anniversaries of the joint venture” with an “exit price not to be lower than acquisition price +2% per year”. I assume that Alstom has a put option and that GE is obliged to buy – provided of course that no hidden liabilities show up in the businesses as happened when Alstom acquired ABB’s power generation business in 2000.

Alstom GE JVs (EGM Dec 2014)

Alstom GE JVs (EGM Dec 2014)

Alstom EGM presentation 2014-12-18

Alstom employees breakdown March 2014

Alstom employees breakdown March 2014

That there will be job losses among the 65,000 so transferred is inevitable. The logical conclusion would be that jobs in high-cost countries – except where they are also where the market is – would be most at risk. But as I saw through my years at ABB and Alstom, logic does not always apply. Both ABB and Alstom were (and probably still are) very Eurocentric. Quite often I saw under-utilisation in Europe being taken as the “cost to be avoided” rather than the minimising of total cost. Then, fully loaded jobs in low-cost countries were removed or transferred to Europe to increase loading in European facilities – but which only helped to increase total costs. Also, it was always so much cheaper (redundancy payments) to get rid of jobs in India or China or Indonesia than in France or Germany. So I do expect that similar “political preferences” will still apply for European jobs, though GE should be less inclined to fool themselves over the false economy of maintaining high-cost jobs for saving the “avoided cost” of under-utilisation. (A qualified, engineering job in Europe costs – or saves – at least twice as much as one in India or China after including for wages and all support facilities). On the other hand, GE now has to fulfill some political expectations from the French government and the European Commission. So jobs in France are protected and possibly also in Italy as well, but Eastern Europe and even some developing countries may well take a hit. Switzerland is quite exposed, both for cost and lack of political clout in the EU.

However, GE is also under pressure to implement its cost cutting program and the delay in the EC approval only adds to the pressure to make quick cuts.

ReutersGeneral Electric Co is expected to win regulatory approval next week for its purchase of the power equipment business of France’s Alstom, allowing the U.S. industrial conglomerate to finally carry out a major cost-cutting program 16 months after first announcing the deal. ……… 

In May, GE told investors it expects $3 billion in cost reductions over the next five years as it combines its operations with those of Alstom, more than double the previous target when the deal was first announced in April 2014.

GE has also projected the deal would add 15 to 20 cents per share to earnings in 2018, or nearly 10 percent of GE’s overall profit expected that year by Wall Street, according to Thomson Reuters.  

To hit those goals, GE will consolidate manufacturing operations, cut duplicated overheads, and make savings on purchasing expenses, according to GE presentations on the deal. But to gain the blessing of the French government last year, GE committed to add 1,000 jobs in the country, possibly handcuffing the conglomerate’s ability to reap savings from Alstom’s home base.

My (entirely speculative) reasoning suggests that GE must reduce this 65,000 employees from Alstom by around 12% quickly – say over 12 – 18 months. GE should certainly be able to reduce headcount globally by around 8,000. That will give a saving of only around €500 million annually (€800 million if all the job cuts were in Europe) and further rationalisation will still be needed if GE is to meet its target of $3 billion cost reduction in 5 years. (A $3 billion annual cost reduction is massive. If it was all to be found only by job reductions it would mean around 30,000 jobs).

Over 1,200 of these jobs could go as a consequence of the “remedies” proposed by GE and the consequent divestments to Ansaldo. Around 1,000 of these jobs in Switzerland will likely transfer to Ansaldo and then perhaps around 600 will disappear completely. I note that around 3,000 of the 65,000 jobs transferred are for shared and common services (IT, support facilities, legal and the like). I would be quite surprised if GE could not find sufficient synergies with their existing staff in these areas, and cut at least 1,500 of these jobs. Between 6 and 7,000 of the jobs transferred would be in the US where GE is already very well represented. Again, I would be quite surprised if GE could not find at least 1,000 jobs in the US which were effectively duplicates. Some duplicate manufacturing facilities would also need to be rationalised (Poland? China? Italy?).

It is only my speculation but I could see the initial 8,000 jobs to be reduced consisting of (as an example),

  1. 1,000 in Switzerland divested to Ansaldo
  2. 200 in other locations (service business) divested to Ansaldo
  3. 1,500 reduction in central and shared services
  4. 1,000 jobs rationalisation in the US
  5. 1,000 manufacturing and engineering jobs in duplicated facilities
  6. plus a 5% personnel reduction across the board

There will be much pain in the short-term. I have been through the process myself on more than 6 occasions (downsizing or acquiring or being acquired), and it is the handling of people which is by far the biggest challenge. While it will be of benefit to both Alstom and GE in the long-term (to their investors, their continuing employees and to their customers), that is not much comfort to those who lose their jobs.

Oil price destroys viability of Scottish independence

August 24, 2015

The Scottish National Party (SNP) once had budgeted on the basis of oil price being $115/ barrel. Then at the time of the referendum they assumed a price of not less than $100/barrel giving a tax revenue of not less than £7 billion per year which would offset the “subsidy” that Scotland gets from the rest of the UK of about £9 billion per year. This tax revenue drops to zero with a North Sea oil price of less than $50/ barrel.  But the breakeven price for oil producers is even higher:

Forbes (Jan 2015)Some prospects, including almost all activity West of Shetlands, are considered unprofitable below $100 per barrel. Mature oil wells struggle to be viable below $60, so BP has decided that 200 jobs and 100 contractors’ roles would go following a review of its North Sea operations managed out of Aberdeen, Europe’s oil and gas capital. Looking ahead, BP forecasts the oil price to remain in the $50 to $60 price range for next three years. ………

Either way, BP’s take has darkened the mood in the British and Norwegian sectors of the North Sea. However, it isn’t the first to announce job cuts. If anything, BP’s move is pretty predictable given the company has been quite clear about reducing employee headcount.

Shell, Statoil and Chevron have made similar announcements while ConocoPhillips has also been clear about a need to “streamline operations.” As operators downsize, oilfield services companies would invariably feel the pinch from independent upstarts to market leader Schlumberger.

But reality is biting hard. It is now more likely that Brent oil price will be trapped between $30 and $40 for the next 2 -3 years. Costs of production in the North Sea have not come down much compared to the sharp decline in US production costs of oil from fracking. And now Iranian oil will take its market share. At these prices the North Sea oil producers will be losing money on each barrel produced. Production is likely to be scaled down sharply and investment will drop to a trickle. Onshore jobs involved in both exploration and production (Norway, Holland, Scotland) must decrease. The Norwegian and Scottish production will bear the brunt of this turndown. Norway has built up a huge reserve fund and can weather a storm but not a permanent downturn, The UK economy can take the hit but an independent Scotland would be very hard hit. The introduction of shale fracking in England – which could take advantage of the the production cost reductions achieved in the US – could not only mitigate the risk but add a new source of jobs and tax revenue. The largest cost reductions in the production of oil from shale have come in the non-unionised part of the industry. There is considerable oil shale in Scotland as well, but I expect the SNP and the UK unions to be far too short-sighted and to do their damndest to prevent the introduction of fracking.

Nasdaq brent oil 10 year chart Aug 2015

Nasdaq brent oil 10 year chart Aug 2015

At less than $40/barrel, the SNP would need to create some very strange, fantasy budgets to prove the viability of an independent Scotland. Perhaps they could just nationalise everything and print money.

EC conditions for GE’s acquisition of Alstom will probably sacrifice Swiss jobs

August 14, 2015

UPDATE! 14th August

Reuters reports “exclusively” – and no doubt from anonymous EU bureaucrats as their sources – that the EC is set to approve the GE/ Alstom deal. The EC decision will be announced by 11th September. The report suggests that GE was prepared to accept the divestment of PSM and of a “facility” in Switzerland. That probably consists of some or all of the gas turbine R & D operations at Baden/Birr. The precise scope of the GE concessions are not yet revealed.

The French government, is probably not too perturbed by what happens to Swiss jobs or to PSM jobs in the US. And the price to be paid by Ansaldo probably compensates for most of the reduction that Alstom has accepted in the price to be paid by GE. In fact Alstom, the French government and Bouygues are all probably quite relieved to now see their way clear to financial closure.

Alstom management will also be quite glad to get rid of the difficult task of controlling “fortress” Baden. Whether GE for part, and the Italians or the Chinese for the rest, are up to that task is another matter.


Ansaldo (with Shanghai Electric) has emerged as the unlikely saviour of the gas turbine R & D tradition at Baden/Birr in Switzerland. But whether under GE ownership or in some hive-off to Ansaldo, it is only logical that many jobs in Switzerland would shift either to France or to Italy. One estimate puts the job losses to be expected in Baden to be around 600. I would expect the number to be very much larger. As far as the European Commision is concerned they may be making the calculation that more jobs will shift to Italy with Ansaldo ownership than would have shifted to France under GE ownership.

Job losses in Switzerland, of course, will not weigh very heavy with the EC in any case, and especially not if they were to shift to France or Italy. The EC may be calculating that Ansaldo could manage and run an R & D facility at Baden. I am not very optimistic about Ansaldo’s ability to be a technology owner. Shanghai Electric is more credible for that. My personal opinion is that Ansaldo has not the management strength or the R & D traditions to be able to manage an R&D program in Switzerland. (I note that even after a wholesale influx of French personnel, Alstom had its difficulties to manage Baden). On the other hand, any jobs which shift from the long and rich R & D traditions of Baden to Genoa will effectively be R & D which comes to an end. If the focus of development of an “Ansaldo” sequential combustion engine shifts to Italy, I would go so far as to forecast that it will never happen.

If this focus shifts to Shanghai instead, it will take a very long time but the development will eventually happen. With Shanghai Electric providing the “deep pockets” for Ansaldo, I suspect that jobs shifting to Italy will only be as a stop along the way to China.

HandelsZeitung:

Alstom Switzerland: 600 jobs in the balance

General Electric wants the energy division of Alstom.This could have a major impact on the Swiss workforce. Unions say that up to ten percent of the people have to go.

……. According to reports, GE will therefore sell its gas turbine business – the heart of Alstom Switzerland. The buyer would be the publicly listed energy company Ansaldo, a subsidiary of the Italian industrial group Finmeccanica. “Ansaldo is expected to shift the business to Genoa,” says a trade unionist. 

………… On 11 September, the Commission will announce a decision. “The closing of the deal in the second half of 2015 remains our goal,” said GE spokesman Bernd Eitel. 

For the EC, sacrificing Swiss jobs ostensibly for the benefit of any EU country is probably positive. But what about sacrificing Swiss jobs and an R & D tradition for the benefit of Shanghai?

Disclaimer: I should note that I own a few shares in GE and in Alstom but not enough to influence even my own opinions. I own no shares in “Baden” but I have a huge respect and admiration for the R & D work done at Baden as BBC and then as ABB and even later under Alstom ownership. Baden has been less impressive as a role-model for good management practice.

Russia claims the North Pole as part of its continental shelf

August 4, 2015

Russia has officially claimed the North Pole as being part of its continental shelf. In 2007, they sent a mini-sub to the North Pole and planted a Russian flag on the sea-bed. It’s only a matter of time before China claims large chunks of the seabed surrounding its artificial islands in the Pacific. Claims for Antarctica will not be far behind. Why Norway and the UK have territorial claims in Antarctica is not much of a mystery but there is no logic to it. Which is also why the Falklands will never be given up in any foreseeable future by the UK to Argentina. It is the promise of Antarctica and not the Falkland Islanders which governs.

Antarctica claims

Barents Observer:

After years of comprehensive research, Russia on 3 August submitted its claims for additional territories in the Arctic. The claim includes both the Mendeleev and Lomonosov Ridges, two major structures beneath the Arctic Ocean.

“… the claim determinating the outer borders of the continental shelf in the Arctic Ocean is based on the scientific understanding that the central Arctic underwater ridges, among them the Lomonosov, Medeleev, Alfa and Chukotskoye Heights, as well as the in between basins of Podvodnikov and Chukotskaya, have a continental character”, an offical statement, refered to by RIA Novosti, reads.

It will now be up to the UN Commission on the Limits of the Continental Shelf to decide if Russia should be entitled to include the huge additional areas under its sovereignty. The Commission confirms that “the consideration of the partial revised submission made by the Russian Federation will be included in the provisional agenda of the next ordinary session”, the Commission website informs.

Russia in 2001 made a first official submission of its Arctic claims to the UN Commission. However, the Commission in 2002 responded that additional research is needed before a decision can be taken.

Neighboring Norway was in 2009 the first country to get its Arctic territorial claims approved, while Denmark/Greenland submitted a claim in December 2014. That latter claim includes ownership of the North Pole and is consequently in conflict with the Russian claim.

If approved, the Russian claim will expand the country’s territory by 1.2 million square kilometers. Estimates indicate that the area include 594 oil fields and 159 gas fields as well as two major nickel fields and more than 350 gold deposits. Initial recoverable fuel resources are estimated to 258 billion tons of fuel equivalent, representing 60 percent of Russia’s total hydrocarbon resources.

Claims to the moon  and Mars can be expected.

 

Windows 10 buys your soul (with your consent)

August 2, 2015

I suppose I have little option but to upgrade.

And I am resigned to being “targeted” by advertisers selected specifically for me. I take some comfort in the fact that I cannot recall actually buying anything because of a web advertisement. I suppose I am just too old for them.

Image result for windows 10

The soul – however you want to define it – is manifested (not defined) in your behaviour. The advent of the internet and its apparent anonymity actually makes visible some parts of your hidden self.  People visit sites and make comments that they would never otherwise do if they were in public view. Of course much of that anonymity is only a perception. Your internet “self” (ID, email, passwords, sites visited, on-line community memberships,…. ) comes closer to painting a picture of your soul than just your visible behaviour.

And Windows 10 acquires more of your soul than ever before – and all with your consent.  It is with your consent because few will ever read and understand the 45 pages of terms and conditions that must be agreed to. Not that Apple and Google are not also involved in photographing and capturing your soul. But even an on-line presence is only a manifestation of your soul and each of Microsoft or Google or Apple have have their own painting of your essence. And these perceptions of who you are, these paintings of your soul, are theirs to sell – to advertisers or to governments or to other interested parties.

The Guardian:

Hundreds of commenters on sites such as Hacker News and Reddit have criticised default settings that send personal information to Microsoft, use bandwidth to upload data to other computers running the operating system, share Wi-Fi passwords with online friends and remove the ability to opt out of security updates.

Many of the complaints relate to the new personalised adverts embedded in Windows 10. When the OS is installed, Microsoft assigns the user a unique advertising ID, which it ties to the email address registered with the company. That email address is also associated with a raft of other services, such as the company’s productivity and communication programs, as well as app downloads and cloud-storage uploads.

Using that information, Microsoft is able to personalise ads to the user, during both web surfing and, for newer apps downloaded from the Windows Store, app usage. Microsoft itself is leading the way on that front, even turning the in-built version of Solitaire (the card game that has been a staple of Windows installations since 1990’s Windows 3.0) into a freemium game, complete with unskippable video adverts.

Elsewhere, Windows 10 also harvests user information in order to teach the built-in personal digital assistant Cortana, Microsoft’s answer to Siri. To enable Cortana, the company says, it “collects and uses various types of data, such as your device location, data from your calendar, the apps you use, data from your emails and text messages, who you call, your contacts and how often you interact with them on your device”.

“There is no world in which 45 pages of policy documents and opt-out settings split across 13 different Settings screens and an external website constitutes ‘real transparency’.”

……. The European digital rights organisation (EDRi) sums up the company’s 45 pages of terms and conditions by saying: “Microsoft basically grants itself very broad rights to collect everything you do, say and write with and on your devices in order to sell more targeted advertising or to sell your data to third parties.”

In many ways, however, Windows 10 is merely moving closer towards what has become the new normal thanks to mobile operating systems. Both Siri and Google Now require access to the user’s personal information to personalise responses, while both Apple and Google offer developers the ability to deliver personalised ads to users based on information such as app installs.

Could Ansaldo/ Shanghai Electric be the inheritors of Alstom’s sequential combustion gas turbine technology

July 30, 2015

There are reports that GE may have offered to sell off some of Alstom’s sequential combustion gas turbine technology to Ansaldo /Shanghai Electric:

PowerTechnology:

US-based General Electric (GE) has confirmed it is prepared to sell parts of Alstom’s gas turbine assets to Italian Ansaldo Energia in order to gain European Union approval for the proposed $17bn acquisition of Alstom’s power business.

Sources have been quoted by Bloomberg as saying that GE informed the EU that it is willing to divest some of Alstom’s sale and servicing activities to the Italian firm, along with certain intellectual property.

Alstom has also agreed to lower the prices of its energy assets to support GE’s efforts to win anti-trust clearance from the European authorities.

Even with Shanghai Electric’s deep pockets I don’t see that Ansaldo could come out with a sequential combustion engine in less than 5 years and perhaps not for a decade. Ansaldo does not have a tradition of breakthrough innovation and neither does Shanghai Electric. The current Ansaldo engines could not be easily modified to cater for sequential combustion. They would have to come out with a completely new machine. More importantly they would need new compressors for the higher pressure ratio that sequential combustion demands. And I don’t see either Ansaldo or Shanghai Electric developing – or even having the capability to develop –  a brand new compressor anytime soon.

However if the EC’s requirements are seen as helping the Chinese (via Ansaldo) gaining a clear foothold in Europe, the EC will not be very popular in France or even with Siemens. In fact this is the argument being used by the French government to urge the EC to approve the deal quickly.

In any event GE’s “remedies” must contain two elements I think

  1. a “sale” of some IP or of that IP being made open source – and this might well involve the sale of some IP to Ansaldo /Shanghai Electric,
  2. a divestment of some of Alstom’s service business and this could be either by a divestment of a small part (not more than 10 installed engines in my estimation) of the service business for Alstom’s GT26 (probably not GT24) fleet, or by a complete or partial divestment of Alstom’s service business for non-Alstom machines.

It is conceivable that Alstom (not GE) has agreed to exclude their subsidiary PSM from the GE deal and then to sell this unit to a 3rd party. But a buyer other than Ansaldo could probably pay much more for this unit which offers an entry into the US marketplace. I am not sure that GE would be party to allowing the Chinese into the US market place to service “GE Frame 6B, 7E/EA, 9E and 7FA machines, the Siemens/Westinghouse 501F (SGT6-5000F) engine and the Mitsubishi 501F engine.”

Whatever actually transpires, the heavy duty gas turbine playing field is seeing upheavals of a kind not seen since ABB divested to Alstom in 2000. With a GT market cycle of 7-8 years, that was two market cycles ago. The next 2 decades (3 market cycles) will probably be dominated by an era of relatively low gas prices. A gas glut and a gas turbine boom could well see the market grow such that entry barriers are reduced and we may see some new players being able to break in.

Previous posts on Alstom/GE deal


%d bloggers like this: