COMMENT : Too late to stop the great electricity giveaway
`There is a strong case for handing some of the money back to shareholders to recycle through the market to companies in more urgent need of funds'
Tuesday 21 February 1995
The Government sold the 12 regional electricity companies four years ago for £5bn. Today they are worth more than three times as much, and can afford to hand back in cash to their shareholders more than the entire price paid to the Exchequer.
The jointly owned National Grid alone, which was thrown into the pot almost free, is by itself worth almost as much as that original sale price for the RECs. Shareholders seem to have got the rest of the industry for nothing. There is such a thing as a free lunch.
The arithmetic of the privatisation is not quite as simple, of course, as a trebled share value. To the extent that privatisation has been a spur to efficiency - which it has been - the economy as a whole has gained, and some of that benefit flows to the Treasury
But, on balance, it is hard to see the electricity sale as anything but a massive transfer of wealth from taxpayers to shareholders. There was some modest benefit for customers, but it is clear that Stephen Littlechild, the electricity regulator, could have squeezed out a lot more. The lesson is that privatisations on tight timetables under pressure from the need to reduce the PSBR can be bungled just as much as any other hastily executed sale. The RECs should have been sold off gradually, which would have realised for the Government more of the unexpectedly high efficiency gains of the most recent years.
That is water under the bridge. The sensible question is, where do we go from here? Is it wrong in today's circumstances for Northern to hand out to shareholders more than they paid for the company?
In principle, it is a good deal easier to defend the scheme than its detractors make out. Here is a company with high cash flow, low risk and low debt, with strictly limited investment possibilities. There is a strong case for handing some of the money back to shareholders to recycle through the market to companies in more urgent need of funds, even if it means the banks - now awash with unwanted money - taking over some of the financing.
The cautious way to redistribute is through high dividends, since these can be cut back if a company finds it needs the cash after all. But the RECs are such stable businesses that surprises are unlikely. Little harm will be done by accelerating the process and handing over a lump sum.
That is what was anyway going to happen as a result of the grid flotation. The issue is not whether the RECs should hand back money to shareholders, but how much. The scandal, the underpricing of the original sale, is a four-year-old story.
Pilks sets new style in remuneration
The terms of Nigel Rudd's appointment to the Pilkington chair make refreshing reading after the recent litany of boardroom greed. This is not the usual tale of an overpaid rent-a-chairman. In fact, Mr Rudd, one of the most highly regarded managers around, will not be paid at all for his part- time contribution to the glass manufacturer. Instead Williams, his main employer, will receive compensation for the time he is away.
Now that a combination of market sentiment and the Accounting Standards Board has put paid to Williams' acquisition ambitions, Nigel Rudd has come to the same conclusion as his former partner, Brian McGowan - there are plenty of in-house managers with enough talent to run the business, leaving him time to do what he really enjoys somewhere else.
Whatever Pilks pays for his two or three days a month, it will get good value if his performance at East Midlands, his only other major chairmanship, is anything to go by. He put together the most imaginative and fair redistribution of wealth yet seen in the electricity industry's efforts to get rid of its mountains of cash.
As a rescue candidate, Pilkington is not in the same league. Under chief executive Roger Leverton, the company has got to grips with the problems that afflicted it as a sleepy family business. But if anyone can provide the driving force to change the Pilks culture, Nigel Rudd is as good a choice as any.
Reality overtakes Europe's airlines
Even as he puffed out his chest, threatening to take a long, hard look at the latest plea for crutch-money from yet another debilitated state airline, Neil Kinnock must have known that expectations of tough action following tough talking from the European Commission are pretty low. Iberia, Spain's national carrier, currently waving its cap around in Brussels for a cool £650m, after having received rather more than that just three years ago, must reckon its chances of being rescued from gross inefficiency are more than reasonable. After all, its case is no less pressing, certainly to the Spanish government, than those of Air France, Olympic of Greece and TAP of Portugal, all of which have flown off with permission for generous hand-outs.
For all the understandable anger and frustration of the successful privatised airlines, British Airways to the fore, at this seemingly never-ending distortion of competition, the fact remains that state carriers are still potent symbols of national prowess, backed by enormous political clout. The best fair-competition intentions of the Brussels commission have been no match for the discreet interference of governments determined to protect their airlines.
But as he prepares to wag a reproachful finger at Iberia, Neil Kinnock, in his first big test as transport commissioner, can take heart from the fact that time is in favour of the fair-competition lobby.
Airlines like Air France and Iberia, finally, are having to work for their money, cutting costs with uncustomary savagery. The reason for this lies, however, less with Brussels' admonitions than with the need of governments to raise privatisation revenues, and the prospects of full liberalisation of the European airline market in 1997.
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