Michael Harrison's Outlook: It's not clean and it's not cool, but coal has got to play a role in Labour's brave new world

Yan Gang Thank You Man; Misys mulls the private equity route
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The Independent Online

The Prime Minister promised a "big push" on renewables, a "step change" in energy efficiency and virtually confirmed that next month's energy review would pave the way for a new generation of nuclear reactors. Yesterday, Mr Blair put another building block of the strategy in place by announcing that Britain and France are to collaborate on nuclear power.

Energy security, he said, was now "right at the top of the agenda". And yet still no mention of coal and the major role it plays in keeping the lights on. Understandable, perhaps, from a New Labour perspective. Flat caps, ferrets and pit village brass bands are just about as far removed as it is possible to get from the Islington cappuccino bars which have come to characterise the modern day party. But odd from an energy perspective, considering that coal still provides a third of Britain's electricity and more at some times of the year. Last November and December, half the country's total power demand was met by coal-fired stations, which are the most flexible type of generating plant.

Perhaps there is a disconnect in government between the mining of coal and the burning of it to produce electricity. If the UK had to rely solely on its indigenous coal industry, then Mr Blair would be right to discount it as an important contributor to security of supply.

UK coal output has shrunk dramatically as the industry has contracted. It is now largely in the hands of one big operator, UK Coal, which is valued as much for its property assets as its mines, and a string of fringe players such as the colourful Richard Budge. But globally coal is a secure commodity, as demonstrated by the vibrant, open and highly liquid international coal market.

The opponents of coal say it may be abundant but that does not make it clean. That is true but the technology is changing. The advent of super-critical boilers has made modern coal stations as efficient as combined cycle gas plants and that means increased energy output for reduced emissions.

Moreover, there are now four UK energy companies looking at plans to build "clean coal" stations, based on technologies which either reduce the emissions produced through combustion or capture carbon for disposal under the sea bed.

And then there is co-firing - the burning of biomass materials such as elephant grass alongside coal to reduce emissions. Co-firing has until recently benefited from the Government's renewables obligation scheme, which provides financial incentives for generators of green electricity. But recently, the scheme has been tilted in favour of wind power with the unfortunate result that co-firing by coal generators such as Drax in north Yorkshire has all but ceased. At the very least, this is one of the problems that the energy review needs to iron out.

The difficulty for Mr Blair is that he cannot satisfy all constituencies at the same time. The closer he comes to pushing the nuclear button, the more likely he is to undermine the long-term economics of renewable power and the Government's own target of generating 20 per cent of electricity from this source. And the more he seeks to avoid this by carving out a role for renewables, the less space he leaves for co-firing and clean coal.

But if the Government genuinely believes in a mixed and balanced energy policy, then it will be essential to ensure that, come next month, coal still has a role to play.

Yan Gang Thank You Man

Sir Martin Sorrell, the chief executive of WPP, has been embroiled in so many controversies over the years that it makes you wonder how he finds time to run the world's second biggest advertising agency. A former business colleague once said he would rather lick the floor of an abattoir than work with Sir Martin again.

Three years ago, he did battle with Madam Ojjeh, exotic chess expert and widow of Middle Eastern arms dealer, on the way to seizing control of Cordiant. More recently, he has been engaged in a colourful drama with the head of WPP's Italian operation involving some very racy allegations of fraud and sexual jealousy. Now he has tangled with the Chinese. Yan Gang, who heads one of WPP's joint venture partners in China, Beijing Gohan, says he has never met anyone as rude as Sir Martin and has therefore terminated the relationship. He is teaming up instead with Omnicom.

Now China is a potentially vast advertising market, so how does Sir Martin react to being Yan Ganged in this fashion? He is, in fact, remarkably sanguine. The meeting at which Mr Yan took such offence resulted from a letter the Chinese executive wrote to WPP complaining about the way the joint venture was being run and making some not very subtle threats about how this might undermine WPP's wider standing in China.

In the circumstances, the Sorrell response seems to have been remarkably restrained. He hired Ernst & Young to investigate and they came back with a clean bill of health. To get the row into perspective, China accounts for $500m of WPP's global revenues of $10bn, or some 5 per cent. And of that $500m, the joint venture with Beijing Gohan contributes just $6m. WPP has a dozen other Chinese joint ventures, all of which are more significant.

Sir Martin is probably quite glad to see the back of this problem joint venture. Mr Yan may not be happy with his treatment but perhaps he just did not understand the Sorrell negotiating style, which was once described as "like trying to stab a dolphin with a banana". There's probably a Chinese translation for it somewhere.

Misys mulls the private equity route

Private equity marches on. We do not yet know who is providing the money which the Misys chief executive Kevin Lomax hopes to use to buy out his software company. The betting is on one of the American venture capital funds, since they generally understand more about technology stocks.

There is something depressing about the never-ending encroachment of private equity into the quoted sector, but in the case of Misys and Mr Lomax, who retires from his other job on the board of Marks & Spencer in August, it might be a blessing. The business has hardly been a spectacular performer and it is ripe for a private equity-style break-up bid. Of its three units, only the US healthcare business is firing on all cyclinders. The UK banking software business is beginning to make a comeback but Misys's financial support services arm Sesame remains as much of a basket case as ever.

At a mooted price of 245p, Misys, up 22 per cent to 221.5p yesterday, would cost £1.3bn to take private - a modest deal by today's private equity standards. After his botched attempt to oust the M&S chairman Paul Myners, and his less-than-stellar stewardship of Misys, Mr Lomax might well enjoy the anonymity of private equity ownership. Neither he nor the company would be missed.

m.harrison@independent.co.uk

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