ENVIRONMENT Secretary Michael Gove promised earlier this month to crack down on “crony capitalism.”
At the same time his cabinet colleague Energy Secretary Greg Clark was offering a £5 billion bailout to Japanese nuclear firm Hitachi. It looks like a classic crony capitalist deal.
Gove argued: “Crony capitalists have rigged the system in their favour and against the rest of us.”
A classic crony capitalist deal is where a big firm uses its power and lobbying to squeeze a contract from the government that is good for the capitalists but bad for us. The Hitachi bailout looks like such a rigged deal.
The Tories want new nuclear power stations. They think, if we don’t replace old nuclear power stations, we run the risk of the lights going out, but they want private firms to invest in, build and run the power stations.
Those corporations are using the Tories’ enthusiasm for nuclear, and their lobbying power, to squeeze big money deals from the government.
French nuke firm EDF and the China General Nuclear Power Group are building the first of Britain’s “new nuclear” power stations at Hinkley Point on the Somerset coast.
Spending watchdog the National Audit Office called the Hinkley deal “risky and high-cost” last year.
EDF was persuaded to do the deal by a government-guaranteed price of £92.50 per megawatt-hour of electricity for 35 years.
That’s much more expensive than current renewable energy prices. EDF is not selling its deal on the “free market.”
It has persuaded the government to guarantee consumers — you and me — pay a guaranteed high price for their electricity for decades.
Hitachi is building the next British nuclear firm at Wylfa, on the north Wales island of Anglesey.
The government will offer a guaranteed price for Wylfa electricity. But that wasn’t enough for Hitachi.
It demanded direct support, so Clark is negotiating a British “investment” — a government “bailout” for the scheme — thought to be around £5bn.
The British government will also underwrite billions of pounds of loans for the scheme. In short, Hitachi will get the profits, while the British government and taxpayer will take all the risks and add extra cash to boot.
Hitachi was exploiting its position. If the Wylfa deal falls through, the Tory plans for a wave of new nuclear plants are over.
Because the government won’t build either nuclear or other renewable plants itself, it is at the mercy of firms like Hitachi, demanding more cash.
Hitachi was also doing what Gove described as “crony capitalism.” In his words there is “a tendency towards crony capitalism in developed nations. Established economic interests have the time, money and personnel to get close to government.”
This approach is built in to Hitachi’s work.
Hitachi Europe chief executive Sir Stephen Gommersall isn’t an expert in nuclear power or engineering. He is the former British ambassador to Japan. Gommersall was hired right out of the Foreign Office to help open doors for Hitachi.
Tim Stone sits on the board of Horizon Nuclear Power, Hitachi’s British nuclear arm. Stone, a former KPMG consultant, was chief adviser to the energy secretary from 2008-13, helping shape both Labour and Tory-Lib Dem governments’ nuclear energy policy.
Before that Stone advised the government on many PFI deals, including famously bad-value ones.
At a more basic level, if you want a drink at the party conferences, Hitachi can help. At the last Conservative conference the Spectator magazine held a big panel on “Power and prosperity: What nuclear energy can do for Britain.”
The Spectator normally worries about spending government money, but it made an exception and argued for government nuclear spending because the Spectator’s whole event was paid for by the Nuclear Industry Association — the lobby group representing Hitachi and the other big atomic companies.
The Spectator was guaranteed a good turnout because it served up its own brand of gin, paid for by the nuclear lobbyists.
I went to this meeting, which involved a lot of red-faced, half-cut Tory delegates agreeing that nuclear power was a good thing while guzzling free gin.
Just to cover all bases Hitachi also paid for a big party at the Labour conference, also with free booze, hosted by the New Statesman.
Horizon Nuclear Power, Hitachi’s British atomic arm, also employs lobbyists Lodestone Communications. It in turn has good Tory links.
Andrew Gimson, who started his career at Conservative Research Department, is an associate at Lodestone. He is currently a “contributing editor” to ConservativeHome, the Tory “grassroots” website owned by top Tory donor Lord Ashcroft.
For good measure, Hitachi has a second lobbying firm in Britain, Hill & Knowlton Strategies.
Hill & Knowlton’s head of energy Simon Whitehead also started his career at Conservative Central Office.
Until this April, Michael Stott also worked on energy for Hill & Knowlton. He had previously worked for Tory Energy Secretary Charles Hendry.
So the big sums being paid to Hitachi match the small world where politically connected people work for the firm.
Atomic power is especially open to crony capitalism because the market case for nuclear is very weak.
Nuclear power stations take a long time to build and are very expensive. At the end of their life there are big costs associated with nuclear clean-up.
Taking into account these costs, nuclear power is very expensive. It doesn’t compete well with other sources of power.
Then add the potential cost of disasters and nuclear just doesn’t make market sense.
Since the Fukushima accident, no big investor is willing to take the risk. Governments can decide that nuclear is a good idea for “non-market” reasons if they choose. Some argue the need for carbon reduction or long-term security of supply outweigh the cost and risk.
But if governments back nuclear for these “non-market” reasons yet ask private corporations to own the plants, they will be fleeced.
If there is a non-market case for nuclear, the power stations need to be non-market, to be state-owned. The alternative, which we are seeing, is overpriced, nuclear-powered crony capitalism.
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