Hill+Knowlton Strategies

As the saying goes, ’Trust is hard to earn and easily lost’. Equally its value is hard to quantify until it is lost (see the impact of GOM on BP’s brand value), which can sometimes make it difficult to invest in.

However, just because something is difficult both to do and then to test, does not mean we shouldn’t do it. As David Prosser notes in The Independent this morning the big six power generators have earned themselves an ignominious reputation, being less trusted than banks at the moment. That should be seen as a problem that needs to be addressed, not as an inconvenient truth.

One of the things that Ofgem has suggested in its reforms is that the big six sell off 20% of their generating capacity to increase competition and this is where the lack of trust could become a serious business issue. Just because customers have shown a reticence to switch in the past does not mean that an organisation who is very effective at communicating with customers and winning their trust will not come along and start to take share from the big six operators in the future. PA Cover Ofgem Announcement

These firms have a plethora of communications and policy issues to overcome at the moment, but a good start would be to simplify customer propositions, provide greater clarity about their operations, explain and educate about complexities of their business and engage in a better dialogue with customers and prospects. The low-carbon energy challenge in particular is one that I think most people would happily be more active in addressing and new-nuclear must now engage with a much wider group of stakeholders than it has until now to avoid the NIMBY reaction of people after the disaster in Japan.

First things first will be some research to test what has impacted trust historically and what influences different stakeholders trust.

I’ll admit it. 

I didn’t want to go. 

Where, I hear you ask? 

Ecobuild. 

Nothing against sustainable construction, mind you.  It’s just I’m not a huge fan of the ExCeL centre, or – and I hate to say it – trade shows in general. 

But….

I was pleasantly surprised. Dare I say it, I even enjoyed myself.

This year’s event was HUGE.  Bigger than I anticipated, even though I did check out the website and peep some of the vendors sites before I went.  There were more than 1,300 exhibitors from the fields of design, construction and what Ecobuild calls “the built environment”.  Still not sure what that is. Seems a bit vague….but I think they mean people who sell and install things for inside your building…floors, toilets, plumbing, windows, etc.

So, why did I enjoy it?

1. I got to know a very cool company – REC Solar.

2.  I was thrilled to see what a huge presence solar was at the show.  Despite concerns around the government’s planned review of feed in tariff policy and what this could mean for the UK solar industry – all the big players were out in force. Go team.

It’s a solar bear…get it?!

3.  I got to get back in touch with my techie roots and play with phase change materials (PCMs for the uninitiated) – check out BASF and DuPont.  There was a great little demo centre called the Cool Workspace, which showed how PCMs can be used to create a more sustainable office environment by storing both heating and cooling, reducing the carbon footprint of buildings by up to 30%.

4.  The people. Yes, that old chestnut.  I was genuinely impressed with the huge range of people that were drawn in.  From the big corporate sales guys, to students, to apprentice builders, to eco-conscious consumers, to, er… models dressed as Canadian mounties (see below).  While most of the attendees were indeed more of the corporate ilk, it was refreshing to see that there was a noticeable representation from a huge range of people. 

As nice as it would be to preserve all the green space left in the world, that’s never going to happen.  Construction and physical development is a reality.  Even here on our little island, we’re expected to increase our population to from 61 million to 70 million in about 15 years.  Whether that growth is sustainable from a resources point of view or not is a different blog post, but that’s a lot of new housing, schools and hospitals. Let’s hope they’re built in a way that takes a lesson from Ecobuild.

Expanding unrest in the Middle East has jolted the oil market, sending crude to $119 a barrel since Egyptians first took to the streets in January. The oil market doesn’t like uncertainty, and nothing could be more uncertain than the volatility spreading to Libya, Africa’s third-largest oil supplier, and Tunisia. Some analysts are even concerned about Saudi Arabia.
Rising oil prices mean rising gasoline prices, which have surged to an average of about $3.13 a gallon at the pump in the U.S. This comes on the cusp of the summer driving season, when prices usually peak as Americans hit the roads.
Some analysts say oil could reach $220 a barrel if Libya and Algeria halt exports. The U.S. Energy Information Administration said Feb. 8 that the monthly average retail price for regular gasoline could exceed $3.50 a gallon during summer 2011. And that was before the Libyan situation developed.
What typically follows these price upticks is a round of Congressional hearings as indignant constituents’ wallets are squeezed.
Surging oil prices usually bring a fresh look at renewables too, so green energy companies should be prepared to seize the moment. Companies involved in alternative fuels such solar and wind can use this time of high oil prices to once again showcase their offerings.
This would also be an opportune time for oil companies to press for Gulf of Mexico drilling permits, long stymied by the ghost of Macondo.
Times of unrest often call for times of new beginnings.

This week I attended a seminar regarding the Bribery Act, which featured a panel including Richard Alderman of the Serious Fraud Office, some lawyers and a corporate investigator. The room was filled with other lawyers and quite a few large corporates keen to know what the impact of this gold-plated British version of the  Foreign Corrupt Practice Act might be for their business and their clients. 

There has been a lot of speculation in the media about the impact of this legislation and perhaps some scaremongering, but for organisations in the oil, gas and mining sectors the risks are clear. These are industries that as a matter of routine work in far flung parts of the world that have very different standards of governance and transparency to what they are accustomed to in say the UK. Of course the act will only apply to organisations with interests in the UK, but given that London’s capital markets have been popular for a long time with natural resource companies, we can expect this to impact a significant portion of the industry.

There is an absolute defence available for firms that can demonstrate ‘adequate procedures’ and although what constitutes adequate has not yet been defined by the Ministry of Justice or the Serious Fraud Office, I suspect that many larger firms in the energy and mining sector will already have the ‘”gold standard” of procedures that Mr Alderman referenced frequently during the discussion. 

That said there are other reasons that the impact of the Bribery Act should be of concern to businesses. Perhaps most significantly because we are currently experiencing a boom in merger and acquisition activity. It is important to note that the act will not apply retrospectively, but the glut of deals that we have seen so far since the start of the year are unlikely to end anytime soon and one wonders if the organisations buying assets in the UK fully comprehend the liabilities for their other operations that they are acquiring with the asset as a result of the Act.

The other aspect worth bearing in mind for businesses as a whole, but the natural resource industries especially, is the use of agents and the extent of liability for joint venture operations. Joint ventures are a regular feature of the natural resource landscape and very often firms based in the UK will use them as a means to enter a market where foreign stakes are limited. I’m not sure what the extent of the risk of liability is for these corporate structures, but am going to ask the question at the next seminar I attend on this subject.

Of course it is also worth noting that the SFO has been handed a paltry sum of only £2m for enforcement and the likely cost of a trial, if it comes to it, will put the prosecution rate fairly low, but as any organisation prosecuted under FCPA will tell you, reputations are expensive things to lose and the SFO is not shy of pursuing trophy prosecutions, especially when Mr Alderman moves on and his successor is looking to make a name for him/herself.

This will be an interesting one to watch as the guidance is published and the Act comes into force.

Forgot to mention on our January energy round-up that we have welcomed a new colleague to our office in Houston, none other than former Bloomberg Bureau Chief Kimberley Jordan.

Kimberley joins as a Vice-President in our energy practice after more than 17 years in journalism and said:

“I am delighted that my energy knowledge and journalism background can provide clients with valuable insights that will keep them informed and prepared regarding policy decisions and industry shifts.”

Here’s hoping we can have her come and guest blog for the Energy & Industry blog very soon.

Speaking of which we will try to have Glen Hodgson’s view on the Heads of State Summit in Brussels tomorrow. The agenda was set to focus on energy, although Egypt is bound to come up.

What a busy start to the New Year it has been, so much so that my attempts to blog have been thwarted by a desire to see my wife for a little more than a handful of waking hours during the week.

With so much having happened, we thought it worthwhile taking a little review of January in the world of energy.

To The Moon

First off we had President Obama’s ‘Sputnik moment’ . His suggestion that America needed to seize the moment and take the lead in the technological race for dominance in renewable energy and sustainable technologies. His state of the union address was widely regarded as being well delivered, though his policies and narrative  have been called into question. Ultimately though I’m not sure the Sputnik analogy is an accurate one. Sure there is a long way to go for renewable energy technologies to become competitive with traditional sources, but in many ways the technology is available, it is the infrastructure and subsidy that needs to be set in order for renewables to ‘take off’. China moved ahead of the U.S. by adding a larger installed based during 2010 than anywhere else, by providing long term policies. The control economy will provide the sort of certainty that investors in the U.S. sadly lack, particularly as Congress missed the opportunity to provide long-term certainty and rolled over subsidy levels for just one year.

Like Rabbits

It was the Chinese and other ‘BRIC’ based investors who took the lions share of deal-making since the start of the year. Of course there was the BP Rosneft tie-up, though more on that later. As well we saw Petrochina take a stake in the Grangemouth assets of Ineos and Sinopec looks to extend its relationship with Repsol YPF in Brazil and CNOOC increase its interests in U.S. shale gas assets. 2011 is almost certain to witness a surge in merger and acquisition activity as the war chests are further swollen by rising oil prices and if the start of the year is anything to go by the BRIC players will be at the deal table as much as the traditional majors. The 3rd of February marks the start of the Chinese new year – the year of the rabbit – which if the year bears any resemblance to the well-known attributes of our furry friends could bode well for the M&A advisory community.

Creative Energy

So far at least it appears to be an excellent first quarter for many of the oil majors despite BP’s first loss in 20 years. Although the FT’s Lex column  was quick to criticise the lack of ‘creativity’ shown by the majors is addressing the longer term threats to their business model simply summarised as declining reserves.

It was this threat that was well in evidence in the results of PFC Energy’s annual Top 50 energy company ‘league table’, which was perhaps notable most for the state owned companies not on the list. This list is compiled based upon market capitalisation of listed organisations, but the many NOCs missed off the list are the power brokers of the industry and it seems somewhat incomplete without them.

The Tip of the Iceberg

This is especially true in light of BP’s recently inked deal with Rosneft. Of course the AAR consortium will do all it can to ensure that this deal never sees the light of dayas it seeks to protect its investment in TNK-BP, however, assuming this does go through this will provide an example of one of the more creative ways that IOCs will be directing their strategies in moving forward (remembering my earlier reference to Lex). Unfortunately though this sort of investment represents a communications challenge on the same sort of scale as the Gulf of Mexico spill that BP struggled through last year. Exploring the Russian arctic is certain to redraw battle lines with environmental activists and a wide range of stakeholders that believe this represents an unacceptable risk. I saw Bruce Parry’s programme last night about the impact of the Alberta Oil Sands on the lives indigenous people of that region. I expect there to be many similar programmes in the future and BP will no doubt be making preparations for reputational fallout, or so we hope.

Wakey, Wakey!

BP also took the limelight with its recent release of its 20 year outlook , an annual event, which has been closely watched by the industry for years. The results as you may expect are not wholly surprising, but I did find Bob Dudley’s frank response to projections on the reduction of carbon emissions refreshing. “Overall, for me personally, it is a wake-up call”, is how he referred to the less optimistic view of political commitment to reducing emissions. What this means for BP’s policies remains to be seen.

In light of the EU carbon trading debacle and the reported €30 million plus theft that is alleged to have taken place, BP’s pessimistic projections are looking fairly accurate. The system for trading credits remains down, with no immediate end in sight. For a trading platform to work traders need liquidity and trust. Both have been killed off and will take a long time and a lot of cost to rebuild. Industry calls to speed up the process of creating a single platform for Europe have so far not generated any concessions. Based on the performance of the UK trading platform, which appears to have far better standards of governance and compliance than some of its European peers, London may prove a popular home for the EU system.  

Pumped Up Prices

The retail sector in the UK has also been the subject of many headlines since the start of the year as prices at the fuel pump and retail electricity and gas prices have also risen. It will be interesting to see whether an OFGEM price review will yield any results (unlike previous inquiries) and if the Chancellor will capitulate and halt plans to raise fuel duty. The Coalition government has since Q4 GDP figures were released (and to some extent beforehand) been challenged to unveil plans to support economic growth and this duty may well have to be conceded if there are no specific policies in the pipeline.

Egypt

Finally would like to sign off this post by wishing that our friends, colleagues and clients in Egypt stay safe in these troubled times.

Happy New Year! It’s that time of year when everyone gets out their crystal balls and starts predicting what the big trends will be and what will have the biggest impact on our lives. My prediction (and I hate to admit this) is that electric vehicles will be a big talking point in 2011.

With hikes in fuel duty and VAT already pushing up petrol prices to record highs and bumper increases in buses, tubes and trains fares, people are going to seriously consider other options. Whilst some cities in the UK already offer eco-alternatives such as biking schemes, many commuters and families will be looking at their car and how they can save money by switching to a less gas-guzzling version.

Now I’ve never been a big fan of electric vehicles but I think if the car makers can get it right, I may be swayed and with support from the Government increasing, the day when electric vehicles become mainstream may be getting closer.

On 1^st January, the UK Government’s new scheme came into effect, offering grants – of up to £5,000 – for electric and ultra-low emission cars. Now that amount of money is not to be sniffed at! Will it work? Will 2011 be the year of the electric car?

I remain unconvinced for now until a car manufacture makes a stunning, long-distance electric car. I would prefer to see investment in high-speed rail links, improvements in road conditions and development of a more pleasant and affordable public transport system. Surely if public transport was more reliable, cheaper and efficient, people would use it more and that in turn would reduce the number of people driving and lower emissions. Sounds simple I know, but it could just work.

Amid concerns that energy companies are enjoying widening profit margins at the expense of their customers, Ofgem has announced that it will launch a review into the retail energy market.

With British Gas, Scottish and Southern Energy, and Scottish power all announcing price hikes in recent weeks, resentment has been growing as many home owners struggle in a difficult economic climate.

This Tweet sums up the general feeling nicely:

While many have welcomed Ofgem’s decision, there has also been significant scepticism in terms of what the review will mean in reality. In truth, this is not the first time that the market has been investigated in this manner, and as a spokesperson for Energy UK said today:

“The review is the latest in a long line of investigations into the energy market in recent years and no previous investigation has found anything to concern the competition authorities.”

While Sara Vaughan, head of energy policy at Eon, today heralded the beginning of a new era of ‘interactive relationships’ between energy companies and their customers, consumer groups are more sceptical.

As Adam Scorer of Consumer Watchdog pointedly stated, energy companiues “do not feel the hot breath of competition on their necks”. With the market closed to new entrants as a result of the dominance of the ‘big six’, market structure rather than conspiracy and cartels seem to be to blame for consumers’ current predicament.

If this is the case, then Ofgem’s investigation will merely provide lip service to the public’s bitterness, and could ultimately prove a further irritation rather than a solution. Watch this space.

The announcement of the new Shadow Cabinet today throws up a number of surprises, not least the appointment of Meg Hillier as Shadow Energy and Climate Change Secretary.

Hilary Benn, with three years’ Cabinet experience as Environment Secretary, was surely the more obvious choice but has moved sideways into the important, but obscure role of Shadow Leader of the Commons.

Hillier is only in her second term in Parliament, and before today had reached the heady heights of Minister at the Home Office – an experience that was not entirely problem-free.

A hint that new Labour leader Ed Miliband attaches less importance to the energy and climate change brief than certain others, or merely a reflection of the shallow pool of people he had to choose from after the divisions of the Blair/Brown years? Given that Miliband himself held the brief until being chosen as Labour leader, probably the latter.

It will be interesing to see how Hillier fares against one of the big beasts of the Coalition…

As conference season kicks off with the Liberal Democrats in Liverpool, there’s something in particular that I am looking for in the multitude tweets and updates from colleagues and others that are on the sidelines this week. That is the coalition intentions with regards renewable energy subsidies and support.

On Thursday this week the FT tells us that energy minister Chris Huhne will be launching the world’s largest wind farm. The London Array will eventually consist of 341 turbines generating 1,000 megawatts of electricity off the coasts of Kent and Essex in the South East of England, paid for in part by Masdar, the Abu Dhabi government’s initiative to encourage development of green technologies. No doubt the launch will be subject to a fanfare celebrating the UK’s leadership in renewable technologies. However, as Christopher Booker’s editorial in yesterday’s Daily Telegraph suggests there will be many others lamenting the cost that subsidies place upon  energy users at a time that they can least afford it.

The next few quarters will be critical to the success of maintaining existing energy policy. As the spending review is rolled out and cuts begin to bite, taxpayers may well start to question their inflated energy bills, which the DECC expect to increase by 33% by 2020, and their commitment to some of the most ambitious renewable targets in the developed world. Let’s hope for the coalition’s sake that this is not compounded by a harsh winter.