Why the Glencore-Xstrata merger is alarming governments

Too big to succeed?

First it was Qatar, then South Africa followed by the EU and now China. The largest merger deal commodities history is alarming governments all over the world.

The $76 bn Glencore-Xstrata merger was first announced in February 2012. It was to be the largest corporate deal that year, but was successively held up: First there was Qatar Holdings, a shareholder of both commodities giants, who demanded a higher share price and a cap on the vast payments made to board members. To break the deadlock between Qatar and other investors, Tony Blair was roped in at the last minute to negotiate and a deal was made in November 2012.

The merger of the two Anglo-Swiss companies then had to jump through the hoops at Brussels. To meet the EU’s competition laws, Glencore, the world’s largest commodities company, had to sell its stake in the zinc trader, Nyrstar. Approval was granted in late November 2012.

South Africa was next on the list of countries to console. The state’s Competition Tribunal wanted to limit job losses that the merger would inevitably entail in the resource rich nation. Other concerns regarding coal supplies (85 per cent of South Africa’s electricity is from coal fired plants) were smoothed over and the deal was again approved in January 2013.

Deadlines were set and investors raring to go, but one last government had to be satisfied – China. Glencore and Xstrata – when merged – will control over 10 percent of the world’s copper concentrate supplies. China is the world’s largest copper consumer and this has caused the deal’s current delay – China is obviously concerned about an over-reliance on a Swiss company listed in London.  

One of the larger deals in corporate history now hangs in the balance of Mofcom (the Chinese Ministry of Commerce). Whether they will request – like the EU – that certain assets be dropped to reduce the company’s size and dominance, or flounder under pressure of the two commodity giants and approve the deal outright will set the rules for future mega-deals.

The multinational vs. nation state debate has long been a topic pursued by international relations theorists. But here reality trumps theory: A merged Glencore-Xstrata will be the world’s fourth largest diversified mining company and by far the largest commodities trader. As we have seen, the merged company will hold sway over the resources of the EU, South Africa and China, let alone numerous smaller countries. This deal, then, is critical to both the future of commodities trading and multinationals as a whole. Come May 2nd, the latest date for the merger, we could see either a stagnant deal held at ransom by the Chinese government, or a new power to be reckoned with over the world’s resources.       

Glencore. Photograph: Getty Images

Oliver Williams is an analyst at WealthInsight and writes for VRL Financial News

GETTY
Show Hide image

Brexit will hike energy prices - progressive campaigners should seize the opportunity

Winter is Coming. 

Friday 24th June 2016 was a beautiful day. Blue sky and highs of 22 degrees greeted Londoners as they awoke to the news that Britain had voted to leave the EU.  

Yet the sunny weather was at odds with the mood of the capital, which was largely in favour of Remain. And even more so with the prospect of an expensive, uncertain and potentially dirty energy future. 

For not only are prominent members of the Leave leadership well known climate sceptics - with Boris Johnson playing down human impact upon the weather, Nigel Farage admitting he doesn’t “have a clue” about global warming, and Owen Paterson advocating scrapping the Climate Change Act altogether - but Brexit looks set to harm more than just our plans to reduce emissions.

Far from delivering the Leave campaign’s promise of a cheaper and more secure energy supply, it is likely that the referendum’s outcome will cause bills to rise and investment in new infrastructure to delay -  regardless of whether or not we opt to stay within Europe’s internal energy market.

Here’s why: 

1. Rising cost of imports

With the UK importing around 50% of our gas supply, any fall in the value of sterling are likely to push up the wholesale price of fuel and drive up charges - offsetting Boris Johnson’s promise to remove VAT on energy bills.

2. Less funding for energy development

Pulling out of the EU will also require us to give up valuable funding. According to a Chatham House report, not only was the UK set to receive €1.9bn for climate change adaptation and risk prevention, but €1.6bn had also been earmarked to support the transition to a low carbon economy.

3.  Investment uncertainty & capital flight

EU countries currently account for over half of all foreign direct investment in UK energy infrastructure. And while the chairman of EDF energy, the French state giant that is building the planned nuclear plant at Hinkley Point, has said Brexit would have “no impact” on the project’s future, Angus Brendan MacNeil, chair of the energy and climate select committee, believes last week’s vote undermines all such certainty; “anything could happen”, he says.

4. Compromised security

According to a report by the Institute for European Environmental Policy (the IEEP), an independent UK stands less chance of securing favourable bilateral deals with non-EU countries. A situation that carries particular weight with regard to Russia, from whom the UK receives 16% of its energy imports.

5. A divided energy supply

Brexiteers have argued that leaving the EU will strengthen our indigenous energy sources. And is a belief supported by some industry officials: “leaving the EU could ultimately signal a more prosperous future for the UK North Sea”, said Peter Searle of Airswift, the global energy workforce provider, last Friday.

However, not only is North Sea oil and gas already a mature energy arena, but the renewed prospect of Scottish independence could yet throw the above optimism into free fall, with Scotland expected to secure the lion’s share of UK offshore reserves. On top of this, the prospect for protecting the UK’s nascent renewable industry is also looking rocky. “Dreadful” was the word Natalie Bennett used to describe the Conservative’s current record on green policy, while a special government audit committee agreed that UK environment policy was likely to be better off within the EU than without.

The Brexiteer’s promise to deliver, in Andrea Leadsom’s words, the “freedom to keep bills down”, thus looks likely to inflict financial pain on those least able to pay. And consumers could start to feel the effects by the Autumn, when the cold weather closes in and the Conservatives, perhaps appropriately, plan to begin Brexit negotiations in earnest.

Those pressing for full withdrawal from EU ties and trade, may write off price hikes as short term pain for long term gain. While those wishing to protect our place within EU markets may seize on them, as they did during referendum campaign, as an argument to maintain the status quo. Conservative secretary of state for energy and climate change, Amber Rudd, has already warned that leaving the internal energy market could cause energy costs “to rocket by at least half a billion pounds a year”.

But progressive forces might be able to use arguments on energy to do even more than this - to set out the case for an approach to energy policy in which economics is not automatically set against ideals.

Technological innovation could help. HSBC has predicted that plans for additional interconnectors to the continent and Ireland could lower the wholesale market price for baseload electricity by as much as 7% - a physical example of just how linked our international interests are. 

Closer to home, projects that prioritise reducing emission through tackling energy poverty -  from energy efficiency schemes to campaigns for publicly owned energy companies - may provide a means of helping heal the some of the deeper divides that the referendum campaign has exposed.

If the failure of Remain shows anything, it’s that economic arguments alone will not always win the day and that a sense of justice – or injustice – is still equally powerful. Luckily, if played right, the debate over energy and the environment might yet be able to win on both.

 

India Bourke is the New Statesman's editorial assistant.