The Power and the Money

Things that make you go “hmmm”

   Can’t sleep, my head is so stuffed up.  (Sleeping 17 hours the day before probably didn’t hurt.  Docs think I had a virus but kept wandering around in the rain anyway, allowing a secondary infection.  Lesson:  machismo does not pay.)  So I surf the net.  And what do I find?  France’s “hamster hotel.” 

Every country, paradoxically, has a typical way to be weird.  Most Americans, for example, don’t own more guns than socks, or dress like something out of a blaxploitation flick, but those would be very American ways to be outside the American norm.  You can all think of others, or examples from different countries.

So all I can say here is that a hamster hotel is not only weird, it is a very un-French way to be weird.

Why costs rise

  Why do so many big projects regularly come in above budget?  Corruption?  Stupidity?  Or something else?  Well, I vote for “something else.”  Let's consider the French nuclear reactor project at Flamanville, which I had the honor to visit.

EDF initially costed the reactor in 2005 at €3.3 billion.  It is now estimated to cost €4.0 billion.  What happened?  Well, according to EDF, costs rose by €250 million due to inflation.  Special escalator clauses tied to the price of particular commodities (like steel) caused another €150 million.  Finally, an additional €300 million came from “évolutions techniques et réglementaires,” a fancy way of saying, “We learned on the job that some things are a little more complicated than we thought, but mostly the regulator kept changing the goal posts.” 

Considering that the head of L’Autorité de sûreté nucléaire, André-Claude Lacoste, actually said, “We wanted to show an example,” in regards to the construction of the first new reactor in 20 years, I find that last quite believable. 

A real anti-imperial triumph

  It seems as though the Argentine ambassador in France will no longer need to pay embassy expenses out of his own pocket.  A French judge lifted the freeze imposed on April 3rd.  More importantly, a German judge released the funds that German companies owed Argentine tax authorities.  Interestingly, Judge Wölber did not base his decision on sovereign immunity.  Rather, he ruled that since the tax payments were owed by the companies’ Argentine operations, German courts had no authority.  It remains to be seen if this precedent will be followed by other European courts, but the Argentine government is optimistic.

Interestingly, U.S. courts have taken the same position.  In 1999, the New York-based Leucadia National Corporation sued Nicaragua over $26 million in defaulted debt that it had purchased for $1.14 million.  A New York court granted the company $87 million.  (No, I don’t know why.)  It tried to collect by attaching Nicaragua’s share of the ticket and landing fees paid by U.S.-based airlines that flew to that country.  U.S. courts, however, refused to uphold the judgment.  But don’t cry for Leucadia.  Eventually the World Bank paid off the debt at 4.5¢ on the dollar, including accrued interest.  By my calculations, Leucadia received about $7.8 million, for a nice return of 584%. 

I am increasingly unsympathetic to Argentina.  But I am also relatively unsympathetic to the vulture funds that try to use the judicial system to impose sanctions on defaulting governments.  I may change that position if we start seeing more ploys like President Correa’s brilliant gamble, but that’s still a hypothetical fear, not a real one. 

P.S.  It seems like I was wrong about Ecuador.  I’ll discuss why, but only if there’s interest.  No reason to admit error if nobody cares ...

The great socialist scramble for Africa

  So, China is trying to get into the Nigerien uranium business, for reasons known only to the China National Uranium Corporation.  (Although I will guess later in this post.)  Here's the story to date.  On June 5, 2007, the Nigerien government formed the Société des Mines d'Azelik (Somina) a mining enterprise intended to exploit the Azelik uranium deposit way up in the north.  Niger got a 33% stake in the enterprise, with China getting 67%.   On July 6, Toureg rebels kidnapped a Chinese national for four days.  On November 9, Somina got an official license to work at Azelik.  On November 11, the Toureg rebels declared that China's contracts were "invalid."  At which point the Nigeriens accused Areva (the French state-owned nuclear company) once again of funding the rebels.  The same rebels, that is, who attacked Areva in April.

So the Chinese suspended work.  And the Nigerien government started to hem and haw and stall and delay.  So much for all those Chinese plants to build 50 MW of (conventional) power plants in the country and a €27.3 million bridge over the Niger river.  On the other hand, the Chinese didn't want to lose their options, so on April 30, 2009, they agreed to lend the Nigerien government $95.22 million at 2% over ten years, with the loan explicitly (but vaguely) tied to the stalled Azelik project.  China, meanwhile, sold 5 percentage points of its interest in the mine to a state-owned Korean company, which promised the Nigerien government that it would buy 400 tons per year once (if) the 700 tons-per-year mine gets up and running.  The president of Niger has just visited the site, in order to show his seriousness about getting the project back on track. 

The hitch is that as the Chinese project in Azelik stalled, France was on the move. In January 2009, Areva signed a deal to open the largest uranium mine on the continent, and President Sarkozy visited Niger in March to give it his full-throated support.  That's a problem for the Chinese.

Now, the Chinese still have a good project if they can get it running.  After all, they have gotten the Korean government to implicitly promise to buy the uranium at whatever price the Chinese charge, which will be quite a coup if the mine opens.  Not a terribly bad plan.  That said, the overall impression is that the Chinese really don't yet know how to play this game.  

So what exactly is the game?  Suggestion below the fold.

On the edge of the French energy empire

  In 1965, the French discovered uranium in Niger.  Here is what the New York Times had to say about it in 1969, right before production began.  It makes for fascinating reading.  

The paved road comes to an end in this isolated, dust-colored market town on the southern shore of the sand sea known as the Sahara.  About 300 miles farther north, along an ill-defined track, lies the town of Agadez.  About 150 miles beyond that, near the jumbled boulders of the Air Mountains, the village of Arlit is rising.  Where nothing more than tumbledown mud huts stood two years ago, French and African workmen are building cement-block houses, shops, an electrical generating plant big enough for a city of 40,000 — and two uranium processing plants. 

The uranium will be produced by a company in which the government of Niger holds 20 percent, German groups 10 percent, and the French Atomic Energy Commission and two French mining companies 70 percent ...

In a country where the per capita income runs about $75 a year ($351 in 2008 dollars), peanuts and bony steers constitute the only significant exports, where fuel is so scarce that technicians once tried and failed to make a power plant run on peanut husks, the discovery of uranium was an extraordinary event.

Niger will receive about 40 percent of the company’s profits ... Niger is counting on only $4 million a year in revenues by 1975 — about a tenth of the current national budget.  “Even with this strike,” said a local economist this week, “this is never going to be a rich country—unless they find a market for sand.” 

Imperialism can pay ... the imperialized

  The French empire in Africa never really ended.  In 1960, the autonomous territories of the “French Community” got seats in the United Nations, but for most the change was less than dramatic.  Only Mali dropped the use of the old colonial currency.  The new African governments increased trade restrictions, bit by bit, and the French market closed to their exports, bit by bit, but Paris fought hard to keep the European market open for a very long time.  The Yaoundé and Lomé conventions granted the “associated” states preferential access to what later became the E.U. 

Empire didn’t go away in another more visible manner:   French troops remained on the continent, French nationals staffed the governments and newly-created armies, French companies (often state-owned) dominated the export industries, and France knocked over more than a few recalcitrant governments while propping up others. 

Niger, where the French found uranium, made for a particularly egregious example.  In 1963, French troops rescued the government of President Hamani Diori from a coup.  In 1969, the French discovered uranium, and two French companies got exclusive rights.  In March 1974, French, Nigerien, and Gabonese representatives meant in Niger’s capital to discuss Diori’s insistance that the country’s uranium contracts be renegotiated.  Coincidentally, Diori fell to a coup the next month.  It seems that all of Diori’s French military advisors had gone on vacation and no one picked up the phone in Paris when news of the violence arrived.  The New York Times went so far as to accuse France of abetting the coup because Diori wanted to give uranium concessions to Exxon.  The next guy kicked French troops out of the country, but the French remained in control of the mines ... and their troops came back in 1981 anyway.

So what did the combination of continuing French intervention and French uranium mining mean for Niger?  An unexpected answer below the fold. 

Observatorio Argentino 10: French lawyers declare war!

  It seems as though some French lawyers have decided to do a Rogers on the Argentine Republic. 

A few years ago, in 2005, Argentina repudiated a big chunk of its foreign debts.  Since then, the jilted bondholders have been trying to get it back.  On April 7th, the famous NML-Elliott announced that their lawyers managed to get a French bailiff to put a stay on all Argentine accounts in the country.   “The frozen assets in France are not diplomatic, and therefore are not protected by sovereign immunity,” said an Elliott spokesperson. 

Well, Buenos Aires wasn't going to take this lying down.  Elliott had already tied up funds held in France by the Banco Hipotécario and Banco Central.  The Argentine embassador to France, Luis Ureta, complained to the French foreign ministry.  The French diplomats were not happy to hear the news.  “On Monday night, a bucket of cold water landed on the heads of the diplomats at the Latin American Desk of the French foreign ministry,” was how La Nación described it.  The Argentines asked France to unfreeze the accounts “by any means necessary.”  (Argentines are not Filipinos:  I don't think the phrasing was deliberate.)

The French response?  Well ... it was rather American, actually.  A spokesman expressed support for the Argentine position, and then told the Argentine government that if they didn't like it, it was up to them to appeal.  In the interim, the Argentine embassador is paying for burnt-out light bulbs and the like out of his own pocket.  I suppose the embassy employees are getting paid back in Argentina and withdrawing their salaries out of ATMs, or some such.  The account itself is only a million euros or so, but man is it a pain to have to run a big office without any access to, you know, modern finance. (Although many Argentines have some recent experience of doing exactly that.)

Anyway, it's a bit of mess.  Argentina has already lost access to several hundred million dollars worth of bank accounts and all of the nationalized pension funds held abroad.  About the only bright light in the legal firmament is that a New York judge just declared that the recently-nationalized Aerolineas Argentinas is “not an alter ego or agent of the Republic, and the recognition of Aerolíneas’s independent status won't serve as a fraud or injustice against the Republic’s creditors.”  So that's one bright spot.  

In other news, I've added an “empire” tag to this blog.  I'm still not sure what I mean by it, but once I figure that out, I'll try to reclassify past posts appropriately.  Suggestions?

Oh, and go listen to Will.  I need help with this stuff!

L’énergie atomique

  The Economist has an interesting article on French nuclear energy.  You read about it here first.  Be sure to check out the comments if you click the link. 

I have a terrible feeling that the emerging potential depression has changed the economics of nuclear power, such as they were.  First, the cost of traditional energy sources has plunged along with the overall demand for energy.  (I don't think today's low prices will outlast the downturn, but the fact remains.)  Second, the credit markets are pretty messed up at the moment.  How would you finance a project based on the idea that energy prices will rise in the long term?  In the long term, everyone is bankrupt.  Third, nuclear power plants as they are currently designed seem to be pretty bad as a Keynesian fiscal demand boost.  The lead times are far too long; it'd be years before a project leads to a dime of actual purchases.  That means that governments will be ill-advised to include subsidies to nuclear power in the capital projects that they are going to undertake over the next few years. 

Still the energy of the future.  Perhaps the article's relative optimism will prove justified.  I hope so, but it isn't how I'd bet. 

The Myth of French Nuclear Technology

  A lot of myths accrue to France and the French.  For example, that the French military isn't very very very good at defeating its enemies.  Or that the French don't get fat.  Or have bad taste in comedy, or can't make decent action movies (most untrue!), or are peculiarly racist towards immigrants.  (Although ... another post.) 

Me, I love France in that peculiar way that (I like to believe) only Americans can.  So much of the place reminds me of home!

But still, I gots to punch the myths.  The latest one I've run into is that France has discovered a way to make nuclear technology pay that doesn't involve huge dollops of taxpayer money.  As with so many things, the proof comes from Finland, a country I really have to visit soon.

Now, I want to make clear that I am not opposed to spending large dollops of taxpayer money on nuclear energy.  I am agnostic.  But I am pretty clear that such is what needs to be done in the absence of serious carbon caps, high carbon taxes, of further run-ups in the price of fossil fuels, because nuclear power plants are just plain expensive and very hard to build.

Frex the saga of the Areva reactor under construction in Finland.  As of September 7th of last year, it had already run 25% over its €3 billion budget and had its opening delayed at least two years.  Bloomberg quoted Robin Kendall, director of project finance at Société Générale: “You have to go in with your eyes wide open.”  Poor Société Générale is one of the banks that lent €1.95 billion euros to the Finnish national utility for its new reactor.  The Finns refused to pay Areva for the overruns, which has blown a hole in the French company's bottom line. 

Were the banks just stupid?  Is Robin Kendall an idiot?  Have super-canny Finnish negotiators stiffed hard-working French financiers?  The answers are no, no, and no.  Rather, the French government guaranteed the loans that the Finnish utility took out to finance its share of the project ... and French taxpayers may yet wind up eating the losses. 

Under an Obama Administration, a real cap-and-trade system (you, know, with caps) may make subsidies and guarantees unnecessary.  And even if it doesn't, subsidies and guarantees may in fact be a good idea. 

But at the current state of play, they're very necessary to make nuclear economic ... and without carbon caps or taxes, subsidizing nuclear power seems like an unwise use of limited public resources. 

Piratas atacan la madre patria

Newsflash:   pirates just captured a Spanish fishing boat off the coast of Somalia.  A Spanish frigate has been dispatched from the Red Sea and Madrid has requested assistance from NATO countries with a naval presence in the area. 

Considering as I just posted about pirates, I figured that it'd be remiss not to mention that the French raid doesn't seem to had an immediate deterrent effect.  Not that there's anything surprising about that.

Pirates!

In a scene of most superior uber-cool, the French military arrested the Somali pirates who’d captured a cruise vessel returning from the Seychelles on April 4th. 

So, of course, the New York Times would take the opportunity to publish an op-ed blaming namby-pamby British cupcakes for failing to enforce international law by arresting Somali pirates.  Why did the author claim that the Brits were wussing out? Because they were all worried that these scurrilous lawbreakers might claim asylum if they were brought back to the U.K.  Worse yet, the Somali government might violate their human rights if they were turned over to Mogadishu.   

“The British attitude has come a long way since the days when pirates were chained to pilings at Wapping and left there until the tidal water of the Thames ebbed and flowed over the bodies three times. So much for Britannia ruling the waves.”

Sounds good, right?  Fits a whole narrative of European decline, although, well, the part about French military prowess doesn’t quite fit.   

Too bad it’s all complete crapola.  Details below the fold.