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Tales of Adventures in Foreign Investment
By Kennedy Maize
Washington, D.C., September 29, 2011 — A story in the Wall Street Journal recently – about a Chinese wind firm pirating U.S.-owned software that controls wind turbines – reminded me of how, in the 1980s, China stole a coal mine from legendary U.S.-Russian oilman Armand Hammer. The moral of the story, for me, is that China never changes and Chinese business ethics are the equivalent of military music: an oxymoron.
In broader terms, the latest tale of woe and intrigue in foreign climes is a reminder that investments in strange lands and cultures requires more than the usual vigilance and foresight. Prudence requires more than assessments of business risk. Look out for criminal conduct as well. Hold onto the wallet.
The current story concerns the criminal conviction of an American Superconductor Corp. engineer for selling his company’s wind controller software under the table to China’s Sinoval Wind Group Ltd., once American Superconductor’s biggest customer. Sinovel has denied the charges that it pirated the American software.
The 38-year-old Serbian engineer entered a guilty plea in Austria and got a reduced sentence of three years in prison and a payment of $270,000 to American Superconductor. The U.S. firm is suing Sinoval in Beijing on civil charges. Good luck with that.
Some 30 years ago, Occidental Petroleum, under control of the mythical Hammer, a Russian emigre (some wags joked that Hammer was really the secret head of the worldwide Soviet spy agency KGB) then well into his 80s, announced a major Oriental business breakthrough with the Peoples’ Republic of China. Los Angeles-based Oxy, working through its wholly-owned Tennessee coal company Island Creek (which once employed Al Gore’s father, former Tennessee Senator Albert Gore, Sr., after he lost a reelection bid in 1970), would develop a major, state-of-the-art strip mine in Shanxi Province.
China would provide the coal reserves, the labor, and the market. Oxy would put up the capital, oversee construction, and share the profits of the An Tai Bao coal venture, opening up the province’s considerable coal reserves and helping to fuel the country’s emergence on the world business stage. Hammer’s political partner in the project was Premier Li Peng, protégé of Deng Xiaoping and a Soviet-trained hydro engineer (later the prime political mover behind the Three Gorges Dam on the Yangtze River).
Construction on the Chinese coal mine began in 1985, with the 87-year-old Hammer at the ribbon cutting on the project that Oxy had financed with $650 million. Six years later, with Hammer dead, the mine was running full-tilt and Oxy was bleeding red ink as a result. China controlled the price it would pay for the coal from the mine, and Li Peng had no interest in seeing Hammer walk away with a profit.
China had managed to socialize the benefits of the mine and privatize the costs to the U.S. firm. Sheryl WuDunn of the New York Times – who in 1989 had won a Pulitzer Prize with her husband Nick Kristof for their coverage of the massacre at Tiananmen Square – wrote in 1991, “These days, as Occidental tries to withdraw from an apparently money-losing venture, the mine exemplifies the skepticism with which many foreign countries now view the Chinese market.”
At the time, energy journalists – and I was among them – were joking that the Chinese coal mine deal mimicked a standard country music lyric. China got the mine, and Oxy got the shaft.
The same sort of sovereign shenanigans happened in India with Enron in the end of the 20th Century and the early years of the new millennium. The former Houston-based energy company (which was not entirely a criminal enterprise throughout its history) invested heavily in a gas-fired power plant in the Indian state of Maharashtra known as Dabhol. Enron believed it was protected by the British business heritage in India and a sovereign guarantee from the Indian government that the risks were covered.
Not quite.
Maharashtra’s state-owned energy board ended up with the project and Enron got slow-walked out of India with empty pockets. Some analysts have argued that its multi-billion-dollar misadventure in India marked the start of the fall of the House of Enron.
Times seem not to have changed very much when it comes to investments in rapidly-developing countries. Just study American Superconductor Corp. for the latest lesson.
Guest Blog: At CIA, Climate Change is a Secret
By Steven Aftergood
Updated below
When the Central Intelligence Agency established a Center on Climate Change and National Security in 2009, it drew fierce opposition from congressional Republicans who disputed the need for an intelligence initiative on this topic. But now there is a different, and possibly better, reason to doubt the value of the Center: It has adopted an extreme view of classification policy which holds that everything the Center does is a national security secret.
Last week, the CIA categorically denied (pdf) a request under the Freedom of Information Act for a copy of any Center studies or reports concerning the impacts of global warming.
“We completed a thorough search for records responsive to your request and located material that we determined is currently and properly classified and must be denied in its entirety…,” wrote CIA’s Susan Viscuso to requester Jeffrey Richelson, an intelligence historian affiliated with the National Security Archive.
With some effort, one can imagine records related to climate change that would be properly classified. Such records might, for example, include information that was derived from classified collection methods or sources that could be compromised by their disclosure. Or perhaps such records might present analysis reflecting imminent threats to national security that would be exacerbated rather than corrected by publicizing them.
But that’s not what CIA said. Rather, it said that all of the Center’s work is classified and there is not even a single study, or a single passage in a single study, that could be released without damage to national security. That’s a familiar song, and it became tiresome long ago.
But in this case, it is more than an annoyance. The CIA response indicates a fundamental lack of discernment that calls into question the integrity of the Center on Climate Change, if not the Agency as a whole. If the CIA really thinks (or pretends to think) that every document produced by the Center constitutes a potential threat to national security, who can expect the Center to say anything intelligent or useful about climate change? Security robots cannot help us navigate the environmental challenges ahead. Better to allocate the scarce resources to others who can.
Meanwhile, access by scientists to classified military intelligence data on the environment has actually been improving lately, reports Geoff Brumfiel in the latest edition of Nature (“Military surveillance data: Shared intelligence,” 21 September 2011, sub. req’d). Among other things, the Clinton-Gore era group of cleared scientists known as MEDEA (Measurements of Earth Data for Environmental Analysis) was reconvenedin 2008 at congressional request.
A Federation of American Scientists proposal to expand public access to unclassified open source intelligence products (“Open Up Open Source Intelligence,” Secrecy News, August 24) did not find favor with the White House. Nothing like it was included in the new U.S. National Action Plan(pdf) for the Open Government Partnership, which mostly elaborates and restates previous commitments.
Update: The National Intelligence Council has published a collection of commissioned papers on “The Impact of Climate Change to 2030″ which do not, however, “reflect official U.S. Government positions.”
This blog posting appeared Sept. 22, 2011 in “Secrecy News,” published by the Federation of American Scientists. Reprinted with permission.
Will DOE Punt Transmission Siting to FERC?
Washington, D.C., September 20, 2011 — Having failed to implement the provisions of the 2005 Energy Policy Act aimed at facilitating interstate electric transmission, the Department of Energy now wants to punt the problem to the Federal Energy Regulatory Commission. Whether FERC wants this political black spot isn’t clear, but in any case the idea is a loser.
Put simply, the problem is not bureaucratic. It’s the law. Scott Hempling, then the head of the National Regulatory Research Institute, wrote in these pages shortly after DOE began implementing the 2005 that the attempt to override the states in siting interstate electric transmission, historically a state function, was doomed to failure. Hempling outlined a number of time bombs buried in the act that were destined to explode once the issues hit the federal courts. His assessment was on the money, and the courts have properly frustrated DOE as it has attempted to implement a poorly written, inherently self-contradictory law.
Under the 2005 law, DOE has the authority to designate “national interest electricity transmission corridors.” Once that happens, federal law is supposed to trump state objections to transmission lines that may pass through a state without delivering any benefits to the state. If the state digs in its heels, DOE can pass the issue on to FERC, which can then overrule the states. FERC has long had clear authority under federal law to grant eminent domain for interstate natural gas pipelines.
The law says FERC can act if a state has not acted within a year on a transmission line proposed for one of these DOE-blessed corridors. What constitutes state inaction? According to the courts, a decision by a state within the time frame to deny approval to the line constitutes action, so it’s not reviewable by the feds.
Six years after Congress passed the law, after much rattling of swords and gnashing of teeth, no new transmission in these privileged corridors has been built. Hence, DOE proposes delegate all of its authority to FERC, which would then get the blame for failing to advance national transmission goals.
Predictably, the DOE punt has occasioned impassioned responses, mostly in opposition. State regulators, justly fearing an end-run around the courts, slammed the plan. Chuck Gray of the National Association of Regulatory Utility Commissioners wrote that the DOE plan “relies on a tortured reading of the statute that would cause uncertainty, litigation, damage to State and federal relations, and delays in transmission development.”
One gets a whiff of disingenuousness in Gray’s complaint, suspecting that NARC thinks delays might be just fine, but his point is well made in any case. Gray correctly predicts that the delegation of authority to FERC could lead to “developers pursuing a FERC corridor designation and running the clock on State-siting processes in an attempt to circumvent State-siting review.” It’s bad law, and slip-sliding it over to FERC won’t cure the legal problems.
Sen. Jeff Bingaman (D-N.M.), chairman of the Senate Energy and Natural Resources Committee, which largely wrote the offending Section 216 of the Federal Power Act, most recently slammed the proposed hand-off to FERC as “extremely ill-advised.” The law that Bingaman’s staff concocted depended on a compromise: DOE would make the national interest delegation and FERC would be the backstop. Otherwise, the states would have dug in against the legislation and killed it. The decision to modify Section 216, writes Bingaman, “is for Congress to make.”
Perhaps the best take on the current dispute comes from Raymond Wuslich, who watches energy policy and politics for the Winston & Strawn law firm’s Washington office. He writes that the DOE idea “has a tempest-in-a-teapot quality to it. FERC’s backstop siting authority has been in doubt since the U.S. Court of Appeals for the Fourth Circuit held two years ago in Piedmont Environmental Council v. FERC that a state’s denial of a transmission certificate application does not trigger FERC’s backstop siting authority. And the Ninth Circuit’s decision earlier this year in California Wilderness Coalition v. DOE, finding that DOE’s NIEtC designations in the Mid-Atlantic and Southwestern U.S. were procedurally flawed, raises a question whether having the authority would truly allow FERC to make transmission siting any more efficient that it already is.”
Another Scientific Warming Skeptic Makes News
By Kennedy Maize
Washington, D.C., September 16, 2011 — Add another prominent name to the list of know-nothing, scientifically illiterate skeptics of the conventional wisdom about global warming. Ivar Giaever, co-winner of the 1973 Nobel Prize in physics, has resigned as a Fellow from the American Physical Society over the scientific group’s political position on manmade global warming.
In an email to APS executive officer Kate Kirby this month, Giaever wrote, “I cannot live with the [APS] statement” on warming. That statement asserts, “The evidence is incontrovertible: Global warming is occurring. If no mitigating actions are taken, significant disruptions in the Earth’s physical and ecological systems, social systems, security and human health are likely to occur. We must reduce emissions of greenhouse gases beginning now.”
Giaever, who shared the Nobel with Leo Esaki and Brian Josephson for their work on tunnelling phenomena in solids and is a member of the U.S. National Academy of Sciences, said the APS statement is scientific nonsense. He wrote: “The claim (how can you measure the average temperature of the whole earth for a whole year?) is that the temperature has changed from [around] 288.0 to [around] 288.8 degree Kelvin in about 150 years, which (if true) means to me that the temperature has been amazing stable, and both human health and happiness have definitely improved in this ‘warming’ period.”
Last year, Giaever told the New York Times that global warming has become dogma and “can’t be discussed — just like religion — there is NO unusual rise in the ocean level, so what, where and what, is the big problem?” In 2008, Giaever was one of a number of prominent scientists who support the presidential candidacy of Barack Obama. He was one of 70 Nobelists who endorsed Obama in an October 29, 2008 open letter.
The key point I want to make here is that the question of global warming is not science versus ignorance, as so many in the school of manmade mischief want us to believe. There is plenty of room for scientific debate and dissent. It serves no purpose to deny that science cuts in many ways on the subject of how the climate work. The proponents of manmade global warming are in denial if they say the science is “incontrovertible.”
Also on the global warming front, this week saw Al Gore’s 24-hour climate telethon (somebody had to replace Jerry Lewis) and a funny YouTube send-up from the conservative Competititve Enterprise Institute.
NPR on Morning Edition today was featuring a story about how Arctic ice has thinned to the lowest level ever recorded. To its credit, the story mentions — but never seems to understand just what it means — that the historical record for the thickness of Arctic ice goes WAY BACK to 2007. In other words, we are wringing our hands about the demise of the Arctic ecosystem, which we know has existed for thousands of years, on five years of data. And that passes for science?
Reports: France Suffers Nuclear Explosion
By Kennedy Maize
Washington, D.C., September 12, 2011, 9:30 a.m. — There are multiple reports this morning of an explosion at the French nuclear site at Marcoule. According to the BBC, one person has been killed and four injured. Few details are available.
The Lessons of Solyndra
Washington D.C., September 9, 2011 — Pondering the collapse of solar PV manufacturer Solyndra and the earlier business failures of Evergreen Solar and SpectraWatt, all recipients of Department of Energy loan guarantees, several points seem clear to me.
The first is that the Obama administration has made a mistake by investing economic recovery funds in highly speculative ventures such as solar photovoltaic firms. Congress is complicit in this, agreeing that some $35 billion of the 2009 stimulus funds could be directed to “green” technologies through DOE.
Thus the stimulus funds became tools of “industrial policy,” something conservatives, and some liberals, have rightly warned against in the past. Those warnings, unheeded by conservatives and liberals alike, correctly predicted that the government would not be very good at picking winners and losers. Anyone who has followed the history of the energy department and Congress when it comes to energy technologies knows that the warnings are well directed. The agency has a wretched record of investing in losers.
In the cases of investments in solar, the administration was blinded by its visions of a green future. But “green” and “clean” aren’t terms that have any economic meaning. They are propaganda terms, designed to mislead, not to lead to correct action. In the case of Solyndra, the government wagered over $500 million — and that’s not government money, that’s your money and my money — on a bad bet from the beginning. I don’t have any problems with private investors making bad bets. It’s not my money. I do have problems when the government makes bad bets with my money.
David Brooks, a perceptive New York Times conservative columnist, wrote, “The gigantic public investments in green energy may be stimulating innovation and helping the environment. But they are not evidence that the government knows how to create private-sector jobs.”
Barry Cinnamon of Westinghouse Solar recently explained the nature of the risks the government was taking with Solyndra. “The first bad bet,” he wrote recently in Greentech Media, “was that refined silicon, the feedstock for the solar panel industry, would stay expensive.” Solyndra’s panels don’t use silicon. And silicon prices have fallen dramatically in recent years.
This is basically the same bad bet that the U.S. government, in the form of the Atomic Energy Commission and the congressional Joint Committee on Atomic Energy, made consistently in the 1960s and 1970s, betting that uranium was a scarce mineral and prices could only go up. The result was billions of dollars wasted on distorted international markets, boom-and-bust conditions in the Colorado Plateau, useless breeder reactors and worthless spent fuel reprocessing.
The second bad bet that Cinnamon outlined was that Solyndra’s “flat-roof” installations would overcome the high costs of their technology. Again, that was a bad judgment, as other flat-roof products blew up Solyndra’s calculation.
In the end, Solyndra’s basic business plan had eroded to the point where it consisted of losing money on each sale and trying to make it up in volume.
Economic stimulus money should have been spent on things that would stimulate the economy as quickly as possible — bridges, roads, schools, public buildings, telecommunications, basic infrastructure, even old-fashioned car companies. The Obama folks and their congressional enablers from both parties thought they were being clever, using the stimulus money to fund trendy things that they thought were good ideas in the long run. They were wrong, and we will pay.
Another lesson we should learn from the solar crashes is that it serves no useful end to blame China. The apologists for the failed investments, including the companies themselves, wring their hands and complain that China is subsidizing PV more than we are. The implication is that we should throw more good money after the bad, chasing the Chinese in a race we can’t win..
That dog not only won’t hunt, but it won’t get off the porch. We heard the same thing from Detroit and Pittsburgh when Japan was eating our steel and auto industries. It wasn’t until we realized that lame excuses were no excuse for bad cars that things started to change. I just bought a new van. It’s a Chevy, because it was by far the best vehicle that I could find for what I need, not because it was made in America. My second choice was Nissan.
As Westinghouse’s Cinnamon comments, “Solar panels are commodities being sold on the worldwide market on a dollar-per-watt basis — much as aluminum is sold on a $/kg basis. It is crystal clear that cheap and easy-to-install solar panels are exactly what the U.S. needs to reduce our energy costs and create installation jobs.”
A final lesson is that “loan guarantee” is a slippery term, another case of propaganda used to delude and disguise. Because these are loan guarantees, not real loans, the faro dealers in Congress and at the White House tell us, there is very little risk. The real money comes from the private sector, which won’t invest unless the risks are manageable. The government will never have to face loses because the private investors will be on the hook first.
Let’s look at Solyndra. Here’s what the New York Times reported: “Although the government typically guarantees loans made to a company by a commercial bank, that was not the case for Solyndra. Solyndra borrowed the money from the Federal Financing Bank, part of the Treasury Department, so in effect, the government was lending the money to the company directly.” Now, about that distinction between risky loans and less risky loan guarantees?
Guest Blog: How NOT to Communicate with Utility Customers During Outages
By John Egan
Lafayette, Colo., September 5, 2011 — “A live electric wire just fell on a bus full of senior citizens—what do you do?”
No, that wasn’t a line from Dennis Hopper in the movie Speed. In fact, it was an interview question I was asked when I was being interviewed to become a spokesman at Salt River Project, a Phoenix-based electric and water agency.
I got the job, so I suppose I answered the question satisfactorily. That long-ago interview question surfaced as I was reading a New York Times article about how poorly utilities were communicating with customers and elected officials about power restoration efforts in the wake of Hurricane Irene.
Four days after Hurricane Irene dissipated, an estimated one million homes and businesses in Connecticut, New York, and New Jersey were still without power.
One New York political official told the Times that Gov. Andrew Cuomo has “been frustrated by the difficulty they have encountered in getting some utilities to communicate.” Elected officials were “dragging utility executives before the television cameras to answer questions.”
“For many of those without power,” continued the Times article, “the main complaint was a lack of solid information about how long their plight would last. Some said they would rather hear that the electricity would be off for a week than to be left wondering.”
And what did one utility executive say when the bright lights of the news media were shining on him?
Jeff Butler, the president of Connecticut Light & Power, said the utility would have to recoup the costs of restoration from its customers, estimated at $75 million.
Wow – talk about the wrong message to the wrong audience at precisely the wrong time! That was a real trifecta!
If I were providing outage communications consulting to CLP, I would have recommended a very different road – verbally as well as non-verbally.
If he were my client, I would recommend Mr. Butler meet with work crews, customers and elected officials wearing a logoed windbreaker and a hardhat. He would be photographed walking through darkened neighborhoods, meeting with customers, assuring them that crews were working diligently, 24/7, to get their power back on. He’d talk about safety. He would be photographed in a work shirt and jeans, interacting with customers, staying calm but giving them a chance to vent.
He would get his hands dirty handing out water, ice or coffee at local emergency stations. He’d be put in a frame next to a tree-trimming crew, or near a bucket truck, meeting with employees at the site, touring the damage, gesturing, nodding, and looking intensely interested. Looking engaged. I assume he is substantively engaged in the power restoration effort. But since perception is reality, we’d make sure he was acting in ways that would show he was engaged and empathetic.
When Mr. Butler stepped to the microphones, he would limit his comments to saying that CL&P is working around-the-clock to restore power in a safe manner. He would provide an estimate as to when the lights in a given neighborhood will be back on. Then he would step away from the microphones.
If pressed by reporters, as we assume he would be, Mr. Butler would be counseled to say, “We’re not thinking about the costs of restoring power. That’s tomorrow’s issue. Today’s issue is safely restoring power as quickly as possible, so you can get on with your lives. That’s all we’re focused on.”
Then he’d provide emergency service officials with two checks—one from CL&P, the other from his personal bank account — to help pay for the costs associated with the water, ice and coffee distribution.
After that, he’d go back into the field, to continue fighting for control of the story. Because today’s news cycle never ends. The morning news story becomes the raw material for bloggers and talk-radio hosts in the afternoon and evening. And tomorrow, the cycle begins again. Unless it starts sooner.
John Egan, a former utility-company spokesman and energy-industry reporter, is founder and president of Egan Energy Communications (www.EganEnergy.com), a utility-industry communications consulting firm based in Lafayette, Colorado.