‘The house should understand that we do not want this company to be in this temporary state longer than is absolutely necessary,” said Kwasi Kwarteng, the business secretary, when he authorised the nationalisation of Bulb, the failed retail energy supplier, last November.
Was it such dreams of a quick sale and a rapid return to the private sector that persuaded the government that there was no need to put in place hedging contracts to cover the cost of buying energy for Bulb’s 1.4 million customers? If so, the decision was a shocker. Nine months later, Bulb still sits on the state’s books and the price of running an unhedged operation increases with every spike in the gas price, up about 20% since last Friday.
At the outset, the government advanced £1.7bn of public money to run Bulb for six months, with the hope of getting a large chunk back via a sale. Then, as wholesale energy prices continued to climb, the Office for Budget Responsibility said in March that the bailout would cost £2.2bn over two years. Now we’re talking properly serious sums.
Take your pick from any number between £3bn and £4bn. Energy consultancy Auxilione forecasts plausibly that Bulb could lose a further £420m over this summer and potentially £1.6bn during the winter. The no-hedging policy has made a rotten financial position worse.
As it happens, Kwarteng didn’t mention his “no longer than necessary” timetable when quizzed on the approach by a select committee in May. Instead he said this: “The issue with hedging is that it is very risky because, essentially, you are taking a bet or trying to insure yourself against price movements. That insurance … costs money. In terms of managing public money, the Treasury, rightly, does not think that that is what the taxpayer should be doing.”
To put it mildly, that analysis does not read well in light of events. Hedging really isn’t like taking a bet; it’s about securing certainty over the price you have to pay. Bulb didn’t have sufficient hedges in place to cope with a rigid price cap and a spiralling wholesale price, so it was particularly perverse for the government to continue with a failed strategy. Whatever the Treasury orthodoxy says, sometimes you have to apply common sense.
The business and energy select committee made the same point in its report last month: “The decision not to implement a hedging strategy may have led to the sale of Bulb being less desirable and significantly increased costs to taxpayers.” You bet: there’s no longer any doubt about it.
It is probably pointless for the government or Bulb’s administrators to try to play catch-up at today’s much-higher prices. The moment to put hedges in place was at the outset. Instead, ministers hoped for the best. That could also roughly describe of the UK’s entire approach to energy security over the past 20 years.
Cineworld needs a new cast of characters
It’s “business as usual” for customers, said Cineworld as it confirmed it is considering filing for bankruptcy in the US. The debt-laden cinema giant added that it hopes to emerge eventually from a financial restructuring “with no significant impact upon its employees”.
By rights, though, there ought to be a significant impact on at least two personnel: chief executive Mooky Greidinger and his brother and deputy, Israel. The price of restructuring ought to be their departure at an early stage of the process.
The duo’s debt-fuelled stewardship of Cineworld has been a calamity and is almost certainly about to deliver near wipe-out for shareholders, or “very significant dilution” in the coy corporate language.
Greidinger interests speak for 20% of that equity, which presumably will also become near-worthless, but there may be a temptation to see the family as vital to a post-restructuring corporate sequel. The banks should resist such thoughts: this is an uncomplicated chain of cinemas that doesn’t need the old cast at the helm.
Bad timing
What a moment for the senior independent non-executive director (SID) at Made.com, the beleaguered online furniture retailer, to depart with immediate effect: just as the company tries to assemble an emergency fund-raising that may require it to raise more than its current stock market value of £35m.
Gwyn Burr cited a need to give more focus to her “other professional commitments”, which presumably means chairing Skipton building society, which she has done since February. All the same, she’s only been on Made’s board since the flotation 15 months ago at 200p. With the shares now at 9p, this is when a SID earns her fees. Or not, in this case.
