Weekend press: Former minister took energy firm donation despite security concerns

In our latest round-up of sector coverage in the national media, former cabinet minister Simon Clarke is revealed to have taken a £5,000 donation from the developers of the controversial Aquind project. Meanwhile, thousands of Southern Water customers were left without water over the May bank holiday weekend and Thames has launched a legal challenge against housebuilder Redrow.

Former minister took energy firm donation despite security concerns

A former Cabinet Minister has accepted a donation from a company after the Ministry of Defence (MoD) raised “significant national security concerns” about its proposed infrastructure project.

Sir Simon Clarke, the former housing secretary, accepted £5,000 from Aquind on March 27, just days after the MoD’s misgivings were made public.

Aquind wants to lay a £2 billion cable between Portsmouth and Normandy, which it says could supply five per cent of the UK’s electricity.

Viktor Fedotov, a Russian-born oil executive, is the company’s non-executive director while Ukrainian-born Alexander Temerko, one of the Conservative party’s largest donors, is a director. Both men have British citizenship.

A letter to the planning inspector, published last month, revealed that the MoD said it has “significant national security concerns” about Aquind’s proposed project.

The MoD asked for a six-week extension to finalise its representations to the planning inspectorate, adding that the “sensitive nature” of its concerns meant that a new process needed to be set up.

Officials felt that the MoD’s concerns were not suitable for submission during the ordinary planning process, whereby representations are generally made public.

They are pressing for a new, secure channel of communication to be established so that the details of their national security concerns can be submitted in confidence.

Ultimately Claire Coutinho, the energy secretary, will decide whether the project should be given permission to go ahead.

Last year Kwasi Kwarteng’s decision when business secretary to refuse permission for the interconnector was overturned in the High Court.

Stephen Morgan, the Labour MP for Portsmouth South, urged ministers to “scrap the Aquind project for good”.

He said: “Since this project started, Alexander Temerko has donated hundreds of thousands of pounds to the Conservative Party and nearly one in 10 Tory MPs have accepted money from Viktor Fedotov’s businesses.

“It is stunning that MPs of the governing party continue to accept money from Aquind and its owners given the serious alarms that have been raised about the project, not least by the Ministry of Defence which expressed ‘serious national security concerns’ just months ago.

“Portsmouth people are long overdue clarity and confirmation on whether this project will go ahead, given the disastrous consequences it will have on our city.”

Fedotov is a Russian-British businessman who previously headed up a number of Russian oil companies including the Caspian Pipeline Consortium. His role in Aquind had previously been obscured on Companies House under a rare security exemption.

Temerko was born in modern-day Ukraine and moved to Moscow for university. He became a prominent supporter of former Russian president Boris Yeltsin and held senior posts in the Russian Defence Ministry in the 1990s.

He was a senior executive at the Russian oil and gas company Yukos but fled to London after being pursued by Russian prosecutors who accused him of stealing shares in a different oil company, as well as forgery, and perverting the course of justice.

A British judge turned down Russia’s bid to have Temerko extradited on the grounds that it was “politically motivated”. Temerko said at the time that he believed the motivation for the charges was Vladimir Putin’s desire to silence his critics. More recently, he has become an outspoken critic of the president’s invasion of Ukraine.

Since 2012, Temerko has personally donated over £700,000 to dozens of individual Tory MPs, while Aquind Ltd has donated a further £1 million to the Conservative Party.

Other MPs to have previously accepted donations from Aquind – or Offshore Group Newcastle (OGN) Ltd which Aquind was a subsidiary of until 2015 – include Jeremy Hunt, the chancellor, Tom Pursglove the immigration minister and Simon Hart the chief whip.

Former ministers are among over 30 Tory MPs to have previously accepted donations from Aquind or Temerko, including Brandon Lewis, Alok Sharma, Dr Liam Fox and John Whittingdale.

Ben Iorio, an Aquind spokesman, said the company is “ready and willing” to address the MoD’s concerns “in good faith”. He added that it is “disappointing that they have failed to even outline the nature of the alleged concerns”.

“We remain fully committed to transforming the UK’s energy security and affordability through building Britain’s newest electrical link to Europe,” he said.

“The manner of the MoD’s last-minute interference will have negative impacts on all proposed developments and marine users in and around Portsmouth, including renewable energy, interconnectors, fisheries, import and export at the harbour, and many others.

“The uncertainty caused by their opaque response and unwillingness to engage to resolve any concerns sends a chilling effect to other developers and investors seeking to build and finance major projects in the UK.

“Furthermore, Aquind is a British company, and all of Aquind’s directors and shareholders are British citizens. Any donations made are in strict accordance with all regulations and with total transparency. Supporting and donating to political parties is the right of all British citizens and companies, and a fundamental part of the democratic process.”

A Government spokesman said: “Our priority will always be maintaining our national security and any new infrastructure will not jeopardise this. It would be inappropriate to comment on a redetermination process whilst it is still ongoing.”

Sir Simon Clarke was approached for comment.

The Telegraph

Water firm says supplies being restored amid outage

Water supplies are “gradually being restored” to 32,500 properties after an outage entered its fourth day.

Thousands of people in East Sussex were left without water after a pipe burst on Thursday.

On Sunday, Southern Water said supplies were being restored in St Leonards-on-Sea and Hastings, but 3,500 homes in east Hastings would lose supply temporarily as the network is recharged.

The firm said it expected supplies in these areas to return on Monday, along with the rest of the network.

East Sussex county councillor Godfrey Daniel said the impact on businesses over the bank holiday weekend would be “huge”, when they were already struggling with the cost of living.

Schools, Summerfields Leisure Centre and the White Rock Theatre had to close.

And this weekend was the annual Jack in the Green Festival in Hastings and the May Day Bike Run, both of which see thousands of visitors.

Organisers of an annual procession, due to go through Hastings on Monday, said it may not be able to go ahead if supplies were not restored.

Keith Leech, chair of trustees for the Traditional Jack in the Green event, said: “Trying to get any information out of Southern Water is like trying to get blood out of a stone.”

Southern Water said on Sunday: “This phased return of supplies to homes and businesses will see lower-lying areas and those nearest to Beauport coming back into supply first, with the remainder following as pressure increases in the pipes between now and tomorrow morning.

“Specifically, west and central areas of St Leonards-on-Sea, west Hastings and rural areas around Westfield should see supplies return gradually during the rest of Sunday.

“However it will take longer for areas north of Hollington and east Hastings and rural areas east of Hastings to return to supply. We expect these to have supply from Monday morning.”

Four water stations were set up at Tesco, Asda, Sea Road and Hastings Academy, but hour-long queues were reported.

The damaged pipe, in remote woodland, had been replaced and was feeding water back to the treatment works, Southern Water said on Saturday.

But pressure on reservoirs as a result of the outage added to supply issues, pushing the number of households without water on Sunday to 32,500.

Southern Water said bottled water deliveries would continue throughout Sunday to customers on its priority services register.

The firm said compensation for affected businesses would go “beyond regulatory and statutory obligations”.

BBC

Water firms drowning in sea of debt as borrowing ‘bigger than Ofwat figures suggest’

Water companies are drowning in a sea of debt far greater than official figures suggest because of the way the regulator calculates their finances, the Mail on Sunday can reveal.

Experts say Ofwat’s measure masks the scale of the problems they face.

Thames Water, whose parent company is on the brink of going bust, has what looks like a relatively low level of debt – 80 per cent – compared with its overall funding.

But using traditional accounting methods its debt level would be more than 1,000 per cent, according to academic David Hall at the University of Greenwich.

The sheer amount of borrowing already threatens to engulf Thames, the UK’s largest supplier, which is scrambling to agree a fresh rescue plan.

A senior executive at the company admitted this weekend it is ‘not investible’.

Cathryn Ross, who served as a temporary chief executive and has also run Ofwat, warned that other companies are likely to run into financial problems.

They have racked up more than £60 billion in debt in the three decades since privatisation.

They have also been attacked for paying £78 billion in dividends to shareholders in that time – nearly half the sum they have spent on maintaining and replacing the creaking Victorian-era system of pipes and sewers.

Critics say the payouts should have been used to upgrade the network instead, as soaring levels of raw sewage have spilled into rivers and seas.

Thames Water’s parent company defaulted on its debts last month after shareholders refused to put more money into the utility.

They too claimed it was ‘uninvestible’. Experts say the way regulator Ofwat calculates debt levels makes the borrowing look dramatically lower than it would under conventional reckoning.

Hall – a visiting professor of the Public Services International Research Unit at the University of Greenwich – said that using standard methods of accounting, the debt levels for all ten water and sewage monopolies would be almost 460 per cent, compared with the Ofwat average of just 68 per cent.

The regulator’s methodology allows firms to rack up debt to pay bigger dividends to shareholders, Hall added.

‘That is entirely at the expense of the consumers,’ he said. ‘The public are seeing their bills rise sharply because of the debt taken on by the owners of private companies.’

A sharp rise in interest rates in recent years has increased the cost of servicing debt, pushing Thames Water to the brink and threatening the financial viability of the entire sector.

Thames faces an uncertain future and may be taken back into public ownership unless a deal can be struck with its creditors, which include several Chinese state-owned banks. It recently submitted plans to raise bills by up to £627 a year to pay to fix its leaky network – a 44 per cent hike.

Ofwat said companies are ‘best placed’ to make their own funding decisions. It had also flagged concerns about water company debt levels, especially at Thames, Ofwat added.

Mail on Sunday

Thames Water causes Redrow legal stink over damaged sewer

Housebuilder Redrow is facing a messy legal dispute with Thames Water over damage to sewage pipes in the Berkshire town of Maidenhead, which underscores the risk of poorly understood underground infrastructure.

The water utility, under fire for sewage outpours from its ageing infrastructure, accused Redrow of “negligence” after its builders allegedly damaged a sewer underneath one of its development sites and blocked it with concrete.

Thames was “alerted to the injury” of the sewer “by virtue of a discharge from its sewer network upstream” of the building site, it stated in a legal claim filed with the High Court last month

Thames is now raising a legal stink. Its lawsuit claims £3.5mn in damages and interest from the FTSE 250 developer, which is in the middle of a multibillion-pound merger with larger rival Barratt that would cement the combined group’s position as the UK’s largest housebuilder.

The lawsuit comes at a time of intense scrutiny over sewage outpours and financial distress for the utility, which supplies almost a quarter of the UK’s population. It has asked for a 40 per cent increase, before inflation, in average household bills to £608, to pay for improvements to the water and sewerage network. Industry regulator Ofwat is expected to provide a draft ruling on the bill increase next month.

Water companies are not automatically consulted on proposed housing developments, which have a statutory right to be connected to the sewer system. Campaigners against new homes are often concerned at the impact on the local sewer and water systems.

More than 30 per cent of Thames’s sewer network is not mapped, the Financial Times revealed last week, underscoring the challenge the company faces as it tries to reduce spills.

Redrow began work on the Maidenhead development in 2018, which is next to a sewage treatment works, according to the court documents. Thames claimed Redrow’s builders did not establish exactly where the underground sewage pipes ran before they started digging up the site.

Thames said it was “reasonably foreseeable” that digging on the site risked damaging sewers underground, and that Redrow ignored “repeated warnings” that it needed to establish the exact location of the sewage pipes.

“The defendant [Redrow] was well aware that the . . . sewage treatment works continued to operate immediately to the south of the development site and that multiple sewers . . . crossed the [site],” Thames claims.

Thames said it had to “abandon” the blocked sewer and create a new one to divert sewage flows around the blockage, for which it is claiming costs of £2.5mn, plus £1mn in interest, which is accruing at £492 a day.

Redrow declined to comment on ongoing litigation. Thames declined to comment.

Financial Times

Capacity crunch: why the UK doesn’t have the power to solve the housing crisis

Oxford has a severe housing problem. With house prices 12 times the average salary, it has become one of the least affordable cities in the country. Its council house waiting list has grown to more than 3,000 households, with many having to live in temporary accommodation.

An obvious solution is to build more homes, but those trying to do this face a big barrier: electricity.

“When I talk to developers or potential developers, one of the first questions they now ask me is about grid capacity,” says Susan Brown, leader of Oxford city council.

With housing developments competing for power against energy-hungry tech companies and the city’s increasingly electrified transport network, connection prospects are a matter of concern for housebuilders.

“The problem [for developers] is securing sufficient energy, and the time it takes to connect to the grid,” Brown says.

The council estimates that 26,000 new homes will be needed in and around the city by 2040, but it fears any building plans could be delayed by capacity constraints. In the nearby market town of Bicester, this has already happened.

“The latest expansion in Bicester was supposed to see an additional 7,000 homes and a large commercial zone built, but they’ve been put on pause because grid reinforcements are needed to get them further,” says Brown, who is also a vice-chair of the District Councils’ Network, a cross-party group of 169 district and unitary councils in England. “I don’t think Oxfordshire is unique at all. I know it is becoming quite a big issue across the country.”

This inability to build enough homes is not a new problem. For the past decade, sluggish building rates have meant the government’s target of 300,000 homes a year has been repeatedly missed, while the housing crisis has worsened.

Funding and planning issues are routinely blamed for the country’s supply issues; a lack of electricity supply has rarely been given as a reason why homes are not built – until recently.

“Securing capacity has always been a priority, but over the past 18 months, it has become a significant roadblock and a real challenge for developers across the country,” says Vicki Spiers, chair of the Independent Networks Association, whose members are responsible for connecting 80% of new UK homes to the grid.

“The problem [for developers] is securing sufficient energy, and the time it takes to connect to the grid,” Brown says.

The council estimates that 26,000 new homes will be needed in and around the city by 2040, but it fears any building plans could be delayed by capacity constraints. In the nearby market town of Bicester, this has already happened.

“The latest expansion in Bicester was supposed to see an additional 7,000 homes and a large commercial zone built, but they’ve been put on pause because grid reinforcements are needed to get them further,” says Brown, who is also a vice-chair of the District Councils’ Network, a cross-party group of 169 district and unitary councils in England. “I don’t think Oxfordshire is unique at all. I know it is becoming quite a big issue across the country.”

This inability to build enough homes is not a new problem. For the past decade, sluggish building rates have meant the government’s target of 300,000 homes a year has been repeatedly missed, while the housing crisis has worsened.

Funding and planning issues are routinely blamed for the country’s supply issues; a lack of electricity supply has rarely been given as a reason why homes are not built – until recently.

“Securing capacity has always been a priority, but over the past 18 months, it has become a significant roadblock and a real challenge for developers across the country,” says Vicki Spiers, chair of the Independent Networks Association, whose members are responsible for connecting 80% of new UK homes to the grid.

Article continues here.

The Guardian

The undersea nuclear graveyard now more costly than HS2

A vast subsea nuclear graveyard planned to hold Britain’s burgeoning piles of radioactive waste is set to become the biggest, longest-lasting and most expensive infrastructure project ever undertaken in the UK.

The scheme has been delayed for so long that Britain now needs to excavate tunnels through 36 square kilometres of rock to create the massive underground caverns that will hold radioactive waste accumulated through seven decades of civil nuclear power.

The project is now predicted to take more than 150 years to complete with lifetime costs of £66bn in today’s money, according to the latest estimates from scientists at Nuclear Waste Services (NWS), the government-owned company designing the project.

That price puts it at or close to the top of the table for giant UK infrastructure projects. It compares with £46bn for Hinkley Point C nuclear power station and about £60bn for the HS2 London-Birmingham rail line – the UK’s two biggest construction projects to date.

Neil Hyatt, NWS’s chief scientific advisor said: “We’ve had 70 years of nuclear activities in the UK, mainly civil nuclear but also defence and industrial nuclear. That’s generated a lot of waste – forecast to be 750,000 cubic metres by the time the store is built. So yes, it’s going to be big.”

The Royal Albert Hall’s volume is 100,000 cubic metres – so the waste alone will need space equivalent to at least eight Albert Halls.

The caverns will also have to be bigger than the waste – and the tunnels will be extra – so the UK will need to dig out maybe double that volume of rock.

The waste itself includes 110,000 tonnes of uranium, 6,000 tonnes of spent nuclear fuels and about 120 tonnes of plutonium – mostly stored at the Sellafield nuclear site in Cumbria.

The final tally will be bigger because those estimates exclude much of the waste that will be generated by the next generation of nuclear power stations now being planned by the Government.

The costs come without any decision on where the UK’s Geological Disposal Facility (GDF) might be built but after five decades of ministerial prevarication, the sites have at least been whittled down to two.

One lies off the coast of Lincolnshire, near the renowned seaside resort of Mablethorpe. The other is off the coast of Cumbria around Copeland – another coastal tourist area.

In both spots the idea is to sink a massive shaft on land – up to 3,500 feet deep – and then dig horizontal tunnels several miles out under the sea.

There, huge vaults would be excavated in the impermeable clays and mudstones that scientists hope could provide a last resting place for Britain’s nuclear legacy. Once filled with nuclear waste they would be backfilled with cement and then sealed forever.

The UK is having to go to such extreme measures partly because of the nature of radioactivity. Not only is it lethal but it lasts a long time. Plutonium for example, takes 24,000 years for its radioactivity to decline by just half, while Uranium-238 takes 4.5 billion years.

It means that, whatever is done with it, the UK’s nuclear waste will remain deadly well after our civilisation has disappeared.

Hyatt suggests we need to protect it from future generations for about 300,000 years – as long as humans have actually existed.

He said: “We’re talking about a piece of infrastructure that’s going to go with us on a journey into the future, for as far forward [in time] as homo sapiens has existed, because our species is itself about 300,000 years old.”

Hyatt points out that the sheer scale of the operation – locking away a huge volume of waste and making it secure for eons – was never going to be cheap. For most of this century successive ministers were claiming the GDF could be built for around £12bn.

Then, in 2017, just after Hinkley Point C had been commissioned, NWS were allowed to publish their revised estimates – with a new upper limit of £53bn.

Inflation since 2017 totals 26pc, suggesting a final cost of £66bn in today’s money. That includes 150 years of operational costs, as well as construction.

British infrastructure projects are, however, scarily unpredictable beasts. The HS2 rail line to Manchester went from £37.5bn to more than £100bn before it was cut back last year.

Similarly, Hinkley Point C nuclear power station, also under construction, was costed at £9bn in 2007 and the latest £46bn figure is unlikely to be the last price hike.

Article continues here.

The Telegraph

Windfall tax weighs heavy on North Sea producers

Investment in the UK’s North Sea has been damaged by a windfall tax on producers that also threatens to derail mergers needed to help the sector survive, industry bosses and analysts have said.

Shares in UK-focused producers have slumped despite a 30 per cent rise in the MSCI’s global energy index since Russia invaded Ukraine in early 2022, and government data shows a big drop in their profitability.

While there has been an 8 per cent rise in the price of crude oil since the end of 2021, the gross operating surpluses of North Sea operators fell from £11.1bn in the third quarter of 2022 to £2.3bn in the final three months of 2023.

The UK introduced an “energy profits levy” on oil and gas producers in May 2022 with the aim of raising an initial £5bn, after an outcry over record profits at BP and Shell. In March, it was extended by a year to end in 2029. Including this 35 per cent levy, industry profits are now taxed at 75 per cent in the UK.

The smaller independent operators that mainly work the North Sea — after the majors retreated in recent years — say they have taken the brunt of the pain from the high tax rate because UK waters account for a bigger proportion of their operations. They argue that benefits from oil price movements since the start of the Ukraine war have generally accrued to the majors, which have diversified businesses, and trading companies.

Many in the industry are worried about the future for investment in the UK’s ageing basin.

“When I started out in this industry there were only major companies mostly with global presence operating in the north sea but in recent years they have all been moving out,” said Mark Lappin, chair of Deltic Energy, who has been in the industry for more than 40 years.

UK oil and gas production was just over 1.2mn barrels a day equivalent last year, its lowest since 1977, according to trade body Offshore Energies UK, which estimates that a further loss of investment in the sector could cost 40,000 jobs by the end of 2030. The body estimates that the industry supports 200,000 jobs, down from about 500,000 a decade ago.

“There are many [producers] that have exited, or are exiting the UK,” said Amjad Bseisu, chief executive of independent operator EnQuest and a former UK business ambassador for energy. “The continuous decline in production and jobs isn’t good from a macro perspective.”

Energy consultancy Wood Mackenzie said buyers had shown “little appetite” to expand in or to enter the UK continental shelf and estimated that £16bn in potential investment could be lost because of uncertainty about tax policy.

The Labour party, which is currently favourite to win the next general election, has proposed increasing the total tax rate to 78 per cent and removing tax relief on new projects.

The industry is likely to feature in election campaigning in Scotland as a weakened Scottish National party seeks to ward off challenges to its dominance.

In one of the few major deals in the UK North Sea since the introduction of the windfall tax, London-listed Ithaca Energy last month agreed to buy almost all of the UK upstream operations of Italian major ENI for about £750mn. This includes the UK assets of Neptune Energy, which ENI agreed to buy last year for $4.9bn.

Under the deal, ENI will receive a 38 per cent stake in the enlarged group.

Financial Times

Utility Week’s weekend press round-up is a curation of articles in the national newspapers relating to the energy and water sector. The views expressed are not those of Utility Week or Faversham House.