International
Friday Newspaper Review - Irish Business News and International Stories
By Finfacts Team
Sep 8, 2006, 08:44

The Irish Independent also reports of outrage as the cost of living soars to a new 4.5pc high.

The Irish Times reports that aircraft maintenance firm SR Technics, which employs 1,100 people in Dublin, has been acquired by three companies based in the United Arab Emirates in a deal worth €1.1 billion.

SR Technics, which was previously known as FLS Aerospace, has three main operation centres in Zürich, Stansted and Dublin. The company has undergone several ownership changes over recent years, but this is the first time its owners have come from the Middle East. The deal is not expected to impact on job numbers at the Dublin operation, which was originally Team Aer Lingus.

The three acquiring companies - Mubadala, DAE and Istithmar - are based either in Dubai or Abu Dhabi, both part of the United Arab Emirates. They will hold 90 per cent of SR Technics. Mubadala is an investment vehicle based in Abu Dhabi. It was set up in 2002 following the issuing of a royal decree by the Crown Prince of Abu Dhabi. It invests across a range of industries and establishes strategic holdings in existing companies. It will hold 40 per cent of the SR Technics stake.

DAE (or Dubai Aerospace Enterprise) forms international partnerships, mainly in the aerospace industry. It is developing an aerospace quarter or "cluster" in the Jebel Ali district of Dubai. It will hold 30 per cent of SR Technics stake.

The third company involved is Istithmar, which describes itself as an "alternative investment house". Set up in 2003, it invests in hedge funds, listed equities and alternative investment projects. Its portfolio of investments is worth €1.8 billion. It will hold 30 per cent of the stake.

These three companies are buying SR Technics from 3i, the private equity group and Star Capital, a specialist investment fund.

Declan O'Shea, chief executive of SR Technics Ireland, said the announcement was good news for the whole company and that the new owners would get involved in a strategic way in the business. He said the new owners were committed to growing SR Technics.

He said while margins were under pressure in the aircraft maintenance sector, SR Technics Dublin had a large and varied client base, including Virgin Atlantic, Aer Lingus, SAS and Futura. He said the industry globally was worth about $38 billion (€29.8 billion), with SR Technics in a strong position in Europe, Asia and the Middle East.

The management of SR Technics is likely to remain the same, according to a statement released yesterday in Zürich. Frank Turner, chairman of the company, said the new owners had "considerable financial means" and "excellent contacts" which made the transaction appealing.

The transaction still has to clear regulatory hurdles, but the statement said the deal should be finalised within two months.

The Irish Times also reports that a rise of almost 20 per cent in electricity prices is expected to be announced later today by the energy regulator Tom Reeves.

The Commission for Energy Regulation (CER), led by Mr Reeves, is expected to outline a range of increases for different customer categories, including householders and small and medium enterprises. The average increase will be over 15 per cent and will come in close to 20 per cent, but will not come into effect until January 1st.

Gas and oil prices have risen by over 40 per cent since the CER last reviewed tariffs for the ESB.

An ESB spokesman contacted last night said tariffs were strictly a matter for the regulator. But he added the ESB could not control the market price of international fuels. Fuel makes up 40 per cent of the cost of electricity.

Back in July Bord Gaís announced a 34 per cent rise in its prices, pushing its average bill from €902 to over €1,200.

The average bi-monthly household ESB bill is €123: a 15 per cent increase would push the bill to €141. If a 20 per cent rise was granted the bill would rise to €147.

The ESB chairman Tadhg O'Donoghue predicted two months ago rises were on the way because of international movements in oil and gas.

However, the ESB is able to spread the impact somewhat, because it has a range of fuels to draw upon, including peat and coal.

While the ESB will be the direct beneficiary of the price hikes, it will also allow independent generators to push up their prices. This is because prices in the independent sector track ESB tariffs. Independent producers are also mainly operating gas-fired stations, which are suffering from significant rises in cost.

Several elements go into the final price, including the public service obligation levy, generating costs and network charges.

The increases between 2001 and 2006 have been driven mainly by generating costs.

There has been two hikes in electricity prices in the UK so far this year, pushing up prices by 30 per cent in total.

The UK market is broken into different regions and Irish prices remain below UK levels, but the higher VAT rate in Ireland compared to the UK narrows the gap.

There is growing pressure on the Government to help consumers to cope with higher energy prices by reducing VAT on electricity bills. The VAT rate in the UK is 5 per cent, while the Irish rate is 13.5 per cent.

The National Consumer Agency yesterday said VAT on gas prices should be also be reduced.

It is understood today's announcement will also address the issue of regulating prices for large industrial users.

The Irish Examiner reports that the chairman of British-based sports betting business Sportingbet was detained by authorities in the US yesterday sending shares in other gambling sites plunging.

Shares in Sportingbet were suspended after Peter Dicks, 64, was held while visiting the US. A court hearing is due today.

The move comes weeks after BetonSports chief executive David Carruthers was arrested at Dallas Airport en route to his company’s offices in Costa Rica.

The indictment relating to Mr Carruthers referred to “illegal wagering on professional and college football and basketball” which BetonSports offered until recently on its website.

Shares in other gaming companies plunged, with Party Poker owner PartyGaming down 14% and 888 Holdings off by a similar amount.

Online gaming stocks have been volatile in recent months following the BetonSports charges and the possibility of further legislation in the US.

Sportingbet did not disclose the reason for Mr Dicks being detained, or the location where he is currently being held.

He was detained at 2am Irish time.

The company said: “Pending clarification of the situation, the board has sought immediate temporary suspension of Sportingbet’s shares.”

Earlier, the company unveiled plans to buy smaller rival World Gaming in a deal potentially worth £56.6 million (€83.40m).

Mr Dicks joined the group in January 2000 as Sportingbet’s non-executive chairman.

He is the chairman of Private Equity Investor and director of British and US companies, including Polar Technology Trust.

The company has grown rapidly in eight years and now boasts being a £1.2 billion (€1.7bn) turnover business, including ownership of Paradise Poker.

It has over 2.5 million registered customers in 200 countries, who place more than one million bets on casino, poker, sports and virtual games a day.

The Financial Times reports that a BP executive formerly in charge of monitoring corrosion at the oil company’s Prudhoe Bay operations in Alaska on Thursday refused to testify under oath at a congressional hearing that examined the oil company’s litany of failures in the US.

The development came as US lawmakers got their first chance to grill BP since a massive March oil spill and the partial closure last month of the country’s largest oilfield.

Richard Woollam, a former head of corrosion monitoring, cited his constitutional right against self-incrimination in refusing to testify.

Steve Marshall, president of BP Exploration, told lawmakers that Mr Woollam had been removed last year from its Alaska operations after the company found evidence of an “atmosphere of intimidation” in his pipeline inspection operations team.

Lawmakers at the energy and commerce sub-committee hearing seized on the revelation as a sign that whistleblowers who may have tried to raise the alarm about the condition of BP’s pipelines were ignored.

BP last month shut down half its oilfield in Prudhoe Bay after government-ordered inspections found severe corrosion of the eastern oil transit line.

Bob Malone, president of BP North America, said Mr Woollam had been “put on leave” but remained on its payroll.

This week, BP moved to counter criticism that it failed to listen to its workers’ concerns by appointing a retired US judge as ombudsman.

Mr Malone called his company’s record “unacceptable” and said BP had “fallen short of the high standards we hold for ourselves, and the expectations that others have for us”.

Prudhoe Bay accounted for 8 per cent of US domestic supply. Its closure led to anger about BP’s safety and pipeline management policies and has prompted scrutiny in Washington at a time of public unease about petrol prices.

Mr Malone took issue with critics who “alleged that BP engineered the shutdown of Prudhoe Bay as a way to manipulate prices”.

He said: “I am here to assure you that nothing could be further from the truth. BP took the extraordinary step to shut down production because we saw unexpectedly severe corrosion that couldn’t be explained.”

Lawmakers expressed astonishment that BP could not have foreseen its pipeline problems by inspections known as “pigging”, in which a device is sent down a pipeline.

Joe Barton, a Texas Republican who chairs the House committee, said BP’s admissions in hindsight “just didn’t cut it” when it came to excusing “consistent failure”.

The FT also reports that Volkswagen on Thursday attacked biofuels made from food crops as unsustainable, setting the German carmaker at odds with President Bush, US carmakers and European governments, which have all been touting ethanol as an environmentally friendly alternative to petrol in cars.

Bernd Pischetsrieder, chief executive, called on politicians to lower tax breaks for current “first-generation” fuels – made in the US and Europe from corn, wheat, rape seed and sugar beet – and instead provide financial support for new second-generation technologies that promise big cuts in carbon dioxide.

Mr Pischetsrieder said some of the current biofuels were “totally pointless” and “like a wolf in sheep’s clothing”. He criticised tax benefits that were not linked to carbon dioxide, since some methods of refining biofuel actually led to higher carbon emissions than from petrol.

“The current situation is totally unsatisfactory, both from the environmental and economic standpoint,” he said.

Even as Mr Pischetsrieder was speaking in Berlin, the US Environmental Protection Agency proposed an increase to renewable fuel requirements – mainly ethanol – from 2.78 per cent of all fuel this year to 3.71 per cent next year, and said it would help cut CO2 emissions.

Mr Pischetsrieder is the highest profile opponent of today’s biofuel technology.

The handful of opponents of the fuel in the environmental movement have mostly been concerned about increased leakage of carcinogenic fumes, development of monoculture farms and the danger to rainforests from new palm plantations in developing countries, particularly Malaysia and Indonesia.

Soaring demand for biofuels has contributed to a surge in the price of several of the grains and oilseeds used to make ethanol and biodiesel. US carmakers have been strongly supportive of biofuels, running expensive ad campaigns in an attempt to win back customers concerned about the environment who had defected to Japanese rivals.

General Motors and Ford argue that even though the carbon benefits of today’s technology are small, and biofuel is more expensive per mile than petrol even with tax breaks, the fuel should be promoted by governments in order to ensure the market is prepared when new technologies arrive.

The New York Times reports that more miles to the bushel, is the new mission of crop scientists. In an era of $3-a-gallon gasoline and growing concern about global warming from fossil fuels, seed and biotechnology companies see a big new opportunity in developing corn and other crops tailored for use in ethanol and other biofuels.

Syngenta, for instance, hopes in 2008 to begin selling a genetically engineered corn designed to help convert itself into ethanol. Each kernel of this self-processing corn contains an enzyme that must otherwise be added separately at the ethanol factory.

Just last week, DuPont and Bunge announced that their existing joint venture to improve soybeans for food would also start designing beans for biodiesel fuel and other industrial uses.

And Ceres, a plant genetics company in California, is at work on turning switch grass, a Prairie States native, into an energy crop.

“You could turn Oklahoma into an OPEC member by converting all its farmland to switch grass,” said Richard W. Hamilton, the Ceres chief executive.

Developing energy crops could mean new applications of genetic engineering, which for years has been aimed at making plants resistant to insects and herbicides, but would now include altering their fundamental structure. One goal, for example, is to reduce the amount of lignin, a substance that gives plants the stiffness to stand upright but interferes with turning a plant’s cellulose into ethanol.

Such prospects are starting to alarm some environmentalists, who worry that altered plants will cross-pollinate in the wild, resulting in forests that practically droop for want of lignin. And some oppose the notion of altering corn to feed the nation’s addiction to automobiles.

“I don’t think people want extra enzymes in the food supply put there to better fit the crops for energy production,” said Margaret Mellon, director of the food and environment program at the Union of Concerned Scientists.

But proponents of designer fuel crops argue that the risks are small compared with the threat of dependence on foreign oil. Some studies also suggest that ethanol use could help fight global warming because the crops that help produce ethanol absorb carbon dioxide.

So far, much of the attention on bioenergy has focused on improving the chemical processes for turning crops into ethanol. But experts say that if biofuels are to make a significant dent in the nation’s petroleum consumption, the crops themselves must be improved to provide more energy from an acre.

And new agricultural sources beyond corn must be developed, they say. Even if the nation’s entire corn crop were converted to ethanol production, it would replace only about 15 percent of petroleum use, according to an Energy Department report.

“Half the improvement we make over the next 10 to 15 years will come from improving the feedstocks,” said Gerald A. Tuskan, a biofuel expert in the department, referring to the crops fed into the ethanol factories.

Some of the work will not necessarily involve genetic engineering. Notably, Monsanto, the leader by far in crop biotechnology, says that its biofuel development will focus on conventional breeding, which it says is quicker.

Monsanto has tested its existing corn varieties to determine which ones are better for ethanol production. Pioneer Hi-Bred International, the DuPont subsidiary that is Monsanto’s rival in the corn-seed business, is doing the same.

The companies say that the designated varieties, which have higher fermentable starch content, can increase ethanol production 2 to 5 percent over other corn. And some factories are starting to request certain types of corn or to pay a premium for more desirable corn, said Pradip Das, head of crop analytics at Monsanto.

Still, some ethanol factory operators say they do not really care which corn they get. The factories are so hungry that they take “pretty much all the commercial corn you can get your hands on,” said David Nelson, chairman of Midwest Grain Processors, which runs an ethanol plant in Lakota, Iowa.

William S. Niebur, vice president for crop genetics research and development at DuPont, said the demands of ethanol production would require extremely hardy corn.

“The demand for this corn grain could be so dramatic,” he said, “that it would change farming practices.” Instead of rotating corn with other crops, he said, farmers would be pressed to grow corn year after year, which could strain the soil and allow the buildup of insects and disease.

Many of the traits needed for energy corn — high yield as well as tolerance to disease, insects and drought — would also be desirable in corn used for human and animal food. That is not the case, though, with Syngenta’s enzyme corn, which would be specifically for energy production.

Generally, the enzyme, known as amylase, is made in vats of bacteria. Ethanol manufacturers add the enzyme to corn to break down starch into sugar, which can be fermented into ethanol.

To get corn to produce its own amylase, Syngenta inserted a gene borrowed from a type of microbe called archaea that live near hot-water vents on the floor of the ocean.

The gene — actually a composite of three amylase genes — was developed with the help of Diversa, a San Diego company that specializes in finding chemicals in organisms that inhabit extreme environments.

Diversa says that because its enzyme is derived from a heat-loving microbe, ethanol factories can operate at higher temperatures and under more acidic conditions, improving efficiency.

Some people in the biofuel industry question what the advantage is of having the enzyme in the corn rather than just buying the very similar amylase that Diversa is already selling.

While Syngenta’s corn is meant for industrial use in the United States, it is almost inevitable that some of it will get into human and animal food supplies, including exports, because of cross-pollination or seed intermingling. That is what happened in 2000 with Aventis CropScience’s StarLink corn, which was approved only for animal use, yet ended up in human food, forcing recalls and disrupting exports.

To prevent such liability, Syngenta is seeking approval of the corn for human and animal food use, not only in the United States but in Europe, South Africa and elsewhere. Syngenta says the amylase enzyme is safe, noting that these enzymes are found in saliva.

But Bill Freese of the Center for Food Safety, an advocacy group in Washington opposed to biotechnology crops, said that this particular amylase is from a little-studied exotic microbe and that some amylase induces allergy.

The Agriculture Department has asked Syngenta for more information on its application.

Regardless of what is done to corn, some experts say that starch alone will not provide enough ethanol. The new frontier is to produce ethanol from cellulose, the fibrous material in all plants. Cellulose is made of complex carbohydrates that can be broken down by enzymes into simpler sugars for fermenting into ethanol.

While some of the cellulose for biofuels could come from agricultural residue like corn stalks, there will probably be a need for other crops grown specifically for energy production — in particular, perennial plants like grasses that require far less energy-consuming irrigation and fertilization than crops like corn that have to be replanted each year.

That is why Ceres, a privately owned supplier of genetics technology to Monsanto, sees a future in switch grass. The company’s greenhouses are filled with versions of tall, gangly grass plants, some developed by conventional breeding and some by genetic engineering.

The grasses are meant to have higher yields, to withstand drought or to break down easily in the ethanol factory — “the energy crop that melts in your mouth, if you will,” Mr. Hamilton said.

Ceres, based in Thousand Oaks, Calif., is not working with Monsanto on switch grass but is collaborating with the Samuel Roberts Noble Foundation in Ardmore, Okla., a leading research institute on forage grasses. Mr. Hamilton said the partners were already testing conventionally bred switch grass varieties that yield eight or nine tons of biomass an acre, compared with about five tons for typical switch grass.

Mendel Biotechnology, based in Hayward, Calif., is looking more at miscanthus, a perennial grass native to China, where Mendel has set up an operation.

The company said miscanthus could produce well over 20 tons an acre each year. “No planting, no fertilizing, no irrigation,” said its chief executive, Chris Somerville, who is also the director of plant biology at the Carnegie Institution and a Stanford University professor. “You can just cut it every year for 10 years.”

Another cellulose candidate is poplar, which recently became the first tree to have its entire genome sequenced, an effort led by the Energy Department.

At first, significantly higher-yielding cellulose sources can come from conventional breeding, experts say. But later, genetic engineering may be needed. That could raise concerns because trees and grasses live longer and spread more easily than currently engineered crops like corn and soybeans.

And yet, energy crops may also be an opportunity for the industry to burnish its public image.

“After all,” the journal Nature Biotechnology said in a recent editorial, “it’s difficult to oppose a technology that’s helping to save the planet.”

The NYT also reports that concerns about the housing market deepened yesterday as the nation’s leading real estate brokers’ group issued a more pessimistic outlook for the year, and two major builders cut their earnings estimates by hundreds of millions of dollars.

The news added to a growing unease about the economy and helped drive shares on Wall Street lower for the second straight day.

The latest report to predict a decline in the housing sector was notable for its source. The assessment from the National Association of Realtors, which has until recently been generally upbeat about the health of housing, was the group’s least optimistic yet.

“The boom is cooling now,” said David Lereah, the chief economist for the association, who added that falling home sales have been “a bit worse than we had anticipated.”

The group said that it now expected sales to fall further than it has said in the past — about 7.5 percent this year compared with an earlier projection of a 5 percent decline. It also said it expected prices nationwide to drop during the next few months, instead of appreciating modestly. If that happens, it would be the first time since 1993 that median home prices have fallen in any given month.

The revised realtors’ forecast came on the heels of announcements from KB Home and Beazer, two of the nation’s largest home builders, that profits this year would be lower than initially predicted.

A third builder, Hovnanian Enterprises, said yesterday that its third-quarter profits fell by more than a third. It left its guidance for the year unchanged.

The Realtors’ association said it expected both home prices and sales would slide in the coming months as the upper hand in the housing market shifts from the seller to the buyer. But that shift has yet to occur fully, with buyers and sellers staring each other down while unsold houses pile up.

“The seller is a lot more stubborn than any of us had anticipated,” Mr. Lereah said. “Sellers for the last five years have been in control. It’s very hard for them to give up control and revise their expectations downward.”

But once sellers begin to drop their asking prices, housing industry officials hope that home sales will start to rise again.

The rising number of homes on the market and aggressive discounting by home builders are putting pressure on sellers to lower their prices, said Ronald J. Peltier, president and chief executive of HomeServices of America, a subsidiary of Berkshire Hathaway that owns real estate brokerage firms around the country.

“It’s going to take the rest of this year at a minimum for that inventory to be liquidated,” he said. “This period of correction is going to take a little while, but it’s healthy for the market.”

The Realtors’ association predicted that, at most, prices will decline for two or three months before picking back up again. For the year, home prices are still expected to appreciate, on average. Not since the Depression have home prices fallen over the course of a full year.

There are already signs that prices may soon start to decline nationwide. In a report issued last month, the Realtors’ association said home prices in July barely inched up. The median selling price for existing homes, which rose at double-digit rates for much of the previous two years, rose only 0.9 percent compared with a year earlier. And that rise was entirely dependent on a 3 percent median price gain in the South, the only region in the country where prices did not fall.

John Lonski, chief economist for Moody’s Investor Service, said, “That’s got to be one of the biggest difficulties facing the sellers of real estate: the uncertainty of the durability of real estate prices into the foreseeable future.”

As KB and Beazer cut their earnings guidance, they cited a growing supply of unsold homes.

“A higher percentage of home closings are being deferred or canceled,” Beazer said in a statement yesterday, “immediately prior to closing in many cases, due to worsening buyer sentiment and the inability of buyers to sell their existing homes.”

Beazer said yesterday that it expected earnings for the year of $8 to $8.50 a share, compared with its previous outlook of $9.25 to $9.75.

KB lowered its earnings guidance for the year to $8 to $8.50 a share, down from an earlier estimate of $10 a share. That is the second time this year the builder has lowered its guidance. Other major builders like Toll Brothers and D. R. Horton have also cut their earnings forecasts.

Wall Street’s reaction was mixed. Shares of KB closed just 1 cent higher, at $40.40 a share, and Beazer dropped nearly 3 percent, to $37.33.

But in a sign that investors were expecting much worse, news of Hovnanian’s profit decline helped lift shares more than 6 percent, to $27.09.

Slowing home sales actually helped give share prices in other sectors a lift in recent weeks. As it became clear that housing was entering a period of contraction — in line with the Federal Reserve’s expectation of an orderly economic cooling — investors put more money into equities, betting that the Fed would not resume raising interest rates.

From Aug. 1 until the beginning of this week, the Standard & Poor’s 500-stock index had risen more than 3 percent. But over the last two days, it has erased about half those gains.

Housing’s decline, said Jeffrey Kleintop, a top investment strategist for PNC, “has encouraged the stock market in the last month or two to run up.” He added: “The market is saying, ‘Yeah, we feel pretty confident about a soft landing here.’ ”

Yesterday’s housing news raised questions about just how soft that landing would be. “As an economy, we’re more sensitive to housing than we’ve ever been,” Mr. Kleintop said, adding that as home values have increased with the housing boom, so has individual net worth. “Having that suddenly go away and pull into a recession really creates a big question mark.”