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Why is Engie CEO Jean-Pierre Clamadieu in a hurry to sell off Suez?

Business Correspondent

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In the battle to ward off a hostile takeover from long-term rival Veolia, Suez is raising the stakes. The French waste and water management company announced that its strategy to improve the firm’s financial performance was paying off sooner than expected. As a consequence, Suez shareholders can look forward to €1.2 billion in exceptional dividends by early 2021.

The strategy was implemented last year, but the timing of the announcement is hardly a coincidence, coming mere days after Engie – which holds a 30% stake in Suez – rejected Veolia’s offer to buy out the stake at €15.50 per share, or a total of €2.9bn on 17 September. Engie’s CEO Jean-Pierre Clamadieu made it abundantly clear that Veolia’s bid was too low and called on the utilities provider to raise its offer, insisting that the “value of Suez is higher than the basis of these discussions”.

The rejection itself may not be the biggest news, however. More interesting is what can be read between the lines, specifically Clamadieu’s evident urgency that Veolia offer a new bid as soon as possible while calling on Suez to respond with a counter-offer – fast. The Engie CEO repeatedly stressed that any alternative bid would be considered carefully, assuming it could be “implemented rapidly”, and even offered an extension to Veolia for a new offer if need be.

If Engie’s signalling to both bidders that the clock is ticking was unequivocal, then that’s only because time is running out for Clamadieu as well. By rejecting Veolia’s bid and calling on Suez, it’s become evident that the Engie leadership is hoping to force a deal rather sooner than later. Indeed, after years of loss-making and continually falling operating profits, the COVID-19 pandemic left the company cash-strapped and is most likely the main driver behind Clamadieu’s decision to divest from some of Engie’s subsidiaries to reap the benefit of short-term financial windfalls.

Herein lies the rub – to get Engie’s finances back in order, Clamadieu seems willing to make a risky bet that’s resting on the assumption that a quick bidding war is the best way to maximize returns. But maximizing returns takes time as both contenders need to be given ample opportunity to escalate their bids. The emphasis on urgency is putting the pressure on Suez to react within a short period of time – Veolia’s offer expires 30 September – leaving the firm mere days to raise funds for a credible counter-offer. With the clock ticking fast, Clamadieu’s gamble may well backfire and force him to sign off on a deal that remains behind Engie’s expectations – but one that would most definitely make Veolia happy.

As such, the gambit raises broader questions about Jean-Pierre Clamadieu’s strategy, as well as his leadership. It’s important to note that Clamadieu was hailed as a fine and discreet business strategist when he became Engie CEO this February following a boardroom coup that saw the luckless former CEO Isabelle Kocher getting the sack. But in revealing the risky short-terminism in his thinking, Clamadieu isn’t doing himself any favours, particularly where his other leading business positions are concerned.

Take his role in French insurance company Axa, where he has held the Senior Independent Director position since April 2019. The insurance giant is facing down its own share of Covid-induced troubles after a Paris court ruled that the firm must cover a restaurant owner’s coronavirus-related revenue losses. The ruling set a ground-breaking precedent for businesses in the gastronomy sector, with the insurer now in talks with more than 600 establishments over financial settlements.

With Axa potentially in for millions of extra payments, a long-term strategy to keep the company profitable is required. In his role as Independent Director and member of the Compensation and Governance Committee, Clamadieu is holding significant responsibility in determining the company’s direction, but considering the gamble with Suez, Axa’s leadership would be justified in asking questions about his suitability to serve in a leading role in insurance – an industry that by definition deals in long-term assessments.

These trying times call for a steady hand and a thorough long-term strategy. Whether Clamadieu’s gamble will pay off remains to be seen, but if history is a lesson to be learned, the desire for short-term windfalls always loses out to long-term thinking.

European Commission

Commission approves acquisition of certain Suez waste management companies by the Schwarz Group, subject to conditions

EU Reporter Correspondent

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The European Commission has approved, under the EU Merger Regulation, the acquisition of certain Suez waste management companies in Germany, Luxembourg, the Netherlands and Poland, by the Schwarz Group. The approval is conditional on the divestiture of Suez's lightweight packaging (LWP) sorting business in the Netherlands.

Executive Vice President Margrethe Vestager, in charge of competition policy, said: “Competitive markets at every level of the recycling chain are a crucial contribution to a more circular economy and essential to achieve the objectives of the Green Deal. With the divestment of Suez' sorting plant in the Netherlands, the acquisition can go ahead while preserving effective competition in the sorting of plastic waste market in the Netherlands.”

Both the Schwarz Group and the Suez waste management companies concerned are active across the waste management chain in several countries. In particular, the two companies are leaders in the sorting of lightweight packaging originating in the Netherlands.

The Commission's investigation

The Commission had concerns that the proposed acquisition, as originally notified, would have significantly reduced the level of competition in the market for the sorting of LWP in the Netherlands.

In particular, the Commission's investigation found that the merged entity would become by far the largest market player, owning more than half of the capacity for LWP sorting in the Netherlands, and an unavoidable trading partner to Dutch customers.

The Commission found that competitors located outside of the Netherlands exert a weaker competitive constraint, as customers prefer for waste to be sorted as close to the collection point as possible in order to minimise the financial cost and CO2 emissions associated with road transport.

The proposed remedies

To address the Commission's competition concerns, the Schwarz Group offered to divest the entirety of Suez's LWP sorting business in the Netherlands, including Suez's LWP sorting plant in Rotterdam and all assets necessary for its operation.

These commitments fully remove the overlap between the Schwarz Group and the Suez waste management companies concerned for the sorting of LWP in the Netherlands.

The Commission therefore concluded that the proposed transaction, as modified by the commitments, would no longer raise competition concerns. The decision is conditional upon full compliance with the commitments.

Companies and products

The Schwarz Group, based in Germany, is active in food retailing in over 30 countries through its retail chains Lidl and Kaufland. It also operates as an integrated service provider in the field of waste management through its PreZero business division.

The Suez waste management companies concerned, subsidiaries of the French Suez group, are active in the collection, sorting, treatment, recycling and disposal of household and commercial waste in Germany, Luxembourg, the Netherlands and Poland.

Merger control rules and procedures

The transaction was notified to the Commission on 19 February 2021.

The Commission has the duty to assess mergers and acquisitions involving companies with a turnover above certain thresholds (see Article 1 of the Merger Regulation) and to prevent concentrations that would significantly impede effective competition in the EEA or any substantial part of it.

The vast majority of notified mergers do not pose competition problems and are cleared after a routine review. From the moment a transaction is notified, the Commission generally has a total of 25 working days to decide whether to grant approval (Phase I) or to start an in-depth investigation (Phase II). This deadline is extended to 35 working days in cases where remedies are submitted by the parties, such as in this case.

More information will be available on the Commission's competition website, in the Commission's public case register under the case number M.10047.

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Business

Free ports and the blockchain come together to speed up seamless trade

Colin Stevens

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Some say they can boost manufacturing while others claim they are used to launder money and avoid tax. The issue of “free ports” has never been more topical, not least in the post-Brexit era. But are freeports really all they appear to be? What exactly is a free port? Typically, when goods enter a country, they have to follow the import regulations of that country. This often involves a tariff—a tax on those imports. A free port or “free zone” is an area that is inside the geographic boundary of a country, but which is legally considered outside the country for customs purposes. Goods brought into the free port don’t face import tariffs (though if they are then sent into the rest of the country for sale, they are then taxed accordingly) - writes Colin Stevens.

Free ports are an area, or linked area, that are subject to special rules to boost economic development, including differentiated duty treatment. These duty changes normally involve businesses avoiding onerous tariffs on imports and exports, and different models can be applied to different regions to boost specific industries. A Free port can exist in both inland as well as in traditional seaport locations.

For international supply chain perspective, free ports allows companies to rethink their logistics planning and warehousing needs and benefit from reduced business rates and tax benefits. Free ports can have better infrastructure and so offer higher digital connectivity than traditional port operations to facilitate import and export trade.

The higher level of digital connectivity may allow better connection to digital end-to-end supply chain with added benefit from digital port backlog management and customs clearance. This again can translate into higher efficiency: reduced waiting times, improved transparency and reduced costs.

Sometimes businesses operating within free ports receive other incentives, such as tax breaks. For example, the Canary island free zone has corporate tax rate of 4percent compared to 25% in the rest of Spain.

There are various economic benefits to free ports but it is claimed that they can be used by organisations to launder money and avoid tax.

In Europe, Copenhagen in Denmark is a freeport and there are two big free trade zones in Germany: the freeport of Cuxhaven, a covered area of about 147,800 square meters, and the freeport of Bremerhaven, around 4,000,000 square meters, The Port of Hamburg used to function as a free trade zone for 125 years, before its closure at the end of 2012.

According to the economic development agency of Germany, freeports in Germany have resulted in some 2,062 recorded foreign direct investment projects and the creation of at least 24,000 new jobs.

Economic freeports exist all over the world, including in the European Union, but, oddly, not in Belgium and the Netherlands, where two of the biggest traditional seaports in Europe exist (Antwerp and Rotterdam).

German MEP Markus Ferber MEP, EPP Group coordinator in the European parliament’s ECON Committee, told this website, "If free ports are used for their original purpose, i.e. to temporarily store goods in transit, there is little wrong with them.

“In fact, there are quite a few free ports in the EU. However, often those free ports are not used for that narrow purpose, but rather to support illicit activities, i.e. tax evasion and money laundering, which is why there needs to be tight regulation and effective enforcement in place. Otherwise, there is a severe risk of abuse. So, some scepticism with regards to free ports is often warranted.”

He went on, “I understand that the UK’s attempt to establish new free ports is mainly driven by a desire to revive economic activity in certain deprived areas, which also raises state-aid and fair competition concerns. This is therefore definitely an issue that would need to be carefully scrutinised in the framework of the EU-UK cooperation agreement".

However, digitalisation can address some of these key challenges. Higher level of interconnectivity between the buyers, sellers, traders, shippers, freight forwarders, insurance, port authorities and government allows sharing end-to-end supply chain information between parties digitally. This again provides port authorities and government access to accurate real time information which ability to drill down into historical data to detect any tax evasion and money laundering activities. Furthermore digital compliance monitoring can be used to prevent money laundry activities.  

Free ports exist within the EU, although in a more limited form than elsewhere in the world.

Freeports, or the equivalent (sometimes going by a different name) can be found all over the world, including in the Middle East.

Egypt has two, Port Said and the Suez Canal Container Terminal, and Morocco has just the one: the Atlantic Free Zone Kenitra. In the Middle East, Qatar has free zones and “special economic zones” with differing laws on taxation and corporate ownership.

Thailand has five: the Ports of Laem Chabang, Bangkok, Chieng Saen, Chiang Kong and  Ranong and Taiwan also has five: the Ports of Kaohsiung, Keelung, Taichung and Taipei and Taoyuan Air Cargo Park, Malaysia has just the one, the Port Klang free zone, while there are no less than six in Vietnam.

Surprisingly for its size, India currently has just four freeports, including the SEZ multi product free zone and another in Mumbai, the capital.

China’s first free trade port was opened as recently as 2018 in Hainan and there are now similar freeports in the cities of Guangzhou, Shenzhen and Tianjin.

One can also be found in the country’s 2nd city, Shanghai. As the bridgehead of China’s showcase project, the Belt and Road Initiative, Shanghai established the biggest pilot free trade zone in China.

Zhaoli Wang, of South China University of Technology, said, “Development basis, port shipping, talent attraction, service support, risk supervision and control are the five major comparative advantages and the important driving factors that need to be considered in exploring and leading the construction of China’s free trade port under the BRI.”

A spokesman for the Asia-Pacific Circle think tank said freeports can “foster sounder investments in the BRI area.”

He adds, “These trade zones are also very important tools which enable China to better anticipate and participate in the formulation of international rules and standards on trade and tariff conditions, to acquire greater institutional power and global economic governance.

“In the 13th Plan (2016-2020), the words “Free Trade Zones” or “Free Trade Areas” appear more than 11 times.”

Elsewhere in the region, Hong Kong has nine freeports, including the Central Ferry Piers, Victoria City, Container Terminal 9, Tsing Yi and Kai Tak Cruise Terminal at Kowloon.

China’s biggest free zone is at the City of Qingdao in in South China, and is worth 1.2 trillion RMB towards China’s GDP.

“The Qingdao FTZs aim is to function as an international land and sea trade corridor connecting China with other ASEAN countries, such as Vietnam, Laos, Thailand, and the Philippines. As an important gateway linking the land and sea routes of the BRI (also known as the 21st Century Maritime Silk Road and the Silk Road Economic Belt), these zones will be key gateways for tourism, cross-border finance, and logistics.”

One European company, LGR Global, is enthusiastically embracing the opportunities created by Qingdao and other freeports along the Belt and Road, and is offering customers an incredible suite of functional products and online services to digitize and optimize end-to-end trade finance & supply chain management.

Speaking to EU Reporter, Mr Ali Amirliravi, CEO and Founder of LGR Global, and creator of the Silk Road Coin (SRC) digital currency, said “In SRC Business Ecosystem we are connecting digital trade finance, cross border money movement and end-to-end supply chain in a single interconnected system. We are linking buyers, sellers, traders, shippers, freight forwarders, insurance, port authorities and government digitally together in our trading family. By using blockchain, smart contracts, IoT, AI and SRC utility token we have transformed traditional paper based process into digital where we are able to detect discrepancies in real time and share information between the trading partners and with port authorities and government. Furthermore our interconnected digital trade finance system provides constant, banking grade AML and KYC compliance monitoring to prevent money laundry activities.  

Our solution is built to reduce the total transaction cost to all trading partners in SRC business ecosystem. This means reducing operating cost, banking fees and facilitating physical product movement so goods will arrive to destination in good condition withing estimated delivery time. Our solution handles the requirements of both hard and soft commodities (i.e. food products). Our solution has dynamic IoT based track and trace capacity and real-time data feed integration (temp, humidity, GPS) to create opportunities for shippers and stakeholders to intervene immediately in case of trouble and to find solutions”. This solution is not only benefiting buyers to get their goods delivered in good conditions in promised time but also when things go wrong, shippers and insurance companies in claim processing.

In the future, our SRC Business ecosystem and our Silk Road Coin is designed to co-exist with digital RMB. “Adoption of the digital RMB will increase trade throughout the Europe and New Silk Road economies, and as our ecosystem will adopt digital RMB into our solution, we can work to further promote digital multi-commodity trading across the free ports in the New Silk Road.”

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Aviation/airlines

Rome Fiumicino and Ciampino Airports the first in Europe to achieve Airport Carbon Accreditation Level 4+

Press release

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Aeroporti di Roma, the operator of Rome’s Fiumicino and Ciampino airports, has achieved the highest level of the Airport Carbon Accreditation programme: Level 4+ 'Transition', the first in Europe to do so.

To achieve this recognition, airports are required to reduce their CO2 emissions in line with global climate goals, to influence other parties active within the airport site to achieve effective reductions, and to compensate for their residual emissions with reliable carbon credits. Only two other airports in the world have achieved this level of carbon management performance so far: Dallas Fort Worth International in the US and Delhi Indira Gandhi International in India, while Christchurch International Airport has reached Level 4 Transformation. 

Since 2011, after obtaining the first Airport Carbon Accreditation certification, Aeroporti di Roma has continuously reduced carbon emissions under its control and driven broader reductions within the airport system through an engagement plan involving all stakeholders. Rome Fiumicino Airport has been a carbon neutral airport since 2013, and was joined shortly thereafter by Ciampino Airport. 

In order to accelerate their progress to reach the objectives of the Paris Agreement and achieve Level 4+, Aeroporti di Roma has set out a plan to eliminate all of its own CO2emissions and thus achieve net zero COemissions by 2030. This ambitious target, when achieved, will set the airports 20 years ahead of the curve on the global climate neutrality objectives.

“This noteworthy recognition testifies to our strong commitment to environmental issues and to our willingness to continue tenaciously on this path, convinced of the need to increasingly integrate sustainability and innovation into our core business.” said the CEO of Aeroporti di Roma, Marco Troncone. “In view of the carbon-intensive nature of the aviation sector and to preserve the connectivity of the future, ADR's strategy is oriented towards the rapid decarbonisation of the airports it manages. In fact, we are aiming to reach zero CO2 emissions by 2030, long in advance of the European references for the sector, with a plan mainly aimed at renewable sources and electric mobility.”

Aeroporti di Roma specifically contributes to the reduction of the overall emissions of the various stakeholders operating at the airport by: Making Sustainable Aviation Fuel available to airlines by 2024 Promoting electric mobility at the airport, with the installation of 500 charging stations for electric vehicles and completely renewing its own fleet Building large photovoltaic plants at the airport for a total capacity of 60 MW Joining the EP-100 of The Climate Group's global initiative on the smarter use of energy, with the ambitious commitment to increase its energy productivity by 150% by 2016.

ACI EUROPE Director General Olivier Jankovec said: “We are absolutely thrilled with Aeroporti di Roma’s excellent achievement! When launching the new levels of Airport Carbon Accreditation last year, amid the direst of crises ever witnessed by the aviation sector, we were propelling an industry-wide ambition that was suddenly stripped of the vital resources to fulfill it. Decarbonisation is an especially costly endeavour for businesses in the so-called “hard-to-abate” sectors, of which aviation is a prime example. Moving past these challenges and reaching the highest level of Airport Carbon Accreditation at this time is an exceptional achievement on the part of Rome Airports. I would like to wholeheartedly congratulate and thank each person involved in this success.

He added: “The track record of our members, and our industry, illustrates that we lead the way in the airport decarbonisation worldwide. Through the ongoing ambition of our Airport Carbon Accreditation programme, further enhanced through the introduction of two new accreditation levels, our close involvement in the European aviation sector’s recent Destination 2050 roadmap, and our call for the EU to join us in a Pact for Sustainable Aviation this year, we continue to strive towards our climate goals in tangible and actionable ways. Our ambition remains undimmed.”

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