Thursday, April 25, 2019

When sovereignty meets industry

by EdCar (writer), , August 27, 2018

Three emblematic cases of international tenders where sovereignty meets industry

Concerns of state and business rarely coincide completely. The first tries to regulate activities of entrepreneurs for the public good. In turn, the latter must constantly maneuver between business opportunities and compliance with governmental regulations.

Governments and entrepreneurs share many fields, from taxes and duties to trade unions and business lobby groups. These two are literally inseparable in areas, such as finance, defense, energy and a number of others. For instance, American arms company Raytheon receives 90% of its revenues from the US defense.

Cooperation within the borders of one country, i.e. when the government and the business are located on the same soil, is common. In Japan, senior members of Toshiba's executive team sit on the country's government panels and commissions. However, the most curious stories happen when the government of one country must resort to the services of a foreign company. Like everywhere else, there are positive and negative examples, and below we will tell about the most interesting of them.

The world to build America

American protectionism does not prevent global liberalism from playing its full part. The President of the United States promised a major infrastructure plan, especially in transport. In February, Donald Trump asked Congress to approve his plan for $200 billion over a 10-year period with a total project of nearly $1 trillion. As soon as the plan was first announced, experts agreed that foreign aid would be necessary.

The American president's intention to spend $1 trillion on infrastructure has inevitably attracted the attention of companies around the world. The collaboration will not only be financial, pension funds from Australia, Canada and European private investors or even middle eastern, already own roads and bridges across the US, it will also be technological and operational. According to Joe Quinlan, head of market and thematic strategy at Merrill Lynch and U.S. Trust: "If we're going to do bullet trains, that technology is really Japan, Germany, China." The Japanese government confirmed it when Japanese Prime Minister Shinzo Abe said during his visit to the US in February 2017 that Japan's technical expertise in high-speed rail "could contribute to President Trump's growth strategy.”

To Trump, infrastructure is the backbone of America's economy, and it must be designed and driven by a long-term political agenda. This governmental prerogative, even in an economically nationalist climate, does not in any way prevent beneficial partnerships, both financial and technological, with foreign private companies.

French rescue Bulgarian security printing

In 2007, Bulgaria was preparing to join the European Union. The country had been looking forward to this event for many years, but several difficulties hampered the development.

The local production of banknotes and security papers was one of them. BNBPW (Printing Works of the Bulgarian National Bank AD) was unprofitable and was threatened with closure due to insufficient number of orders. In addition, the production line was obsolete, and the company did not have a license from the ECB to issue euro banknotes.

Nevertheless, the Central Bank wanted to keep the enterprise, the more so the printing work issued identity documents, excise bands, vignette stickers and a number of other printed items. The stopped production would cause a huge number of problems - from the need to look for a new producer for the entire volume of printed products to dismissal of highly skilled workers, most of whom simply would have nowhere else to go.

It was decided to seek a solution abroad. Unlike the aforementioned case with Italy, the offer on the market was small. The European market printing euro notes is controlled by only three private printing companies and the bank turned to the French company Oberthur Fiduciaire.

Long story short, the parties came to a mutually beneficial agreement. A joint venture was founded. Thanks to the experience and licenses of Oberthur Fiduciaire and the production capacities and qualifications of the existing BNBPW employees, Bulgaria and its Printing Works have entered the international market for printing banknotes and retained strategically important production and jobs.

The French company, in turn, expanded its geographical coverage and strengthened its position as a giant in the security printing industry. Thomas Savare, CEO of Oberthur Fiduciaire, told: “We operate in both developed countries and emerging countries. It’s been like this since the beginning. We are now addressing the market from our two plants in France and Bulgaria. We have the exact same standards in terms of quality, security, knowhow and capabilities from those two plants. The clients who choose Oberthur Fiduciaire as a supplier know that they will get the exact same quality whether banknotes are printed in France or in Bulgaria.”

Americans receive millions of compensations for a lost British tender

International tenders do not always end successfully. In the last story, we'll tell about one of these failed cases.

A few years ago, the British Nuclear Decommissioning Authority (NDA) announced a £ 6.1bn-worth state tender. It was a nuclear decommissioning contract for a dozen redundant sites, known as Magnox. Several domestic and foreign companies participated in the bidding.

One of them, a joint venture between UK-based Cavendish Nuclear, which is a subsidiary of Babcock International, and the US Fluor (CFP), won the contract. However, when CFP began presenting results of the preliminary assessment of the work to be done, officials realized that the initial calculations were flawed. Nuclear power expert Dr Paul Dorfman, from University College London's Energy Institute, explained what exactly the mistakes were about: “They were set up to fail and have failed because the understanding of costs and complexity to nuclear decommissioning is changing all the time," he said. "Magnox reactors were thrown up in a rush to give electricity too cheap to meter and create plutonium and there was no thought of how they would be decommissioned.”

The tender was suspended. Moreover, the NDA is now forced to pay settlement to two losers, American Energy Solutions and Bechtel. The first will receive £ 76.6m and £ 8.5m of costs, and the second will receive about £ 12.5m.

There are no winners in this story. Incorrect assessment and mishandling of the preparations for the tender resulted in the fact that the source of the potential environmental hazard has not been eliminated yet. Even the compensated Energy Solutions and Bechtel cannot be called winners, given the fact that the costs of preparing for tenders are high, and lawyers cost even more.


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