The energy market: Crony capitalism 2.0
Today, the privatised energy sector is causing consternation not too dissimilar to financial sector in 2008
During the banking crisis the great and good explained how the western world got into such a financial mess, though none predicted it would happen, and how capitalism had to be reformed for the greater good of society. There was little doubt the flaws were systemic: defective business models in banking that exposed every bank to bankruptcy, defunct corporate structures that amplified rather than reduced risk and perverse incentives from incestuous pay and bonus structures.
All the wise words about rethinking the capitalist model to make it more just, compassionate and ethical were just that ‘wise words’. Words that placated the angry public mood and curtailed calls for fundamental changes to the system. Essentially, the financial sector called upon vested interests in politics, the media and academia to safeguard its flawed existence.
Today, the privatised energy sector is causing consternation not too dissimilar to the financial sector in 2008. Six private companies, with the prime objective to maximise profits, control over 90% of the essential energy supply market in the UK. Energy prices are set before even the gas and electricity reaches our homes. Energy generating companies, transmission companies and distributing companies, are each customers as well as suppliers in the sector which creates perverse incentives within the energy market. A huge amount of energy is also traded and speculated on in the wholesale energy market in forward and futures contracts resulting in a market which is far from open and transparent. This is not too dissimilar to the investment banking sector with banks creating apparently elaborate but now defunct financial products and borrowing from each other as well as lending to one another before the liquidity crunch.
The household has little choice but to pay the higher energy prices set in an opaque market where they have no influence. The option of switching supplier is in reality false given that the annual price increase sets a benchmark in the sector which is then followed by all the other suppliers.
The consequence of this crony capitalism is that people die because they can’t afford to heat their home. Indeed, the Government is fully aware of this and in fact estimates that, of the 20,000 to 30,000 excess winter death, 2,700 people – mainly the old, sick and poor – die a year due directly to fuel poverty. According to the World Health Organisation this is an underestimate and winter deaths because people can’t afford to pay for energy is nearer to 7,800 (1). That’s 65 deaths per day during the winter months, more than those killed in traffic accidents, directly as a result of the privatised, profit maximising, energy market. Clearly, capitalism places corporate profits above the lives of people, even the most vulnerable – the poor, weak and old.
The big six energy providers in the UK – SSE, Scottish Power, npower, EDF, Eon and British Gas – made total profits of £3.74billion in 2012 (2). That represents an increase of 73% on the £2.16 billion profits made in 2009. This is not revenue generated but profits – after operating costs (together they employ over half a million employees). What’s even more astounding is that between 2009 and 2012, when energy profits rose by 73%, much of the rest of the UK economy was in the depths of recession – one of the worst in over 50 years. If these profits are compared to the 65 deaths per day during winter due to fuel poverty it equates to £31million profit for each winter death.
Islam considers such a situation callous and abhorrent. In the Islamic Shariah, energy is not private property, though private property is perfectly lawful. According to the saying of Prophet Mohammad (SAW) said:
“The people are partners in three things: water, green pastures and fire (fuels)” [Abu Dawud]
Fuel providers are under public ownership – meaning all citizens share in the energy wealth of the state. Energy providers are not run to make a profit let alone maximise profits. This will ensure that essential services like energy will be made available to the people as sharing in the energy wealth of the nation, when abundant supplies exist. If the Islamic state has little or limited supplies of energy then the charge for energy will relate only to the cost energy generation and distribution and not as a means of generating profits.