The Western giants hold out for a better offer

FOR some conspiracy theorists, the war in Iraq was always about gaining control of the world’s third-largest oil reserves for Western energy firms. True or not, things are not panning out that way. This week most big oil companies turned their backs on the first opening of Iraqi production to foreign investors since Saddam Hussein nationalised the industry 37 years ago.

The oil ministry, which wants to lift crude output from 2.4m barrels a day (b/d) last year to 6m b/d by 2017, hoped a much-delayed licensing round for eight of the country’s biggest oil- and gasfields would bring international firms—with their capital and expertise—back to Iraq. But the televised auction proved embarrassing for Hussein al-Shahristani, Iraq’s oil minister. Just one contract was awarded, to a joint venture between BP and China’s CNPC, which beat a bid from Exxon Mobil and Petronas of Malaysia. That contract covers the Rumaila oilfield, Iraq’s second largest. BP and its partner must now increase its output from 1m b/d to 2.85m b/d within six years. Their reward will be $2 a barrel, half the amount BP originally sought. ...

Customers are working for companies free of charge, and they like it

AMERICANS worried that cheap labour in faraway countries threatens jobs at home should redirect their gaze to the mirror. Yes, companies are outsourcing jobs—to their customers. They are steering ever greater numbers to ATMs instead of tellers, websites instead of telephone hotlines and automated checkouts instead of manned registers. The recession is making them even keener.

Self-service is on the rise in industries from retailing and entertainment to travel and telecommunications. According to VDC Research Group, retailing, hospitality and health-care firms spent $2.8 billion on self-service technology in 2008. Between now and 2013 their investment will grow by around 15% a year. Speech-recognition technology, which permits automated responses to telephone calls, is also faring well. Datamonitor Group, a consultancy, expects spending on that to rise by around 8% in 2009. ...

Bankruptcies are at near-record levels

IT IS not quite the Armageddon that was being predicted in the weeks after Lehman Brothers became America’s biggest corporate bankruptcy last September. But this recession is still on course to be second only to the Depression in terms of companies going bust. Measured by the firm’s assets at the time of filing for protection from their creditors, the past year has seen five of the eight biggest bankruptcy filings in the history of American business—with Washington Mutual, Thornburg Mortgage, General Motors (GM) and Chrysler joining Lehman on the list.

A good indicator of the awfulness of the downturn is the market for junk bonds, which surely deserve the name again after nearly two decades of attempts to rebrand them as safer-sounding “high-yield debt”. At the end of May 9.2% of high-yield debt issues (globally, but dominated by American paper) had defaulted during the previous 12 months, compared with less than 1% in the year to December 2007. The failure rate is on course to hit 13.8% in the fourth quarter of this year, according to Moody’s, a credit-rating agency, after which it should start to decline. That would be slightly higher than in the two previous recessions, when the percentage of defaults peaked at 10.9% (in January 2002) and 12.8% (in June 1991), but below the all-time high of around 16.3% in 1933. ...

Legal and bureaucratic caprice is still undermining foreign investment

THE website of Telenor, a state-controlled Norwegian telecoms firm, has a special section dedicated to its investments in Russia and its dispute with Alfa Group, its Russian partner. It is a long and unhappy saga filled with headings such as “Geneva arbitration”, “Court abuses” and “Black PR campaigns”.

Telenor and Altima, the telecoms arm of Alfa, are shareholders in both VimpelCom of Russia and Kyivstar of Ukraine. In 2004 Altima, which wanted to expand its business in Ukraine further, suggested that VimpelCom buy another Ukrainian telecoms firm. Telenor resisted, saying that the price was too high. Altima accused Telenor of sabotaging its growth. ...

Is the government taking a hard enough line with indebted conglomerates?

ON THE face of things, the restructuring of South Korea’s heavily indebted family-owned conglomerates (chaebol) is proceeding apace. On June 28th the eighth-biggest, Kumho Asiana, said it would sell its one-third stake in Daewoo Engineering & Construction, one of its biggest units. Past governments have coddled chaebol, but the current one says free-market principles should prevail. Regulators say that they have been urging banks to take a hard line with nine struggling chaebol, including Kumho Asiana.

In addition to Daewoo, Kumho Asiana owns Asiana, the country’s second-biggest airline, and petrochemical, tyre, life-insurance, resort and transport businesses. As with other chaebol, descendants of the founder still control the business. In 2008 it used its airline and Daewoo to become the biggest shareholder in South Korea’s biggest logistics company, Korea Express. That acquisition, along with the purchase of Daewoo in 2006, has left it with debt of 15 trillion won ($11.8 billion). Moreover, the 18 South Korean banks and other investors that had bought almost 40% of Daewoo alongside Kumho Asiana are likely to exercise an option in December to sell the conglomerate their shares at a price of 31,500 won—over three times the level of June 26th. So Kumho Asiana needs to find another 4 trillion won. ...