An 1,800-Word Ramble Won't Absolve You From Coal
(Bloomberg Opinion) -- “If I’d had more time,” the French mathematician Blaise Pascal once wrote, “I’d have written with more brevity.” Joe Kaeser, the chief executive officer of German industrial giant Siemens AG, should have heeded that dictum.
His 1,800-word open letter this week explaining Siemens’s decision to provide rail signaling for the controversial Carmichael coal project in Australia must count as one of the strangest pieces of executive communication since Elon Musk last opened his mouth.
Almost twice the length of “The Love Song of J. Alfred Prufrock,” it’s a stream-of-consciousness that veers in the space of a few paragraphs between lecturing, grovelling, evasion and soul-searching. The effect, which you should really experience yourself, doesn’t resemble the blandly polished platitudes issued by corporate boardrooms so much as an anguished love letter.
The reason for all this is the storm of protest that Siemens has run into since announcing its contract with Carmichael, a thermal coal pit being developed by Adani Enterprises Ltd., part of the sprawling ports-to-power conglomerate run by Indian billionaire Gautam Adani.
The project, as we’ve argued, doesn’t really make sense economically. Its product is too low-quality and expensive to find a place in a global thermal coal market that’s in terminal decline. Generation division Adani Power Ltd., the likeliest destination for the soot, has lost 92.4 billion rupees ($1.3 billion) over the last three years, despite paying around 4,500 rupees ($64) per metric ton for its fuel — prices well below what it would cost per ton to develop Carmichael, on our estimates.
Still, as someone who’s been cheering the decline of coal power for some time, I have to confess to finding Kaeser’s dark night of the soul almost more disturbing than a forthright defense of his decision-making would have been.
Siemens has been central to the fossil-fired electricity industry since its inception in the late 19th century, with a role providing turbines for coal, oil and gas-fired power plants scarcely less significant than that of its U.S. rival General Electric Co. As recently as 2014, the gas and power unit accounted for about 30% of operating income and was presented as a key future profit-maker in the company's vision of itself in 2020. “We are very, very positive about gas,” Kaeser told one 2014 investor conference.
That bullishness turned out to be badly mistaken. Both GE and Siemens have struggled in recent years as the slumping cost of renewables cratered the market for conventional power plants. Kaeser has cut nearly 10,000 jobs from the power and gas division in recent years. With 2020 now dawning, the unit has fallen so far from his vision of Siemens’s future that he plans to spin off as much as 75% as a separate company.
Still, at least he has owned that mistake, and acted decisively to correct it.
The Carmichael decision is more mysterious. The contract is worth 18 million euros ($21 million) and margins for the transport division tend to bounce around 10%; against all the revenue lines in Siemens's expansive business operation, this contract is likely to account for a fiftieth of 1% or so of operating income.
That may not amount to much — but it's the responsibility of a corporate boss to set a direction and pay attention to the detail of getting there. Carmichael already has a history of open-ended delays and disputes with contractors that should have raised red flags with any potential business partner. Given Siemens’s attempt to position itself as a pioneer of sustainable industry in an era of climate change, it shouldn’t have needed Greta Thunberg and Fridays for Future protests to draw the boardroom’s attention to the damage such a minor contract could do to its attempted green makeover. Kaeser’s defense — that having signed the contract, he was obliged to uphold it — is reasonable. That doesn’t absolve him from the lack of foresight of signing in the first place, given the agreement was inked just over a month ago.
The rapid changes we’re seeing in power technology and the politics of climate change are likely to wrong-foot many executives and politicians in the years ahead. The collapse of the gas turbine industry is a potent demonstration that falling behind the curve as the world’s economy decarbonizes isn’t just a moral failing — it’s a business risk, too.
That’s what's most egregious about Kaeser’s handling of this case. What should matter to Siemens's shareholders is not the state of his soul, but whether he’s making the right decisions to safeguard the future of the company. The motivated reasoning and hand-wringing of his letter suggest that's in shorter supply than you’d hope.
“Securing our planet for the future is not just about experts,” he writes at one point, in a wounded valediction to climate activist Luisa Neubauer, who turned down his offer of a place on the board. “This is mostly about leadership.”
There’s a lesson in that for Kaeser, too.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
David Fickling is a Bloomberg Opinion columnist covering commodities, as well as industrial and consumer companies. He has been a reporter for Bloomberg News, Dow Jones, the Wall Street Journal, the Financial Times and the Guardian.
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