Soros is right to be scared of Russian monopolies

The word from Moscow is not to expect a bid from Gazprom for Centrica any time soon, but don't expect the tale to go away. Gazprom has an ambition to supply 20% of the British gas market, and so the comments by George Soros yesterday on the true nature of Russia's state-controlled energy companies deserve to be heard.
His prime concern is the danger of allowing Rosneft, the oil company, to float in London, but his analysis applies equally to Gazprom. Both companies are in effect controlled directly by Moscow.

This is what Soros said: "Europe is relying for a large portion of energy supplies on a country that does not hesitate to use its monopoly power in devious and arbitrary ways."
Gazprom's heavy-handed, and widely condemned, act of turning off the taps to Ukraine in January is the prime piece of evidence.

To that, we could add last week's warning from Gazprom's chief executive that "no good results" would follow if the company was denied its ambition to expand in Europe.

The argument here is very simple. Gazprom is not a normal company. It's a monopoly supplier that wants to restrict access to its own markets and is not afraid to adopt bullying tactics abroad.

The question of whether Gazprom should be allowed to buy British, or other European assets, is not an argument about protectionism. It is about the wisdom of relying on a company that doesn't play by standard rules and pursues political ambitions.

This point has apparently yet to be appreciated by the government if it is really true that Tony Blair has ruled out ministerial interference in any future Gazprom bid for Centrica, Britain's biggest home-owned utility.

Such a hands-off policy would be taking belief in open markets to an absurd extreme. Soros's solution - common European resolve to force Russia to agree binding agreements on supply - sounds far more sensible. The sooner the government accepts this the better - before we wake up to find that Gazprom has raided the market for 10% of Centrica's shares.

Don't bet against China

To gain an insight into life in the front line of the commodities boom, take a look at yesterday's comments and production report from BHP Billiton, the London-listed miner that is the world's biggest. This is an industry where a tyre for a giant earth-mover costs £11,000, such is the shortage of equipment and spare parts.

Lines of supply are now so stretched that the idea of stockpiling exports at ports, as an insurance against production upsets, is often unfeasible; much of the output now goes straight from the mines and on to a ship bound for China, or wherever.

Upsets still happen, of course, and so BHP Billiton is obliged to provide something close to a weather report. Cyclones in western Australia disrupted petroleum, iron ore and nickel operations; heavy rain in South Africa didn't help coal output, but the Chilean copper mines were at full capacity after last year's earthquake.

Such events are so important because Billiton, like all big miners, is working flat out. Every little flood, derailment or equipment failure exacerbates production headaches. In the circumstances, it was not surprising that the group's output figures were a shade disappointing.

These practical difficulties of extracting minerals are the strongest counter-argument to the idea that the commodities boom is a bubble that will burst any day now. Certainly, some commodity prices look a little crazy, such as copper, which has doubled since last August. But copper inventories are reckoned to be as low as 2.5 days of current global consumption, which is even crazier.

China, as it moves 20 million people a year off the land and into cities, is the primary cause of it all, as it eats 20% of the world's output of raw materials to build houses, roads, telephone lines, sewage systems and so on.

It's a brave punter who bets that the industrialisation of China is about to grind to a halt. There must be slowdowns and setbacks along the way but the long-term mining story still looks as if it is on the right side of the thin divide between boom and bubble.

Think big

Another little market record was established yesterday as the FTSE 250 index - the collection of mid-sized companies - passed 10,000 for the first time, before closing a couple of points below the round number.

The 250's outperformance of the FTSE 100 is a trend that extends back to 1999. These things don't last forever: the sceptical money says the mega-caps - the likes of Glaxo, BP, HSBC - are now the real pockets of long-term value.