The perils of relying on those false profits

You've got a house with a 25-year mortgage, say. When the bills come in for gas, electricity, phone, community charge etc, you don't pay them each month. You tack them on to your mortgage. A little gets paid off every month, and your outgoings are substantially reduced. You feel richer. And hope you can sell the house at a decent profit before you have to pay all those accumulated bills.

That, translated into the everyday language of personal finance, is what WorldCom was doing when it capitalised costs in what has been called the biggest fraud in history. It doesn't seem particularly evil. Many UK companies do it, including Cable & Wireless (to a lesser degree than WorldCom, it must be said) as well as many in the contracting industry.

But WorldCom used it to falsify profits, and then sell off bits of the company (as shares) to investors at inflated prices. In effect, they were remortgaging annually on the basis of figures falsely boosted because they had not paid the bills.

Now Ebbers, Sullivan, Grubman and Co will have to pay up, and dearly. Those unpaid bills certainly mount up.

Asda moving up on the inside


The supermarket business has been a two-horse race for some time. Sir Terry Leahy of Tesco and Sir Peter Davis of Sainsbury have had the field to themselves (though it must be said Leahy has been lengths ahead for several years).

One would be dominant for long periods, but always worried that the old rival would appear from nowhere with a sudden finish.

Now, galloping at full pelt on the rails and causing the leaders serious concern, is the outsider, Asda. Under an American owner/trainer in the form of US giant Wal-Mart, Asda has been roaring along, unnoticed by the City analysts in the grandstand, who don't see anything that hasn't got a share price.

But the distances are shortening. Latest market share figures show Tesco still with a healthy lead at 17.5 per cent, followed by Sainsbury some way off on 11.7 per cent. But here comes Asda, on 10.5 per cent and closing fast. It may not win the race this year, but second place is distinctly possible. After that, it will be ready to give the leader a run for its money.

Old king coal


Forget Enron, WorldCom or the plundering of the Mirror pension fund by Robert Maxwell and consider one other commercial scandal of modern times: the shameful neglect of the British coal industry.

Of course, we are not talking here of financial malfeasance, but the extent of the damage may be just as profound.

Britain is about to become an importer of natural gas, because demand will soon outstrip supply from the North Sea.

Up to 80 per cent of our gas may have to come from overseas by 2020. So what, you might think.

But it does matter, especially because much of the gas is likely to come from a huge Russian gas pipeline that will be a sitting duck for any terrorist group you care to mention.

Yet we have an abundance of coal in this country. The problem is that it is too expensive to get at because so many mines have been either closed or mothballed.

What a pity that the Conservative government of Margaret Thatcher did not take the advice of former British Coal chief Bob Haslam, who begged her to keep 40 pits open - in order to secure supplies for future generations.

There are scarcely a dozen working mines now; the industry has been left to wither on the vine.

Over the past 10 years we have had the dash for cheaper, cleaner gas, which accounts for about half of all the fuel consumed by UK power stations.That proportion will rise further as the nuclear tap is switched off.

Official encouragement, and even some form of financial support, for a viable British coal industry has never been more pressing.

Scotch missed


We can happily report that Ian Russell, the chief executive of Scottish Power, is not about to waste his shareholders' money by paying some ludicrous sum to consultants to come up with a silly new name for the company.

Some may argue that the brand has a rather parochial feel, and belies the fact that Russell's firm is now spread far and wide in Britain, as well as in the US, but Russell has no intention of giving in to fee-hungry consultants.

Mind you, he gave it serious thought during the World Cup, when jealous Scots were seen on television jeering at England whenever Beckham's men mixed it with the opposition.

You will not be surprised to learn that this is not an image that helps Scottish Power's agents sell gas and electricity to consumers on English doorsteps.