Swiss Knife Sharpened to Cut Bosses’ Pay

Swiss voters will decide Nov. 24 on introducing a salary cap that would limit the wage spread in companies to 1:12. The economic lobby is nervous – success for the proposal in the referendum is not as unrealistic as once expected.

It wasn’t just the smallholders in the Swiss multinational pharmaceutical company Novartis who were disgusted by a 79-million-dollar farewell package to resigning CEO Daniel Vasella earlier this year. Public outrage was huge.

Two weeks later, Swiss citizens sent a clear message to executives that their increasingly excessive salaries and bonuses would not be tolerated: 68 percent of voters supported the “fat cat initiative” which promised to curb salary excesses and to ban big payouts.

That referendum was more about strengthening shareholder democracy. Once the initiative is fully implemented, shareholders of Swiss companies will have a veto right on payments to executives. Within a one-share-one-vote frame however, concerned shareholders usually get outvoted by large investors.

“The fat cat initiative includes some good aspects. However, it neither helps much in limiting big salaries, nor in providing a solution to unequal income distribution,” argues David Roth, president of the Swiss Young Socialists Party (Juso).

Juso therefore launched the 1:12-initiative which demands that executives’ salaries be capped at 12 times that of the lowest-paid worker in the same company. “No manager should earn more in a month than his employees get in one year,” Juso demands.

Switzerland’s powerful neoliberal lobby had worked hard to prevent the success of the fat cat initiative. After its expensive campaign failed and with the 1:12-initiative already on the horizon, it became increasingly nervous. Further, a referendum on the introduction of a national minimum wage is scheduled in 2014.

Once the poorhouse of Europe, Switzerland has transformed into one of the richest countries on earth. Today, it has one of the highest GDP per capita in the world and unemployment at just three percent.

In terms of income inequality, Switzerland ranks around Europe’s average. According to the freshest numbers, 3.5 percent of the employed in Switzerland are considered working poor, while 11,586 top earners make more than half a million Swiss francs a year.

According to Daniel Lampart, chief economist of the Swiss Federation of Trade Unions (SGB), the growing salary excesses over the past 20 years were caused by the fact that executives’ earnings were increasingly connected to profits and the stock prices of their companies. “The introduction of bonuses allowed managers to divert big amounts of money from the aggregate wages into their own pockets.”

In Switzerland, trade unions are comparatively weak and the number of collective bargaining agreements is low. A national minimum wage doesn’t exist, the relationship between employees and employers clings to the concept of social partnership, and strikes are rare. It is mainly the upper income segment that has been profiting from the increased individualisation of wage policies.

The campaigns for and against the 1:12-initiative have just reached the hot phase. In one corner, there’s Juso, the trade unions and the Social Democratic Party. The opposing side is led by the umbrella organisation of Swiss small and medium-sized enterprises (SGV), with the other economy-related organisations as well as the liberal and right-wing parties on their coat-tails.

If the 1:12-proposal is voted in, only 1,000 to 1,300 mostly big companies with about half a million employees would be affected directly. About 4,400 top earners would face a salary cut.

The opponents’ campaign, which is unable to explain why somebody should earn 30, 50 or 100 times as much as an employee, focuses on warning the public how everybody would be negatively affected if the 1:12-initiative succeeds.

Hans-Ulrich Bigler, director of the SGV, recently said that losses to the old-age insurance system and to taxes could amount to nearly 4.4 billion dollars per year. He argued that tax increases would become inevitable.

A closer look at the concerned study shows that this number is based on a rather unrealistic worst-case scenario. Juso believes the initiative would reduce income inequalities, and elevation of the lowest wages would minimise possible fiscal losses.

Nobody is able to estimate economic and fiscal consequences at this point, as everything will depend on how affected companies would react to a new 1:12-rule. Would they elevate the lowest wages? Would they cut the top wages and use the money for investments? Or would they leave the country, as for example Ivan Glasenberg, CEO of the commodities giant GlencoreXstrata, has threatened?

The Swiss government fears first and foremost for the country’s competitiveness. “There is a real danger that Switzerland-based companies could leave the country, while foreign companies searching for a new location could be deterred by the limitations on high wages and not settle here,” Swiss Economics Minister Johann Schneider-Ammann said at a press conference.

When in 2009 Juso, led by David Roth, began to collect signatures for the 1:12 initiative, nobody expected that the proposal could have real chances for success. “The approval of the fat cat initiative in spring represented a break with the past. After years of deregulation and liberalisation people again started to demand rules for the economy,” Roth says.

Roth is aware of the fact that only one in ten popular initiatives turn out successfully. Nevertheless, he is confident that on Nov. 24, David will win against Goliath.

This report was first published here by IPS Inter Press Service. 

Giant Companies Pinpricked by ‘Direct Democracy’

A Swiss village has decided to reject tax money from the firm Glencore and to instead donate it to charities. Other towns may follow, sending a strong signal to the government to follow the U.S. and the EU and introduce transparency rules for the extractive industry.
 
It’s rush hour in the city of Zug in Central Switzerland as Mrs Sandra Räppli struggles to raise her voice over the traffic noise. About 35 people listen as she lectures about commodity extraction and trading companies based in the city and the neighbouring town of Baar.

Räppli talks about complex company structures and tax optimisation, finally asking the audience: “Could you follow my explanations? Did you understand?” Then she smiles: “You couldn’t? No problem, because that is what those companies intend.”

Once a month, actress Maria Greco slips into the role of Sandra Räppli and guides groups of inhabitants and visitors through the streets of Zug. The canton counts 116,000 inhabitants and more than 30,000 companies, 105 of which belong to the commodity cluster formed by GlencoreXstrata, Northstream, Rusal and Gazprom, to name just a few.

Privileged taxation for holding, domicile and mixed companies brought these firms here. Holding companies are exempt from cantonal income tax, and pay almost no capital tax. Incomes of management companies generated abroad are hardly taxed, too.

Critics say Zug’s tax environment is an invitation to ‘transfer pricing’, a method to allocate a corporation’s net profit before taxation; in other words a means for tax evasion. Despite sales of 214.44 billion dollars in 2012, Glencore paid no tax on earnings at all in the canton of Zug last year.

The commodity cluster as a whole is estimated to have paid only 40 million dollars in cantonal and communal taxes.

Under official secrecy rules, exact taxes paid by Glencore and other companies are not available. Statistics on the number of companies or their employees is also lacking, even at the national level.

“That  lack of transparency is a major problem,” says Andreas Hürlimann, a parliamentarian with the Green-Alternative party in Zug. “Even as a member of parliament I can’t be sure that things are handled correctly if the government on any occasion hides behind the tax secret.”

Hürlimann finds Zug’s tax regulation deeply unfair. “It makes us rich, while people in extraction countries suffer, as the companies evade taxation there.” He says that Zug bears at least some moral responsibility.

At the end of her tour, Sandra Räppli stops in front of Zug’s town hall. “Our politicians are hand in glove with Glencore’s managers,” she tells her audience. “Only if people get active can something be done about these companies.”

Räppli has just ended her second season of city tours. She’s happy that the attendance has remained high – by Swiss standards. Media reports and a campaign run by the Swiss non-governmental organisation Berne Declaration have clearly increased popular interest in the commodity sector.

In the nearby canton of Zurich, these efforts have yielded fruits. Several villages are up in arms against Glencore. The corporation’s flotation on the stock market in 2011 had filled the pockets of CEO Ivan Glasenberg, leading to a huge one-time tax inflow for the canton. That money was redistributed to the communes.

But in several communes, residents were appalled by profiting indirectly from what they call “Glencore’s dubious business conduct abroad.” They collected signatures and demanded that at least 10 percent of the “Glencore money” be donated to charities who support affected communities in extraction regions.

In Hedingen, a village of 3,500, voters approved the donation of 120,000 dollars to charities. Samuel Schweizer, a member of the local citizens’ committee, explained that success to IPS: “Our proximity to Zug was crucial, people could relate to Glencore. Also, we’ve managed to build a broad committee.”

Schweizer explained that donating only 10 percent of the “Glencore money” instead of the whole amount further helped to find a majority.

At least five more communes will soon decide upon similar initiatives. In Affoltern for example, 180,000 dollars are at stake. In Hausen, it’s 80,000 dollars.

There, Franz Schüle of the local initiative committee is optimistic. “We live in a rural area. When I explain that in Colombia the surface of the land belongs to the farmers, while everything below can be owned by extraction companies, people can relate to the problem easily.”

“Direct democracy has hit Glencore,” says Oliver Classen, spokesperson of the Berne Declaration. He’s aware that these communal initiatives are only a drop in the ocean and a one-time effort. “However, Hedingen has a huge political signalling effect,” Classen tells IPS.

This summer, the European parliament introduced the Transparency and Accounting Directives that force mining, oil and gas companies to publish their payments to governments; country by country and project by project. The Swiss government has remained hesitant so far and will present its own measures next spring.

Oliver Classen demands transparency on payments and human rights obligations for commodities companies producing or trading abroad.

GlencoreXstrata neither commented on the tax initiatives nor responded to accusations ranging from tax avoidance to violating basic human rights in extraction countries. Its spokesperson Charles Watenpuhl sent IPS a statement.

“We believe that Glencore’s global presence and economic strength have a predominantly positive impact on the communities in which we operate. We seek out, undertake and contribute to activities and programmes designed to improve quality of life for the people in these communities.

“Glencore’s tax strategy and payments play a vital role in our intention to achieve long-term sustainable development. We are committed to full compliance with all statutory obligations, full disclosure to tax authorities and reporting transparently in the tax payments that we make to the governments of the countries in which we operate.”

This report was first published here by IPS Inter Press Service. 

Europe Failing Syrian Refugees

Refugee rights organisations are demanding an EU-wide temporary protection regime for Syrian refugees. The announcement by some countries that they can take a few thousand refugees is not enough, the groups say.

Sweden has announced a few steps after the number of Syrian refugees seeking shelter abroad has crossed the two million mark in early September.

“The conflict will continue for a long time ahead,” said Fredrik Beijer, director of legal affairs at the Swedish Migration Board. Sweden decided to grant permanent residence to about 8,000 Syrians who currently hold temporary residency permits, and to facilitate family reunification.

Germany and the Scandinavian country have between them received about two-thirds of the Syrian refugees fleeing to Europe. Since early 2012, approximately 14,700 Syrians have asked for asylum in Sweden. In August alone, 1,201 Syrian asylum-seekers arrived in the country.

On Sep. 11, 107 Syrian refugees were flown out of Lebanon to Hanover as part of a temporary admission programme announced by the German government earlier this year. Having committed to 5,000 places, Germany currently runs the biggest refugee relocation programme for the Syria crisis.

In June, the UN Refugee Agency (UNHCR) appealed for 10,000 humanitarian admissions. A group of countries including Denmark, Finland, the Netherlands, Norway and Spain have pledged 960 admissions for 2013 so far.

“Germany is setting an important example,” UNHCR spokesperson Dan McNorton told IPS. “We hope more countries will come forward with similar schemes to help Syrians fleeing the violence.”

Germany’s two smaller neighbours Switzerland and Austria have pledged to accommodate 500 refugees each. Austria’s foreign minister preference for Christian refugees recently drew harsh criticism.

Compared to the hundreds of thousands of Syrian refugees stranded in Turkey, Lebanon, Jordan, Egypt and Iraq, the estimated 40,000 that have applied for asylum in Europe since April 2011 is peanuts.

A comparison with the Bosnian war between 1992 and 1995 makes today’s numbers look dismal. At the time, Germany hosted 350,000 Bosnian refugees, Austria 90,000 and Switzerland nearly 30,000. During the Kosovo war, Germany evacuated more than 15,000 refugees, while Switzerland sheltered 53,000 and Austria 5,000.

The Swiss chapter of Amnesty International calls Switzerland’s present offer “a drop in the ocean.” Austrian and German refugee rights organisations have also criticised their governments.

“Germany’s contribution is yet too small,” Karl Kopp, director of European affairs at the human rights organisation Pro Asyl told IPS, “though, we appreciate that Germany has launched the debate.”

In addition to the 5,000, several German states have announced they will permit up to 1,000 Syrian refugees to stay with their Germany-based relatives. Kopp said that many of these have been trying desperately to get their relatives to come over.

Bureaucratic hurdles for family reunification are high, as Syrians already living in Germany have to prove they can provide for their relatives, host them and pay for their health insurance. “Most of them are unable to do so. But humanity mustn’t fail due to lack of money,” Kopp said.

While Switzerland is facilitating family reunification, too, Austria hesitates to do so. In Austria, upcoming parliamentary elections reduce the willingness of politicians to invite refugees to the country.

Meanwhile, thousands of Syrian refugees are trying hard to find a way into Europe. According to the Italian interior ministry, 3,000 Syrians have already arrived in Italy since the beginning of the year, most of them in boats. At Europe’s other entry gate, Greek coastguards have repeatedly been accused of pushing Syrian refugees back into Turkish waters.

“That is outrageous,” says Kopp. “Europe needs to open legal escape routes. Currently, Europe asks Syria’s neighbours to open up their borders, while its own borders remain closed.”

Anny Knapp, president of the Austrian refugee rights organisation Asylkoordination Österreich says refugees have to turn to the risky and expensive services of people smugglers, as no legal escape routes exist.

“In addition, the Dublin regulation forecloses that refugees can profit from family or community ties in other European states,” says Knapp. According to the Dublin regulation, immigrants may be sent back to the country through which they first entered the European Union.

Knapp’s German counterpart Karl Kopp therefore demands freedom of movement for Syrian refugees within Europe.

Judith Sunderland, senior researcher at Human Rights Watch told IPS that Syrians seeking asylum in other EU member states face a protection lottery, with their fate depending on which country they reach first.

“Those who make it to the EU through external border countries such as Greece, Bulgaria and Cyprus can face problems such as detention, failure to be granted any form of protection, problems with family reunification as well as poor or non-existent reception conditions.”

All refugee rights advocates agree that action at the European level is required urgently.

Kopp finds it “absolutely pathetic” that three years after the beginning of the Syria crisis the EU still doesn’t have an active admission programme. In June, the European Commission had called upon its member states to provide resettlement or humanitarian admission places, to facilitate family reunification and “to admit any Syrians arriving at the external borders of the Union.”

The European Commission also promised to continue efforts to ensure a greater degree of convergence between member states’ approaches to the Syrian refugee crisis. Yet it is far from providing a concerted solution like a EU-wide temporary protection regime, repeating its failure during the Libya war in 2011.
Instead, tons of tents and blankets are sent to Syria’s neighbour states. “Even though they think that the Syrian refugee crisis can be contained regionally, it has in fact long reached Europe,” says Kopp. “The catastrophe’s dimensions render such an approach not just absurd, but highly cynical.”

This report was first published here by IPS Inter Press Service. 

German Sun Beats Swiss Water

Water power is the backbone of Alpine countries’ energy supply. Despite its important role in Europe’s energy shift, further development of hydroelectric infrastructure in Austria and Switzerland is on hold.

On sunny, windy summer days in Germany, when millions of solar panels soak up the sun and wind turbines run at full speed, the German electricity network can’t cope with the overcapacity. Especially on Sundays, production often exceeds demand. The result is low prices, at times even negative ones; which means customers get paid for buying electricity.

Europe’s energy market is liberalised. What happens in Germany affects all its neighbours. Swiss hydropower stations are unable to compete under these conditions. The heyday of Swiss water power is over.

The energy source that covers 55 percent of the country’s energy supply faces drastically reduced profitability, as electricity prices have sunk 20 percent again compared to the preceding year.

In the light of this market environment, the biggest Swiss energy producers Alpiq, Axpo, BKW and Repower are less willing to invest in optimising and enlarging their infrastructure. Repower has announced a 35 percent cut in investments in the next 10 to 15 years.

Andreas Meyer, media person at Alpiq, told IPS that the massive subsidies for renewable energy have destabilised the market, putting in question the profitability of hydro and thermal power stations and blocking further investments. Currently, Alpiq runs a divestment programme. The company is worried that the price deterioration will continue.

Further development potential of Swiss water power is disputed. While the government estimated four to five terrawatt hours, the World Wildlife Fund assessed only 1.5 terrawatt hours. In any case, the potential is quite low.

Nevertheless, Switzerland subsidises small hydropower stations with a capacity of less than 10 megawatt massively, irrespective of their efficiency and the ecological damage they may cause.

Due to the subventions, small water power projects have become cash cows. The WWF demands that these subsidies be stopped. “Building new power stations at previously unspoilt waters is absolutely silly,” water expert at WWF Switzerland Christoph Bonzi tells IPS. Today, 95 percent of Swiss water is used for energy production.

For once, conservationists and the leading energy suppliers take a common stand on the Swiss subsidy model that favours small hydropower projects. “Isn’t it absurd that subsidising new renewable energy leads to a situation where even other systemic technologies need to be subsidised?” says Werner Steinmann, spokesperson for Repower.

The boom of solar and wind energy in Europe has lead to increased demand for electricity storage, as both energy sources are unsteady. Germany, Switzerland and Austria agreed last year to increase the capacities of pumped-storage hydropower plants in a concerted effort.

Several such plants are currently being constructed in the Swiss Alps. Whether these investments will finally pay off is more uncertain then ever.

Some Swiss energy companies don’t oppose all state subsidies for renewable energy. Repower’s biggest shareholder is the Canton of Grisons. Recently, the canton’s chief councillor Mario Cavigelli broke a taboo when he demanded subsidies even for electricity produced in big hydro power plants. Cavigelli asked for cutting money granted to small hydropower projects.

Within the energy sector, that demand is disputed however. Axpo’s media person Daniela Biedermann says that it can’t be a solution to solve the mistakes of the current subsidies regulation with additional subventions. “We need to discuss how to implement the new renewable energies into a market-oriented system instead,” she told IPS.

The Swiss Association for Water Management (SWV), which represents the industry, demands that subsidies for hydropower may no longer be limited to small projects and that instead the relevant criteria would have to be efficiency, an aspect that the current subsidy system completely ignores. The SWV wants promotion for those projects that produce the most electricity per subsidy-dollar.

Conservationists are less happy about the various further demands voiced by the water power industry though. In the name of “national interest”, water power companies have been trying to tap even nationally protected waters. Instead of using even the last drop of water for electricity production, the WWF prefers to increase energy efficiency.

Just across the border, the Austrian hydropower industry struggles with similar problems. Currently, about 60 percent of the country’s electricity supply is covered by domestic water power. The industry once intended to increase its capacity by seven terrawatt hours until 2020.

“We surely won’t be able to meet up with our expectations,” says Ernst Brandstetter, spokesperson of Oesterreichs Energie, which represents the interests of the Austrian electricity industry. According to Brandstetter, only an additional four terrawatt hours until 2025 are realistic. “Unfortunately, many projects are on hold. The industry is about five years behind its development plans.”

Brandstetter explains that regarding water power stations, the current market situation is characterised by acute insecurity. “Many planned projects are economically no longer justifiable.” Oesterreichs Energie doesn’t demand subsidies. It however wants a more investor-friendly environment.

“Most worrying is that even storage projects are about to become unprofitable,” Brandstetter adds. “Along with the electricity networks, pumped storage hydropower plants are the most important enablers of a renewable energy future.”

Ernst Brandstetter demands a stop to market distortions by introducing a European market design with rules granting all energy sources fair competitive conditions.

For Switzerland’s and Austria’s hydro power industry, much depends on developments at the European Union. On that level, a consultation on Environmental and Energy Aid Guidelines 2014-2020 is currently under way. Whether or not Alpine hydropower may profit from the new guidelines will be seen next spring.

This report was first published here by IPS Inter Press Service. 

Geothermal Energy Stuck in a Hole in Switzerland

An accident in a flagship project threatens the future of geothermal energy in Switzerland. The mishap that was followed by earthquakes has come as a warning that geothermal deep drilling still has a long way to go. It occurred in a project in the eastern Swiss city St. Gallen earlier in July brings a new setback, after earlier accidents.

In 2010, 83 percent of St. Gallen’s voters approved a 160 million Swiss francs (172 million dollars) credit for a flagship geothermal project. A geothermal power station was expected to cover the electricity needs of 3,000 to 5,000 households eventually and provide heat for half of the city’s buildings. In early July, drilling was concluded up to 4,450 metres depth, and extraction tests prepared.

On Jul. 19 around noon, the engineers’ nightmare happened: they unexpectedly encountered gas in the drilling hole, which raised the pressure. The leak was closed and water was pumped into the hole to reduce the pressure. Next morning, St. Gallen was shaken by an earthquake that measured 3.6 on the Richter scale, followed by dozens of micro-earthquakes.

Since then, all eyes are on the city in Switzerland’s east. Engineers have managed to stabilise the drilling hole. Further test drilling has been cancelled. Decisions on the project’s future will be taken after thorough review. Damage to earthquake-affected buildings and infrastructure was negligible, but the reputation of geothermal energy has suffered considerably.

Geothermal energy is significant in Switzerland’s energy shift. It has already found wide use especially for heating buildings. However, Switzerland wants to use its underground also for electricity production, expecting it to contribute 4.29 GWh annually by 2050, which is about 7.5 percent of the country’s electricity consumption. So far, no geothermal power plant exists on Swiss soil.

Switzerland is not Iceland, where the required heat can be found only a few hundred metres below the surface. Here, the necessary minimum temperature of 100 degrees Celsius is found at a depth of 3,000 metres or more. Drilling such deep holes is a technical challenge, and also costly.

“An average geothermal power station costs around 80 to 100 million Swiss francs, around 75 percent of which is for the drilling,” says Peter Meier, CEO of the Swiss company Geo-Energie Suisse AG. His company is pushing for pilot projects in order to prove technical feasibility and economic viability.

But Switzerland’s geothermal efforts have suffered several major setbacks. A first project “Deep Heat Mining Basel” in the northwestern city Basel led to a series of earthquakes reaching up to 3.5 on the Richter scale in 2006, causing damage to buildings and infrastructure. The project was aborted.

A so-called petrothermal system was used in Basel. This is applied if no adequate thermal water resources are available. Petrothermal systems create artificial underground heat exchangers by cracking rock.
 Alternatively, hydrothermal systems use natural thermal water resources in the depth. As such resources first have to be found, costly test drilling is necessary, and success is not guaranteed.

Following the abortion of the geothermal project in Basel, the city of Zurich invested 20 million Swiss francs (22 million dollars) into hydrothermal test drilling in 2009. The drilling did not cause seismic activity, but proved unsuccessful.

No water in the required amount and temperature was found; the hole could not be used for the anticipated electricity production, but only for heating.

Despite those two failures earlier, expectations of geothermal energy had remained high in Switzerland.
After the failure in Basel, experts had claimed that with improved technology, seismic activity caused by geothermal drilling would become insignificant. A different technique was used in St. Gallen, but that promise turned out to be false.

“Deep heat mining plays a significant role in Switzerland’s energy shift,” Elmar Grosse Ruse, project manager for climate and energy at the World Wildlife Fund (WWF), told IPS. Along with all other major environmental organisations, the WWF supports geothermal energy.

Ruse said that the future of the technology in Switzerland depends on whether and how the project in St. Gallen continues.

“The worst case would be if the project was aborted or if no adequate thermal water resources could be found,” he said. Drawing the curtain over geothermal energy after a few unsuccessful efforts would be premature, he said.

“Honestly, no drilling, not even in tunnel construction, is entirely without risks. If we as a society decide to pull out of much riskier technologies such as nuclear power and to drastically reduce our CO2 emissions, we have to accept the minor risks of alternative technologies,” the WWF project manager said.

Meanwhile, Peter Meier’s Geo-Energie Suisse AG is searching for locations for petrothermal power stations. “We have learned from Basel,” he told IPS. Geo-Energie Suisse has always said that with drilling seismic activity may occur. “Our advanced technology leads to reduced seismic activity though, as our drilling technique disperses the pressure on many, already existing fissures in the rock.”

Technically, the incident in St. Gallen will not affect Meier’s projects. “We use a different method in a different rock.” Unlike in St. Gallen, most Swiss geothermal projects target crystalline rock.

Nevertheless, Meier is aware that in the near future, he’ll have to do a lot of additional persuading.
WWF’s Grosse Ruse said that it might be better to plan geothermal power stations further away from densely populated areas. The dilemma however is, that waste heat users may then be too far away.

“Heat can be easily transported, hence that’s not a decisive factor,” countered Meier. His company nonetheless targets such less populated areas, but for other reasons. The CEO stressed that it isn’t about using nearby inhabitants as guinea pigs, but points at another factor: “Insuring potential damages in cities would be way more expensive.”

This report was first published here by IPS Inter Press Service.