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Joe Howie alleges firm watered down fraud-hunting measures it promised after scandal in Germany

EY failed to follow through on the fraud-hunting measures it promised in the wake of the Wirecard scandal, according to a former partner involved in the clean-up effort.

Joe Howie, who was part of a team tapped to conduct a post-Wirecard revamp of EY’s processes, says he was pushed out after he urged EY to drop risky clients and refused to sign off on quality control systems he thought were flawed.

After losing a string of internal battles over the issues, causing an early end to his 35-year career with the firm, he has taken his campaign public with a lawsuit and tells the Financial Times that, in his view, EY is failing investors who rely on it to endorse corporate accounts.

“I may be a Big Four snob, but there’s a difference between a Big Four firm and somebody in a strip centre,” he said. “There’s a responsibility we have because of what we build ourselves out to be, beyond the normal professional standards and conduct.”

EY said it will vigorously defend the lawsuit Howie filed in New York in July, which claimed he was unlawfully dismissed. “His characterisation of events is not credible,” it said.

The federal court lawsuit touches on significant open questions for the accounting profession, including how far auditors should go to uncover wrongdoing by clients and how much control the Big Four’s global head office should exercise over member firms in each country.

Unlike traditional multinationals, the Big Four operate as a network of independent, locally-owned partnerships that agree to abide by common standards.

“I tried very hard not to get to this point,” Howie told the FT. “I sent stuff to the board, stuff to the attorneys. I tried very hard to get them to engage and understand, because I didn’t want to do damage to the brand. They just left me no choice.”

The public fight reveals details of a multiyear effort by EY’s global bosses to reset its reputation after the 2020 collapse of Wirecard.

EY’s German member firm had repeatedly given the payments processor’s accounts a clean bill of health, missing the fact that half its revenues were fake and €1.9bn it claimed to have in cash did not exist.

EY’s response, known internally as “Strengthening Trust and Confidence”, was designed to provide new standards for audit teams in the member firms to follow, and new tools to properly assess risks and make it more likely they would find fraud.

The initiative included the creation of a “risk centre of excellence”, co-led by Howie, that adopted some of the tactics used by short sellers. It scraped websites for negative news stories on clients and licensed a research tool from the Hong Kong group GMT Research that screens financial statements for accounting red flags.

But Howie claims some bolder ideas, such as mandating the use of forensic accountants in more audits, ran into resistance from member firms where executives worried about aggravating clients.

EY also resisted dropping many of the clients the risk centre flagged. He says he floated the idea of a global committee to personally approve work with particularly risky clients, but the idea gained no traction. “Business was overriding ethics,” he said.

An ongoing frustration for Howie was EY member firms’ refusal to sever ties with a group of clients in the gaming industry, despite official investigations in Australia and China that indicated they could be used for money laundering by organised crime and others.

These risks were not properly reflected in EY’s client acceptance systems, Howie argued, and meant its auditors could not credibly sign off accounts that stated the companies had appropriate financial controls.

The Strengthening Trust and Confidence initiative “developed good policies. We definitely developed great technology”, he said. “It’s just that it breaks down if people don’t adopt it or if people use it but then don’t make the right decisions around it.”

EY said that Howie’s campaign against gaming clients consisted of “speculative narratives” based on information already known to the market, and that his “distorted perspectives” on Strengthening Trust and Confidence “should be viewed in the context of a personal employment claim he has chosen to bring against EY”.

The global initiative had “directly influenced EY member firm decisions to decline work with certain organisations, some of which later faced publicly documented issues, demonstrating the positive impact of these initiatives”, it said.

Howie joined EY in 1990 after finding accounting “clicked” in college. “I’m a pattern recognition person,” he said. He specialised in securitisation accounting and worked on the audit of banks including UBS, before joining the US national office that advised audit teams on particularly complex problems.

He concedes he had “butted heads” with his superiors on other occasions, including with leaders of EY’s US member firm, who he accused of undermining audit quality by focusing on growing the consulting side of the business. It was following that clash that he transferred to the global headquarters in 2020.

Joining the post-Wirecard task force shortly after, he took on responsibility for EY’s global client acceptance system, known as Pace, where he says he found local audit teams often did not identify all the risks associated with their engagements. “Reviewers are signing off on a risk profile that’s less than what’s actually present,” he said.

Eventually, Howie threatened to escalate his campaign by refusing to sign the annual certification of EY’s quality control systems, something that could have triggered scrutiny by regulators.

He claims the threat prompted EY to strip him of his responsibilities last year, and he was ultimately removed from the partnership in May after initiating a complaint against the firm. EY says he disclosed confidential information.

Auditors are not necessarily required to drop risky clients, just to properly assess the risks and tailor the audit accordingly.

The Big Four successfully fought off an effort last year by the US audit regulator that would have imposed additional requirements on them to look for fraud or regulatory non-compliance by clients. The regulator said it would bring the rules into line with what investors think an audit does already.

Firms argued it would be impractical to expand their remit in matters beyond those most closely relevant to the financial statements. The plan was withdrawn after Donald Trump’s November election victory.

“They don’t have to go be cops. They can just take a stand,” Howie said, adding that the stakes are high when a Big Four auditor decides to work with risky clients without sufficiently strong risk management procedures in place.

“It’s really not your risk to run,” he said. “What you’re actually doing is you’re taking more risk on behalf of investors.”

The Takeaway

• OpenAI projects to spend three-quarters of its 2030 revenue on computing and technical talent, more than any company of its scale.

• OpenAI plans to spend $350 billion on server rentals this year through 2030.

• Projected R&D costs are far higher as a percentage of revenue than those of other large technology firms.

The most popular consumer internet services usually figure out how to make money even after a decade or more of losses. Amazon, Uber, Netflix and Snap all started generating cash by raising prices or leveraging their large audiences to sell ads or other services.

OpenAI’s growing audience would seem to put it in a similar position. Its three-year-old ChatGPT business is closing in on 1 billion users and $10 billion in subscription revenue from millions of customers just this year. But as investors buy OpenAI shares at an implied $500 billion valuation, up 17 times from three years ago, they are taking a risk that is as unprecedented as OpenAI’s costs.

The Information recently reported that OpenAI plans to burn through $115 billion in cash through 2029. According to OpenAI’sprojections, its computing and talent costs will remain high as a percentage of its revenue for at least the next five years.

While OpenAI projects it will start generating free cash flow from its business by 2030, its high expenses raise questions about how profitable OpenAI can be long term relative to its publicly traded tech peers.

Consider OpenAI’s research and development costs. Based on how tech giants such as Microsoft consider R&D, these include the expense of paying for servers to produce new artificial intelligence, known as research compute or training costs, as well as paying its cutting-edge researchers, including stock-based compensation. According to The Information’s analysis, in 2030, when OpenAI projects an astounding $200 billion in revenue, its R&D costs would amount to about 45% of its revenue, or roughly $90 billion. (Compensation costs that year will be slightly lower than computing and software costs, including paying for data and services that improve the quality of its AI models.)

That’s a far higher percentage than at Amazon, Microsoft, Oracle and Alphabet, whose R&D costs are currently between 10% and 20% of revenue. Meta’s is around 25%.

OpenAI’s persistently high R&D costs likely reflect the cutthroat competition for talent and the need to stay ahead of rivals such as Google, Meta and Anthropic, some of whom have highly profitable core businesses that generate cash to pay for AI costs.

Then there’s the computing cost to power ChatGPT and other applications for consumers and businesses (including buyers of its AI models, such as Cursor and Salesforce). Those costs, known as inference computing, also remain high in the latest projection—about 25% of revenue in 2030, or nearly $50 billion that year.

Only Snap spends such a high percentage of revenue on cloud computing costs to run its services, according to The Information’s Cloud Database. And as Snap CEO Evan Spiegel acknowledged in a staff note on Monday, that is why Snap’s gross margin is “meaningfully below many of our competitors”—a gap he now aims to close.

It isn’t clear whether OpenAI’s latest projections factored in potential savings from launching GPT-5 in August. That system aims to route simple ChatGPT queries to a model that generates an answer using less computing power than reasoning models that are better suited to answer harder questions. (Update: an OpenAI employee has pointed out that the GPT-5 launch in ChatGPT also allowed non-paying users to experience reasoning models for the first time, and those models are more expensive to run. So the overall costs of serving ChatGPT users may have risen following the launch.)

In OpenAI's prior projections, research compute costs peaked in 2028 and actually fell slightly over the next two years; that wasn't the case in its latest projections.

Slim Margin of Error

All told, OpenAI projects to spend half its revenue—$100 billion—on renting servers to both train and run its models in 2030 alone. OpenAI projects to spend another $250 billion renting cloud servers this year through 2029. That’s $350 billion over six years.

It’s fantastic news for OpenAI’s cloud vendors: Oracle (which reportedly will get $300 billion in revenue just from OpenAI between 2027 and 2032), Microsoft, CoreWeave and Google Cloud.

No other major company spends three-quarters of its revenue on computing and technical talent the way OpenAI plans to do. And that’s not including another $100 billion in losses OpenAI projects between 2026 and 2030 from other costs related to data center servers that the company implied it would control, as opposed to servers it currently rents.

OpenAI presumably will save money over time if it can control enough servers efficiently and avoid paying more fees to Oracle and Microsoft, which surely will seek to generate a decent profit margin on their server rentals to OpenAI. It makes sense OpenAI is going this route, but it’s a long-term project.

OpenAI may do well to build for the long term, as long as investors allow it. “We’re not a public company. We’re owning and building the frontier era of AI,” said an OpenAI spokesperson. “Continued investment will deliver outsized results. Our motivation isn’t to create incremental gains.”

You might wonder if OpenAI was being conservative in its most recent financial projections and plans to beat them, including by lowering its costs. That doesn’t seem to be the case: The long-term costs it projected as of this summer were far higher than the cost projections it made in the first quarter. In those prior projections, research compute costs peaked in 2028 and actually fell slightly over the next two years; that wasn’t the case in its latest projections. (It isn’t clear how often the company updates its internal projections.)

These massive costs leave OpenAI with little room for error as it races to match the current revenue of firms such as Nvidia, Meta, Chevron and General Motors by 2030.

The majority of the planned bid for Warner will be made up of cash

Paramount Skydance PSKY 15.55%increase; green up pointing triangle is preparing a majority cash bid for Warner Bros. Discovery WBD 28.95%increase; green up pointing triangle that is backed by the Ellison family, according to people familiar with the situation.

The bid will be for the entire company, including its cable networks and movie studio, the people said. Warner said late last year it planned to restructure into two operating divisions, one focused on the legacy cable-television business and the other on streaming and studios.

Warner Bros. had a nearly $33 billion market capitalization early Thursday, prior to The Wall Street Journal’s report on the potential bid, more than double that of Paramount Skydance. A bid hasn’t yet been submitted and the plans could still fall apart.

Warner shares rose nearly 30% on Thursday afternoon after The Wall Street Journal’s report on the potential bid, while Paramount Skydance shares rose nearly 16%.

By preparing a play for the company before Warner’s planned split, Paramount Skydance is attempting to pre-empt a potential bidding war for the studio and streaming unit that could include deep-pocketed technology companies such as Amazon.com and Apple.

If successful, such a deal would bring together two of Hollywood’s most storied studios and the parent companies of streaming services HBO Max and Paramount+. Warner is home to “Barbie,” DC Comics, Harry Potter and TV shows such as “The White Lotus,” as well as cable networks CNN, TBS and TNT.

The scale of the potential combination could bring antitrust and regulatory scrutiny.

Skydance, run by David Ellison, the son of billionaire Larry Ellison, weeks ago closed its deal to merge with Paramount, which owns Nickelodeon, MTV, Comedy Central and its movie studio.

New agreement is set to remove one of several barriers for the startup, which is seeking to restructure and become a for-profit company

Microsoft MSFT 0.13%increase; green up pointing triangle and OpenAI said they have reached a deal to extend their partnership, an apparent detente that could ease the startup’s path toward changing its structure to include a for-profit corporation.

The agreement, which has yet to be completed, comes after tensions boiled over between the companies. Microsoft was one of OpenAI’s earliest partners and is among its largest investors, integrating the company’s technology into many of its products. But it also has a stranglehold over the startup, given that Microsoft is OpenAI’s exclusive cloud provider and has access to its latest technology.

The companies didn’t disclose the terms of the new contract and said the current agreement was nonbinding. It caps a summer of difficult negotiations between the two sides, who helped fuel one another’s rise during the early years of the AI boom but have since grown into competitors.

The relationship at one point grew so fractious that OpenAI considered going to antitrust regulators to break out of the contract, The Wall Street Journal reported.

OpenAI is also putting final touches on the ownership structure behind the new for-profit company it is trying to create. The company said it plans to keep the nonprofit’s control over the new for-profit and endow it with a stake valued at more than $100 billion. That would make the nonprofit one of the largest philanthropies in the world on paper, although it is unclear how long it would take for funds to be available for distribution.

The announcement of a large endowment for the nonprofit was disclosed just days after the Journal reported that OpenAI’s executives were rattled by mounting pushback to the restructuring. The attorneys general in California and Delaware are investigating the startup to make sure the proposed plan doesn’t violate charitable law.

Microsoft and the OpenAI nonprofit are each set to initially receive a roughly 30% stake in the proposed new company, according to people familiar with the matter. The rest will go to employees and investors, the people said.

Microsoft shares rose by nearly 2% in after-hours trading.

OpenAI is facing an array of opponents that are actively seeking to block its restructuring effort or intervening with regulators to ensure its nonprofit mission remains intact. They include billionaire Elon Musk, Meta Platforms and an array of advocacy organizations. Musk has sued OpenAI.

The agreement is a tentative win for OpenAI, which needed Microsoft to approve its for-profit plan before formally sharing it with state regulators. OpenAI told its venture-capital investors it would complete the restructure by the end of the year, or risk losing out on $19 billion in funding.

The startup is currently run as a subsidiary that issues profit-sharing units instead of standard stock—a structure that is unpopular among investors and makes it virtually impossible to be listed on a public exchange.

OpenAI initially wanted the new for-profit company to be separate from the nonprofit, but it pulled this plan in May after drawing criticism that it was illegally diverting charitable assets to private investors.

Because the new terms of the Microsoft-OpenAI partnership weren’t disclosed, it was difficult to parse who prevailed in negotiations on a number of disputed issues.

During the talks, OpenAI wanted Microsoft to allow the startup to sell its AI products through other cloud providers. Microsoft was fighting hard to keep its exclusive access to OpenAI’s intellectual property, even if the startup were to declare that its systems had reached a high level of capability known as “artificial general intelligence.”

Microsoft proposed replacing AGI with an even higher threshold, dubbed “artificial superintelligence,” a person familiar with the matter said.

Microsoft was once key to OpenAI’s success, building giant data centers to train the startup’s AI models and showering it with billions of dollars in funding, long before the release of ChatGPT. In exchange, it got early access to OpenAI’s technology, which it integrated into its coding and office-productivity products.

But the tech giant was caught off guard by ChatGPT’s overnight success and began launching competing products. It also grew nervous about relying too much on OpenAI for its AI strategy after the startup’s chief executive, Sam Altman, was briefly fired in November 2023.

Afterward, Microsoft CEO Satya Nadella launched an in-house competitor to OpenAI, picking one of Altman’s rivals to run the lab, and backed away from a giant data-center project called Stargate that Altman wanted. Over time, OpenAI executives grew more distrustful of Microsoft, and were more hesitant to share the startup’s latest technology with the company, leading the two sides to drift apart.

Microsoft recently disclosed that it has started to publicly test a homegrown AI model that could be used for its Copilot chatbot, which has historically relied on OpenAI’s models.

The tech giant has looked to other partners outside of OpenAI to supply its AI needs. The company recently struck a deal with OpenAI rival Anthropic to use the startup’s models to power AI tools for its 365 products, people familiar with the matter said. Microsoft, which will access the models through Amazon Web Services, already uses Anthropic for AI tools inside its GitHub coding platform. Microsoft Windows also uses non-OpenAI models. Microsoft’s cloud-computing unit also began hosting models from Elon Musk’s xAI earlier this year.

Microsoft still plans to use OpenAI as its primary option for AI models, but the company has found that Anthropic performs better for certain functions in 365, one of the people said. The Information earlier reported on the Anthropic deal.

News Corp, owner of The Wall Street Journal and Dow Jones Newswires, has a content-licensing partnership with OpenAI.

SK Hynix Stock Hits Record After Next-Gen Chip Breakthrough

The company said it is ready to mass-produce a new generation of high-bandwidth memory chips

Shares of Nvidia supplier SK Hynix 000660 7.00%increase; green up pointing triangle hit a record high, after the South Korean company said it is ready to mass-produce a new generation of high-bandwidth memory chips.

Early Friday, SK Hynix said it has completed the development of the world’s first HBM4. The company said it is ready to supply the next-generation memory product for ultra-high performance artificial intelligence to customers.

The stock rose as much as 6.5% to touch 327,000 South Korean won a share, equivalent to $235.31.

The company’s latest achievement will intensify competition among memory-chip makers vying to gain market share in the AI space, which is experiencing increasing demand from companies like Google, Amazon and Meta.

On Wednesday, Oracle said it signed several high value AI contracts in the quarter ended Aug. 31 and expects more such deals in the next few months. Chief Executive Safra Catz told analysts that it had signed contracts with three different customers during the quarter.

“With recent dramatic increase in AI demand and data processing, the needs for high bandwidth memory for faster system speed are surging,” Hynix said.

The company expects to improve AI service performance by up to 69% when the product is applied, which will solve the data bottleneck and significantly reduce data-center power costs.

“HBM4, a symbolic turning point beyond the AI infrastructure limitations, will be a core product for overcoming technological challenges,” said Justin Kim, president and head of AI Infra at SK Hynix.

He said that the company will grow into a full-stack AI memory provider by supplying high-quality, diverse memory products that meet the performance requirements of the AI era in a timely manner.

Tie-up would combine two of the best-known Hollywood conglomerates

Paramount Skydance is preparing a bid to buy Warner Bros Discovery with funding backed by Oracle’s Larry Ellison, said people familiar with the matter, in a deal that would combine two top media conglomerates.

Paramount, weighed down by debt, would be able to fund the cash element of the deal by tapping billionaire Ellison’s resources, one of the people said.

The tie-up would combine the company behind the Paramount movie studio and CBS News with the owner of HBO, CNN and Warner Bros. However, the people stressed an offer had not been made and might not materialise.

Skydance, which is run by the Oracle founder’s son David Ellison, took over Paramount last month following a protracted merger process.

Paramount Skydance’s market value was $16bn as of Wednesday’s close, while that of Warner Bros Discovery was $31bn. Paramount’s shares closed up 5.9 per cent on Thursday, while Warner Bros leapt 29 per cent.

A person close to Larry Ellison said: “There’s no question of the financial capability of Larry to do a deal like this.” However, the person cautioned Oracle’s co-founder was involved “to the extent that he is a backstop” and stressed this was “David’s deal”.

The Wall Street Journal first reported on Paramount’s potential bid.

A takeover would help both compete against larger entertainment groups such as Netflix and Disney.

Warner Bros had 126mn global streaming subscribers at the end of June, while Paramount’s streaming service had 78mn.

In comparison Netflix had more than 300mn subscribers at the end of 2024 when the company stopped reporting the numbers.

Against that backdrop, David Ellison, 42, is looking to revive the ailing Paramount after years of struggle under its previous ownership.

He spent more than a year pursuing the legendary studio behind films such as The Godfather in a process marked by legal battles, executive upheaval and political controversy.

The $8bn takeover drew scrutiny after Ellison made concessions on newsroom oversight and diversity policies to secure regulatory approval from Donald Trump’s administration.

The move to buy Warner Bros signals Ellison’s broader ambition to cement his place among Hollywood’s power players.

Forrester analyst Mike Proulx said a merger would “redefine the streaming landscape through further consolidation”.

“What’s clear is that as the streaming market matures, it’s looking a whole lot like the [original] television industry — all the way back to when there were just a few big networks and studios,” he said.

Paramount and Warner Bros did not immediately respond to requests for comment.

US trial begins over alleged BNP Paribas role in rights abuses in Sudan

Bank’s lawyer responds that it ‘isn’t to blame’ as class action by Sudanese refugees kicks off in New York courtroom

BNP Paribas “never thought twice” about the people of Sudan as it ran a profitable business in the country at a time of “destruction and displacement”, a lawyer fighting a class action against the bank told a jury on Thursday.

Bobby DiCello, who represents a group of Sudanese refugees now living in the US, opened his civil case against the French lender in a Manhattan courthouse by saying the bank had played a direct role in an “organised campaign of destruction” by Sudan’s former ruler, the dictator Omar al-Bashir, in the late 1990s and 2000s.

“They knew what he was doing as they were giving him money and their services, their visits, their courtesies, their kindness and their professionalism,” he said.

The hearing marked the beginning of a rare case of a global bank facing a US jury trial over allegations that it enabled human rights abuses through its provision of financial services.

The suit, which was first filed almost a decade ago against France’s biggest bank, is due to be heard in New York over the next 10 weeks.

The African country was riven by multiple internal wars during Bashir’s rule that led to the death and displacement of millions, including the second Sudanese civil war and the Darfur war.

Bashir was charged by the International Criminal Court in The Hague with crimes against humanity, including war crimes, murder, torture and genocide, for turning the government’s armed forces against civilians in the course of a campaign against rebel groups. Bashir was deposed in a coup in 2019.

Lawyers for the refugees said they would introduce evidence showing BNP provided financial support to Bashir’s government by giving it access to US financial markets and to “petrodollars”, saying the regime was able to increase spending on weapons that it used against its populace as a result of oil revenue.

“More oil meant more dollars, more dollars meant more weapons and more weapons meant more killing and destruction,” DiCello said.

Dani James, a lawyer for BNP Paribas, told the jury the bank “isn’t to blame” for “terrible things happening in the country”.

“All of our hearts go out to the victims who suffered heinous acts of violence, I’m not going to sugar coat that at all,” she said.

However, she added, “there’s just no connection between the bank’s conduct and what happened” to the people bringing the lawsuit, who say they suffered “extraordinary and unspeakable harm” at the hands of Sudan’s government, according to court filings.

The bank “didn’t provide the regime with a bag of cash”, James said. It issued letters of credit that facilitated global trade and processed payments, she said, describing the work as “just ordinary banking services” and financing trade in “essential goods”.

She showed the jury a timeline of Sudan’s troubled history, including civil wars in the 20th and 21st centuries and conflicts in its western Darfur region which began in 2003. Violence had predated the bank’s involvement in Sudan and continued after it stopped doing business there, she said.

The case brings BNP’s work in Sudan back into the spotlight more than a decade after it pleaded guilty to violating US sanctions by processing transactions on behalf of Sudanese, Iranian and Cuban entities, agreeing to pay $9bn in penalties.

At the time, in 2014, Preet Bharara, US attorney for the Southern District of New York, described the bank’s “criminal support of countries and entities engaged in acts of terrorism and other atrocities”.

It marked the first time a global bank had pleaded guilty to large-scale, systematic violations of US sanctions, prosecutors said.

DiCello said on Thursday that for a period, BNP Paribas had been “the single most important bank” in Sudan and its work had a “direct link to the dictator’s war machine”.

Rachel Reeves hires planning lawyer to speed up major infrastructure projects

Chancellor’s office said Catherine Howard will work on next phase of the government’s planning reforms

Rachel Reeves is bringing a top planning lawyer into the Treasury to advise on ways to unblock major infrastructure investments as the chancellor faces the threat of big growth downgrades in the upcoming Budget. 

Catherine Howard, a partner at Herbert Smith Freehills Kramer, will advise on the next phase of the government’s planning reforms, the Treasury said, after Reeves expressed frustration with the slow progress of key infrastructure schemes. 

Developers argue the government needs to go further than the current planning and infrastructure bill, which is in the House of Lords but has been watered down so much, they say, that it may no longer significantly speed up large projects.

The government pledged last year it would ease planning regulations to deliver £725bn of new infrastructure over the next decade as well as 1.5mn new homes in England over the next five years. 

The Treasury is braced for downgrades to the Office for Budget Responsibility’s productivity outlook, which could contribute to a fiscal hole worth tens of billions of pounds going into the Budget on November 26. 

Officials are aiming to convince the OBR to mitigate any cuts to growth projections by vowing to push through a programme of pro-growth reforms in areas such as regulation. 

Howard is expected to advise Reeves on how to push through new projects in a second phase of planning reforms, as well as on rapid implementation of the existing bill. 

The Treasury is contemplating a new planning law to streamline major projects that could be included in the next King’s Speech. 

One potential model is new legislation in Canada that allows the cabinet to speed up approvals processes and bypass certain federal laws for projects that could boost the economy.

“As a country we’ve cared more about bats than commuter times for people in Leeds and West Yorkshire,” Reeves told a House of Lords committee during the summer, referring to a costly tunnel scheme to protect bats from the construction of the HS2 rail line.

Reeves has been pushing officials to find new ways of speeding up the building of projects including roads, green energy schemes and data centres.

The government has already said it will use private finance to deliver new community health centres, the Lower Thames Crossing, a bridge and tunnel to the east of London, the Sizewell C nuclear power plant and around £50bn of water projects including reservoirs and pipes.

Noble Francis, economics director at the Construction Products Association, said there was a “host of investors that have the finance ready but they will need certainty over the planning regime”.

Alistair Watson, planning partner at Taylor Wessing, said Howard’s appointment was “badly needed” as the planning bill “has been dragged into the mire”.

Chris Curtis, co-chair of the Labour Growth Group, a parliamentary caucus pushing for the government to prioritise growth, said Howard was an “exceptional addition” to the Treasury. “We’ll continue to work with her closely, as we have for the past year, on delivering reforms bold enough to build the projects Britain needs”.

China poised to benefit as blackout risk rises from Iberia to Siberia

Grid operators face billions of dollars in investment and need to work with Beijing

The International Energy Agency did not mince its words when, in February this year, it laid out the stark challenges facing electricity systems around the world.

Global annual investment in power transmission alone will need to more than double, from about $140bn in 2023 to as high as $300bn in the mid-2030s, if the world is to meet rising demand for power and emissions reduction targets.

“Around 1.5mn kilometres of new transmission lines have been built worldwide over the last decade, but inadequate transmission remains a major constraint on power system development, electrification and energy security,” say IEA analysts.

China, which has a large and growing industry of electricity equipment and hardware suppliers, is well positioned to capitalise on the sorry state of the world’s electricity transmission system, analysts say.

As if to make the IEA’s point, two months on, in late April, Spain suffered a day-long blackout that cut power across everything from telecoms and internet networks to businesses and rail systems, with disruptions also hitting neighbouring Portugal.

For governments around the world, the outage emphasised the need to address under-investment in electricity networks.

This is viewed as necessary to meet not only rising demand for artificial intelligence, electric vehicles and data centres, but also the changing landscape of electricity generation from legacy systems powered by large-scale fossil fuel plants to dynamic and weather-dependent systems using increasing amounts of solar and wind.

But the urgent need to modernise the world’s electricity grids, from poles and wires to the sophisticated software for dispatching power at the right place and time, has also highlighted the likely need to work closely with Chinese manufacturers that have found themselves at the forefront of an industry plagued with supply shortages.

The Iberian blackout was “just the tip of the iceberg”, says Alicia García-Herrero, chief Asia-Pacific economist at Natixis, given that the Spanish grid was not in the worst condition compared with other transmission systems in Europe. “This is going to hit everybody.”

With western manufacturers unable to keep pace with demand, China is now poised to make power equipment a “hugely profitable export market”, adds García-Herrero.

According to Ken Liu, head of China renewables, utilities and energy research at UBS, supply of gas turbines and large power transformers face “severe” bottlenecks globally.

Turbines, which have become key to powering AI data centres, now have a lead time of more than three years, from about 18 months normally. While planned levels of transformer manufacturing will only meet half of new demand just from Europe and the US.

Global demand for distribution transformers — used to step down high-voltage electricity from a power grid to flow into factories, businesses, data centres or residential areas — is likewise expected to remain robust, Liu says, and in excess of what some of the leading western manufacturers have forecast.

The IEA has also noted that lead times for direct current cables, used for long-distance transmission lines, extend beyond five years while the price of cables has also nearly doubled since 2019.

“The combination of rising component costs, extended procurement lead times, and a significant backlog of orders is contributing to higher project expenses as well as delays,” the agency says in its February report.

China is racing against time to avoid blackouts of its own. The country of 1.4bn people is in the middle of a significant move to decarbonise its economy, in part via the electrification of the transport and manufacturing sectors.

Beijing is sharply increasing spending across the sector. State Grid, which is responsible for about three-quarters of the country’s electricity transmission, for example, plans record spending of Rmb650bn ($89bn) this year alone. But compounding the challenges for China has been power consumption beating forecasts and hitting record highs this year, with increases across the services and industrial sectors as well as from residential demand.

“Transmission and distribution, both, are in tough states,” says David Fishman, a Shanghai-based China power sector expert at The Lantau Group, a consultancy. “They are still behind, and I imagine they’ll stay sprinting just to stop falling further behind,” he added.

UBS analysts, however, are upbeat on the prospects for a clutch of Chinese manufacturers to benefit from strong export growth including turbine maker Yingliu, and Sieyuan and Sanxing, leading producers of transformers and other power sector equipment.

And Fishman was confident that Chinese power equipment manufacturers would be well placed to overcome any current shortfalls in production to meet rising global demand.

“As long as the IP [intellectual property] is Chinese and the barrier is scaling up, then there is no barrier, because that is what China does very well,” he added.

The prospect of more and more Chinese-made equipment in grids around the world poses national security risks linked to economic dependence as well as espionage and military threats, western analysts have said.

García-Herrero of Natixis expects that while the prospect of more reliance on China will provoke debate in some countries, ultimately nations will need to prioritise shoring up their electricity systems.

“It is just how bad the situation is. I’m sure there will be threats from the geopolitical side. But the grid is just so important. Look at what happened to Spain.”