Mr. John Moloney:

Senator O'Neill asked about partnership with farmers. There are 700 farm partnerships, but since the advent of the private forestry sector, a considerable number of private forestry companies have emerged as well. Many of them have former employees of Coillte who left the organisation for various reasons. There is quite a lot of support out there for farmers who want to develop their land for forestry. The use of land for forestry must be encouraged. Every individual will make the decision about the use that will maximise the value to him or her in his or her own farming situation, and depending on how constrained they are.

The development of forestry and wind in upland areas, either in carbon offset or carbon sequestration, is also a significant strategic development as the national herd may expand as the dairy sector expands. That is a relevant issue to consider in encouraging forestry, as is the use of upland for renewable power generation under wind, something in which Coillte has been involved. That is part of the land use issues that need to be considered.

In answer to Senator O'Brien's question on the financial performance, Coillte manages a forest estate, and the net asset value of the business made up of the value of the forest and the land is about €1.3 billion. Traditionally, the returns to forestry are deemed as reasonably reliable but low, perhaps 4% to 5% after inflation. In nominal terms, that would be 6% to 6.5%. The outputs of the business are fairly strongly linked with the fortunes of the construction sector across Europe. Some change is occurring in refitting housing with better quality, low carbon materials, such as the panel mills and the new investment we propose to make at SmartPly in Kilkenny. Part of the strategy for Coillte to buffer that volatility has been to use the land resource for other activity such as wind generation, where under the REFIT programme with sites we could develop over time, and which could provide a steady income stream into the future. We could then create a new product range, particularly in the area of panel mills, that can target niches. This is one of the big issues around converting and modernising the SmartPly facility in south Kilkenny. It was designed for an amorphous American market. It is not designed for a multi-niche, valuable niche European market. The intention is to transform the plant with a significant capital investment, for which we have received consent, into a business capable of buffering those cycles. That will not eliminate them, but it can help to improve the financial performance. The third element is to look at the overall efficiency of the business in terms of the costs of managing the forest estate. The AGM will not be until next month, but I can inform the committee that the financial performance for last year will be improved on the following year.

Deputy Barry asked about the return to the State. It depends on how one looks at the return. If one looks at it in raw cash terms, Coillte has paid out around €13 million in dividends over the past three or four years, with €2 million the most recent payment. We have pretty clear evidence, from a number of studies carried out, that the public good aspect of Coillte, in terms of enabling tourism and enabling outdoor activities dispersed across the country, is worth about €600 million to Ireland. That supports an awful lot of rural communities in developing tourism initiatives. In terms of a direct cash comparison, we probably have a total cost of maintaining those activities of about €5 million.

The total cost of maintaining all those activities is approximately €5 million and we recover €1 million from various sources, entrance fees to forest parks and so on, which leaves a net cash cost to the business annually of approximately €4 million, on top of any dividend. It is our intention, as we continue to improve the business over the next five years and the proportion of saw log we produce tends to rise, that the returns should and will improve, together with the development of several ancillary activities. We hope to be able to improve the net cash dividend but also to sustain the public good element of the business. That includes the maintenance and development of other networks supporting tourism which is driven in particular by the increased conversion of mature saw log from the estate, but that is linked to construction cycles across Europe and the 30 countries in which Coillte trades its product.

Coillte has been involved in buying and selling parts of its land over its 25 year history. Since 1989 it has acquired 64,000 ha and sold 16,000 ha. Much of that land was dealt with locally to enable farmers expand their holdings. Some sites have been converted or sold for wind generation in upland regions. Whether the market value is appropriate, Coillte has a balance sheet and has to try to protect that. What is being sought is the market value for whatever the land or issue is. That is the approach the business must take.

In several European countries, and the UK, in recent years, financial support has emerged for renewable heat. That is what will drive it, which I think is what Deputy Barry alluded to. Coillte has an interest in seeing that kind of market develop because potentially it has a raw material supply for that. Part of that raw material and potential raw material goes to the panel mills and will continue to do so, otherwise there is no point in investing in it today. We see a market for those products. Coillte already sells a significant number of cubic metres output into the firewood sector in Ireland. There is potential to develop that in the future.