Mr. John Horgan:

I thank the Chairman. I am very pleased to be here. I want to explain to the committee what is happening in Littleton and Derrinlough, where we have two briquette factories. These produce the traditionally well known Bord na Móna peat briquettes. Each year there is a production plan decided for each factory. This year, however, the closing stock, that is, the amount of briquettes that we have in stock at the end of March each year which is the end of our financial year, is exceptionally high. In March 2013, closing stock was 1,500 tonnes and in March 2014, it was 44,000 tonnes. We would normally aim to have in the region of 30,000 tonnes at the end of each year. This year we have twice that amount. To put it in perspective, that is roughly the equivalent of 11 weeks' production. We have never had such a high level of stocks.

Why do we need to do what we are doing? The factories normally stop operations every year in June or July. This year, because of the very high level of stock to which I referred, the production of briquettes at those factories stopped earlier, at the end of March. Typically, when the stoppages occur, there is other work, such as maintenance, to be done. In a typical year, an employee would be on basic rates of pay for approximately five weeks and that is normally managed on a voluntary basis. In effect, that normally means that rather than earning in the region of €800 or €900 per week, employees would drop back to maybe €550 or €600 a week because they would not be shift-working and they would not be in receipt of an element of pay that is related to the amount of briquettes produced in any particular week. In a normal year, they would suffer a loss of earnings.

This year that stoppage has had to be increased. The stoppage this year is for eight weeks - three weeks longer than usual - and there will be reduced earnings due to short-time working this year. Normally, we would not have short-time working, that is, employees working a short week. Some employees for some weeks will only work some of the days of that week. That is what is different this year as opposed to other years. Ms Lynch, who is in charge of the operations at these factories, will be able to go into much greater detail on that.

I will give our estimate of the reasons our sales were so negatively impacted last year. There is a growing problem of unregulated fuel imports from Northern Ireland. We estimate that 50,000 tonnes or 60,000 tonnes, or 10% to 15%, of the domestic fuel market in Ireland is now being supplied by unregulated imports from Northern Ireland and that is impacting on us.

Carbon tax is another factor that has reduced the sales of briquettes. It appears to us that there may not be a level playing field here. Bord na Móna paid over €8.7 million of the total of €17 million that was received in carbon tax. We are paying 50% of the total tax but we do not have 50% of the market. We think we may have 30% of the market.

Private fuels are a serious source of competition for us. We believe that a lot of the private fuel sales are not paying the carbon tax - they are subject to it but it is not being paid - and that the VAT on a large proportion of those sales is not being paid either. There is a question of a level playing field in that regard. That is increasingly undermining our business.

There is also the weather. We are a weather dependent business on two scores - we need good weather in the summer to harvest the peat and we need a cold winter for the demand for briquettes. Last year we had a reasonably good harvest but the winter was not as cold as normal. The winter was reasonably mild and the sales of all domestic fuels dropped and, of course, there was increased competition from home heating oil because its price fell. Those are the reasons we think the sales of briquettes last year were so disappointing and, therefore, the build-up of stock occurred.

As for what we have done, it became apparent to us in December 2014 that there would be a problem and we informed our employees. The employees themselves would be attuned to this anyway. They can see the stock levels. At that stage, we started to draft a contingency plan. From February of this year onwards, we had a detailed engagement with staff and the union representatives about the impending issues. We had ongoing meetings with the unions. At local level, we held five collective meetings where we brought the representatives of both factories together with their union representatives. We assessed with the staff all the redeployment opportunities and we brought forward a capital work plan. We increased by 30% the amount we are spending on capital works this year, from €1.4 million to €1.8 million, and that, of course, provides additional employment in the briquette factories during the current period.

With all those steps and various mitigation measures, we got very close to the stage where this could have been achieved on a voluntary basis. If the weather had been kinder over the past few weeks, it may have been possible to redeploy staff on peat production.

We were very close to being able to achieve this on a voluntary basis this summer. It does not now appear that we will be, because the peat harvest has not started yet, effectively, because we have not had dry enough weather for it, although we hope to be able to start it in the next couple of weeks. Unfortunately, there probably will be times when we will not be able to provide employment for some people who want to continue in employment. However, at this stage we think every employee will be able to be employed at some stage of every week, but not for the full week every week. I am just trying to give the scale of it. That is not yet definite, because we are still in negotiations with the trade unions on the matter.

Production is scheduled to resume on 10 September, as planned, and by that stage everybody will be back in full-time employment and on shift. We are actively reviewing new product developments and opportunities because we want to grow new markets for the briquette business and in order to provide long-term sustainable employment and keep both these factories open and secure, we are working hard to develop new sustainable fuels. We are talking there about a biomass briquette, which is currently in development. This week we have been invited to attend the Labour Relations Commission on the issue. We are looking forward to engaging with the trade unions through that process and hopefully we can get agreement there. If we cannot get agreement on these issues at the Labour Relations Commission, we will, of course, agree to have the matter referred to a full hearing of the Labour Court, if that is what the trade unions want.

We have very serious plans in Bord na Móna up to 2030 and beyond. Mr. Quinn, who is with us, has recently joined us as our new managing director. He joined at the beginning of this year. He has brought to the board a very ambitious investment plan for the future of Bord na Móna and the board has accepted that plan in principle. We have shown that plan to NewERA and to our Department and the response has been very positive. Each element of the plan will be subject to further board approval as to commercial viability and sensitivity. As part of that, there is now an agreement between Mr. Mike Quinn, as managing director of Bord na Móna, and the chief executive of the ESB to keep the peat-fired power stations open. We have one peat-fired power station and the ESB has two. There has been a question mark over their viability in the future. We now have an agreement in principle to keep all three of them open beyond 2019 and to co-fire them with biomass. We are also developing a large-scale indigenous biomass industry.

The Chairman and members will be aware that the Government decided there should be a partial merger of Bord na Móna and Coillte and that as part of that a new company should be established, BioEnergy Ireland. We are taking a strong lead in the establishment of that and in the development of the biomass industry in Ireland. That will secure the power stations and peat production into the future. We also have in progress a transformation programme. This is a company-wide programme to reduce the costs of production and improve the general efficiency of the company. It is a major programme. We are in negotiations with the union and have been for over a year now on that issue. That matter is also in the Labour Relations Commission, but in a separate set of negotiations. Those negotiations will continue today - they have started again this morning. I am happy to report that good progress is being made there. We believe it will be possible in a matter of weeks or months to reach an agreement with the trade unions on all those matters. Very difficult decisions have to be taken because we must reduce the price at which we supply peat internally to ourselves and to the ESB. The price of peat must be reduced by a considerable amount. We recognise, and always have recognised, that this is a very difficult process to go through, but it is necessary to secure the future of the company. We now believe the unions are seriously engaged and recognise the necessity of those cost-cutting measures. Overall, the primary objective of our long-term strategy is to keep Bord na Móna as a major employer in the midlands through 2030 and beyond.