Andrew Doyle (Wicklow, Fine Gael)
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I welcome Mr. Brendan McKenna, chairperson designate of Coillte and thank him for his attendance.

I wish to draw attention to the fact that by virtue of section 17(2)(l) of the Defamation Act, witnesses are protected by absolute privilege in respect of their evidence to this committee. However, if they are directed by the committee to cease giving evidence on a particular matter and continue to do so, they are entitled thereafter only to a qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and they are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person or entity by name or in such a way as to make him, her or it identifiable. Members are reminded of the long-standing parliamentary practice to the effect that they should comment on, criticise or make charges against a person outside the Houses or an official, either by name or in such a way as to make him or her identifiable.

The committee is particularly interested in hearing the approach Mr. McKenna intends to take as chairperson of Coillte. I invite Mr. McKenna to make an opening statement, if he so wishes.

Mr. Brendan McKenna:

I thank the Chairman and the committee for inviting me here. My background is in manufacturing in heavy industry, information technology and health care. I worked with Abbott Laboratories for the last 25 years of my career, where I was group general manager for Ireland. As part of that, I was involved in extensive overseas development with the company. Sidelines to my career include acting as an executive director of CII and FUE and then of IBEC when the two bodies merged into one. I was both deputy president and president of the Chambers of Commerce of Ireland for two years. I headed up the committee within Abbott which set up the European works council and was chair of that committee for three years until I retired.

This will be my third term in Coillte. During that time there have been six different Ministers, 18 directors and two chief executives. During my second 10-year term, which ended on 8 October, the Minister for Agriculture, Food and the Marine, Deputy Coveney, approached me in September and asked me to consider staying on for a period, particularly during the process of evaluation with a view to selling the harvesting rights for 50 to 80 years. I have consented to that and was reappointed to the chair on 9 October for a period of two years. I have agreed with the Minister that I will stay in the chair until at least December of next year to see this process through. He and I will sit down in October of next year to determine the next course of action, depending on the outcome of the process that is currently underway.

I agreed to stay on because of my familiarity with the company and my respect for both it and its executive group. As I said at the management conference in February, Coillte was a good company when I joined it and it is now a great company that is well on its way to becoming world class. There is no reason why Coillte cannot be one of the leading fibre technology companies in Europe within the next seven years. All of the pillars that can make it successful, from my experience with working with multinational companies, are already there. We have a very good strategic plan. We also have a very good innovation plan, currently in its infancy at only four years old, which has already delivered spectacular results. That plan, if adhered to, will deliver significant products to address the environmental and energy efficiency demands that are coming down the line.

Andrew Doyle (Wicklow, Fine Gael)
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I thank Mr. McKenna. If only all opening statements were as detailed and as short. I call Deputy Ferris.

Martin Ferris (Kerry North-West Limerick, Sinn Fein)
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Go raibh maith agat.

Mr. Brendan McKenna:

Can I interrupt for one moment? I do not know if the committee is aware but I have two hearing aids so I ask members-----

Martin Ferris (Kerry North-West Limerick, Sinn Fein)
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I have two as well, so we can swap if necessary. I thank Mr. McKenna for his opening statement, which was short and to the point. I have concerns for Coillte going forward, particularly regarding the indications of a sell-off of part of the assets of the company. Has any definitive decision been made regarding the amount of assets that will be sold? A major concern is what happens to the land afterwards. If parts of our forests are sold off, does it mean that the land is in the hands of whatever company buys it for a period of time? Is there any indication of what period of time companies would have control over that asset? What is the situation with regard to any metals that may be underground? Who would have the rights to that? Has any exploration been carried out to determine if there are such resources in the land being considered for sale? That is an issue of enormous concern to many Deputies and Senators.

I find it mind boggling, given that Mr. McKenna's report - though short - is so positive that the Government of the day is going to sell off an asset that is performing exceptionally well.

Reference was made to €2 billion in exports in the past 12 months and, in itself, that is an indication of the potential. I find it difficult to understand why there is a proposal to dispense with it when such potential exists.

Susan O'Keeffe (Labour)
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I thank Mr. McKenna for the presentation. Is there a timeline by which this must be completed in terms of having the block of harvesting rights ready for sale? Terms of 50 and 80 years have been knocked around but I am unsure whether they are for 50 years or 80 years. Do these arrangements come with an option to renew? Clearly the details of any deal are rather important. I assume that all the large companies interested in buying such harvest rights - there are several such companies throughout the world - have their eyes keenly on this sale and they will be looking to see what will come of it. I assume they would negotiate for an option to renew.

What is the position in respect of water or carbon rights in the case of any sale? Will Mr. McKenna provide clarity because I cannot work it out in my head. Forgive me for not understanding.

The Irish Forestry Funds is a private investment firm. What is the relationship or where does it sit in the whole forestry business in Ireland? Will Mr. McKenna explain where it fits in respect of Coillte? Clearly, it could become a buyer with other partners. Anyway, we do not know who the buyer will be.

I understand there was an intention to combine Bord na Móna with Coillte. Did I misunderstand that? Perhaps Mr. McKenna will offer some clarity.

Martin Heydon (Kildare South, Fine Gael)
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Mr. McKenna has an impressive curriculum vitae. He appears to be suitably experienced to continue in the role at what is a crucial time for Coillte as it prepares for the future. Mr. McKenna referred to the main pillars being in place for a bright future and to aid innovation. Will he expand more on how Coillte is innovating and on how it will change and adapt for future markets? What challenges does Mr. McKenna envisage facing this positive future? What are the potential pitfalls to block it from taking place and how does Mr. McKenna intend to deal with them?

Andrew Doyle (Wicklow, Fine Gael)
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Perhaps we will allow Mr. McKenna to answer that block of three questions.

Mr. Brendan McKenna:

I will answer Deputy Ferris first. It is my understanding that even if the harvesting rights to the fibre on the land were sold, the land is not being sold. That is my understanding of the direction of the Government. Certainly, the instructions for the evaluation of the process that I was given by the Minister related purely to the evaluation of harvesting rights for 50 to 80 years, which is two crop durations. Also, we received an instruction that in the process of that evaluation we should determine the feasibility of the remaining businesses and their ability to remain viable and profitable without recourse to State intervention. At this stage all our evaluations have totally excluded any proposal to sell any land, aside from the small parcels of land that the business sells mostly to county councils and so on for road widening and other aspects.

A question was asked about mineral rights. I am not a lawyer but it is my understanding that irrespective of the sale of harvesting rights, and even if the sale of the land went through, any minerals under the land would remain the property of the State unless the State licensed them out. To my recollection the only exploration carried out in my tenure has been the feasibility of deposits for road building and so on. As far as I know there has not been any exploration for minerals. The Government has made a decision in principle to sell the harvesting rights for 50 to 80 years only, but it has charged us with determining the feasibility of the remaining business in future as well. That is part of the process we are undertaking the moment.

A question was asked about the potential for a merger or whatever between Coillte and Bord na Móna. That was voiced at one stage in the programme for Government but, to my knowledge, it has not been developed beyond that. Certainly, we have had no request to evaluate the potential benefits or otherwise of a merger.

Susan O'Keeffe (Labour)
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I asked some other questions, including one relating to the timeline for any sale.

Mr. Brendan McKenna:

Basically, we will finish the process we are working on now with our advisers at the board meeting next week. In conjunction with NewERA it will then be given to the steering group which was set up by the Government. My understanding is that sometime during the first quarter or early in the second quarter of next year a decision will be made with regard to whether to proceed and on process around that, whatever the decision.

Susan O'Keeffe (Labour)
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I also asked whether there would be option rights for any buyer as part of a sale? Is that standard practice? The other question I asked related to the private company, Irish Forestry Funds, and its relationship with Coillte.

Mr. Brendan McKenna:

The process by which the actual harvesting rights would be for sale has not been determined yet, other than the evaluation that is under way. No one has indicated whether there will be an extension beyond the 80 years. We have received clear instructions relating to 50 to 80 years, which is two crop durations.

Irish Forestry Funds is an investment fund which invests in immature forest for development and sale. It is simply that. It is an investment vehicle which buys and then sells at the appropriate price. I do not believe it would have the financial capability to be a serious bidder on its own for the business as it stands, but it may merge with other groups if and when the outline of the request for tender is issued.

Susan O'Keeffe (Labour)
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Mr. McKenna said the fund invests in immature forests.

Mr. Brendan McKenna:

Yes, in immature forests.

Susan O'Keeffe (Labour)
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Who owns the forests?

Mr. Brendan McKenna:

They own the fibre but they do not own the land. They own the fibre, which they buy, and they sell it whenever. That is the principle under which any harvesting rights sale would be made. Those who end up purchasing the rights would own the rights to the fibre but they would not own the land.

Andrew Doyle (Wicklow, Fine Gael)
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Deputy Heydon asked a question about innovation.

Mr. Brendan McKenna:

Innovation takes many forms. Primarily, there is innovation in the way we run our forests more efficiently, in how we harvest them and in how we identify the value within the forests. There is significant innovation within our manufacturing plants with regard to new products that will meet the environmental and regulatory issues coming down the road. Mr. Gunning and Mr. Egan were before the committee some time ago. They pointed out to the committee where our products end up but that is simply the tip of the iceberg with regard to the type of product that we can produce. However, to get to that stage our Kilkenny plant needs a significant investment. When it was built we were a minority shareholder and then we bought out the majority shareholder some years ago. It was built for one purpose and one product, mass-produced. The cost structures in Ireland and the needs of our markets in Europe no longer require that type of product. It is a commodity product. We cannot compete with the Eastern Europeans at the same level. Therefore, we must shift our focus from commodity-type products to specialty-type products.

We were working in joint ventures with many institutions and organisations in the United Kingdom, which will guide us to the type of product that will deal with the regulatory and environmental issues that are coming down the road.

Within four years we have developed new products that are contributing about €12.5 million. I can give the committee a simple demonstration of what the board has said to the company. In seven years' time we want to double the sales out of the company, but in seven years' time 50% of the company's current products will be obsolete. So, if sales are to increase from €200 million to €400 million, then €300 million will have to come from new products, so the company needs to be primarily focused on that. Otherwise it will be dead in the water and the market will not take its products.

Pat O'Neill (Fine Gael)
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I welcome Mr. McKenna and wish him the best in his position as chairman of Coillte. I come from Kilkenny and I am aware of Smartply in south Kilkenny, which employs approximately 350 people, and Medite in Clonmel. They are two innovative companies and I have seen the new products they are hoping to produce.

Smartply is looking for investment of nearly €80 million for a new plant, which would guarantee the jobs in the company. If Coillte sells the harvesting rights on its land for 50 to 80 years, will the two companies, Medite and Smartply, be included in that sale or will they be kept in Coillte as independent companies? Where will they source their raw material? If Coillte's harvesting rights are sold will these companies be guaranteed supply or will they have to seek raw material on the open market?

Forestry requires a heavy capital investment because forests must be constantly replanted. I note that Coillte's profit last year was €19.9 million. I have seen the figures for the last few years. Companies such as Smartply and Medite were very profitable during the building boom. Their profits went down, but they are now on the way back up with new products. Does Coillte give a set percentage of its profit back to the Government? I think it is negotiated with the Minister of the day. If harvesting rights are sold off, what is the future for these two companies? Where will Smartply get its investment of €80 million? If the companies are sold with the harvesting rights, Coillte will not want its balance sheet to show that it invested €80 million in Smartply as this would make the company unattractive to a buyer, who would be buying a company with a debt of €80 million. I have been to see Smartply and I think the investment should be made. I know the sale of harvesting rights is holding up the decision on that. Could Mr. McKenna clarify the position?

Mary Ann O'Brien (Independent)
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Coillte has many strands, and they all seem to work in great synergy. If the members of the committee were Coillte's very wealthy shareholders, would Mr. McKenna recommend that we sell the forestry rights? Coillte seems to be working well. It is a company to be admired. I ask Mr. McKenna to look inside himself and give us an honest answer to that hypothetical question.

Pat O'Neill (Fine Gael)
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I forgot to ask Mr. McKenna another question related to the selling of rights. Coillte forests are used for many activities, such as mountain biking, walking, hiking and so on. If the harvesting rights are sold, will the public continue to have access to the forests?

Andrew Doyle (Wicklow, Fine Gael)
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Mr. McKenna has been the chairman of Coillte for a while and will continue as chairman for the next two years. Coillte is a semi-State company that is about to undergo change. In the next couple of years more than 50% of the supply of timber will come from the private sector, as opposed to State lands. No matter what else happens, we all agree the State will still own the land. The question is complicated, and I am glad to hear Mr. McKenna say no recommendation will be made at least until the third quarter of 2013. This is not something that should be taken lightly. I have serious concerns about making sure the sector as a whole is best served by the next move. I live in Wicklow, so I am probably as aware of this matter as anyone else.

At the end of this process there will be a change in the structure of the forestry industry. What will Coillte's role be as primary manager or as manager of harvesting rights and in the interaction between the private and public sectors? How can we secure supply for timber processors, both private and Coillte's own, and the biofuel industry, which is a sector we have not mentioned?

We have not mentioned the extensive recreational and other uses of forests, which have major potential in the area of tourism, among other areas, if they are managed well and serious consequences if they are not. Mr. Gunning and Mr. Egan outlined the seven discussion points that are being considered. It is almost like having to decide the right combination to advance. We have a long way to go on that.

As chairman of Coillte - he will probably be in the chair, whether he likes it or not, when this process is completed - what does Mr. McKenna think would be the best structure for the forestry sector? Given his vast experience in other areas, particularly with Abbott Laboratories and others, he probably has a vision. I feel he has been asked to stay on as chairman because he has that vision, and I would like to hear it.

Mr. Brendan McKenna:

Yes, I have a vision. All of us who work in the organisation have a strong belief in the strength of the company. We are, however, beholden to our shareholder, which has asked the board to undertake a process of evaluation and determine the feasibility of selling the harvesting rights while maintaining the viable organisation left behind. That is the process we are in at present.

Even though the board is in total support of the Government's position on this, when a decision is put to the board it must give due consideration to the impact of that decision on the organisation, on its employees, on stakeholders such as sawmills and transport companies, on recreational users and on biodiversity and the environment. This is very complex. It is not like selling a self-contained unit of an organisation. No matter what way one looks at this, its tentacles reach out into all elements of our society.

With regard to guaranteeing supply to our operations and to sawmills, the process would have to include an explicit guarantee of supply to all users of fibre out of the forests.

It would be unacceptable to approve a process that did not carry that guarantee.

With regard to the SmartPly and Medite operations, SmartPly requires an investment of approximately €85 million which the board approved in July. It is being considered for approval by the relevant Departments. It should be noted that this plant was built to produce one product and its equipment is reaching the stage of metal fatigue. That is normal in this 24 hour, seven days a week process. In the past two years, in particular, because of the economic and market environment, we have shut it down and opened it up again in a pattern in order to balance our stocks according to market requirements. This has exacerbated the metal fatigue issue. It is the opinion of the board and the company that without investment, the organisation probably has a life cycle of three to four years and will cease to operate after that period because it will be unable to function. The investment is important for two purposes, the first of which is to maintain the operation and the usage of fibre from our forests because the back spin into Coillte is very important financially. It is also very important to the sawmills because we take out the sawdust. It is extremely important, therefore, that the investment is made at this point, as otherwise, if in a couple of years time a decision is made to sell the operating plant, it would be extremely difficult for anyone to purchase an operating plant with a utility-type product with an uncertain life cycle. The main issues are the continuation of the operation and the ability to produce the type of products that meet market needs. We are designing such products in co-operation with our external partners.

With regard to a dividend, the board is of the view that Coillte is not like other semi-State organisations. Our dividend is paid back every year as capital investment in forests. Since 1988 Coillte forests have only been cash-positive on two or three occasions. All of the money is ploughed back into them, at an average figure of €35 million a year. The board has always held the view that this is a significant ongoing dividend to the State. A bigger dividend in cash, frankly, would entail less reinvestment in forest operations.

Part of the process involves the recognition of the right of the public to access the public areas of the estate, no matter what the location. This will be in focus in the process and one of the options that will be developed. The maintenance of public access costs in the region of €8 million to €10 million a year in expenditure on roads, pathways, the development of new cycle paths, etc. That cost is part of the dividend. The cash dividend is paid by Coillte in agreement with our banks. It was notified to our shareholder when Coillte negotiated the new bank covenants this year.

Pat O'Neill (Fine Gael)
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I have a supplementary question about the SmartPly operation in south Kilkenny at Bellview port. The chairman has stated that if the investment is not made in SmartPly, the plant will close within three to four years because it will not be viable and the product it produces will not be needed. If the investment is not made, the plant will be obsolete. If the investment is made, what will be the millstone that will be around the neck of Coillte? It seems SmartPly and Medite will not be part of the sell-off, if it occurs. They will remain as separate companies within Coillte.

Mr. Brendan McKenna:

In the remaining entity.

Pat O'Neill (Fine Gael)
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The investment of €85 million will be on Coillte's books, not those of whoever buys the harvesting rights. That is a clarification.

Mr. Brendan McKenna:

I apologise that I am unable to answer the Senator's question directly because as chairman I must be conscious of my regulatory and statutory obligations.

Susan O'Keeffe (Labour)
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We will meet outside.

Mr. Brendan McKenna:

My duty is to adhere to the directions of the shareholder but also to go back to the shareholder when I have evaluated the proposal and inform the shareholder of the implications of the proposal for the organisation. The statutory obligation of the board is to protect the company, the employees and stakeholders.

Mary Ann O'Brien (Independent)
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I suggest it is worth a try.

Martin Ferris (Kerry North-West Limerick, Sinn Fein)
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Mr. McKenna hopes to be in a position to indicate next week-----

Mr. Brendan McKenna:

The process report which is being worked on with our advisers and NewEra will be finalised next week at board level. It will then be passed to the steering committee.

Martin Ferris (Kerry North-West Limerick, Sinn Fein)
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It is my guess that the attraction of selling off the forestry will be based on the output of that process and the benefit to the potential investors or buyers. It is also my guess that a sizeable section of forestry will not be sold off because it is not considered as viable for potential investors. If Coillte is left with forestry that is of no great value and if a sizeable number of assets will be sold, there will be job losses. That is inevitable. It is also inevitable that Coillte will find it very difficult to run a profitable organisation.

Mr. Brendan McKenna:

That is why the process is being undertaken. I agree that a percentage of our estate is non-economic because it was planted in the 1940s and 1950s as part of community work projects. The areas in which the trees were planted do not lend themselves to good growth in fibre. Should the harvesting rights be sold, a percentage of the estate will transfer to the new Coillte. That is all part of the process which is very complex. There are implications for employment and transport companies. The Government has asked us to ensure all of these issues are highlighted in the report when it receives it in order that all of the facts will be available when a decision is made, one way or the other.

Susan O'Keeffe (Labour)
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I ask for clarification. Mr. McKenna said that part of the evaluation involved an assessment of the viability of the remaining business in order that it would not need to have recourse to State aid. I ask him to clarify what he means by that statement and to expand on it.

Mr. Brendan McKenna:

The remaining businesses include wind energy operations, telecommunications, the remaining forests, and the SmartPly and Medite operations. Should the decision be made to dispose of the harvesting rights, all of these, as well as the non-commercial forests, will be included in a new company. The board has to ensure that when the evaluation process is finished, all of the risks and implications are included in the report in order that the Government or the Minister and the Government can make a decision based on all of the facts. It is hoped it will be before the steering committee in December.

There will then be a three-month review period. We anticipate that in the first part of the second quarter a decision in principle could be made by the Government.

Michelle Mulherin (Mayo, Fine Gael)
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I was at another meeting so I did not have the opportunity to listen to Mr. McKenna's contribution. What is the extent of Coillte's involvement with wind farms and the production of wind energy? To what extent is it inhibited from implementing any plans it may have to invest in wind farms as a result of a lack of venture capital? Does Coillte propose to enter into joint ventures with other established wind energy companies? Coillte owns land in some of the windiest areas of the country. The difficulties relating to the visual amenity aspects and obstacles relating to planning and development, etc., would simply not apply in the context of constructing wind farms in these areas.

I understand that is necessary to have a wind corridor before one can construct a wind farm. In that regard, Coillte could cut down a tract of trees and put a wind farm in place in the middle of a forest. To what extent could this aspect be explored from the point of view of the company obtaining a return as opposed to merely limiting itself to developing and maintaining forestry? How can we exploit the fact that there are companies which are interested in investing in lands which Coillte owns? How open would the company be to such investment?

Mr. Brendan McKenna:

We are very open to it. In the first instance, our enterprise division is primarily concerned with wind energy, telecommunications and land sales for commercial reasons. We own some very good sites which are extremely efficient in the context of wind energy. To date, we have entered into joint ventures in order to develop sites and facilities. We do not operate wind farms or at least we have not done so up to now. The company is determined to continue to develop appropriate sites with co-partners. We normally exit the process once a site has been developed and we then take the profit back into the company and invest it in another site. There is plenty of capital available for the right projects. The major part of the process relates to obtaining approval in respect of connection to the grid, etc. We are working to obtain such connection in respect of various sites at present. When connection is achieved, we develop the relevant sites with our co-partners.

Michelle Mulherin (Mayo, Fine Gael)
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What is Coillte's stake at that point? Is it merely renting out the land or what is the position? What is the nature of the joint ventures to which Mr. McKenna refers?

Mr. Brendan McKenna:

Basically, in most cases we sell them the site, the grid connection licence and everything else. We invest in the project, take it out and then reinvest it in the next project.

Andrew Doyle (Wicklow, Fine Gael)
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That is clear enough. I wish to investigate further the relationship between the board and the executive in respect of this process. I understand how a board and an executive work in the context of normal semi-State companies. However, at our previous meeting in relating to Coillte the executive provided details in respect of this process. The board's position is much the same as that of the executive. Given that the shareholder has taken a decision to evaluate certain things, what will be the board's input into the process when the report is forwarded to the steering committee?

Mr. Brendan McKenna:

The board has a great deal of input. It will have met all of its advisers prior to the report being submitted to NewERA and the technical group. The board and the executive work closely on this. I certainly spent a great deal of time working with the chief executive in respect of it. Representatives of the board will also be invited appear before the technical committee. When a decision is made and is put to the board for approval or otherwise, it is at that point that the board will be obliged to exercise its statutory and fiscal duty with regard to the impact on the organisation, the employees, etc. There is a process whereby the board will ultimately determine the legality of any such disposal.

Andrew Doyle (Wicklow, Fine Gael)
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Is it the case that the board must approve any reports prepared by consultants before they are presented?

Mr. Brendan McKenna:

"Approve" is the wrong word. The full membership of the board met the consultants last week in respect of their preliminary report. Our observations and comments will be added to that report and the board will receive the final version at its next meeting on Thursday. If anything needs to be added, then it will be incorporated into the final report to be submitted to the steering group in December. At all stages, the board and the executive have worked closely with NewERA and the consultants.

Susan O'Keeffe (Labour)
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If a decision were taken to proceed with the sale of the harvesting rights, who would be responsible for deciding on the price that will apply? Whose advice would be taken in that regard?

Mr. Brendan McKenna:

That would be the Government or NewERA and the steering committee with their advisers.

Susan O'Keeffe (Labour)
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The steering committee and its advisers. Obviously, the Government will have an input.

Andrew Doyle (Wicklow, Fine Gael)
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Will all the various permutations be built into the final calculation?

Mr. Brendan McKenna:

Yes, and they will be consulting with international evaluators on the value of forests on an international scale.

Susan O'Keeffe (Labour)
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I thank Mr. McKenna.

Andrew Doyle (Wicklow, Fine Gael)
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I thank Mr. McKenna for appearing before us. The committee is very interested in this matter. There is cross-party concern in the context of ensuring that whatever happens will be in the long-term best interests of the forestry sector. We must also bear in the mind the public interest in light of the significant amount of land at issue here. We will be inviting before us a number of interested parties from the private sector who will be given the opportunity to place their opinions on the public record. We will not complete our hearings by the end of the year. During the review process, we hope NewERA and the steering group will take cognisance of what comes through. I know there has already been engagement with the latter. However, this committee is a public forum by means of which individuals and stakeholders in the sector can avail of the opportunity to place their observations on the public record. Mr. McKenna will be made aware of when those meetings will take place.

I thank Mr. McKenna for giving very clear and frank answers to the questions, with the exception of that posed by Senator O'Brien. However, I do not believe the Senator expected an answer. We wish Mr. McKenna well for the next two years. His hopes of an early retirement next October might be dashed. As this process evolves further, he is probably as well placed as anyone to provide a considered opinion.

Is it agreed that the joint committee will inform the Minister for Agriculture, Food and the Marine, Deputy Coveney, that we have concluded our discussion with Mr. McKenna and will forward a copy of the transcript of this meeting to him for information? Agreed.