Oireachtas Joint and Select Committees
Wednesday, 19 June 2013
Joint Oireachtas Committee on Finance, Public Expenditure and Reform
Disposal of State Assets and Quarterly Review: Discussion with Minister for Public Expenditure and Reform
We will now have a discussion on the disposal of State assets, to be followed by the quarterly review of the 2013 public expenditure against profile. I welcome the Minister for Public Expenditure and Reform, Deputy Brendan Howlin, who is accompanied by Ms. Deirdre Hanlon, Mr. John Howlin, Mr. David Moloney and Mr. Brendan Ellison. The Minister will make opening remarks to be followed by a question and answer session. I remind members and witnesses and those in the Public Gallery that all mobile phones must be switched off.
Before we commence, I wish to draw attention to the fact that by virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of the evidence they give to the committee. If they are directed by it to cease giving evidence on a particular subject and continue to do so, they are entitled thereafter only to qualified privilege in respect of their evidence. Witnesses are directed that only evidence connected with the subject matter of these proceedings is to be given and are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against an individual or an entity either by name or in such a way as to make him, her or it identifiable. Members are reminded of the long-standing ruling of the chair to the effect members should not comment on, criticise or make charges against a person outside the House or an official by name or in such a way as to make him, her or it identifiable.
I will set the stage in regard to what the committee is seeking in proposing to engage with the Minister for Finance and the Minister for Public Expenditure and Reform on a quarterly review of the 2013 public expenditure against profile. This has two aspects: the revenue side, which is the responsibility of the Minister for Finance, and the expenditure side, which is the responsibility of the Minister for Public Expenditure and Reform. The committee wants to get the view from altitude on both revenue and expenditure on a quarterly basis. This concept arose in the committee at the latter end of the fourth quarter last year. The expected revenue and expenditure in day-to-day operations and management of an annual budget are given a profile, and monthly, quarterly and half yearly reviews of both expenditure and review take place, and if there is any divergence, action can be taken.
This engagement is only on a quarterly basis and it is the expectation of the committee that by getting a view from altitude, we can better manage public money and reduce or eliminate altogether the spectre we had last year of €1.2 billion of Supplementary Estimates. By reviewing the profiles of expenditure and review, action can be taken far earlier by rectifying shortfalls to cover both over and under-expenditure.
In layman's language, if the Department of Public Expenditure and Reform determines a figure for a Department, and if that figure is exceeded by €10 per week in quarter one, quarter two or quarter three, or if there is a reduction of €10 per week and that reduction is not met in quarter one, two or three, that means there is a €40 adjustment every week for the remainder of quarter four. These difficulties create massive problems in the management of budgets and politically. The difficulty of such an approach is that it leads to bad fiscal governance in that Departments who run over budget dip into the budgets of other Departments to acquire their funds and it creates a situation where budgetary targets in quarter one or two that are not being reached create problems where savings are not achievable or the implementation of the saving is not being appropriately managed. It is on this basis the committee is looking at the Minister's budget. It is an entirely different process from looking at the Estimates, which guess the sums that will be involved for the next year. This is an examination of the operational budget of a Department in real time to ensure what was agreed in the budget is being achieved.
I thank the Minister for engaging with this committee's proposal and commend him on doing so. I welcome the Minister, who is here to discuss how this will actually happen. This will be a long meeting because we are dealing with two items. There has been a great deal of speculation about whether the disposal of State assets is happening. Can the Minister tell us from the outset of his engagement with the committee today whether the Coillte assets are being disposed of?
I thank the Chairman for inviting me to discuss these important issues. I am accompanied by the officials he named and by Ms Eileen Fitzpatrick, the director of NewERA, which will soon have statutory responsibility for managing State assets, looking at a national State shareholding investment profile and getting good value for the State's shareholding in companies in the semi-state sector. I would prefer to deliver my presentation in a structured way. I will answer the question asked by the Chairman in the course of setting out the full position, as it now stands, regarding the sale of State assets.
The committee is well aware of the position this Government inherited when it took office. The economy was in crisis and the State was unable to fund itself. We were completely dependent on funding from the EU and the IMF for our day-to-day spending under a programme negotiated by the previous Administration. The original EU-IMF programme dealt with the issue of asset disposals, among other matters. It required the Irish authorities to undertake an independent assessment of the electricity and gas sectors, building on the work of the review group on State assets and liabilities, and to then consult the Commission with a view to setting appropriate targets for the privatisation of State-owned assets. The work of the review group on State assets and liabilities, which was chaired by Colm McCarthy and had been commissioned by the previous Government, was still in train at that time but was approaching finalisation. When the group subsequently reported in April 2011, it concluded that the realisation of proceeds from the sale of State assets offered the potential to assist in tackling the fiscal crisis by reducing the debt burden on the State and by supporting economic recovery through enhanced productivity, efficiency and competitiveness. It recommended that a planned programme of non-strategic asset sales should be undertaken.
When the two Government parties negotiated a programme for Government in 2011, we recognised that a new approach to the management and use of State assets was required as part of the overall solution to the fiscal crisis. In that context, we agreed that the NewERA concept would be developed as a new way of seeking to manage more effectively our commercial State companies in the key sectors of energy, telecommunications, forestry and water. We also agreed to seek to release value from the State’s portfolio of assets to free up badly needed resources which could be used for investment purposes to help to stimulate growth and employment. A target of €2 billion from the sale of non-strategic State assets was agreed in the programme for Government, drawing from the recommendations of the review group on State assets and liabilities, but with the assets only to be sold when market conditions were right and when adequate regulatory structures had been established to protect consumer rights.
It is well established and well documented that during our negotiations with the EU-IMF troika, initially there was very little willingness on the part of the troika to allow us to retain any proceeds from our asset disposal programme. They wanted us to use all of the proceeds for debt reduction. They also wanted us to engage in an asset disposal programme on a much larger scale than had been agreed in the programme for Government. Very tough negotiations over a protracted period of time were required before we finally got an acceptable deal on these matters. I visited Brussels as part of the negotiation process, in addition to the negotiations that took place during the many troika missions to Ireland. I believe we got a satisfactory deal in the end. I secured an agreement that, in return for increasing the level of ambition of our asset disposal programme to a €3 billion target, we could retain half of the proceeds to fund additional employment-enhancing projects of a commercial nature. It was further agreed that the other half of the proceeds, while eventually destined to pay down debt, could also be retained and, in the first instance, constituted as a fund to underpin additional lending into Ireland in support of further investment in job creation initiatives. If members are interested in the mechanics of that, I can explain them in some detail.
Importantly, we agreed that there would be no fire sales, that assets would be sold on acceptable terms and at a price that achieved fair value for the Exchequer, and that key strategic assets, such as our electricity and gas transmission and distribution systems, were not for sale but would be retained in State ownership. It was on that basis that the Government last year agreed the composition of a programme of asset disposals, with a target of realising proceeds of up to €3 billion. The programme involves four key elements. First, we agreed the sale of Bord Gáis Éireann’s energy business, not including its gas transmission or distribution systems or the two gas interconnectors. As I have said, they will always remain in State ownership. Second, we agreed the sale of some of the ESB’s non-strategic power generation capacity. Third, we agreed the disposal of the State’s remaining shareholding in Aer Lingus when market conditions are favourable and on terms that are acceptable to the Government. Fourth, after further consideration and after ruling out the sale of Coillte’s land holdings, the Government determined that a concession for the harvesting rights of Coillte forests represented at that time the best option to release value from Coillte in the short to medium term.
Interdepartmental steering groups were established to prepare for the disposal of each of these assets and, ultimately, to oversee the actual disposal transactions. These steering groups comprised representatives of the Department of Public Expenditure and Reform, the relevant sectoral Departments, the Department of Finance and NewERA. The steering groups have worked closely with the management of the individual companies to analyse the various financial, policy and technical issues that may arise in connection with the proposed transactions. They also prepared detailed valuations in each case. I will outline the latest position regarding each of the assets. After months of planning, Bord Gáis Éireann formally launched the sale process for its energy business, Bord Gáis Energy, on 3 May last. The closing date for initial bids under the first round of the sale process was 12 June. The board of Bord Gáis Éireann, along with its advisers and assisted by NewERA, is handling the disposal process. It is currently assessing the initial bids that have been received with a view to selecting the final bids to be brought forward for the second stage of the process. The interdepartmental steering group is overseeing the process on behalf of the Government. The transaction is expected to be concluded before the end of this year.
The ESB made an announcement last October regarding the sale of some of its non-strategic generation capacity, involving a package of assets being brought to the market on a phased basis commencing in 2013. In February, the ESB announced its intention to sell its 50% shareholding in each of its international tolling plants - Marchwood in the United Kingdom and Amorbieta in Spain. The Marchwood transaction formally commenced on 28 May last and the Amorbieta transaction is expected to be formally launched this week. Both transactions are expected to be completed before the end of this year. Work is also continuing on planning for the further components of the ESB's disposal package that were announced by the company last October. Details of these further components will be made public by the ESB, subject to commercial considerations, in due course.
The European Commission recently completed its investigation of Ryanair’s bid for Aer Lingus. The UK Competition Commission's investigation is ongoing. These investigations have been complicating factors in the disposal of this asset. The UK Competition Commission has issued a provisional finding that Ryanair's shareholding gives it the ability to influence the commercial policy and strategy of Aer Lingus on routes between Britain and Ireland. Its final findings are expected early next month. These matters will continue to be taken into account in the Government’s plans for how to proceed with the disposal of its stake in that company.
However, it is the Government’s view that optimal conditions do not currently exist for a sale of the Government’s remaining shareholding. Nevertheless, it remains open to considering opportunities to dispose of its shareholding and will, in the meantime, continue to manage the holding in a responsible manner to protect the State's interests, with the aim of maximising its value.
With regard to Coillte, a number of detailed financial, technical and other specialist reports were prepared for the company in late 2012 by external specialist consultancy bodies, in full consultation with the board of Coillte and its executive management. These covered all of the issues that have been raised by various interest groups, and on which I answered questions in the House on many occasions, including replanting obligations to ensure the continued existence of our forests, harvesting policy, the supply of timber to sawmills and the implications for a post-transaction Coillte. The reports concluded that a disposal of Coillte’s harvesting rights, which comprise much of the current value in the company, would have major implications for the future viability of the remaining business, particularly given its significant capital requirements.
The reports have been considered by the interdepartmental steering group established to oversee the Coillte transaction process, which recently reported to the Minister for Agriculture, Food and the Marine and me regarding its work to date. The outcome of this work was considered by the Government at its meeting this afternoon. The Government has agreed with the joint recommendation made by me and the Minister for Agriculture, Food and the Marine that it is not an appropriate time to proceed with the sale of harvesting rights in Coillte. Instead, the focus must be on the restructuring of Coillte as a company to address the issues that were identified in the reviews undertaken. To this end, the company is to undergo a fundamental restructuring to be overseen by NewERA and the relevant stakeholder Departments, namely, the Departments of Agriculture, Food and the Marine and Public Expenditure and Reform, which will include operational streamlining, financial deleveraging and a critical examination of the disposal options for its non-core activities such as telecoms and wind. A robust analysis will also be carried out to evaluate how to give effect to a beneficial merger of Coillte with Bord na Móna to create a streamlined and refocused commercial State company operating in the bio-energy and forestry sectors, as committed to in the programme for Government. A priority in this regard will be the annual delivery by Coillte of a material financial dividend to the State. We intend to fill the significant number of vacancies that will arise on the Coillte board this year by persons with relevant experience and commercial expertise to drive the restructuring process and merger with Bord na Móna if approved by Government.
I propose to comment on how we propose to use the proceeds generated from these asset disposals, as this is the reason we embarked on the process in the first instance. As members will be aware, it has been the Government’s consistent position that funds released from disposals should be used to support job creating initiatives in the economy. As I outlined, the agreement reached with the troika was that all of the Government’s proceeds from the State asset disposal programme will potentially be available, in one shape or another, for job creation.
The infrastructure stimulus plan I announced in July 2012 included an Exchequer element of €850 million to be funded through some of the proceeds of the sale of State assets and the new licensing arrangements for the national lottery. This money will be used as a project preparation facility for the new public private partnership programme and to fund additional Exchequer capital projects and other commercial and publicly needed projects.
The €150 million Exchequer investment I announced on 5 June represents the first phase of this Exchequer stimulus to support further investment in schools, non-national roads and housing insulation and refit. While this is a modest level of funding, it is additional to the €3.4 billion capital programme for this year and will be augmented over time once proceeds come on stream and additional projects are identified by the Government.
My Department, in conjunction with relevant spending Departments, will assess what further projects we can invest in once the proceeds are realised later this year. We will need to consider this issue carefully in the coming months. Any potential further projects for investment must be aligned with Government priorities, must meet infrastructural deficits and must pass all of the appraisal and evaluation tests associated with capital projects, an issue that members have underlined repeatedly.
The policy pursued by the Government over the past two years, in terms of the approach taken to release value from some of our non-strategic State assets to realise additional funds to help fund a stimulus programme remains valid and appropriate in the current circumstances. I am confident that the asset disposals we have outlined will be implemented in an efficient and effective manner and the proceeds generated will facilitate much needed additional investment in worthwhile projects in the months ahead in support of our common objective of economic recovery. I will answer any questions members may wish to raise on these matters.
The joint committee is interested in considering the quarterly position as regards expenditure, having recently discussed the position as regards taxes and revenue with my colleague, the Minister for Finance. Obviously, a key feature of the expenditure management structure is that responsibility and accountability for each area of spending lies, in the first instance, with the relevant line Minister and his or her Department. In addition, a range of Oireachtas committees have a remit in the various sectoral spending areas. I will be pleased to explore with the committee how best to approach this matter, including the basis the Chairman outlined, while being mindful of the roles of spending Ministers, their Departments and other committees of the House.
I thank the Minister. As it is proposed to discuss both the sale of State assets and budgetary management by the Department of Public Expenditure and Reform, I propose that the first round of questions from spokespersons be limited to 15 minutes. Is that agreed? Agreed.
The headline issue in this discussion is the proposed sale of Coillte. In light of the Minister's statement, will Coillte remain in public ownership on a temporary or permanent basis?
The only proposal before the Cabinet was the sale of trees, in other words, the advance sale of the crop. As I indicated, an exercise in due diligence was done on the proposal. I have repeatedly stated that we would drill down into every State company to ascertain what, if any, benefits each proposed sale offered. If a sale did not make economic sense, we would not proceed. On this issue, our due diligence has indicated it is not prudent to proceed with the sale of trees, as proposed. As a result, we will instead have a root and branch re-evaluation of the future of Coillte, specifically in respect of the possibility of merging the company with Bord na Móna to establish a new bio-energy company in the State sector.
The timeline is tight. It is our objective to have the evaluation completed by the end of the year. Preliminary work has been undertaken by NewERA and I have read its preliminary report on the feasibility of merging the State companies, Coillte and Bord na Móna. Much more work remains to be done but it is hoped, notwithstanding the complexity of the issue, to complete the work by the end of this year. If the proposed merger makes sense, a formal decision will be made to merge the two companies.
The Minister clarified that the issue under consideration was the sale of Coillte harvesting rights rather than the company's lands. He stated: "a disposal of Coillte’s harvesting rights, which comprise much of the current value in the company, would have major implications for the future viability of the remaining business, particularly given its significant capital requirements". Will he elaborate on his comment that the disposal would have had implications on the future viability of the company?
I do not want to release commercially sensitive information into the public domain, other than to point out that the experts who examined this issue found that a sale of the harvesting rights of Coillte would create financial difficulties for the residual company. Both Departments determined, therefore, not to proceed with the proposed sale and this position was endorsed by the Cabinet today.
We need to see how Coillte can be restructured in a way that makes it a significant contributor to our economic recovery. In the programme for Government one of the ideas of both parties was to examine the bioenergy sector. It appeared to us, without an exhaustive analysis, that Bord na Móna and Coillte were a good fit. Both have significant land holdings. In terms of Bord na Móna, Deputy Flanagan will be aware it is coming to the end of its prime resource, turf, and it has expanded into a number of other areas. It is clear that all the bioenergy options, whether we are talking about wind, biomass or anything else, need to be teased out, as well as the economic implications, the investment required and the liabilities for each company. We will report to the committee in due course once that exhaustive analysis has been completed.
A significant change was renegotiated with regard to the €3 billion sum. The initial intention, as agreed by the troika with the previous Administration, was that the sum in its entirety would go to pare down debt. The negotiation by the new Government was for a 50:50 split between debt repayment and job creation. As we are beginning to exit the bailout programme and that target is on the horizon, given that the promissory note issue has been resolved and that other matters in regard to the long-term restructuring of the banking debt and other debts have been put in place, is it time the other 50%, rather than paring down debt, was targeted towards the National Pensions Reserve Fund, NPRF, in case of a rainy day? One of the consequences of the economic meltdown was that the NPRF was depleted. Is it not time we started to put money back into the fund, and does the Minister agree that this should be done through the sale of assets?
Three distinct questions have been put by the Chairman. First, there is what he classifies as the 50-50 split. It is absolutely true that in my first engagement with the troika it was clearly of the view - this is sometimes contested - that the agreement was that the proceeds of the sale of any State assets would be used to retire debt. It was adamant that would be the case. It took some time for the troika to move to the agreement with me that 50% of the actual proceeds could be reinvested in commercially viable enterprises that would generate jobs in the economy. It did not end there; I went back again to ask about the other 50%. What led me to do that was the difficulties we had in getting the first public-private partnerships back on track because we did not have an AAA-rated bank to partner the European Investment Bank for PPP proposals, as required by the bank's own internal statutes. I discovered that one of the things Greece was able to do was to use unspent structural funds as a backstop - a guarantee - and that was acceptable to the European Investment Bank. We did not have any unspent structural funds as we spend every euro. I thought we could use that money as a backstop, and that is one of the areas where we might be able to use the residual 50% before it eventually goes to pay down debt.
I want to make a comment about the debt. Although we have come a long way in the past two years in a very significant process, we have reprofiled the debt over a longer period. We have reduced the interest payments, saving us some €10 billion, and reduced the interest rate by 2.5%. We have torn up the promissory note and rescheduled the repayments on the promissory note - rather than having bullet payments on an annual basis of just over €3 billion - to a profile of 34 years on average, reducing the demand for money. All of that is true and it has taken the pressure off, but it does not take away from the fact that our debt will peak this year at €123% of GDP, which is still shockingly high. We are determined that it will be on a path of decline from this year. However, we cannot be negligent or blasé about the quantum of debt that still hangs over the Irish nation. That is something we want to deal with.
The third question was about the use of money to augment the NPRF. The Minister for Finance and I announced last week that we are winding up the National Pensions Reserve Fund and transferring its €6.4 billion into the new Irish Strategic Investment Fund. The need of this economy is for investment now. Our common view is that the best way to make provision for future pensions is to actually have a growing economy, because we pay for pensions on a yearly basis out of current Exchequer funds. Therefore, we need to ensure we have a growing economy and we need to create jobs now. The Chairman made a fair point that when we get back to something more normal in terms of economic growth we should look again to rebuilding a pension reserve fund into the future. However, the immediate priority in the medium term is to have capital to invest in infrastructure and jobs in our economy right now.
The second part of today's engagement with the Minister concerns public expenditure. Some of the more positive outcomes of the troika's arrival into Ireland have been the way in which budgetary management is scrutinised, the types of budgetary reform that have taken place and the fact that Departments must report on a quarterly basis and those figures must be shown to add up. What the committee hopes for is that those budgetary and fiscal reforms will be reflected in how the committee deals with the Department of Public Expenditure and Reform and the Department of Finance. The Minister will recall that last year - it happens every quarter - some concerns arose in the area of health in quarter one and quarter two, and in quarter three we had a balloon payment, as I explained earlier. In the Minister's estimation, are the budgetary criteria and the budgetary figures indicating any amber or red lights at this stage?
Okay. With regard to the structural debt, I want to facilitate and co-operate with the committee because it can help me on the work of oversight. It is not an easy task because profiling departmental expenditure happens after we publish the Revised Estimates Volume, REV. For example, after April this year we have a monthly profile and can actually look at a comparator figure. I can give the committee the figures for all expenditure on taxation matters up to the first quarter, published against a profile of last year, which is not very helpful, but the more recent ones are profiled against this year, which I believe would be more much more helpful to the committee. I have a pack prepared which provides profiles up to the end of March and up to the end of May, which are the latest figures available. I will give these to the committee to have a look at them. It is difficult to disaggregate the meat of what the committee wants from this. I would like some discussion about how to construct this because we can give the committee a better precis of where we are at.
The net question the Chairman is asking is where we are at now. One does not want it to be a secret until the end of the year only to have it come as a surprise. I think that was the genesis of his proposal. Up to the end of May, on the expenditure side, every line Department except one is under profile. One Department - the Department of Arts, Heritage and the Gaeltacht - is over profile, by €1 million.
I wish to read back a sentence from page 2 of the Minister's opening statement. "A target of €2 billion from the sale of non-strategic assets was agreed in the programme for Government." What we have heard from the Minister subsequent to his opening remarks here has been a litany of broken promises in that regard. The Minister said the €2 billion was to be made up from part of the sale of Bord Gáis Éireann, part of the sale of some of the ESB assets, from the sale of the 25% stake in Aer Lingus and from the sale of Coillte trees. However, the Minister has come in today to say that two of those four sales will not happen now. The 25% share in Aer Lingus is not for sale now and we agree it should not be sold. Also, the Coillte assets are no longer for sale and the company will now be merged, possibly with Bord na Móna.
The Minister had hoped to realise a target of €2 billion from the sale of the four assets mentioned.
I was not going to go back to that because I want to deal with the Government we have today. However, if anybody can show me any memorandum of understanding of the previous Government showing a figure for the sale of State assets, I would be pleased to see it, because no such memorandum exists and there was no such figure. The first figure that went on the public record for the sale of State assets was the €2 billion the Minister and Fine Gael included in their programme for Government. The other figures were always related to the agreement with the IMF to undertake an independent assessment. That is as far as it went. The new Government has come up with the figure of €2 billion.
We have now seen a series of broken promises, but I welcome these because I did not agree with the sale of Coillte forests or Aer Lingus. The Minister has said that the troika wanted to keep the full €2 billion for debt reduction. However, he has now said that if the sale of assets realises €3 billion, Ireland will be permitted to keep half of it for job creation and stimulus measures while the other half goes to debt reduction. Therefore, the troika insisted that €1.5 billion should go for debt reduction. How much will we now achieve of the €3 billion target the Minister has set from the sale of Bord Gáis Éireann and ESB assets? It is around this amount that the Minister has built the infrastructure stimulus plan he announced in July 2012.
In his opening remarks today, the Minister said €850 million of this was to be funded from the proceeds of sale of State assets. Now that two of the four assets for sale are off the agenda, where stands that €850 million? Given the Minister announced the stimulus plan 12 months ago and given the big fanfare regarding the €850 million, how much of that has been received so far? The Minister got great mileage out of this €850 million, which did not exist then. How much of it exists as we speak? The Minister announced another €150 million part of that stimulus package recently, but how much has he realised from the €850 million he has referred to so often over the past 12 months?
In regard to NewERA, will the Minister clarify whether this comes under the remit of this Minister or of the Minister for Finance? I welcome the people from NewERA here today, Ms Fitzpatrick and others. Where does NewERA sit with regard to what was the National Development Finance Agency, which had a role in regard to public private partnerships and assessing their financial viability? Has that agency been subsumed, is it gone or does it still exist? How many staff are in the National Development Finance Agency and NewERA? How many also are part of the NTMA, which as far as I understand falls under the remit of the Department of Finance? Where is the demarcation line between this Minister's Department and NewERA? I know the Minister will say they work closely together, but will he explain to us the actual situation?
The only State asset on which there has been movement so far is Bord Gáis Éireann, and the Minister has said he commenced the sale process on 12 June. The only thing I know about Bord Gáis Éireann so far is that it has taken on approximately 300 or 400 staff to deal with Irish Water. I do not see the Minister realising proceeds from the sale of assets, but see him spending money the people will have to pay in water charges when meters are installed after the local elections. The Minister says he intends to sell the energy business side of Bord Gáis, but can he assure us that he will not be back here next year trying to sell the water side of the business once Irish Water is up and running and people are being charged for water?
The Deputy has raised a number of questions. There is a tad of normal cynicism from the Deputy. He is neither for nor against things. He is half for and half against them, but I suppose that is a good way to be.
On the target, I do not have a piece of paper to prove what I have said on the record. In the original documentation, the paragraph that has been quoted so often is predicated on the outcome of an bord snip. The understanding the former Administration gave - the Deputy may or may not take my word on this, or he may take up the phone and talk to the Commission and Frank Stakely will tell him his understanding - was that €5 billion from the bord snip portfolio would be available to retire debt. It took us a fair job of work to dislodge that idea from the troika's perspective.
It is true there is a figure of €2 billion in the programme for Government. Fine Gael came in with a much higher requirement to sell because it did its own due diligence and determined that when the economy was starved of cash, it wanted to create a new entity called NewERA to recycle money from older companies that were up and running that could stand on their own in the private sphere and create new State companies. I thought that was not a bad idea, but believed the scale was too ambitious and we agreed to scale it back to €2 billion. After that, I then had the job in Government to convince the troika to allow us to use that €2 billion, when we got it, to reinvest in the next phase of jobs, both in the private and in the public sphere. That is what we are about and that is how the increase to €3 billion came about.
Deputy Fleming is correct that the increase was a brokered arrangement, arrived at over protracted discussion and months. We had to dislodge the troika from the position it had. We were dealing with people on whom we were dependent to fund our systems month by month. I believe the deal we made was a reasonable deal and I have outlined the initial step - the 50:50 step - to the deal and the advance on that, which in essence in the medium term allows us to use the full 100% stakeholding we get from the sale of State assets to invest in jobs.
Deputy Fleming suggested the fact Coillte forests and the stake in Aer Lingus are not for sale now is a broken promise.
The only promise I made and I will make it again, is that there will be no fire sale. There will be due diligence. We will sell nothing that does not get value. If we do not get a fair price we will sell nothing. I have said that from the beginning. If the Deputies think that we should sell Aer Lingus at any price in any circumstances, under any conditions, they will be on their own. The same applies to Coillte. If, manifestly, the due diligence we have done said that the Government objective set out could be achieved then we would proceed with the sale of the harvesting rights of Coillte but I have said that our due diligence showed something else. That underscores our consistency, the correctness of our view that we will proceed with an asset sale only if it makes economic and strategic sense for the Irish people and for our economy at this time.
In answer to the points about the various stimulus programmes, of the stimulus plan that I announced last year, €850 million will come from the proceeds of the sale of State assets. That is a modest sum in the context of what will be realised from assets that are for sale now. I will not breach confidentiality, mainly because I do not know and have asked not to be told what the bids are, but I know that there are robust bids for the assets that are for sale. I have kept completely separate from the bidding process and the structure. There is an absolutely sealed process for those interested in buying State assets that will have no contact with any member of the Government or any of our political advisers on these matters. That is as it should be and I wish that was always the way.
We are confident that we will realise very significant funding from the sale of State assets and that will become available to us this year. Maybe I should explain how that will be dealt with for general Government debt purposes, GGDP, and general Government balance purposes, GGBP. Deputy Donnelly has asked about this in the past. The licensing arrangement following the sale of the national lottery will come onto our books as soon as the payment is made, while the others will come as a credit to the ESB when it is sold and to BGE when it is sold and will be brought back onto the State accounts by way of a dividend payment when the Government determines. We can time that to the best benefit of the Exchequer and when we need the money. There are 14 staff in NewERA, the National Development Finance Agency will be subsumed into the National Treasury Management Agency and other staff into the merged National Roads Authority and Rail Procurement Agency, which is will be a new procurement agency for the State. That is one of the mergers that we announced in 2011.
The final question was about water and the Deputy was being particularly mischievous there. He knows full well that there is a clear Government commitment that Irish Water will be a wholly State-owned company, that it will not be for sale, is not for sale and we will not countenance its sale.
The Minister had a target of €2 billion for the sale of State assets, then he upped it to €3 billion. Given that Coillte and Aer Lingus are off the list, for now, what is the current expected target? The Minister was able to talk about a figure of €2 billion which went to €3 billion but now that two of the assets are off the list by how much approximately will the Minister be short? That is a significant reduction from the original target of €3 billion so how much will the Minister need to have available for his infrastructure stimulus package that he announced in July 2012? He very correctly said a few moments ago that he will sell nothing if he does not get a fair price. That could happen and he has deemed it more prudent not to sell Coillte and Aer Lingus. If he is not sure of the proceeds how could he last July announce expenditure of €850 million before having received a red cent? He has announced it and referred to it several times and the money is still wishful, waiting somewhere over the horizon. We now know that a large chunk of it cannot come through because Coillte and Aer Lingus are off the agenda. What is the Minister's revised target and how much of the €850 million, that he announced a year ago he would spend, has he realised? Has he been back to the troika? He said he had a great deal of negotiation with the troika about the use of the funds and that the Government made its decision today. Had he cleared that decision with the troika before announcing it today? Is the troika aware that the target of €3 billion that he agreed with them after "tortuous" negotiations is not now going to be met and what is its reaction to that?
Yes, and it was a 15 minutes slot and the Chair does speak first. If the Deputy wants to have an argument with me he can, and he can have an argument with everyone in the room, but those are Standing Orders and he agreed to them. I specifically agreed this privately with the Deputy beforehand and he agreed it with me privately so he should not speak one way publicly and talk privately in another fashion.
The Deputy is wrong when he talks about a large chunk of the €3 billion not proceeding. The only thing that I said is not proceeding is the Coillte sale. The ESB sale is still possible but it is not appropriate now because there is due diligence happening. We are awaiting the report of the Competition Authority in the UK and we want to make sure it is strategically right.
A Freudian slip indeed. The sum originally, if one looks at the share value of Aer Lingus when we announced the sale, was of the order of €90 million so in the context of €3 billion it could hardly be described as any significant "chunk". It is more like a sliver or splinter, in the terms of Coillte I suppose, than a sizeable chunk. That is realistic. The vast bulk of the money that will accrue to the State will come from the Bord Gáis Energy division and the ESB energy sales. I supported that not only because it was a good generator of revenue for the State, but because I think it will be good in the long term to have more competition in the energy sector. I have always felt that the policy of the previous Administration, which created artificial competition between two State companies by not allowing the ESB to lower its prices while BGE took some of its market share, was crazy and bad for the domestic consumer and businesses. If we could get another strategic player into the market here by allowing it to have a ready-made platform, that would be good for consumers.
I welcome the fact not so much that the Minister has broken a promise, but that he has withdrawn the threat to sell off Coillte and indeed the State holding in Aer Lingus. Throughout this process the Minister has said that he will only consider the sale of what he deems non-strategic assets.
Does the Minister accept that Coillte is a strategic asset and the remaining State holding in Aer Lingus is equally strategic?
Time is limited and I have to cut across the Minister. He has used the same phraseology in respect of Coillte, namely, that it was not the appropriate time to proceed with a sale. He has made very clear that translates into Coillte being off the table. Perhaps the author of the remarks is within the Minister's delegation. I can only assume that because he used the same phraseology for Aer Lingus and acknowledged the competition concern vis-à-vis Ryanair and so on, when he says now is not the appropriate time for Aer Lingus to be sold, that translates into the same matter, namely, that Aer Lingus is off the table.
Aer Lingus is not for sale now because it does not make sense strategically for Ireland. Until we see the shape of the airline industry, access and so on-----
Can I answer the question? That is the view of the Minister for Transport, Tourism and Sport. I repeat the point I made to Deputy Fleming. It is a tiny part in terms of the overall value. On the Deputy's other question on whether I regard the sale of the harvesting rights of Coillte as strategic, I do not.
It is interesting that the Minister is at direct odds with the Irish Exporters Association which takes a very different view. It sees Coillte and its harvesting rights as deeply strategic. He is at odds with many outside consultancy papers which were considered by him and his delegation, and which drove the decision by Government to back off Coillte. It strikes me as very odd that at this juncture, having backed away from Coillte, that the Minister could not at least acknowledge the strategic importance of harvesting rights and trees.
It is not growing trees for ornamentation, although it sells Christmas trees for ornamentation. It is a producer of timber for the timber industry. Just as a farmer grows crops for sale, it would be perverse to think one could not sell the crops. We will sell the trees but the proposal to do an advanced sale on the basis we had proposed is completely different.
It is the equivalent of saying that farmers milk cows and grow crops for commercial purposes and therefore the sector is not strategic in terms of the State and our economy. It is a nonsensical argument.
The Minister will not concede the point. Coillte is strategic. It is today and was at the time he decided to examine it for the purposes of the sale of harvesting rights. The State's holding in Aer Lingus is strategic. The European Commission and UK commission deliberations on the company reflect very clearly the strategic issue of the State's holding. I find it very odd that the Minister has backed off on the threat to Coillte and, it seems, to Aer Lingus but still will not acknowledge their strategic importance. Irish Water, I presume, is regarded as a strategic asset by the Minister. Therefore, we can assume it will never be on the table for consideration, due diligence and sell-off. Is that correct?
The Minister made much of his achievement in raising the €2 billion bounty to €3 billion. If he achieves the target of €3 billion, the troika said on that basis that he could have a 50:50 split between investment in stimulus and debt write-down. I can only assume, therefore, if he does not hit the target of €3 billion, that there will be implications in terms of the understanding with the troika.
We are engaged in ongoing discussions with the troika which evolve. Obviously, not everything is on the agenda right now. We do not know the value which will accrue from our holdings. We have delivered on every commitment we have made to the troika.
In his speech which he delivered today, the Minister said he was able to convince the troika of the 50% investment in jobs stimulus on the basis that he would hit a target of €3 billion. He said this repeatedly and confirmed it again today. In the event that he does not reach the target of €3 billion, is there a question mark over the 50% investment in jobs stimulus?
I am trying to explain the situation. The first thing I negotiated was whether I could invest the money before we reached the €3 billion target. That is why I was able to announce it in advance. It is not, as the Deputy is implying, the case that until we get €3 billion in the bank, we cannot start spending. That is not the agreement. We do not know what will accrue but we have a reasonable indication of the ballpark figures which would accrue from the assets we have for sale.
We are very confident that the stimulus plan I have announced so far will be fully funded. I hope and am very confident that more stimulus plans will flow in addition to that.
I will not talk over the Minister if he does not talk down the clock. He said: "I secured an agreement that in return for increasing the level of ambition of our asset disposal programme to a €3 billion target the troika agreed that we could retain half of the proceeds to fund additional employment enhancing projects", which is a jobs stimulus in other words. They are the Minister's words, not mine. The quid pro quo for permission to invest in jobs stimulus is the hitting of the €3 million target. By any logic, given that Coillte and Aer Lingus are off the table-----
I have already answered that question. It is not, in the sense that we can start spending the money immediately, before €3 billion accrues to the State from the sale of State assets. Is that clear?
The Minister has an open-ended arrangement with the troika that he will notionally, at some point in the future, hit €3 billion. In the meantime, he can invest in jobs stimulus. Is that a lay translation?
Given that Coillte and Aer Lingus are off the table and that, in the Minister's non-strategic view, he has chosen to dispose of Bord Gáis Energy and parts of the ESB, how will he make up the €3 billion? Irish Water is also off the table, I understand.
We will see these things over time. As I explained to the Deputy, we do not have to reach the €3 billion target before we start spending. We will wait to see what the items we have for sale accrue. They might surprise us all. Perhaps we will get €3 billion from what we have on the table. We will see.
It strikes me as an extraordinarily loose arrangement with the troika. The Chairman of the committee praised the fact that the troika's arrival here marked increased scrutiny of budgetary matters and a tightening of the reins.
This is over and above the normal discipline we have on expenditure. It is over and above the agreement we have on taxation, how to deal with asset sales and how we apply them. There is nothing loose about it because it is a commercial transaction.
The troika, no more than myself, cannot be certain of the sum of money that will accrue to the State for any particular asset. The troika, like us, is closely monitoring what we achieve and we will see what we achieve.
Because the troika members would have been aware of the intervention of the UK Competition Authority and the implication that had for the sale in the short term.
Obviously it would make no sense at all to make any decision about Aer Lingus while the actual shareholding of another significant shareholder in the company was under scrutiny.
If it was still a wholly State-owned company I would probably agree with the Deputy. However, I am afraid the small shareholding that we now have, which is not only a minority shareholding but a small enough minority shareholding, unfortunately is not strategic in the sense that it can no longer influence the policy of the company. That was a decision made by a previous Government.
The only question I asked was whether it was likely we would get a fair value in our own estimations for these companies and the advice was that we would.
It would be strange if I were confident that one single bidder would possibly give us the price. The Deputy can be certain that there clearly is competitive bidding. That is the advice I have been given. To put it bluntly, I have gone to extraordinary lengths to stay away from knowledge of who is bidding, the number of bidders or the prices they are bidding at. I will leave that to a completely separate channel because I think that is right and proper.
Obviously the company is in discussion with its own unions. Those particular State companies have very elaborate industrial relations machinery, and the discussions are ongoing. I am not party to them. I suggest the Deputy talk to the companies directly or to the line Ministers in order to find out the specific details.
I welcome the Government's decision to abandon the plan to sell off the Coillte harvesting rights. This is a stunning victory for people power and the campaign of public protest against the plan to sell off our public forests. It is a pity that members of the Minister's own party, who are chuckling, seem to have such contempt for the public's view on this issue-----
It is a tremendous victory for people power and the protest campaign against the plan to sell off the forests. It is also a victory for common sense. It indicates that the Government is listening to people, which is a positive development. The Minister has stated that it is not now an appropriate time to sell off the harvesting rights of Coillte. Will he assure the committee and the public - who have expressed their opposition to any plan to sell in any part our public forests - that there will be no future efforts to sell off any part of our public forests? Will he agree there is no appropriate time to sell off what is an absolutely precious cultural, national and economic asset?
I will accept the good wishes of Deputy Boyd Barrett on the Government decision. He is correct that we are a listening Government. The criteria we set down for the sale of any asset is simple: it must make economic sense. Bluntly, this is not anything ideological. If the sale of these harvesting rights made economic sense I would be recommending a sale to the Government. However, it does not make economic sense and that is the reason we are not proceeding with it. There is a notion that we do not sell trees. Coillte is the national forestry company and it is growing trees for sale. We would have no sawmills or timber industry if Coillte did not sell trees. Of course the trees are for sale-----
My time is short and I have heard the Minister's point before. Is the Minister saying that he is still holding out the possibility of selling off the harvesting rights at some point in the future?
That is what Coillte has always done. However, we are not proceeding with the advance sale of the harvesting rights; that is off the agenda. The Deputy should not confuse the two issues.
On the contrary, the Minister is confusing the issues. I asked about the harvesting rights and the Minister spoke about selling trees. We all know Coillte sells trees and plants replacements. Any benefit or profit that is derived from that sale comes back to the State and to a State-owned company. The issue is that the Minister had proposed to sell off the harvesting rights to private enterprise. What I want to know is whether the Minister can give us a firm assurance that it is completely off the agenda to sell off at any point, now or in the future, Coillte's harvesting rights in Ireland's public forests, and whether he will commit to retaining the harvesting rights to Ireland's public forests in public ownership in perpetuity.
I have told the Deputy that the Government decision is not to proceed with the sale of Coillte harvesting rights and that we are embarking on a completely different process, which is to do a complete restructuring of Coillte and explore a merger of Coillte with Bord na Móna in order to establish a new bioenergy company. That is our focus. The NewERA entity will be instructed to explore this over the next number of months. When that work is completed I will inform the Deputy of what the Government's next step will be.
The Minister is slightly dancing around the question. If I am not getting an answer, so be it. I do not believe, and neither does the public, that the harvesting rights or any aspect of our public forestry should be sold now or at any point in the future, not just because it is a valuable economic asset but because it is part of our national and cultural heritage. It is simply not for sale. Does the Minister subscribe to that view - which I think is the majority view in this country - that our forests or the harvesting rights to them are not for sale, now or at any time in the future?
It was always our intention to retain ownership of the land. We are growing the trees for a purpose and are now embarking on a different strategy. I thought the Deputy might embrace this new strategy and welcome the development of a new bio-energy company and wish it well.
I am willing to accommodate the Deputy as far as I can, but the type of value-based language he has used is not acceptable. It is permissible for him to accuse the Minister of being evasive, but words like "despise" are not acceptable.
The Minister seems entirely dismissive of the impact of public opposition to his previous commitment to sell off the harvesting rights. People in this county do not believe that any form of privatisation of any aspect of Ireland's public forestry is acceptable, because it will lead to pressure on that amenity, which is a precious national asset, as a whole. I was hoping for an assurance from the Minister that the Government has fully abandoned any plan to privatise or sell off any part of the public forestry. That is what I am seeking and what the public would like to hear.
The last person who was capable of looking into his heart and discerning the view of the people was Éamon de Valera. Deputy Boyd Barrett clearly has a similar understanding of the will of the people in a way that the rest of us mere elected representatives do not. He speaks for the people but we are apparently unable to do so. It must be the case that we manifest ourselves into Dáil Éireann by osmosis or something like that. In fact, every member of the parties that make up the Government is elected to the Oireachtas and is very close to the views of the people.
I am sorry the Deputy's summer campaign has been disrupted. We did not make this decision because he was outside with a poster or anything else. The reality is that the criteria I set out on behalf of the Government were not met in this case. We are not proceeding with our initial plan because it does not make economic and strategic sense for the people of Ireland.
In regard to the potential sale of other State assets, I would make the same argument. Does the Minister agree that selling off the profitable parts of Bord Gáis, for example, to an entity such as Blackstone, the United States investment fund which I understand has expressed an interest in purchasing them, for the rumoured price tag of €1 billion, will inevitably put pressure on the remainder of that company's operations? Why would we sell off the profitable parts of a company which is currently in public ownership, leaving us with the parts that are costly to maintain? Surely that is a recipe for privatisation further down the road?
Bord Gáis was set up as a gas distribution company, is operating profitably in that capacity and will remain as such. In recent years it has built up an energy-generating capacity, in competition with another State company, ESB, which heretofore had a very significant share of the energy-generating market in the State. As I indicated in my response to Deputy Sean Fleming, the entry of another player would be good for consumers, both domestic and commercial, in a context where energy prices in this economy are far too high. We must ensure there is real competition in the market. We have the prospect of a double benefit from the sale of the energy-generating capacity of Bord Gáis Éireann and some of the capacity of ESB, although, in the case of the latter, the first two power stations to be offered for sale are not on this island. This will be good for competition and will provide a fund for reinvestment in the next generation of State companies and the infrastructure we require to grow our economy and create jobs. The largest deficit in the economy is the deficit of jobs.
I agree that the deficit of jobs is the greatest problem for our economy, but I do not see how selling off profitable parts of State enterprises will create jobs. In fact, doing so will merely put pressure on what is left of the company in public ownership to be privatised. That was one of the reasons for my opposition to the sale of Coillte's harvesting rights, and the same danger arises in respect of Bord Gáis and ESB. After selling off the profitable bits, what is left will invariably come under greater pressure further down the road.
I have a final question. The cost of energy is a major burden for consumers and the State as a whole. Bord Gáis Energy produces wind energy, has a considerable development portfolio and has wind energy assets currently under construction. How can it be a good idea for the State to sell off the ability to produce energy? Surely having the ability to produce our own energy is the way to exercise some degree of control over prices? If we sufficiently develop our wind energy capacity, we will have access to cheaper electricity for citizens. It is a question of control of the production of energy.
I do not agree with the Deputy, who is trapped in an ideological view. The notion that he would describe two power stations, one in Amorebieta in Spain and the other the Marchwood plant in England, as being strategic for Ireland-----
The focus of our State companies must be on investing in our economy and creating jobs on this island. That is certainly the Government's view. Not everything State companies have done in recent years have been in the interest of the stakeholder. That is why we are introducing a much more disciplined approach, under NewERA, to ensure the Irish people get full value for their investment. These entities are owned collectively by us. The Deputy is right in so far as it would be my wish to free up new capital to invest in the next generation of alternative energy generation in this country. It might not necessarily be wind; biomass, wave energy and all the other options must be considered. It is the ambition of the Government that we become an exporter of energy.
I have a few questions for the Minister. What has been lost sight of is that the purpose of this measure is to invest money to generate jobs. Will the Minister indicate the job-proofing - if that is the correct term - is being done to ensure that any investment of these proceeds will be put into areas that will lead to the maximum outturn in terms of jobs?
The Chairman is excused. There is a moral in the story in that Deputy Creed indicated he did not wish to speak but he has assumed the throne instead.
The Minister said in his presentation that the €3 billion target was decided to effectively arrive at a position where half of the proceeds could be put into employment creation projects. He further said that he may have the flexibility to allow the full €3 billion to be put in. He might elaborate on how that would work?
Deputy Boyd Barrett made an ideological point but I do not consider it to be a question of ideology; I see the role of Government as being to provide the infrastructure to enable private enterprise to flourish and provide jobs.
Everyone is being very helpful. I was very much against the idea of the network being sold in terms of Eircom. It set us back in the Government being able to roll out broadband and on various other measures. When considering Aer Lingus, one of the key features is its Heathrow slots. It is a major factor in the case of Shannon and I represent Limerick City. The Minister might explain that factor in terms of control mechanisms. This factor involves connectivity and other elements. The Minister might elaborate on his thinking on that area.
Regarding the €3 billion target, will the Minister also elaborate on what he expects to be the range of funding available and link that to the type of projects it might be invested in and how they will be job-creation proofed? There is much talk about this but I want empirical work done on that. Those are my practical questions. I want the Minister to talk about job creation. It is wise that decisions made on Coillte would be empirically based. The Minister might give an overall view on that area with the emphasis on job creation. I am particularly interested in the Aer Lingus's Heathrow slots as that issue has a particular resonance with people in the mid-west.
Deputy O'Donnell is right. We have to ensure that the investments we make will be strategic in terms of creating jobs in the medium term but that they will not be short-term jobs. The outcome has to be an important contribution to our recovery. There would be different manifestations of this. In the stimulus plan I introduced last year I announced what people would describe as traditional investments, for example, in roads, co-funded by the European Investment Bank and others, including the Council of Europe bank, health centres and justice facilities such as Garda stations. The investments were used to build what is needed for a modern economy to operate but they were traditional investments. The more recent €150 million stimulus plan I announced last week will be invested in relatively traditional areas. It provides an additional €50 million for schools that were not on the list, €50 million for non-national roads which will help rural Ireland to survive and thrive, and €50 million for retrofitting local authority houses, which is a little novel. That investment, which will allow 25,000 local authority houses to be insulated, will have a long-term impact on reducing energy costs. We estimate it will be of the order of €400 a year for those families in social housing. I hope we can have different types of plans and I am writing to every line Minister in regard to looking at objective proposals that might be funded.
NewERA is a new concept. Ms Eileen Fitzpatrick has not had an opportunity to make a contribution yet and I invited her to come with us today to give members a flavour of what NewERA has done. She might answer the Deputy's question on Aer Lingus's Heathrow slots, if that is agreeable to members.
Ms Eileen Fitzpatrick:
It might be helpful if I were to summarise what NewERA is doing and then I will deal with the question on the Heathrow slots. The work of NewERA must be considered in three parts. The first part is the financial oversight of the commercial semi-State sector. That semi-sector generates approximately €6 billion in revenue, has almost €14 billion in capital employed and is a very important economic player. We would assist the operating Departments in examining capital proposals coming out of the semi-State sector, proposals for borrowings and seeing how sensible they are in the context of Government, in other words, in the context of what financial return the shareholder will get. That is very much in keeping with best international practice. There are shareholder executives in most of the Scandinavian countries, in the UK and in France. We have interacted with most of them and it is also recommended best practice from the OECD. We have created in the past 12 to 18 months a protocol of operating with the commercial semi-State bodies. We are reviewing their corporate plans and investment plans in the main.
The second and equally critical part of the work is that we have been asked to ensure that Government investment plans in economic infrastructure are implemented and we have been asked to assist in the funding of those. Irish Water is probably a good example of that. If we can fit in infrastructure we can generate economic activity and have a competitive economy. In the case of Irish Water, capital expenditure is running at a certain level with the setting up of this new Irish publicly-owned authority. It will be capable of raising debt at some point in its future and increasing the level of capital in the State applied to water infrastructure, which is crucial in attracting certain key industries into Ireland.
Will there be a reporting mechanism for Irish Water to ensure the least possible cost for water services to the end consumer?
Over many years in this country various bodies have been set up that lack accountability and become like ships sailing away on their own. Is there an integrated model and where does NewERA fit in? I would also like to hear about the oversight role. The bottom line is accountability, underpinned by empirical evidence and financial details. The question on Heathrow has not yet been answered.
Ms Eileen Fitzpatrick:
Our role is very much as a captive corporate finance adviser for Government in terms of finance, funding and capital structures. We would, for example, produce models of what the future cashflow of Irish Water would be under certain scenarios. We are not in the policy-making area.
In terms of Bord Gáis, the Bord Gáis entity will have a big network company which is cashflow positive and it will have Irish Water. One of the ideas around giving that remit to Bord Gáis is that it already carries out activities such as IT platforms and customer services on which it could piggyback instead of starting off from scratch. That is just an example of the infrastructure.
The last part of the remit relates to the restructuring or disposal of State assets, where requested by Government. That would include refocusing semi-State companies that were set up a long time ago for various purposes, streamlining and whatever the Government asks us to examine in that respect.
In terms of Heathrow, I do not have my notes on that particular aspect of Aer Lingus. Our 25% shareholding with another small block of votes confers some form of veto over-----
What measures would be put in place in the event that the financial situation is correct and the 25% share in Aer Lingus were to be disposed of? We are an island nation and from a capital viewpoint one of the main assets Aer Lingus has is the Heathrow slots. Heathrow is a gateway. We had an overall review on Coillte. The Heathrow slots should feed into a continuous overview of Aer Lingus.
I will share my time with Deputy Ó Ríordáin. I wish to clarify a point in the context of the issue raised by Deputy Fleming. A review group on State assets and liabilities under the chairmanship of Colm McCarthy was set up by the previous Government.
Yes, an bord snip, as the Minister called it. My understanding is that when the discussions were taking place with the troika, it was intended that the savings set out by an bord snip would be put towards the payment of debt. The amount in question was approximately €5 billion.
I just wanted to clarify that because a certain amount of mealy-mouthed comment has been made today. I welcome the decision on Coillte. It has been obvious for some time that the sale of the timber would not go ahead because the Government has always said it would make a decision based on evidence. The position has been obvious for some time and it has been indicated by the Minister, Deputy Howlin, and other Ministers that the sale would not go ahead. I welcome the decision.
I should probably know the answer to my next question but I do not. In the context of the sale of Bord Gáis, it has a substantial broadband section involving a cable running from Dublin to Galway and Galway to Cork. Currently, it is digging up half the country coming back to Dublin. Is that included in the tender or will it be a separate sale?
Okay, it is not for sale at the moment. In terms of ESB and the power stations, when the roof is missing, I believe one must sell assets to put the roof back on the house because otherwise one will lose the house. I welcome the repatriation of funds from abroad to invest in this country, which is badly needed. I hope we will get the full value of the two power stations we are selling abroad. Has any work been done on how many power stations will be sold? Is the intention to sell off a certain amount of generating capacity?
On the question of the shareholding abroad, we have approximately a 50% shareholding in each of the two power stations rather than full ownership of them.
In terms of the further deleveraging possible by ESB, it has been expressed in kilowattage terms. When ESB has delivered on the first phase, it will make an announcement on the next phase.
My final question relates to Aer Lingus. The Minister is correct that we are a minor shareholder at this stage. The key element in terms of Aer Lingus is competition. Deputy O’Donnell referred to the slots in Heathrow. We must carry out an in-depth analysis of the importance of the slots in terms of connectivity. We are a small trading island.
I am also concerned about the value of the slots currently to Aer Lingus. It is my understanding that regulation will come from the European Union and that it might no longer be possible to sell or transfer the slots in Heathrow owned by Aer Lingus. Currently, some of the slots are leased and it might not be possible to get the same time if it re-leases, due to changes in European regulation in the transport area. I have raised the matter with the Minister for Transport, Tourism and Sport, Deputy Varadkar, and he shares my concern. The change would have a significant impact on the value of the Aer Lingus shares. What work has been done in that regard?
As regards Aer Lingus, the same level of due diligence that applied to Coillte has happened and will happen. Decisions will be made in the round, not simply on the basis of maximising a sum of money. The implications for tourism, exports and accessibility to the country will be taken into account. The Minister for Transport, Tourism and Sport has made that crystal clear. If and when we come to a decision in that regard, it will be a balanced one.
The percentage of shares we hold means we have very little influence on the issues to which the Minister referred. I accept the Minister is aware of the due diligence that has been carried out and he has more information than I have. However, looking from the outside in, there must be a question mark over whether the amount of money in Aer Lingus would be better spent elsewhere if we have very little influence on the policy and direction of the company and given that we must try to guarantee our connectivity in whatever manner we can because of the shareholding we have and to ensure there is competition. What is the basis of the argument for the sale, other than to make sure a good price is achieved for the shares? We have been left with this situation. I would prefer if we still had ownership of Aer Lingus but we do not. We must make a rational decision on whether it is worth our while holding the 25% we have and if Aer Lingus is the best place for the taxpayers' money.
That is the question that is being parsed and analysed constantly. In terms of the amount of money that would accrue from the sale of the remaining shareholding, we will see whether it is worth it in terms of the impact it might have on other areas. That is the valuation that has largely been done by the Minister, Deputy Varadkar. He will make a recommendation to Cabinet in that regard in consultation with me and with NewERA.
Many of the questions have been asked, but if the Minister does not mind, I will go over a few points again about Aer Lingus, the stimulus and the potential merger of Coillte and Bord na Móna.
Instinctively, I welcome the decision on Aer Lingus. The Minister said that at the moment optimal conditions do not exist for a sale of the Government's remaining shareholding. Deputy Humphreys spoke about the competition considerations, and we want to maximise its value in time but in terms of influencing commercial policy at Aer Lingus, surely a 25% share is effectively useless.
I do not want to put that on the record but as I said in response to Deputies opposite, it is a minority, and not a significant minority, shareholding in a company. Obviously, the majority can make strategic decisions for the company over which we have no control but relinquishing that has implications that we have to fully parse and analyse before we come to a conclusion that it is the right thing strategically for Ireland to do.
It is a shame that the vast bulk of the discussion today has focused not on what we are trying to invest in in terms of the job creation measures and the stimulus. That is the nub of the issue, and it is a success story that we are not selling off assets just to shift the debt but to reinvest in the economy.
The Minister referred to traditional investments. They seem to be quite construction heavy. I heard that at the height of the boom approximately 18% of the economy was based around the construction industry. It has collapsed to around 3%. The figure for the average economy is 7%. Will the Minister expand on the investments that will be made? How would he respond to the suggestion that they are construction heavy and that perhaps they should go into other areas? He mentioned Ireland being a potential wind energy exporter.
I will make a number of points. First, there is a big focus on construction because of the 250,000 private sector jobs this economy lost in the three years up to 2011, a big chunk were in the construction sector. We have many long-term unemployed people who came from the construction sector. If we can get some of those back to work it would be welcome but we are not going to build things for the sake of building things. We are building things that were strategically important in the plan for building an appropriate infrastructure for Ireland into the future. We need to meet the demographic pressures on schools, which is huge. That is welcome, but we need to build the schools now to ensure that the children who are aged one and two now will have schools to attend in two or three years' time.
Second, in terms of our health strategy to refocus the provision and delivery of health services away from the acute sector into the primary health sector, we need to build those primary care centres to do that, and hopefully save money, and have a more modern model of health delivery. Obviously, we need to have an infrastructure that is complete because although most of the main highways were built, not all of the motorways were built. For example, the N17 and N18 in the west is an important linkage across the west coast that needs to be advanced.
Those traditional construction projects are important strategically but we need to go beyond those, and I have an open mind to look at investment in other areas. The Deputy mentioned the energy sector. I had a meeting this morning with the vice president of the European Investment Bank, Jonathan Taylor, who has been here a few times. We have very good relations with the European Investment Bank now. Its president, Werner Hoyer, has been here on a few occasions also, and I have met him here and in Brussels. It wants to spell out the programmes it is funding. For example, the acronym JESSICA is for a city investment programme. It invests in retrofitting of houses and insulation of local authority houses, and it has programmes across Europe. One that I recommend the Deputy might examine is the Green London programme that it is funding, which funds the refurbishment of social housing in London. I would like to see a green Dublin programme, and perhaps a green Limerick or a green Waterford programme as well. That is in the JESSICA area. The European Investment Bank also has a JEREMIE programme. That is providing funding to the small and medium enterprises sector, which is also important.
What I am saying is that we hope to leverage up the money we will get from State assets. In terms of the idea that we have allocated €6.4 billion from the National Pensions Reserve Fund into a new strategic investment, we have a very significant quantity of money into the future to invest in job creating enterprises - private sector enterprises, public sector enterprises and infrastructure deficits. We are priming ourselves to grow ourselves out of the hole into which our economy has sunk.
There are a number of projects under way. The establishment of the interconnector with Britain is an important asset because if we can generate wind energy or alternative energy on this island, and there are many people both in the commercial area and in the public sector area who believe we can do that, there may well be programmes that we can ratchet up through investment to have new models of energy generation that will not only meet the needs of this economy but put us in a position at certain times to be able to export energy out to the island.
This is my final question, and I thank the Minister for his answers. The potential merger between Coillte and Bord na Móna sounds like an arduous process. Am I wrong about that? Will it not be that problematic?
Ms Eileen Fitzpatrick:
We have done an initial report on the possibility. Unquestionably, it is a big undertaking. We are at a phase now where we will be looking at the cost benefits of such an undertaking but there is also another element, which goes back to the point of refocusing and streamlining existing commercial semi-State bodies to evolve into new animals, so to speak, with new focuses. Bord na Móna probably provides an opportunity to be a semi-State body that is looking at exporting wind, helping with the Dublin water supply project, and other green technologies. We are also looking at the production of pulp wood in the State from Coillte and how Bord na Móna uses that. There are some natural linkages in that respect. We are at a very early stage in this process but it does not seem to make sense to do anything pre-emptive with Coillte until we have had time to consider it in the light of that.
Ms Fitzpatrick is very welcome. She has an exciting and challenging job and I wish her the best of luck with that.
The news from the Minister on Coillte is fantastic. I am delighted. Obviously, the Labour Deputies knew ahead of time, and we had heard bits and pieces, but it is fantastic to hear the Minister formally say it. The Minister referenced repeatedly that it is an economic decision. He and I have different views on this, and I respect his view, but it is worth repeating that for the people I represent it is not just a financial decision. I said to someone after the debate in the Chamber on whether the harvesting rights should be sold that it was like partaking in a debate on whether the rights to speak the Irish language should be sold for 80 years. I know the Minister does not feel that way about the trees, and that is fine, but I and many people in Wicklow do feel that way about them.
We take our trees very seriously, Chairman. I am delighted. Is it possible to release the economic analysis now that the decision has been made and therefore there is not commercial sensitivity around it?
It would be welcome to look at that. Specifically, I want to draw a distinction between financial analysis and economic analysis. I have done both in my past. Essentially, the financial analysis is a net present value, NPV, calculation.
It considers the various options, that is, sell, do not sell, a hybrid or whatever. It looks at a discounted future cash flow and comes up with the best answer for the State. A lot of commercial decisions get made on a comparison of net present value, NPV, calculations or a return on investment capital or whatever. The economic analysis is broader than that. While it includes a financial analysis, it also considers factors such as the inherent value to the citizen of owning the forests. For example, I believe the Bacon report tried to put a value on that, as economists can.
I referred to economists. The field of economics can take a decent stab at putting financial values on non-financial items. I have had the same debate with NAMA on how it conducts its valuations. Consequently, I wish to ascertain whether this was purely a financial analysis or a broader economic analysis that would include public value, private value and so forth.
I will not go back into the issue of it being a strategic asset. The Minister obviously does not believe it is a strategic asset but I believe it is, because of soil nutrition, tourism and the timber industry. Moreover, my understanding is we cannot import much wood into the country for disease control reasons and are highly reliant on our indigenous stock. While I could be wrong, that is what I have heard. Are there criteria for something being strategic? We all talk around this issue. I believe it is, the Minister believes it is not and we both have legitimate views. Is there a set of criteria used to determine whether something is or is not strategic?
First, from the very outset of this process, I indicated in all my parliamentary questions that all the various broad ranges of issues would be considered in respect of the sale of the harvesting rights of trees in Coillte, including, for example, ensuring public access, amenity, the impact on existing contracts with sawmills and so on. It was necessary to assign an economic value, if one was going to insist that certain woodlands would not be open for sale at all, that access had to be guaranteed or that there would be replanting. As all these things were part of the process, it was not, as the Deputy has described, a financial analysis alone. Were I on the other side of the House, I could easily get into an emotional argument about selling trees, as though I were selling the forests. However, that never was intended and I believe Deputy Donnelly knows that. Ideologically, I never had any great difficulty or understood a great difference between selling upfront the trees in advance or selling them post facto when they are grown, which is what they are being grown for, as long as all the other bits of the equation are nailed down, that is, the public access, the amenity, the replanting and all that. When the Government joined all the dots, it did not recommend itself as an economic prospect for the Government to advance and well and good. No more than I have an ideological disposition towards not being opposed to the sale of trees, I do not have an ideological disposition towards thinking the Government must sell them even if it does not make sense. It is purely pragmatic, based on what is in the best interests of the State right now, which needs money to invest in jobs. The 350,000 or 400,000 people who seek jobs right now want answers and want the Government to be vigorous in its search for answers for them.
Sure, and I appreciate that for the Minister, it is not ideological. However, I ask him to bear in mind that for me and for many others, it is. There is no right or wrong to it; it simply is.
The next question is probably for Ms Fitzpatrick. I am glad the company is being reconfigured. I learned a lot through the debate regarding what was and what was not working within Coillte, as well as that we did not appear to be getting much of a return from our trees. When the reconfiguration is being considered, I wish to emphasise a point that is highly relevant to Wicklow, which is that the tourism and public value potential is massive. I will provide a brief anecdote. A few months ago, I picked up a load of Belgian tourists going over the Sally Gap. They told me they had flown directly from Belgium, had got on a bus in Dublin airport and had gone straight out to walk a good portion of the Wicklow Way. They told me that while they have walked all over the world, in Chile and all sorts of places, they had never encountered an area that was so spectacular for tourism and walking but which had such little infrastructure. They observed that anywhere else one might go around the world, cabins and service sites are made available and such locations will be advertised. The group only found out about Wicklow, Ireland, Coillte and all that by accident. Consequently, I believe there is a huge opportunity to create an infrastructure. This is partly the responsibility of Coillte and probably should be a joint venture with the National Parks and Wildlife Service and so on but certainly, much of the route goes through Coillte lands. I emphasise I believe there is huge potential to build a tourism walking and cycling infrastructure.
Ms Eileen Fitzpatrick:
On that point and that of the Minister, while it is somewhat irrelevant to say it now, all those considerations are absolutely standard parts of international forestry deals. Access, recreation, social value and all of that would be taken as read as being built into any transaction in respect of forestry. As a result, we have a high level of awareness of this, as does the Minister and his Department.
Great. I guess my point is that it needs a change because while Coillte could claim it also knew that, when one compares Ireland's infrastructure with foreign infrastructure, it is not matched by reality. While it is wonderful for Coillte to make this point, there is an opportunity for investment, which probably would be at a low cost or would not be capital intensive. Did I hear the Minister or Ms Fitzpatrick state, in respect of NewERA, that in time there would be borrowing and that a debt facility would be available? Will such borrowing for the NewERA companies be off balance sheet?
That is good. It is convenient.
I have a concern with the semi-State organisations regarding the costs involved. For example, in the ESB, we have some of, if not the best paid, utility workers in the world and to pay for these salaries, the Irish people pay some of the highest prices for electricity in the world. While that is great if one is in the ESB, it is bad for everyone else. Will anything be done to ensure this sort of system does not occur in other NewERA areas such as water?
Allow me to deal with the energy side first. One must have a competitive market because that pushes down the price of everything and makes companies efficient. Bluntly, since the Government came into office, it has been required by the economic climate to do due diligence on every State asset in its possession, not only the commercial semi-State bodies but everything, including the public service and everything else. This is a huge job for my Department and other Departments have been doing the same, line by line. I wish to be careful as to how I couch this but I cannot say we got best value from all our semi-State companies in the past. We did not and we must both ensure this does not happen into the future and must put right what is happening at present. I believe the decisions being made by the Government incrementally will move us in that direction but obviously, one cannot turn around the tanker in one instant movement. As for pay rates and so on, the Government considered the top rates of pay immediately. It has put in place a new Hay pay scale that has put a ceiling of €250,000 on the salary of a chief executive officer of a commercial semi-State company. As the Deputy is aware, some of them were getting significantly more than that and this must migrate down to other skill sets within companies. However, the other side of this, of which I am highly conscious and I have made this point publicly, is we also must ensure that if we have commercial companies, they are offering commercial contracts and one gets the best people to run them for the best commercial return to the State. I do not know whether Ms Fitzpatrick wishes to add anything to that.
Ms Eileen Fitzpatrick:
Our approach to this would be to look at the overall finances of the company. Over time, we will be creating peer group comparisons. For instance, we have some peer group information on Coillte as it happens and this would tell a lot in respect of a company's cost structures. However, that is a five-year job, if one likes. It is to make sure that when one is comparing Irish semi-State companies with other similar companies, one is choosing an appropriate peer group and that one's comparisons are on a like-for-like basis.
On the €3 billion target for the sale of State assets, the Minister indicated that the second half of it will underpin additional lending. It sounds like a good plan. Is the idea that it would be some form of co-investment fund for matters such as the European Investment Bank and micro-finance funds? How will such underpinning of additional lending happen?
It was a question that was raised and I did not fully answer it previously. Once we had got agreement that we invest 50% directly, I did not want simply to take the other 50% and use it to retire debt. As much as I am anxious to squeeze down the total quantum of debt, it would be almost a token and it would much more valuable if we could use it in a different way. We were thinking outside the box on how we could use that and it just came up in our discussions in Brussels - as I explained, what Greece was doing - to use it as a backstop to ensure other investors such as the European Investment Bank, which need either a State guarantee which would put it on balance sheet or a bank with a triple-A ranking and such banks are scarce and Ireland does not have any, for the leveraging of additional funding. Bluntly, we have not yet thought out that element of it in any great detail. I would welcome any ideas Deputy Donnelly might have on financial instruments.
If I may finish the point, today we published a report, done jointly by the European Investment Bank and PwC and commissioned by the European Investment Bank, on the use of financial instruments. Such instruments might be a way that we could use some of that money in the medium term. These matters must be, first, fully investigated and then agreed with the Commission before we can deploy any of the money.
I congratulate the Chair on pushing this and the Minister on engaging on it. All I wanted to say is it would be good to have a meaningful engagement on this. Would it be possible in the future to get this kind of data a few days in advance?
I hoped we would have a scoping discussion about whether the shape of information is that which is of use to the Deputy or whether it should be in a different format. On my horizon in terms of time, I have four pieces of legislation currently before the Oireachtas. I do not mind providing a report to the committee and then, when I am available, coming in to do that in some detail.
There are two points in terms of the scoping that I mentioned in the beginning. The first is what sort of data is digestible and appropriate. The second is that I am jaundiced about trespassing upon other Cabinet Ministers or other committees. For example, I certainly do not want to drill down into the current expenditure of the Minister for Health, the Minister for Social Protection or the Minister for Education and Skills. They should be followed individually in their own line committees. We need a protocol and broad-strokes understandings about what exactly we can do on this. In general, it would refer to who is on target and who is not and on which the committee might provide a minute to the appropriate committee thereafter.
I certainly appreciate the Minister engaging with the process. I welcome Deputy Donnelly's comments on this as well. It is a simple matrix. There are Department heads and there are quarters for which one is on target, under target or over target, and the budgets in each Department are either current or capital. It is almost a one-page exercise.
I totally agree with the Minister's position. Whether it is education, health, social welfare or environment issues that arise, it would then be the task of this committee to write to the chairman of the relevant committee stating we believe there are budgetary issues in, for example, the Department of Education and Skills or the Department of Health, that the committee concerned might look at with the line Minister.
We did not get around to discussing this at the beginning. Much was made about a Supplementary Estimate in excess of €1 billion. Everything must be put into context. Of that, €685 million was the social protection additional Vote. I explained right through the year that was made up largely of two components. The first was the live register over which we have no control.
The other was a shortfall in PRSI. That was simply money that was labelled PRSI originally that actually was universal social charge when one drilled down to it because it was not dis-aggregated by Revenue. It looked as if there was more in PRSI income than there was and when that was taken out, it looked like a hole in the PRSI. There was a hole in the Social Insurance Fund because of a re-labelling of money. In true terms, if one looks at the overall increase in expenditure, that €1.5 billion is approximately 2.5% of the total budget and that takes no account of the savings across other line Departments. As I stated at the end of 2012, on an underlying basis, our spending was less than 0.4% above target for the year. It is an important clarification that there being a shortfall in PRSI is not a mismanagement in terms of expenditure. One had no control over that. What happens on PRSI is a matter for the numbers employed, etc. If there is an increase in unemployment, it has a double impact on social welfare. It increases the cost of job-support payments and also diminishes the volume of PRSI receipts.
The issue that focused our minds on this is not ultimately the minute percentile at which the overall Department of Public Expenditure budget might be at the end of year, whether it is 1% or 2% under or over. The issue is that if there is an overhang of €100 million to €200 million in a Department going into the last quarter, there is an impact on a section of that Department with a budget of, for example, €12 million, which then must be hit and there is a proportionality case. This was the case last year with home helps in that the budget for home helps was €12 million, but a saving of €150 million had to be found. That gobbles up the home help budget for the year.
Those are issues that the Chairman and I should not be talking about. The Joint Committee on Health and Children should be talking to the Minister for Health on those policy issues. We cannot drill down to that micro-management of a line Department.
I will be quick. On NewERA, the water supply for the eastern coastal region is important because investment is going into the city regions. If employment in the greater Dublin area is to grow, we need a water supply in 2020. It seems to be dragging its feet. Are there clear targets on how a water supply will be delivered to the greater Dublin area?
It comes under NewERA. I worked in the pharmaceutical sector. Industry takes decisions three or four years in advance. If we cannot give an undertaking or clarity that there will be a water supply, they will not make that financial investment. That goes for the pharmaceutical sector, Intel and Hewlett Packard on all major investments. Where are we at this stage with this item?
Ms Eileen Fitzpatrick:
I suppose Dublin City Council and the Irish Water authority would possibly own that project. Our part of it relates to Bord na Móna.
It is a question of ensuring Bord na Móna is focused, engaged and playing its role in that regard. The Department of the Environment, Community and Local Government is to bring this matter to the Cabinet committee on economic infrastructure very shortly.