Tony Killeen (Clare, Fianna Fail)

The purpose of the Forestry (Amendment) Bill 2009 is to increase Coillte Teoranta's statutory borrowing limit. The Bill proposes to amend section 24(1)(b) of the Forestry Act 1988, which provides for borrowings by Coillte Teoranta for capital purposes including working capital.

Section 1 provides for an increase in Coillte Teoranta's statutory borrowing limit from £80 million, that is, approximately €101.5 million, to €400 million. It amends section 24(1)(b) of the Forestry Act 1988 in which the existing borrowing limit of £80 million is stipulated.

The existing statutory limit was set in 1988, when the legislation providing for the establishment of Coillte was enacted, and has not been increased since then. Coillte has a significant capital investment programme each year. That includes reforestation, investment in forest infrastructure and plant and equipment. It is necessary to increase the statutory borrowing limit to make adequate provision for the borrowing requirements of Coillte for its capital expenditure programme.

Section 2 provides for the Short Title, collective citation and construction of the Bill and is a standard provision.

Coillte Teoranta is the national forestry company, established as a private commercial company under the Forestry Act 1988. The Act provides that the principal objects of the company are to carry on the business of forestry and related activities on a commercial basis and in accordance with efficient silvicultural practices; to establish and carry on woodland industries; to participate with others in forestry and related activities consistent with its objects, designed to enhance the effectiveness and profitable operation of the company; and to utilise and manage the resources available to it in a manner consistent with these objects.

In the intervening 20 years since its establishment, Coillte has increased its forest estate by 37,000 hectares, developed its recreational facilities and extended its business base to include panel products. Coillte currently manages 445,000 hectares of forest land, of which 79% is forested with the remaining 21% encompassing open spaces, water, roads or land above the tree line. Such management induces maintenance of the forest estate, felling as appropriate and replanting. The company supplies logs to the timber processing industry including sawmills, panel board mills and the emerging energy supply businesses. While the company provides direct employment, it also engages harvesting and haulage contractors thereby sustaining employment for a far greater number.

The company also owns two panel board businesses, namely, Smartply in Kilkenny and Medite in Tipperary, both of which I visited recently. These manufacture OSB and MDF boards, respectively, with more than 80% of their output being exported. There are significant investments currently in train in both plants. Coillte has also entered into a joint venture arrangement with ESB to develop a windfarm in Garvagh Glebe, County Leitrim.

It is also important not to overlook Coillte's contribution to recreation by way of its forest parks and trails and its involvement in Lough Key Forest Park in Roscommon. The company now has an extensive remit.

Colleagues on the Joint Committee on Agriculture, Fisheries and Food met with Coillte at the end of October to discuss the company's annual report for 2008, at which Coillte informed the members of its current structure and its businesses. This was a valuable opportunity for members to raise issues directly with Coillte such as its performance, current business environment and plans for the future. The company similarly met with the committee in June 2008 to discuss the company's annual report for 2007. Such meetings facilitate accountability and transparency and I am sure the company also welcomes the opportunity to brief Members of both Houses.

The purpose of this brief outline of Coillte's business interests is to put in context the proposed increase in the statutory borrowings level for the company or, in reality, the group, as the limit on borrowings applies to the aggregate at any one time of borrowings by the company and its subsidiaries.

The limit on the company's level of statutory borrowings is currently €101.5 million. The business environment in which Coillte, as a commercial company, operates is vastly different from the business environment in which it operated in its earlier years. There is a provision in the Act whereby Coillte may seek approval for temporary borrowings. Coillte has sought and received approval under this provision on a number of occasions over the past number of years. However, it is considered sensible to increase formally the statutory borrowing limit rather than have any concern about the interpretation of "temporary" in the context of borrowings.

While it was generally accepted in principle that the company's statutory borrowing limit should be increased, there has been a lot of consideration as to the most appropriate level. Inflation alone would allow an increase in the borrowing limit from €101.5 million to €182.5 million. This is based on inflating the €101.5 million limit in 1988 by Ireland's inflation rate up to October 2009.

Coillte has a significant capital expenditure each year. In its annual report and accounts for 2008, Coillte states that its capital expenditure in 2008 was €58.1 million and explained that a significant proportion of the expenditure was incurred in enhancing and maintaining the forest estate and expanding the road network within the forest and added that expenditure also included a substantial investment in Medite Europe Limited that will increase production capacity and improve operational efficiency.

The figure for capital expenditure in previous years was €58.4 million in 2007 and €49.4 million in 2006. This level of ongoing capital expenditure was a consideration.

Coillte has outlined its strategic plans to 2012 in its document, Destination 2012, to which it referred in its discussion with the joint committee. This document focuses on Coillte's four business areas and contains many proposals, including proposed investment in renewable energy, especially wind energy. This strategic plan requires in-depth consideration to which I will refer again.

In regard to determining the most appropriate level to which the limit should be increased, it was concluded that €400 million would allow Coillte sufficient headroom for core activities, working capital as well as approved investments.

Returning to the consideration of Coillte's strategic plan, the Seanad is aware that under the new programme for Government, I am committed to reviewing State forestry policy to take account of its critical role in relation to climate change and its importance to construction, bio-energy, bio-diversity and its potential to deliver long-term employment in other downstream industries. The review will include the role of Coillte and its functions and operations. It will also assess the effectiveness of current forestry grant schemes and make recommendations on how best to deliver supports in the future.

Three working groups are being established to carry out the review with each group assigned a specific aspect. The respective groups will be reviewing forestry grant and premium schemes, State forestry policy and Coillte's role, functions and operations.

In regard to the review of Coillte's role, function and operations, the working group will also consider the Coillte strategy document, Destination 2012, to which I referred earlier. Pending the outcome of those reviews, my initial view is that Coillte, with its extensive experience in forestry management and knowledge of the timber market, has played a significant role in the development of Irish forestry and that it is timely to look at its role, functions and operations to optimise its contribution to forestry and the economy. I look forward to the output from the Coillte review group.

In regard to the proposal before us to increase Coillte's statutory borrowing limit, it is important, in view of its current contribution to the economy by way of employment, both direct and indirect, and the export of its products, that it be provided with the means to acquire adequate funding for investment in its businesses. There are also the numerous other benefits which we derive from Coillte's management of the forestry estate, such as carbon sequestration, bio-diversity benefits and the provision of recreational facilities.

I stress that an increase in the company's statutory borrowing limit does not automatically mean the company may go out and borrow to that limit. Under section 24(1) of the Forestry Act 1988, the borrowings of the company require the consent of the Minister for Finance and the Minister for Agriculture, Fisheries and Food. When the company sends a request outlining its expected borrowing requirements, the request is closely examined by the Department and the Department of Finance and, if considered reasonable and soundly based, it will be submitted to the Ministers for consent. The level of borrowings is also reported to the Departments on a monthly basis. This requirement is in addition to the reporting requirements provided in the code of practice for the governance of State bodies.

Significant investment proposals also require the approval of both Ministers. In regard to reporting requirements, I draw particular attention to the requirement in the code of practice that:

the Chairperson of each State body must furnish to the relevant Minister in conjunction with the annual report and accounts of the body, a comprehensive report covering the Group...outlining all commercially significant developments affecting the body in the preceding year, including the establishment of subsidiaries or joint ventures and share acquisitions, and major issues likely to arise in the short to medium term.

In regard to the code of practice, I take the opportunity to welcome the revised and updated code of practice for the governance of State bodies published by the Minister of Finance earlier this year. The reporting requirements, which it stipulates, and ongoing communication between Departments and agencies under their remit are vital elements in the oversight of agencies.

I have focused so far on Coillte and the basis for seeking an increase in its statutory borrowing limit and also the controls on borrowing levels. However, it is important, for contextual reasons, to look at Irish forestry and to appreciate the significant role played by Coillte.

Investment in forestry has been a part of Government policy since the foundation of the State. This investment has contributed to a thriving wood processing sector which employs many thousands throughout Ireland, in both rural and urban areas. COFORD recently published a number of information papers on forestry, which serve to illustrate the importance of forestry. For example, the forest industry, comprising growing, harvesting and processing of forest products, makes a significant and growing contribution to the Irish economy with output in 2008 estimated at €1.89 billion or just under 1% of GDP.

Another point to note is that harvest from Irish forest in 2008 was 2.3 million cu. m, of which 2.1 million were from Coillte and the balance was from privately owned forests. While new planting is now undertaken predominantly by private growers, it will take some time for significant volumes to come from the sector. Until such time as the privately grown timber becomes available, Coillte will continue to have a major role in the provision of timber for the wood processing sector.

Forests provide a range of raw materials for industry as well as services to society, including climate change mitigation, enhancement of bio-diversity and provision of recreational activities. A well-balanced age structure is needed to sustain the production and the provision of services so afforestation, that is, new planting of forests, is vital. I was pleased, therefore, with the recent decision of the Government announced in the budget last week to allocate significant funds for new planting.

In regard to the role of Coillte in afforestation, when it was first established in 1989 the company actively engaged in land acquisition for afforestation purposes and expansion of its estate. In latter years, it has reduced its land acquisition programme for a number of reasons, including reduced availability of land for sale, rising land prices and the company's ineligibility for forestry premiums. Since 2000, the company has focused on contributing to the afforestation programme through its farm partnership schemes, by providing forestry services to farmers and by promoting forestry investment.

Coillte is currently engaged with Bord na Móna in a joint venture to afforest cutaway bogs. The pilot phase of this project will commence next year with the planting of 200 hectares initially. It is proposed to plant up to 5,000 hectares over a number of years which would be a significant contribution to the national afforestation targets.

In the wider context, Coillte also has a pivotal role to play in renewable energy. The Government White Paper on energy policy set a target of 12% of thermal energy to come from renewable sources by 2020. Biomass is expected to play a significant role in achieving this target.

Coillte is strategically positioning its forestry business and biomass resource to play an important part in contributing to the reduction in greenhouse gas emissions and climate change mitigation for Ireland. While much of Coillte's timber supply is destined for processing, the production of biomass for energy will still be significant for the company. The company is working with the key stakeholders in the market and, in particular, with the bio-energy group under the auspices of the Department of Communications, Energy and Natural Resources. In order to refine its business model and strategy for approaching the market, the company has established a pilot depot in County Mayo. Coillte is also currently seeking to align itself with a leading technology company with demonstrable experience and a proven track record in the larger industrial biomass sector.

Wind energy is also regarded as playing a major role in the achievement of the renewable energy targets. Coillte has outlined its long-term proposals in its strategy document Destination 2012. As I mentioned, the Coillte review group will be considering the company's strategy documents and those proposals in the context of the overall review of Coillte's role, functions and operations. A representative from the Department of Communications, Energy and Natural Resources will be a member of that particular review group as it is important that those proposals are considered in the context of ongoing developments and policy for renewable energy.

As I am sure members appreciate, Coillte has developed significantly from the time of its establishment and, for commercial and operational reasons, it is timely to revisit the level of statutory borrowings set down in the 1988 Act. As I indicated, the most appropriate level received much consideration and €400 million was the amount considered appropriate at that time. I have outlined the range of businesses in which Coillte is involved, the significant role it plays in the economy and society and its potential role in renewable energy.

It is important that a commercial company is in a position to access funding to facilitate its ongoing development and investment programme. The company's statutory borrowing limit has remained unchanged since 1988 so this needed to be reviewed and updated. I remind the House that agreeing to this increase does not mean Coillte may automatically borrow to that level. The consent of both Ministers is required for the level of borrowings and the requests will be the subject of scrutiny by both Departments. It is not envisaged that this proposed level will be sought in the immediate future; however, when it is being amended, it is important to provide for a sufficiently high level in the medium term.