Thursday, 19 April 2012
Sale of State Assets: Statements, Questions and Answers
The House will be aware the Government agreed a programme of State asset disposals in February which is designed to reduce the State's debt burden and to help fund employment generating initiatives in the economy. This programme has been debated on more than one occasion in the Dáil and I am pleased to explain today the position to Senators and to update the House on the progress made since my announcement in February.
In brief, the asset disposal programme agreed by Government in February consists of the sale of Bord Gáis Eireann's energy business, but not including its gas transmission or distribution systems or the two gas interconnectors which will remain in State ownership, and the sale of some of ESB's non-strategic power generation capacity. Consideration is also being given to the sale of some assets of Coillte, but not Coillte's land holdings; and the sale of the State's remaining shareholding in Aer Lingus, when market conditions are favourable and at an acceptable price to Government. I wish to emphasise from the outset that these options are being considered in a manner that protects the economy and our key strategic assets and ensures that value is secured for the taxpayer for any assets that are to be sold.
This week's announcement of the establishment of the new Irish water utility under the umbrella of Bord Gáis Eireann, BGE, demonstrates the Government's continued confidence in the semi-State sector as a vehicle for large-scale infrastructural investment and a driver of innovative change. This utility will be the largest new semi-State established in a generation. BGE is an excellent example of a strong, vibrant and dynamic State company which has demonstrated its capacity to invest and develop new, efficient and competitive businesses for the benefit of Irish consumers. I am confident that Bord Gáis will continue to contribute to achieving key Government and national objectives in its ongoing management of the strategic gas infrastructure as well as the sale of its energy business and the establishment of the new Irish water utility. In this context it is important to note the key synergies between the gas and the water utilities lie in core network functions, such as operating in a regulated environment, network management, metering and utility operation systems, all of which are strengths of BGE. These core functions will not be impacted by the sale of Bord Gáis Energy.
I have to admit that since I announced the details of the disposals programme, I have been struck by the number of contributions to the general debate that fail to take full account of the very serious position in which the State finds itself and which gives rise to the need for asset disposals at this time. It is almost as though people speak about the debate as if it were peacetime as opposed to a Government and people facing an unprecedented economic challenge. Although the economic situation has stabilised over the past year - thanks in large part to the concerted actions of the Government - we are still faced with a very difficult economic situation. Our outgoings continue to greatly exceed our income and we depend on financial assistance provided under the EU-IMF funding programme for the continued day-to-day operation of the State. Our obligations under this programme, as well as under the Stability and Growth Pact, require us to make measurable progress in reducing the budget deficit to a target of 3% by 2015. We have to balance the books and stabilise our debt and there are no soft or easy options in achieving this objective. If acceptable valuations can be achieved, the realisation of value from some State companies, although comparatively modest in the context of the overall fiscal gap, will go some measurable way towards lightening the State's daunting burden of debt and reducing the requirement for additional borrowing.
In addition to dealing decisively with the public finances, the Government's primary concern must be and is to promote employment and economic recovery. We need to grow the economy and create jobs. In order to achieve this, some form of stimulus is required. In the programme for Government, we set out concrete proposals to leverage revenue from the sale of State assets in order to invest in the productive potential of the economy.
From the outset of our engagement with the EU-IMF troika on this matter, the Government also made it clear that we were not prepared to agree to an asset disposal programme over and above the one already set out in the programme for Government if it did not release a sizable amount for investment in job creation initiatives in the economy. In this context, I am pleased to report to the House that the agreement reached with the troika, in advance of our final decision on the disposal programme, represents a remarkable advance. When we first encountered it, the troika's position had been that the entire proceeds of asset sales - every cent - should be used to retire our national debt. However, in return for committing to a disposal programme of up to €3 billion, a more ambitious target than we had provided for in the programme for Government, they have agreed to the retention by us of one third of the proceeds for reinvestment in the economy. This offers the potential of up to €1 billion worth of investment in the economy from the sale of State assets to provide economic stimulus and support job creation. We intend to combine these proceeds with other sources of funding. I agree with those Senators who stated in their contributions that austerity or balancing the books are not of themselves a strategy. We need stimulus. However, the recklessness of the previous Administration has deprived us of the normal sources of stimulus. We are now trying to find resources to invest in job creation. As indicated, one third of the proceeds of the sale of State assets is one such source. I have also indicated another source will be pension funds. Only 2% of the €70 billion in Irish pension funds is invested in this economy, with the rest being invested throughout the world. We need to bring some of that home. I believe that is what Irish workers would want. We are also looking to other sources including the European Investment Bank and so on for stimulus. We intend to combine these proceeds with other sources of funding, such as those which I have just indicated, including our residual reserve, which is the National Pensions Reserve Fund and third party investment to finance much-needed stimulus. We are carefully considering how this money can be used to maximise job creation within the economy.
In the debates that followed my announcement in February, the claim was made on many occasions that the Government intends to sell off key strategic infrastructural assets and that we will end up selling them off in a fire sale. To back this up, the previous Government's sale of Eircom has been regularly cited as a cautionary tale. I assure the House that this Government is very conscious of the Eircom experience. The programme of disposals which I have announced has been carefully thought through to ensure that mistakes that were made in relation to previous privatisations, most notably Eircom, are not repeated. For example, in contrast to the sale of Eircom, this Government has made it clear that it has no intention of selling off strategic infrastructural assets as part of the programme now agreed. It is instructive that when Eircom was sold off it was a communications infrastructure at the front edge of modernity. We have no intention of selling off our infrastructure. We are retaining ownership of the gas pipelines, gas interconnectors and the electricity grids.
We have agreed to sell BGE's energy business but its gas transmission and distribution systems, including the two gas interconnectors, are not for sale. We have agreed to sell some of the ESB's non-strategic power generation capacity to reduce the ESB's market dominance, as required under EU competition rules. However, the ESB and all of its strategic assets, including its transmission and distribution network, will be retained in public ownership. We have agreed to give consideration to the sale of some of Coillte's assets, which is likely to focus primarily on the harvesting rights of Coillte's forests. There has been much debate in the other House on Coillte. What we are selling is trees. We are not growing the trees for decoration. We expect them to be harvested and sold. What we are selling off is a crop. The land on which the forests are situated is not for sale. We are only agreeable to dispose of the State's remaining stake in Aer Lingus because the remaining 25% shareholding is no longer a strategic asset as it does not enable the Government to determine Aer Lingus policy in relation to commercial decisions such as the use of the company's Heathrow slots.
The position on Coillte, and its assets, is different from that in relation to Bord Gáis and the ESB. Whereas specific decisions have been taken and announced in relation to the assets that are to be disposed of in the case of the energy companies, no such definitive decisions have yet been taken in relation to Coillte. The Government has agreed that Coillte is to be included in the asset disposal programme but my announcement in February indicated that further consideration had to be given to how this was to be done. I have already signalled that any disposal in the case of Coillte is likely to focus primarily on the harvesting rights of its forests, but that is primarily because I wanted to make it clear that there is no question of the Government disposing of Coillte lands. However, a final decision on how best to release value from Coillte remains to be taken by the Government. Since my announcement, we have received a number of interesting approaches in regard to Coillte. We are open to all such discussions.
I accept that some legitimate concerns remain regarding some of the wider implications of the proposed asset disposals, in particular in the context of Coillte and its forests. Among these are the following: a potential lack of public access to the forests for walkers and for general recreational purposes; whether the forests, if sold, will be replanted after the trees have been harvested; the impact of any disposal of Coillte's forests in terms of the climate change agenda and, in particular, the position in relation to carbon credits; and more generally, whether the Government has engaged with the staff interests in the companies involved in relation to the planned disposals. These are all genuine concerns but I can assure the House that all of these issues were already identified in the preliminary analysis that was undertaken by the interdepartmental working group which reported to Ministers in December 2011. The group considered a range of State assets identified by Government as potential candidates for disposal, including Coillte. I can confirm that the Government is conscious of all of these issues and that these will all be taken into account before final decisions are taken by the Government in relation to what Coillte assets are to be sold and how.
I am happy to report that significant progress has been made in advancing the disposal programme since I announced its content in February. Interdepartmental working groups have been established to examine each of the assets referenced in the Government's decision and NewERA, the new holding company under the auspices of the NTMA, has prepared two very thorough financial reports on BGE and Coillte which have now been submitted to and considered by the respective interdepartmental groups. The Government is committed under the EU-IMF funding programme to outline in detail for the troika by the end of June 2012 the specific reforms that need to be taken, ensuring consistency with relevant EU legislation where necessary to allow for the asset sale programme to proceed and a calendar with indicative timelines for sales.
Work is continuing in the relevant Departments and agencies on considering how the issues already identified as requiring resolution should be addressed. In the case of Coillte and the ESB, these issues will be dependent on the final decisions taken on the particular assets of these companies that are to be sold. I can assure the House that the Government will ensure that all of the implications of each asset disposal will be carefully considered with a view to mitigating any potential negative impacts associated with the disposals. This will include ensuring the continuity of access to the forests as a public amenity.
I emphasise again that the Government is committed to securing value for the Exchequer from asset disposals and will not be rushed into any fire sales. As I have indicated in the other House, any asset which does not obtain best and full value will not be sold. All of the disposals will be transacted via an open, transparent and competitive process and they will only occur when market conditions are right and when adequate regulatory structures have been put in place to protect consumer interests. As well as making a modest but real contribution towards reducing the State's mountain of debt, the funds released from asset disposals will be combined with funding from the NPRF and used to leverage private finance sources to fund much-needed additional investment in job creating initiatives in the economy. On this basis, I commend the Government's asset disposal programme to the House. I look forward to answering any questions which Senators may have.
I thank the Minister for coming to the House and for his continued commitment to debating here. It is hoped this will be an interesting, engaging and honest discussion. I use the word "honest" in the context of our having been told at various points by the Labour Party, although not so much by the Minister, Deputy Howlin, that the IMF is forcing the sale of State assets. I note the Minister referred at least once in his speech to the IMF. I noticed that he dropped the IMF into his speech on one occasion. It is clear that Government policy is being implemented in this instance, with the agreement of the IMF. The decision to sell these assets is purely and totally an Irish one and we are debating it on that basis. We do not object to it. Over three years ago, I lobbied the former Minister, Brian Lenihan, to privatise the national lottery. A common feature of the economic crisis, particularly in states of the United States, has been that state lotteries have been among the first items to be sold off. It should have happened a few years ago in this country. The organisation of lottery games can be done more efficiently by the private sector.
The potential sale of State assets usually causes those on the ideological fringes of Irish politics to get very agitated. In general terms, my party has no objection in principle to the sale of State assets. We carried out all of the privatisations in this country over the last 25 years. Most of them were successful, although some of them were not. The sale of Eircom was successful in terms of getting money into the State coffers, which is the primary aim of the Government on this occasion. It was unsuccessful for those who lost out after they had bought shares and also in terms of the roll-out of broadband throughout the country. The development of competition in the telecommunications industry has been a wide-ranging success. I do not think every left-wing politician is signed up to Eircom's telephone services. They are probably getting cheaper deals from its various competitors. The increase in service levels in the telecommunications sector has been accompanied by dramatic price decreases. Any sale of State assets must be fully transparent. The opportunity cost of any sale must be fully understood as well. We must know what the potential losses are to the State, arising from the sale of an asset, so that we can weigh them against the cash realities that are associated with such a sale. That applies particularly in the case of Aer Lingus.
The findings of the Moriarty tribunal made it clear that when State contracts are not transparent, the whole process can be brought into disrepute. For that reason, I would like the regulation of lobbyists legislation to be enacted and passed before any of this takes place. We learned in the tribunal report that politicians are not the only people who are subjected to lobbying. I am sure public servants do not want to be lobbied, but it can happen. It is important for the legislation I have mentioned to be enacted to ensure the sale of assets is transparent and in the interests of the public good. We should never again allow Government Ministers of any party to have their decisions influenced by lobbying on the part of companies or individuals. Therefore, the Government must implement the legislation it has proposed. Fianna Fáil has already proposed a Bill, which was professionally drafted by our legal advisers. It is open to the Government to accept that Bill as well.
It is important to highlight that the Government is not being forced to sell any assets by the troika. This decision is being taken by Fine Gael and the Labour Party in government. The Minister for Finance, Deputy Noonan, confirmed this in the Dáil on 6 October 2011 in response to my colleague, Deputy Michael McGrath. I hope Government Deputies and Senators will accept this when they are questioned about these sales in the months and years to come. I emphasise that State assets provide considerable returns to the Irish State. In 2010, semi-State companies paid dividends totalling €129 million to the Exchequer. In addition, they employed thousands of people who contributed tax revenues into the Exchequer. I have noted the Minister's assurances with regard to the sale of Coillte. I had intended to refer to some of the concerns that have been raised in that respect. It is important to highlight that the Minister has not been definitive in relation to the sale of Coillte. He said that "a final decision on how best to release value from Coillte remains to be taken by the Government". I would not have thought the sale of trees would be a particularly radical gesture on the part of a forestry company, although it is important.
The issues have been set out by the Minister. I will not repeat them. He knows what they are. While I am pleased that the Minister acknowledged the concerns that exist, I remind him that the Labour Party manifesto stated that "Labour is opposed to short-termist privatisation of key state assets, such as Coillte or the energy networks". As I have said, we do not oppose the sale of State assets, in general terms, as long as it is transparent and in the best long-term interests of the taxpayer. The Coillte issue mainly arises because of links with certain people who are involved in other forestry companies and have gone into the media. I suspect that will be dealt with through the introduction of the regulation of lobbyists legislation and proper competitive tendering and sales. When I discussed this matter with Senator Barrett earlier today, he referred to beauty contests. As a solicitor, I was involved in a number of such contests in relation to the purchase of assets. I refer to the private sector rather than to the public sector. The beauty contest approach leads to subjective judgment and might not be the best way of getting returns for the taxpayer.
It should be possible to sell the retail elements of our semi-State bodies as long as the State retains strategic ownership of the transmission networks of the ESB and Bord Gáis. Energy security should be an absolute priority for us. In the build-up to the energy crisis in California that caused the collapse of Enron, the privatisation of the actual networks caused untold harm and led to substantial price increases for consumers in that state. The lure of short-term financial gain for the Exchequer should not be used as a reason to reduce the capacity of the State to protect its energy needs.
Fianna Fáil will support the sale of assets on a case-by-case basis. We will consider each proposal as it arises and decide whether to support it on that basis. The Minister commended the asset disposal programme to the Seanad. It is not possible to commend the programme because we do not know the full details of it. The last sentence of the Minister's speech was somewhat premature. We do not know the full details of it. I presume legislation will have to be passed when each sale is proposed. In each case, we will decide whether to commend the action and whether to support the legislation. Unlike other parties, Fianna Fáil does not have to change its previously stated position. Fianna Fáil is a pragmatic party. The private and public sectors have worked together over the years. People can be involved in private business and in public business. Something that is private can become public by being nationalised. The opposite can happen too. Most importantly, I urge the Government to introduce the regulation of lobbyists legislation before any further action is taken in this regard.
As I have said previously in this House, honesty is one of the things that is badly required in this country. It is disturbing that on a number of occasions, people have stood up in the Seanad and Dáil Chambers to try to rewrite history. It has always been the case that the positions are taken before advances are made and one moves on. The position that one initially took does not change, however. As time moves on, people claim they did not quite take the position attributed to them. My clear memory is that the original memorandum of understanding provided for the sale of State assets. An exact figure might not have been set out, but there was a clear and explicit understanding in the memorandum that assets would be sold and the funds used to pay off debt.
There was no equivocation about that. I ask the Senator not to change that circumstance, which was quite clear. The result achieved by the Government means that some money will be used to pay off debt and the rest of it will be used for job creation. Everybody in this Chamber and the other Chamber agrees that the Government achieved a good result which will benefit unemployed people by helping them to get back into the workplace. That is the core objective of the Government. I accept that some people have a political ideology which dictates that assets should never be sold. If that ideology were adopted in all instances, we would continue to own the routes that coaches used to take many years ago. Those are the legacies we have. We have to advance with them, like everything else. It is interesting that at one stage in the past, we were told we should not lose the shipping lines we had. As the aviation sector grew, fares decreased and new companies came to the market. That shows how circumstances can change.
The funds that will accrue to us from the sale of State assets should be reinvested in other assets that will increase in value over time. As time moves on, those assets will become outdated like the former assets I mentioned. I remind the House that the ESB sold six generators in 2005 and 2006. One of them - Great Island power station - is in the constituency shared by the Minister and me. It was purchased by Endesa Ireland, which invested €300 million in it. In the next few weeks, some 450 people will start working on a massive construction project at the power station. It will be one of the biggest construction projects in the State. The Bord Gáis gas pipeline which is being advanced from Kilkenny will serve two major towns in County Wexford, which formerly had no gas. That demonstrates the benefit of selling assets. There was no furore when the Great Island facility was sold.
I want to raise an aspect of the sale of State assets that is different from that raised by the Minister. It pertains to the assets of the State organisation NAMA. It is a State company that has purchased properties, hotels and other assets within the construction and development sector to the value of €30 billion. I am firmly of the view that the sooner NAMA puts on the market thousands of units such that we are able to find a base in the construction sector, the better. The construction sector would then be able to advance again.
There are 300,000 people unemployed in the country, not 440,000. The live register states 440,000 are not working, which is correct. At the peak of the boom, there were 140,000 unemployed. There are 300,000 people unemployed who were not working four years ago and every single one of them wants to work. Of the 300,000, it is estimated that 100,000 are from the construction sector. Although we can install water meters – this is an advancement in that people will be employed – we need to get the construction sector moving. I am not talking about state aid or anything of that nature but proposing that if NAMA put a certain number of its best units on the market, we would find a base. When we find a base, the market will flow and people will start to reinvest. It is crucial that we address this. While it is not within the bailiwick of the Minister, he should note the assets are within a State company.
Let me touch upon Irish Water. Its establishment is a step in the right direction. The proliferation of local authority bodies and companies involved with water is a result of our legacy of conducting business. We have considerable expertise in some areas and a lack of it in others. We should not require a local authority to purchase expertise from environmental engineers, etc., when the expertise is available in other local authorities, including those in Dublin, Cork and Limerick. I will not mention the one in Galway because of its history. The expertise exists in a certain area. If Wexford County Council wanted to advance a project, it would have to hire staff from an environmental company and pay the relevant fees, yet there are local authority staff in the network in Dublin who might have expertise to pass on. The benefit of Irish Water is that we will no longer be paying money unnecessarily and we will be able to move towards a top-class, world-class water service, which we do not have at present.
I welcome the Minister and support his statements this afternoon. This is a very necessary part of setting the economy to right on foot of the problems that date from 2008 and before. The McCarthy report, on these issues, was launched on 24 April last year and is, therefore, approximately a year in circulation. It contains much useful information on the companies that the Minister has been talking about. The preface states: "Our basic message is that, given the over-borrowed nature of the state's balance sheet, asset disposal is inevitable."
The Minister chose this as his theme earlier and I agree with him. It is also an opportunity to consider where there is entrepreneurship and initiative and who is not performing up to the required standard, particularly at this time. There is a series of criticisms in pages 17 to 29 of the McCarthy report implying that, from 2008 to 2010, State company debt more than doubled. The overall profitability has sharply deteriorated since 2007. The report refers on page 29 to the lack of a dividend culture. There were, therefore, some non-performing staff whose circumstances we must consider.
On reading page 18 of the report, I noted some State monopolies have overindulged in mass market advertising which cannot be justified by reference to commercial requirements. To use one of the Minister's phrases, "capture" was being attempted by hiring large PR departments. It is interesting that the McCarthy group refers to this.
Now that I am in the presence of the Acting Chairman, who is from the Kingdom, it is worth noting that when Mr. Mark Clinton sold the Dairy Disposal Company in 1974 to Mr. Denis Brosnan and company, it was worth £1.15 million. Last week, it was worth €5.9 billion on the stock exchange. It is a privatised company that has gone on to serve this country, its shareholders and customers worldwide absolutely splendidly. It has also served the people of Kerry who invested money in it.
The Irish Continental Line was referred to by Senator D'Arcy. It had to be shut down because it engaged in irresponsible leasing deals with a gentleman in Hong Kong. Its successor company is currently worth just under €400 million and it is not the annual menace to the public finances that the former company was.
With regard to the Ryanair shareholding, Ryanair is worth €6.4 billion, 12 times more than Aer Lingus, which was the airline we had when we had a monopoly. The identification of State companies with a desire to have a monopoly and influence public policy and regulators unduly must be faced up to.
We have raised approximately €8.5 billion, it is estimated. Mr. McCarthy referred to €8.2 billion. In his report, he did not include, but referred to, the receipt of approximately €250 million. That is extremely valuable. The adjustment up to the time Mr. McCarthy was writing accounted for a figure of €20 billion. We, therefore, got 40% off by the disposal of assets. Life for Members of Parliament, including Ministers, and taxpayers would have been tougher had we not raised the €8.5 billion. It is useful.
One of the views put forward under the Culliton report was that the State should have a moving portfolio of assets and should not get stuck in a sector and be captured by the management at a very high costs. Some managers earn what the Taoiseach earns. We should have a moving portfolio and seek new investments all the time to generate the job creation capacity about which the Minister was talking.
If, on the island of Ireland, Larne port, which is privately owned, is the most efficient, one can learn lessons therefrom. Is it worth thinking about the privatisation of some of the ports? They will compete because we have enough of them. Mr. McCarthy recommended Rosslare port for privatisation.
The same applies to airports. There are enough airports to compete with each other in the United Kingdom and there are investors. The Senators from Clare have asked whether there is any future for Shannon Airport under current arrangements and whether it can be sold separately, with the debt transferred to Dublin? Will Dublin Airport Authority, the Aer Rianta complex, sink under the weight of the debt? I propose to the Minister that he consider the separate sales of Cork and Shannon airports on condition that they compete, and perhaps the separate sale of one of the terminals in Dublin in the hope it might produce price competition between the two terminals. There is excess capacity at Dublin Airport.
The privatisation of the telecommunications company Eircom is regarded from time to time as an example of privatisation that did not work. It is worth noting what Mr. McCarthy said about that. His report reads: "The majority of those states that currently out-rank Ireland in international comparative exercises on broadband penetration and speed also privatised their incumbents in the telecoms market, in some cases earlier than Ireland did, and these private entities delivered the necessary infrastructure investment." I have no objection that is based on the fact that Eircom was sold for more than it was worth subsequently. It is about time that the State won on some of these deals. Perhaps we sold Eircom to the wrong people, but the same mistakes were not made in respect of other privatised telephone companies. There is an undue nostalgia for the old telephone monopoly, which saw high charges and low levels of technology.
Senators Byrne and Michael D'Arcy referred to open sales and no beauty contests. When the chairman reported, someone suggested - not entirely flippantly - putting the assets on eBay. It would save a great deal of money on tribunal costs.
The privatisation policy has much to contribute and has already contributed €8.5 billion. In general terms, I commend the Minister on what he is trying to do to set the public finances in order.
It is good that we have the opportunity to discuss this important issue. Opponents of the Government and ideological opponents of the initiative to review the sale of State assets have put about a great deal of wilful misinformation. Undoubtedly, many people have strong opinions on the issue. The semi-State bodies have served the country well, but this should not be interpreted as meaning that their retention in the State's hands would be the most appropriate use of resources in the changed economic climate.
I wish to raise a genuine question that I hope will be discussed with political honesty. Senator Byrne made a similar point. I hope that we can put aside our political differences and find a common political pathway to national recovery. On this road, factors that we never believed would need to be re-imagined must be re-imagined, including the relationship between the semi-State bodies and the State. This reconsideration forms part of the agreement with the troika, despite Senator Byrne's anxiety about presenting it as an independent proposal.
It is important that we be realistic and understand that, while the economy is in a precarious situation within the terms of the agreement, we could not survive outside those terms. Some commentators have professed surprise at the decision to review the sale of State assets, but they should not be surprised, as this was well flagged in the programme for Government.
Many genuine questions arise. For example, one question that is immediately obvious is whether it is in the best interests of the State to own two electricity generation and supply businesses that are competing with one another. This question needs to be reflected upon and answered.
There has been much discussion in the House and elsewhere about fire sales, the national interest and the family silver. If we remove the emotive language surrounding the debate, we will see the necessity of raising funds. Classical Keynesian economics states that, in times of recession, states should stimulate their economies by borrowing money and investing it in infrastructure. This is all fine and well, but Keynesianism is not applicable in this instance. We cannot raise funds. Who would lend to us? We must be imaginative and look at ways of pulling the general wisdom of the State together, raising money and investing wisely.
I congratulate the Minister on successfully renegotiating the position on the sale of State assets. We are now allowed to reinvest €1 billion of the proceeds of the proposed sales in jobs, which are necessary if we are to achieve recovery. This is a significant concession.
Another important milestone on the journey is the significant announcement that we are to establish a new public utility, Irish Water, which will provide public service employment of up to 3,000 jobs through the investment of almost €3 billion. This development must be welcomed. A strategic partnership between the new water utility and Bord na Móna will provide an investment of up to €500 million for the construction of a new reservoir in the midlands. My colleague, Senator Whelan, has been vocal on this issue. Without his support, this necessary step forward would not have been taken. It has been planned for nine years and will ensure a high-quality water supply, which is vital for the population and industry. Key matrices of indication for attracting and retaining foreign direct investment, FDI, include our corporation tax rate, our skilled workforce and a quality, secure water supply. We compete for FDI against countries such as Israel and India, in which respect the supply and quality of water makes a difference.
I urge the Minister to use his influence to ensure that no time is lost in advancing this vital project to the planning stage. I hope that we will see results shortly. As the Minister stated, the creation of a new public utility company demonstrates the Government's commitment to the provision of quality public services. A review of State assets is necessary and in the country's best interests.
Most of the comments I wished to make have been made, but I will ask the Minister two questions. Given the creation of a new water utility, must any part of the proposal to sell elements of State companies be reviewed? In terms of the proposed sale of the national lottery licence, could we be given a commitment to the effect that there would be no diminution of funding for good causes?
I welcome the Minister back to the House and I thank him for taking this debate. It is remarkable to hear a Labour Party Senator referring to ideological opponents to the sale of State assets. This shows how far the Labour Party has travelled down the path, as it is not long since that party was opposed to the sale of State assets.
Whatever way the Government tries to dress it up, selling State assets is a short-term measure with a long-term cost. Perhaps more than any other, this decision exposes the Government's lack of joined-up or long-term thinking. The projected sale value of the asset disposals will make little or no difference to the State's overall debt burden. Despite the Government's assertions to the contrary, privatisation is not the panacea of perfect competition. Fine Gael and the Labour Party have failed to produce evidence-based analysis to support their plans. We have been told that only non-strategic assets will be considered for sale by the State. How transport, forestry and energy assets can be deemed to be anything other than strategic is beyond me.
Retaining the State's significant 25% share in Aer Lingus is vital if we are to ensure Ireland's connectivity with Europe, the US and the rest of the world. Trading the airline's Heathrow slots would be inconsequential to a private company, yet their retention is of strategic importance to this island's interests.
Now more than ever, Coillte is an important rural employer. Selling its harvesting rights to a private company that will buy our forests is a barmy decision. The Minister asserts that we are only selling the trees, but those form the integral part of Coillte's asset. The Government should be working with Coillte to develop the significant potential of the forestry sector for timber production, biomass and eco-tourism.
Commercial semi-State companies have created tens of thousands of sustainable jobs, benefitting hundreds of thousands of families for decades. The ESB is self-financing and has contributed €4.3 billion to the economy through taxes and dividends in the past ten years. It and Bord Gáis together have paid €2 billion in dividends, twice what the Government intends to spend on its one-off jobs investment. The Government has other funding streams for a jobs stimulus, including the National Pensions Reserve Fund, NPRF, and possibly the European Investment Bank, EIB.
Would Labour Party Members have made the same statements had this debate occurred two years ago? The answer is "No". Not because of the economic climate, but because the Labour Party has changed its policies and positions. That is the reality. When Labour Party Senators refer to people being ideologically driven,-----
If I go through a few of them, it might obviate the need for some questions. I am happy to engage.
I thank all Senators for their contributions. I do not intend to engage with Senator Byrne, as discussing whether this initiative was contained within the original memorandum of understanding would be a sterile debate. I can say honestly, with my hand on heart, that in my first encounter with the troika, within weeks of coming into office, it understood that there would be what it called an ambitious sale of State assets. That understanding was made explicit to me but the Senator can take it as he will.
My party negotiated with Fine Gael on a programme for Government. Part of that programme involved the sale of €2 billion of assets because I believe in a stimulus. We cannot simply have a balanced budget approach, necessary as that may be for us to get out of our economic difficulties.
There are three strands to the problem. The first is that we need to pay our own way by balancing our budget over time. We have set out on a path to doing that by 2015. The second strand is a stimulus package. God knows, the potential for this is limited at present because, as Senator Gilroy noted, nobody except the troika is prepared to give us money at anything approaching an affordable rate. The troika is setting out conditionalities for the money it is giving and it is not allowing its funds to be used for stimulus measures.
We have to think outside the box in this regard. Sometimes we have to hang up ideology to get out of a crisis. My party is a passionate supporter of State enterprise because we believe it was a driver of industry and job creation at a time when the private sector would not get involved. The success of Bord na Móna, the ESB and Aer Lingus are testament to that. However, one cannot be trapped forever in the same groove. We have to think about the next generation of State companies and how to deleverage companies that are successful. Let them be dealt with by the private sector and use the money to build up the next generation of State jobs and enterprises which private capital will not provide. Irish water is one such proposal.
I agree with Senator Byrne regarding the transparency of the process. As far as this Government is concerned, it will be entirely transparent. I have already issued a protocol that my staff and I will not be involved in it in any hand, shape or form. I will not meet anybody who expresses an interest in any State company. Interested parties will have to work through a channel that I have set up at arm's length. I have sent that protocol to everybody who is involved in the process.
I gave a full report on the lobbyist legislation to the Joint Committee on Finance and the Public Service yesterday in the context of discussing the progress being made on several Bills. The draft heads of the whistleblowing Bill have also been circulated. This is complex legislation and I look forward to receiving the committee's feedback on it before June. The lobbyist legislation is being worked on and we will publish it before the end of the year. A freedom of information (amendment) Bill will also be introduced this year. I have circulated my initial thoughts on that Bill to the Government. My objective is to undo the harm done by the Freedom of Information (Amendment) Act 2003. However, I do not want to simply repeal the 2003 Act because approximately 40 of the 65 or 66 provisions contained in it were recommended by the Information Commissioner. I want to wind back certain measures as well as broaden the Act's remit. This work is ongoing.
I agree with Senator Byrne on energy security. This is why we are retaining the energy infrastructure that provides the distribution paths for gas and electricity. Senator Michael D'Arcy's description of the experience in Great Island in Wexford is pertinent. The power station at Great Island was sold to a Spanish company, Endessa, which has since invested hundreds of millions of euro in it. The State got a good return from the sale and the by-product is that we are able to get natural gas in County Wexford. However, the notion that the ESB should not be allowed to sell a power station for ideological reasons is daft. Bord Gáis was established as a gas distributor but it subsequently decided to enter the electricity business. Would a wind farm suddenly become a strategic asset simply because it is purchased by Bord Gáis? I advise Senator Cullinane that not every tree is a strategic asset. We are growing them as a crop and we need some flexibility in this regard.
It is not my direct area of responsibility but during the negotiations for the programme for Government I was taken by the NewERA concept, which would achieve the objectives to which Senator Barrett and others referred. We have not always received great value from our semi-State companies. They have on occasion invested in projects that were not necessarily in the interest of Ireland Inc. Some of them have made proposals to invest offshore for the sake of building corporate empires rather than the best interests of the Irish State. I would prefer State companies to invest their resources in Ireland and we will insist on that through the newERA entity, which will allow proper corporate governance and the leverage of borrowing at scale. These are innovative initiatives.
Senator Gilroy referred to ideology and Keynesian investment. That is a point I made strongly. Several Senators spoke about Irish water. Irish water is an important new State company but a degree of confusion has arisen because of the way things were said on Sunday before a formal decision had been made. Irish water will be a new, entirely State owned company with a capital value of up to €3 billion. We need a proper water infrastructure because water is probably the most valuable of resources. It is certainly as important as electricity, gas, the road network or broadband. We have an indifferent water supply, however. When I was Minister for the Environment, I investigated group water schemes. The EPA produces an annual assessment of water quality and the quality of some of the schemes is far from satisfactory.
Every place in the country should have decent water quality and enjoy consistent water supplies without scarcity. There are real challenges in this regard, as we have seen in the south of England where supplies are at risk. We need to establish an integrated national company with the best skills available and that is what Irish water will offer. Yesterday's decision will have no impact on the sale of Bord Gáis Energy. We are selling off the energy generating component of that company. Irish Water will be a subsidiary of the infrastructure company, Bord Gáis Networks, until the day when it, perhaps, becomes big enough to stand on its own.
The public-private partnership with Treasury Holdings on the conference centre will cost the State €47 million per year for its first five years and €24 million for each of the following 20 years. The Minister should sell the convention centre. I am sure somebody is interested in it and the sale would save €750 million, or close to €1 billion when interest is included.
I was one of the first people to call for the disposal of Coillte because of the manner in which it was being run. In 2008 Coillte disposed of immature forestry for a net profit of €10.1 million. In 2009 it sold immature forestry worth €33.8 million for a profit of €25.4 million. It has been selling immature forestry for several years. However, I am concerned that the market value of the defined benefit pensions for Coillte's employees rose from €159.7 million in 2008, which was €10.2 million less than liabilities, to €123.9 million in 2009, or €98.3 million less than its liabilities.
I hope that any funds accrued from the sale of the felling licence of Coillte will not be pumped into the pension scheme.
I am very concerned at the reports that the State assets on offer will raise nowhere near €3 billion. I am also concerned that the €1 billion that has been earmarked for reinvestment in the economy to boost job creation, which the Minister mentioned, is also said to be at risk. If the money is not raised, what will the Government cut next? My overall view is that we should exert extreme caution in the manner in which we decide to sell any State assets. However, there may be positive developments that cover some of those areas. The OECD study found overwhelming support for the idea that "privatisation brings about a significant increase in the profitability, real output and efficiency of privatised companies". Several notable studies have also shown that fully privatised companies outperform partially privatised ones because the government influence may distort commercial decisions. I am interested in hearing how the Minister would react to that situation. Some of the figures coming particularly from Britain, Hungary and elsewhere in the past have shown that when state assets were sold they were sold at very bad value. We need to be very careful. Is there a danger of a fire sale and that we might sell assets at the wrong time and not get value for money which could do us much more harm than would otherwise be the case?
The sale of State assets in periods of economic crisis is not unusual. I remind Senator Byrne that the largest State sale ever was the sale of State housing starting in 1988 when in three years we sold off 30% of our entire housing stock.
I ask the Minister to take the opportunity of the privatisation of State assets not just to look at a share sale which is the most common way of privatising state assets, but to consider the co-operative model with the State as a partner eventually passing the asset into, for example, worker control. I also ask him to take the earliest opportunity to look at a national strategy for State investment. This debate should not just be about the way we sell State assets but needs to be a wider debate on State assets generally. For the sake of argument, in the future we should particularly consider the potential role for a State company to operate in the area of food security. Successive Governments have failed to defend and increase the fishing fleet. There may be a potential for a national fleet. We face enormous challenges in retrofitting our housing stock. There is potential for a State company to play a role in that area. It is nothing but good corporate governance for the State to consider its basket of investments in State companies at any moment in time. It should not just consider disposals but should look to the future of the State's role and a strategy for future investment.
I will certainly consider Senator Sheahan's convention centre proposal. Needless to say there is money to be paid back in that regard. He also spoke about pensions, a point raised earlier by Senator Byrne which I forgot to answer. Of course the full quantum of money in every case will not be realised because pension and other issues will need to be addressed. However, we will give a full transparent take on it so that Senators will know the full volume of money.
Senator Quinn, as a man very experienced in selling product, will know one does not announce one's price in an auction. Needless to say we have done very careful due diligence through the NewERA entity in testing the market - as one would. The product we are bringing to market, to use a colloquialism, is one for which we know there is a robust price. As I said in my initial commentary, if we do not get fair value for any asset, we will not sell it. It is as simple as that. That is understood and I have stated that from the outset.
Senator Hayden talked about a co-operative model. There is an imperative for us to get revenue in. While she talks very positively about future State companies - there may well be further State companies beyond Irish Water - where there is market failure. She instanced the food industry. That is one of the areas of the economy that is taking off. While there are very big drivers in the State sector, such as Bord Bia, to market product, there are many successful private companies converting fundamental raw product and adding value in the food and fisheries area. Of course there is a State research company in the fisheries area developing new market product. We will look at the general concept of getting value for existing companies by privatising either in part or in whole. We will then take that money and leverage it with private capital into the next generation of State companies so that we can create new jobs and meet market need that is not met by the private sector.
The Minister has rightly said there are no soft and easy options when selling off State assets. The soft and easy and runaway options were given to the banks. The reason we are discussing selling off State assets is because of the incompetence, greed and uselessness of the banks. The most important State asset after water - the Minister is right - is forestry. We cannot live without either in the sense that we need water but we breathe through the trees as most people in the public Gallery will know. We can live without heat as many people do and we can live without electric light as my grandmother did - I am only 37 so maybe my great-grandmother did it. While we can live without these two elements, we cannot survive without forests because it is through forests that we breathe. If we are to sell off our State assets, I suggest, as Senator Hayden did, that we must in parallel have some consensus about manufacturing. When I was in Taiwan recently Chairman Chang pointed out that we in Ireland spent a lot of time talking about the financial centre, painting it and putting curtains in it, but we forgot about manufacturing and making things. If we are to sell off our State assets we must have in parallel what the Minister calls a stimulus. However, what does everybody mean by stimulus? I am listening to this word and the manufacturing of jobs, but do we mean actual manufacturing? What programmes and procedures has the Government put in place for the use of the money we will get from selling off the heartbeat of our country?
In his statement the Minister mentioned that the Bord Gáis Éireann transmission and distribution systems, including its two gas interconnectors, would not be for sale. The Government has also agreed to sell some of the non-strategic assets of the ESB. He did not state that the existing underground and overground ESB interconnectors were not for sale. Has that been omitted? I realise how strategic our electricity interconnectors are. There are east-west interconnectors to Scotland and England and one is proposed for England to France. I am anxious that they would not be up for sale and I ask him to confirm that for me.
Following the sale of State assets, there is a general pattern of job losses as a result of investors seeking to acquire the best possible return on their investment when such a programme is undertaken by any government. We do not want a situation in which we are introducing a job creation fund with some of the moneys we will acquire from the sale of some of the non-strategic assets while at the same time we may have a close to corresponding job loss figures from the sale of these State assets. On that basis I ask if the relevant Department has conducted a thorough analysis of the job losses from the non-strategic State assets which are for sale. Further to this point I would also ask that any job creation initiatives employed on foot of the sale of these State assets would take careful consideration of regional deficiencies as regards employment figures so that places such as Galway East will properly benefit from any such job creation programme following the sale of these assets.
Senator Marie-Louise O'Donnell rightly assigns the cause of our problems to the banks but I would not be quite so limiting. There was not only incompetent and greedy banks but there was also incompetent and greedy developers and political individuals in cahoots with both. There is enough awful blame to spread around. I refer to the Senator's specific point about manufacturing, which is a good one. I recall being in Government before and when we left Government in 1997 the economy was based on manufacturing, making and exporting goods that people wanted to buy. Then someone thought of the great wheeze in 2000 or 2001 that we did not need to make anything but instead just inflate the price of land. Our streets could be more valuable than the streets of Paris and we could all be rich. It was a national pyramid sale. Unfortunately, that pyramid has come crashing down and we are left with the reality now. Senator O'Donnell asks a very pertinent question as to what we will do with the money. As I have indicated, two thirds of the value of the assets sales will be used to retire debt. This is not a bad thing of itself, although people say it is a modest contribution to the mountain of debt. However, every modest contribution we need to make is good but we want to use as much as possible in order to leverage further private sector investment in job creation. An evaluation of proposals will be carried out.
I opened a conference for project managers this morning in the Aviva stadium. They were listening to a presentation on the Spirit of Ireland project, which most members of the Government will have heard. This is a significant project. It is a matter for others to make determinations on it. There are many extraordinary ideas and we need a proper evaluation of them and be open to listening to them.
Senator Brennan spoke about non-strategic assets and I can give him an absolute assurance - which may have been omitted in my contribution - that all the networks belonging to the electricity grid, ESB networks, including all the interconnectors, will remain in State ownership, 100% guaranteed.
Senator Higgins referred to the job loss figures that will be inevitable. I do not agree it is inevitable. We have given careful thought to what we should sell and I am very careful in this regard. To put it bluntly, a daft policy has been pursued for the past ten years, or the past five years at least and this was alluded to by a Senator. There was notional competition in the energy sector with two State companies actually vying with each other and one of them was not allowed to reduce prices. I ask what sort of competition it is when a company is legally debarred from reducing prices in order for another State company to be allowed to capture a share of the market. We were all offered 14% to switch from one State company to another and now we can get another 14% if we switch back. That was the previous Government's idea of competition. Our idea is in accordance with European competition law which would require the ESB to sell off some of its power generating capacity so that it would not be an overwhelmingly dominant player. We would sell off the generating capacity of BGE and have a strategic private player in the energy market. This would make for real competition. Hopefully, this will not mean a loss of jobs but rather it will create jobs because it would push down the price of electricity for everyone if there is real competition as opposed to the made-up competition that passed for competition during the previous regime.
This is the Government's specific strategy. Our plan hits a number of points. It will allow the ESB to continue as a vertically integrated State company because it would be downsized to meet competition law. We will need a European derogation from the directive in order to do this. Normally, the distribution and generation would be required to be disagregated but we are trying to hold it together. We think this will be possible and also to have a second significant player in the energy generating business in Ireland. As I said in reply to Senator Quinn previously, significant international players are interested in the Irish energy market but the proof of the pudding will be in the eating; expression of interest is one thing but putting significant cash on the table will be another. We will explore all those options.
The three companies most often quoted in dispatches are ESB, Bord Gáis Éireann and Coillte. Has the Minister considered taking from all three companies the renewables part of their generating capacity and merging this into one clean, green company? I know there are a number of green equity funds who would be prepared to invest in that scale of a company. Such a merger might not be that difficult as the expertise in all three companies would be available and there would be an amount of downsizing. The benefit of the downsizing is that the companies would then be in a position to compete further for more national projects of that type.
I refer to the McCarthy report but I ask if a full inventory has been carried out of all State assets. I know that due to unfortunate circumstances the State bought a pub in Limerick recently. I think the OPW at one point owned a pub somewhere else in Limerick. Such items of property should be sold because they should not be in the possession of the State.
I thank the Minister for his comprehensive and very clear outline of the current Government position on the sale of State assets. He has set out very fairly the nature of the programme for the sale of assets and he has given the House certain reassurances that are particularly important to those of us who would clearly prefer not to see us selling State assets. However, as he said, we are in a particular and exceptional economic circumstances, the gravity of which not everyone even in this House appears to appreciate, as evidenced in the debate and particularly with regard to the comments of the Senator from Sinn Féin.
The Minister has very clearly set out a number of important principles that will guide the sale of assets, including that there will be no strategic infrastructural assets sold, that we have learned from the Eircom débacle and that a sale will only take place when market conditions are right and, crucially, one third of the proceeds from the sale will go to stimulus packages. Other Senators have asked for the details in this regard. My specific question is about the timeframe and whether there is any constraint on us as regards the timeframe within which sale of assets should take place. Can we take our time in assessing market conditions? Are we required to sell within the timeframe, for example, of the EU-IMF programme? That is something that is not quite clear.
Others have mentioned the new Irish water utility, which is to be set up under the auspices of Bord Gáis Éireann. This offers immense possibilities and is an exciting prospect.
With regard to Senator D'Arcy's commentary about an amalgamation of clean energy bodies, it is not envisaged that we will set up another State company in the energy sector. The intention is to have one vertically integrated company offering a variety of options in terms of its generating capacity so that it is not dependent on any one component part. If it is a State company, it is important that it has a generating capacity that is as diverse as possible so that it is not totally dependent on one source of generation.
Senator Byrne talked about an inventory of all State assets. That is a good question, because we did not even have an inventory of all State property, which I instructed the OPW to obtain early on and which has been put together. I daresay there are properties and so on that may not be known in a general sense but only to some agencies and so on. I know from colleagues in the other House that even to get a list of all State agencies is very difficult, because many State agencies were established 50 years ago and never formally abolished. They exist notionally but not in reality. The Senator makes a fair point.
Senator Bacik spoke about the timeframe for sale. As I indicated previously in my reply to Senators Barrett and Quinn, we have done due diligence in that we have tested the market, and we know there is a robust and healthy interest in the product, if one likes, that we are putting on the market. That will need to be tested, but I envisage the realisation of significant resources for the State next year.
I have a short question about an area for which I think the Minister is responsible. When a company is wound up or struck off, its assets traditionally go to the Minister for Finance, which I presume now means the Minister for Public Expenditure and Reform. Is there an inventory of these assets? Is this something the Department has considered in any great depth? These assets become the Minister's corporate property at that stage.
I believe they still go to the Minister for Finance in such instances. I will ask the Minister and inform the Deputy of his reply.
Acting Chairman (Senator Paul Coghlan): I thank the Minister and Members.
Sitting suspended at 3.25 p.m. and resumed at 3.30 p.m.