I move that the Bill be now read a Second Time. The principal purposes of this Bill are (i) to authorise an increase from £16,000,000 to £25,000,000 in the statutory limit of expenditure which the E.S.B. may incur on rural electrification and to provide for the making of advances from the Central Fund accordingly; (ii) to extend the borrowing powers of the board so as to authorise it to obtain moneys required for rural electrification from sources other than the Central Fund; and (iii) to terminate the subsidy for rural electrification. The remaining provision is a minor amendment of the 1954 Act which is required to make it clear that a guarantee given by the Minister for Finance under Section 9 of that Act may extend to the payment of interest on, as well as to the capital repayment of, borrowings made under Section 4 of that Act.
Section 7 of the Electricity (Supply) (Amendment) Act, 1954, authorised an increase from £8,000,000 to £16,000,000 in the total of advances which could be made to the board from the Central Fund for rural electrification and at the time that Act was enacted, it was anticipated that the provision then made would suffice until about March, 1956. As a result, however, of the considerable increase in the rate of development which has taken place in the meantime, both expenditure and commitments incurred on the scheme have increased more rapidly than was anticipated. Within the existing limit of £16,000,000 the total already advanced to the board is £13,600,000 and in the year 1955-56 the board's requirements for rural electrification alone are expected to total £4,000,000. The board's total expenditure and commitments at the end of May, 1955, in respect of the scheme were £15,057,769.
It is clear that at the present rate of activity the total of expenditure and commitments on the scheme will have exceeded the existing statutory provision of £16,000,000 by the autumn of this year. It will be appreciated that the statutory provision at any particular time should be sufficient to cover not only expenditure actually incurred on the scheme but also commitments which have to be entered into in advance and which are inherent in the nature of the scheme. It is essential, therefore, that additional legislative provision should be made as soon as possible. Taking account of the balance of £2,400,000 still available, the additional amount of £9,000,000 which it is now proposed to provide, will, it is expected, be sufficient to cover expenditure and commitments until 1958.
The fact that it should be necessary to seek the approval of the Oireachtas for increased provision for rural electrification so much earlier than was originally anticipated is a reflection of the considerable increase in the rate of development which has taken place. In other words, development is now proceeding at a rate double that of two years ago. The following statistics illustrate the progress. In the year ended 31st March, 1953, 49 rural areas were completed; 60 were completed in 1953-54 and 75 in 1954-55. The estimate for 1955-56 is 100 areas. At 31st March, 1955, the number of rural areas completed since the inception of the scheme totalled 364.
In all, there are approximately 780 rural areas in the country and, as development in the current year and in future years is expected to proceed at the rate of 100 areas per annum, there is every prospect that the scheme will be extended to all areas by the 31st March, 1959. As further legislative provision will be required before that date the House will have an opportunity then of reviewing further the progress of the scheme. Even with the increased rate of development there is no evidence of a slackening in demand for extension of the scheme. In 1953-54 the average percentage of householders who agreed to take supply in the completed areas was 67 per cent. as compared with 65 per cent. in 1952-53 and 60 per cent. in 1951-52. The urgency of making additional provision now is therefore self-evident.
The Government have decided that the continuance of subsidy for rural electrification from State funds is no longer necessary or justifiable and sub-section (2) of Section 4 of this Bill is designed to give effect to that decision. There seems to have been a good deal of misunderstanding about the effects of this decision and in particular it has been asserted that it will result in either a slowing down of rural electrification development or an increase in rural charges or both. That, of course, is not the case. To clarify the position, I think it would be desirable that I should give the House an outline of the history of this subsidy provision and of the considerations on which the decision to withdraw it was based.
The problems of rural electrification were examined in a report prepared by the E.S.B. which was submitted to the Minister for Industry and Commerce towards the end of 1942. This report was published as a White Paper in 1944 and copies of it are available in the Oireachtas Library. In dealing with the economics of rural electrification it was estimated in the report that the annual capital charges, namely, interest on advances, the provision of a sinking fund to repay the advances together with provisions for depreciation of the assets and for other costs, such as maintenance, and supervision, would amount annually to 12 per cent. of the capital cost of providing supply.
On the best estimate that could be made at that time the annual revenue from fixed charges was expected not to be likely to exceed 9.7 per cent. of the capital cost. There would be, therefore, an annual deficit of 2.3 per cent. of the capital cost. Of the total annual charges of 12 per cent., interest and sinking fund charges were estimated to total 5.5 per cent. It will be appreciated that these interest and sinking fund charges would not arise if the State provided the capital required for the scheme as a non-repayable grant which would be the equivalent of a 100 per cent. subsidy. On the assumption that the capital required would, as in the case of capital for the board's general purposes, be provided by way of repayable interest-bearing advances from the Central Fund the measure of the subsidy required to make the scheme economic from the board's point of view was the deficit of 2.3 per cent. expressed as a percentage of the interest and sinking fund charges of 5.5 per cent. or 41.82 per cent.
The Government approved of the report from the E.S.B. in August, 1943, and decided that the scheme should be commenced as soon as materials became available and that the board should be recouped the amount by which the annual fixed charges fell short of the annual capital charges. Effect was given to this decision in Section 41 of the Electricity (Supply) (Amendment) Act, 1945, under which capital for the scheme was made available and which also provided that one moiety of the sums advanced to the board from the Central Fund for rural electrification should be repaid by the board and that the other moiety should be repaid out of moneys provided by the Oireachtas at such time or times as the Minister for Finance should direct. The subsidy was fixed at 50 per cent. instead of the 41.82 per cent. originally estimated in view of the increases in costs which had taken place in the meantime.
The scheme commenced in 1946-47 and it was arranged that one half of the sums advanced to the board in any calendar year should be repaid to the Central Fund from voted moneys in the succeeding financial year. This payment was charged to the Vote for Industry and Commerce and in the financial years 1948-49 and 1949-50 a total of £550,000, representing one-half of the advances obtained by the board in the calendar years 1947 and 1948 was repaid to the Central Fund from that Vote. In 1950 the Minister for Finance decided that the amount falling due for repayment to the Central Fund in the financial year 1950-51, and in succeeding years, should be funded and be repaid by way of an annuity payable half-yearly and extending over 50 years. These were the terms of repayment which applied to the moiety of advances which were repayable by the board and it was felt that the benefit of these terms should be extended to the taxpayer also. In 1952, the Minister for Finance decided to revert to the procedure of repaying the outstanding moiety to the Central Fund from voted moneys in one sum and, accordingly, in the financial years 1952-53 and 1953-54 one half of the amounts advanced to the board in the two preceding calendar years was repaid to the Central Fund in lump sums totalling £1,300,000.
In February, 1954, a further modification of the system of repayment was decided upon. The net result of the previous arrangements was that at the end of March, 1954, the total amount remaining outstanding in respect of the moiety repayable from voted moneys including the undischarged portions of annuities fixed to repay the 1949 and 1950 advances was £2,110,213 and it was decided that this should be repaid by way of simple instalments without interest over 25 years, and that this arrangement would also apply in future years. The present position is that the board has obtained a total of £13,600,000 by way of advances from the Central Fund and that of the moiety of £6,800,000 repayable from voted moneys a total of £1,974,400 has already been paid. In other words, rural electrification has been subsidised to that extent.
I think that, in considering this question of subsidy, it is essential that regard should be had to the circumstances which prevailed when it was originally decided on and to the considerable alteration which has taken place since then. In 1943, as a result of the unsettled conditions and the difficulties in securing supplies, the board was operating at a loss and in fact continued to operate at a loss right through the remaining war years. It was not until 1948-49 that the accumulated deficits of these years were finally wiped out. When the decision to provide a subsidy was taken in 1943, there was every indication that the difficulties under which the board was operating might become even greater and even with the return of peace might be aggravated by the necessity of overhauling, in an era of inflated costs, the arrears of construction which had accumulated during the war years. It was only natural, therefore, that the board should not be expected to undertake any operations, particularly rural electrification, the economics of which were then uncertain.
To-day, however, the position is vastly different. Since 1948-49 the board has been able to produce a surplus on its operations in every year with the exception of 1952-53 in which there was a deficit as a result of inflated fuel costs, and this has enabled it not only to make adequate provision for interest on advances, capital repayments and depreciation of its assets but also to provide other reserves which at 31st March, 1955, amounted to nearly £2,000,000. In the year ended 31st March, 1955, the gross surplus amounted to £928,659. The provision for interest and capital repayment on the moiety of advances for rural electrification for which the board was liable in that year amounted to £260,567. It will be evident, therefore, that the board could have borne the full charges for rural electrification in that year and still have shown a substantial surplus. It was in the light of these altered conditions that the Government decided that the continuance of subsidy was no longer either necessary or justifiable.
An important feature of the results of 1954-55 was that the rural revenue account showed a surplus of £44,130 as compared with deficits of £9,988 and £30,610 in the two previous years. The increased rate of development should result in a considerable expansion of sales of current in rural areas and it would be obviously absurd to continue to provide subsidy for a service on which there was every likelihood that surpluses would continue to be produced as long as the subsidy continued. The Government felt that the board had attained the position in which, taking its operations as a whole, it could not only bear all the charges on this service in the future, but could also take care of the undischarged liabilities. In this connection it is important to bear in mind that the board enjoys exceptionally favourable terms for repayment of its liabilities to the State as such repayment is spread over a period of 50 years.
Electricity development in this country has now reached the stage at which electricity consumers and taxpayers are largely the same persons. There would, therefore, be no point in arranging on the one hand, for a relatively slight reduction if any reduction were possible at all in the price of electricity to consumers and, on the other hand, imposing taxes on them to provide for a continuance of subsidy. The logical way to look at this is to regard the board's undertaking as one unit which by prudent management has reached the stage where it is self-supporting and can bear the full charges for rural electrification from the surpluses realised on its other activities.
Since in future there will be no distinction between capital required for general purposes and for rural development in so far as liability for repayment is concerned there is no longer any reason for the board to rely solely on the Central Fund for its rural capital requirements. Provision has, accordingly, been made in Section 3 of the Bill to authorise the board to borrow, from sources other than the Central Fund, moneys which they may require for rural development. This is an extension of the powers conferred on the board by Section 4 of the 1954 Act.
In case any doubts on the subject should still exist I should like to take this opportunity of assuring rural consumers that there will be no increase in electricity charges as a result of making the board bear the full cost of rural electrification nor will there be any reduction in the rate of progress in carrying out the scheme. In fact the position now is that, as a result of the increase in the rate of development, those who are still awaiting supply may expect to receive it all the earlier.
The speedy enactment of this Bill will ensure that the board can go ahead with rural development at the present greatly accelerated pace and will hasten the day when practically every member of the rural community will have available to him this modern amenity and aid to increased production. I think it will be agreed that the board deserves to be congratulated on its achievements in this field and on the success which has attended its efforts. I therefore confidently recommend the Bill for the approval of the House.