I move:
That Dáil Éireann approves the following Order in draft:—
State Guarantees Act, 1954 (Amendment of Schedule) Order, 1984
a copy of which Order in draft has been laid before the House.
The resolution arises from the arrangement recently concluded with the Dublin Gas Company and their bankers on the distribution of natural gas in the Dublin area.
There are four sources of finance for the project. One of these involves the provision by the principal contractor for the first phase of the conversion plan of a supplier credit facility of £10 million to Dublin Gas at a market rate of interest. Repayments of one quarter of the total amount outstanding will be made on 31 December 1989, one quarter on 31 December 1990 and the balance on 31 December 1991. The contractor has agreed to provide this facility only on the basis that it will be secured by a guarantee of the Minister for Finance, to whom the Dublin Gas Company will issue a debenture over their assets. It is to this facility that the proposed order refers. All of the elements of the project financing package are interdependent. It is, therefore, essential that the Dáil approves the resolution before it.
In addition to the supplier's credit of £10 million the company intend to raise £54 million by means of bank loans and a further £10 million by the issue of loan stocks, some of which it will be possible to convert, at a future date, into equity. The agreement with the company does not involve the State in the giving of guarantees for any part of these funds.
The State will also be providing, through Bord Gáis Éireann, a loan facility of £17 million, £5 million of which has already been drawn down and £12 million for drawdown in July 1984. The terms provide for interest on the £17 million facility to be rolled up and repaid one half on 31 December 1988 and one half on 31 December 1989. The loan is to be repaid in the period up to 31 December 1991.
In addition, BGÉ will provide a standby facility of £6 million. This will be matched on a pound for pound basis by the banks and will only be drawn down in the event of the debt profile agreed with the banks being exceeded for reasons other than capital costs arising from the conversion and development programmes. Where the excess arises as a result of overruns on these programmes it has been agreed that BGE would advance additional credit on gas sales to offset it. This will not commit BGÉ to anything more than they are committed to already to put into the project. For example, the BGÉ contribution in this regard can never exceed their existing total commitment to the project.
Anything contributed by BGÉ will be clawed back as soon as the overrun is corrected or the debt falls back within the projected level. I would stress these are contingency measures and that strict arrangements for monitoring and controlling the project expenditure will be in place. Both the £17 million loan and BGÉ standby facilities will be secured, but this security will initially be subordinated to the secured bank loans, the loan stocks and the existing debenture stocks of the company which are secured by virtue of statute. When the bank debt has been reduced to £26 million, the State loans will rank pari passu for security purposes with all other facilities.
The supply agreement between BGÉ and Dublin Gas provides that, in order to expedite the introduction of natural gas to existing consumers of gas in the Dublin area, the price payable for natural gas under the agreement will be rebated by an amount expected to be approximately £42 million. This is to meet the cost of converting consumers to direct usage of natural gas. Any conversion costs, apart from labour costs and a limited amount of other Dublin Gas internal costs, in excess of that amount will be funded by a conversion loan provided by BGÉ.
In addition, in order to facilitate the introduction of natural gas to new consumers of gas in the parts of Dublin which are not currently serviced by the company, the price will be rebated by a further amount expected to be approximately £28 million. As part of the agreement on these rebates Dublin Gas have agreed to pay a surcharge of £5 million to BGÉ in 1991.
It is obvious from what I have already said that the State is making a substantial financial commitment to the Dublin natural gas project. The bulk of the money is being provided by way of rebates off the price of future gas sales and the remainder by way of loans. The State will also incur a £10 million contingent liability in respect of the guarantee order now being sought. The benefits of this approach are twofold. Firstly, the impact of this enormous and costly infrastructural project on the Exchequer is minimised and, secondly, it provides a neat method of ensuring the maximum incentive for the Dublin Gas Company to go out and sell gas so that they can earn the rebates.
The provision of a supply of natural gas for Dublin is the most significant infrastructural development undertaken in this country for decades. It is a fundamental first step in the implementation of the Government's strategy for the orderly, efficient and profitable development of Kinsale gas. The cornerstone of this strategy is the capture for natural gas of as many as possible of the premium markets. Overall the manufacturing sector will also benefit from the arrangements made with Dublin Gas as natural gas will also be available to industry.
The Government wish to maximise sales of natural gas in the kind of markets which will give the highest return to the Exchequer, have the greatest possible impact on the balance of payments by substituting for the more costly of the imported fuels, and which will use our limited supplies of gas in the most efficient way possible. Basically what we are talking about are the domestic market, commercial heating and cooking and certain industrial processes.
The largest concentration of such premium markets is in the Dublin area, so it was obvious that our first task would be the construction of a natural gas pipeline from Cork to Dublin. It is a matter of record that Bord Gáis Éireann, the State body which carried out this work, did so in a manner which would be the envy of many a private undertaking. The pipeline was completed ahead of schedule and comfortably within an extremely demanding budget. I would go so far as to say that the building of the pipeline was one of the most successful ventures carried out to date by the State and I would like to pay tribute here to Bord Gáis Éireann, their employees and contractors, and all involved.
It is worth mentioning that over 70 per cent of the contracts awarded went to Irish industry. This is particularly satisfying when one considers that it was not possible to obtain the pipeline itself in Ireland. It is the Government's firm intention that this policy of maximising the participation of Irish industry will be vigorously pursued in relation to all contracts for the Dublin project and, indeed, all other natural gas transmission and distribution projects throughout the country.
Having constructed the pipeline, the Government were then faced with a decision as to the best means of distributing the gas when it arrives in Dublin. I should say here that it was decided at a very early stage that gas would be made available to the ESB for use in their Poolbeg and North Wall generating stations. By using the gas in Dublin the ESB were able to eliminate significant transmission losses and make other efficiencies. The savings from this alone justified the economics of the pipeline. But the long-term aim was to give the Dublin consumer the benefits of natural gas at a competitive price.
In coming to their decision on the arrangements for the distribution of the gas the Government were conscious of the existence of the Dublin Gas Company, which had an extensive gas mains systems already in place. The Government concluded that it would be possible to negotiate an agreement with the company which would be satisfactory from the point of view of return to the State for its investment and retention by the State of an appropriate level of control over both the distribution project itself and the level of profits which will accrue to private shareholders from the sale of this valuable and limited national resource. The Government decided, therefore, that the existing Dublin Gas Company should be the vehicle for the distribution of natural gas in the Dublin area but that the State would substantially participate in both the profits and the running of the undertaking.
An agreement was negotiated with Dublin Gas on this basis which provided for the financial package which I have already outlined, including the guarantee of the supplier credit arrangement. The House is now being asked to approve in draft the order to give effect to the guarantee. In return for its quite substantial investment, the State is to receive 56 per cent of the profits of the company, plus an additional 50 per cent of any profits over and above a certain level. When, after a number of years the bank loans have been repaid, the State will in fact be receiving between 70 per cent and 80 per cent of the profits of the company, taking taxation into account.
There is a provision in the agreement which entitles the State to guaranteed dividends of £20 million by December, 1992. The effect of this is that the State will receive, with some minor exceptions, priority over other shareholders in the matter of payment of dividends until this figure has been achieved. In addition the State in the form of Bord Gáis Éireann will also be paid for the gas itself.
Under the agreement, one-third of the voting directors of the company, including the chairman for the first two years, have been appointed by the State. The Government have also appointed a senior management official to Dublin Gas to oversee the conversion and development projects and to oversee the company's health generally. The State is also actively involved in the Conversion and Development Monitoring Committees which are being established to give advance warning of any possible serious overruns on expenditure and will enable measures to be taken in good time to rectify such situations. The State also has a number of legislative controls over the company. For example its Memorandum and Articles and any amendments to this are subject to the approval of the Minister for Energy.
It has always been a feature of discussions with the Dublin Gas Company that a supply of natural gas was contingent on their implementing a number of measures to radically improve its operations which were up until recently riddled with inefficiencies and restrictive practices. To give credit where credit is due, the company and its workforce have made significant strides in this area and are now, in the view of the Government, a fit vehicle for the safe and efficient distribution of natural gas.
Up to now the company have simply substituted natural gas for their naphtha feedstock and continued to reform town gas. They are at present embarking on a major conversion programme largely funded by the State under the system of rebates which I have already described. Direct use of natural gas is more efficient. It means that gas delivered to homes in Dublin will be non-toxic. To that extent it is a safer gas. It will enable the consumer to have the benefit of cheaper, more modern and more efficient gas burning appliances. Natural gas has twice the energy content of town gas. Conversion will, therefore, at a stroke, double the capacity of the existing Dublin Gas network and will make it possible for new mains, providing gas to areas not presently served, to be constructed more cheaply.
The importance of this project both in the Dublin area and the country as a whole can not be under-estimated. It will result in greatly improved use from the point of view of efficiency of our natural gas resource, in significantly increased revenue to the Exchequer and in a substantial beneficial effect on the balance of payments, estimated to be in excess of £25 million in 1984 alone. It has ensured the future of more than 1,000 jobs in the Dublin Gas Company which otherwise would have been lost. The conversion and development programmes will directly result in the creation of more than 700 jobs for their duration. The spin-off benefits to industry of the conversion and development programmes will be enormous and will certainly lead to the creation of many new jobs. It will improve our strategic position in the vital area of security of our energy supplies. The huge expansion in the market for natural gas will provide just the kind of incentive needed for exploration off our coasts.
In short we are on the threshold of a new energy era in Ireland. We have taken the first steps towards making a reasonably priced and secure indigenous fuel available in houses and businesses throughout the country. The draft order which I have placed before you for approval is an essential first step in this process.
