Dáil Éireann debate -
Tuesday, 8 Apr 1986

Vol. 365 No. 1

Private Members' Business. - Dublin Gas Company: Motion.

Mr. Reynolds

I move:

That Dáil Éireann calls on the Government to make immediate arrangements for Bord Gáis Éireann to take over the Dublin Gas Company in order to resolve the present crisis; to protect the substantial State investment and interests in the company and to ensure the future supply of natural gas to the Dublin area at reasonable prices.

In putting down the motion Fianna Fáil recognised the serious financial crisis that exists in Dublin Gas. The House will recall that, as far back as last September, a consortium of banks who were funding the development programme stopped that funding. At that time the banks had put in £40 million of the £60 million they had committed to this project. About the same time the Dublin Gas Company stopped paying Bord Gáis for gas supplies. The figure had reached between £12 million and £13 million. I hope the Minister, when replying, will give details to the House of the amount owed to Bord Gáis. That was bad enough but worse was to come. In the last two weeks the Revenue Commissioners who had not been paid their taxes took out a judgment against the Dublin Gas Company in the High Court to recover on behalf of Irish taxpayers the money due. I understand that the judgment was for a figure in the region of £2 million. The Minister should tell the House if more money is due to the Revenue Commissioners.

The crisis has been created by the indecision of the Minister and the Government. The position in the company has been known since last September. It is crucial that I should say that, because in recent weeks we have been told that the crisis arose only last week or the week before. I put it to the House that when payments to Bord Gáis for gas stopped last September and when the banks indicated they were no longer to fund the development programme at about the same time, it had to be abundantly clear to the Minister that serious problems existed.

From the information I have it appears that many discussions took place since then between the company and Bord Gáis and between Bord Gáis and the Department. I do not think the Minister can tell the House, or the public, that he was not aware of the crisis since last September. We are all aware that Bord Gáis are a State enterprise and that the Minister has his own representatives on the board. There is no way that he would be unaware of the crisis building up in the Dublin Gas Company. He has his own directors and his own chairman on the board of the Dublin Gas Company. It is not logical to suggest that he, and the Government, were not aware of the crisis since September.

I am not in possession of all the facts in relation to the Dublin Gas Company and I want the Minister to give us an up to date assessment of how the major development programme went wrong. He should tell us the progress made in regard to the conversion programme. I understand that 80 per cent of the programme has been completed but I am not in a position to verify that. I hope the Minister will give details of that programme to the House. It is significant that the banks who had put in £40 million of the £60 million committed to this project stopped funding it. Why did they stop funding the programme last September? What were the indicators that prompted the move by the banks?

We are all aware that the banks have been paid interest on their loans and that the financial institutions who put £10 million into the company for £10 million loan stock have also been receiving very substantial returns for their investment. From the calculations I have made it appears that their return on their investment in 1985-86 runs at approximately 20 per cent. Most Members will be aware that the terms for that £10 million loan stock were tied to the sales of natural gas to Dublin Gas customers. If the targets had been reached the return next year would be approximately 30 per cent. That is the part of the deal I objected to strenuously when the Minister responsible, Deputy John Bruton, tried to convince the House, and the country, that he had done a marvellous deal for the Irish taxpayers.

Let us look at the facts in regard to this. Outside financial institutions were allowed to put in £10 million of loan stock on a preferential return basis. Of that £10 million they were entitled to convert £5 million into ordinary stock if they so wished at whatever point they wanted. That in turn would have given them 25 per cent of the equity of Dublin Gas for an investment of £5 million and they were already getting a return on that money. I objected to that deal on the basis that for their £5 million they were getting 25 per cent of the ordinary shareholding and voting shares in Dublin Gas while the State, for its huge investment, did not do as well. Will the Minister tell the House how much of the State investment has been made? Has it all been made? Are we at the stage that £51 million, £54 million or £76 million has gone in? The Minister should tell the House the position so that we can assess what has happened. For an investment of £10 million the financial institutions got a giveaway. I am at a loss to know why the Minister could not have done a similar deal for £5 million on behalf of the State.

What has caused the crisis in Dublin Gas? Were their targets not being reached? Did the banks get cold feet? Was it a question of management not living up to expectations? When one hears all the complaints floating around the city, or listens to consumer programmes, or Gay Byrne, one begins to wonder. I have heard people say that when the gas man called three weeks ago he said he would return but he had not done so. If that is the position three years later — I do not take everything I hear on the radio or read in the papers for granted — then one must point the finger at management. They are not doing their job. It is the function of management to run the business correctly. Have management failed to reach their targets or was the crunch issue in relation to the price of gas to Dublin Gas so that they could remain competitive with other energy sources?

What is the crux of the problem? Only when we hear from the Minister what is the crux will we be able to carry out a real assessment of the true position. Our motion has been tabled because the Revenue Commissioners have taken out a judgment for £2 million, because £12 million to £13 million are outstanding for unpaid natural gas supplies from Bord Gáis, in effect the taxpayer, and because the banks have refused since last September additional funding to the tune of £20 million. We say to the Government: the crisis has continued too long, the risks are too great, something must be done now. I cannot understand their dilly-dallying about this decision. They have known the total picture over the last few months. I should like to hear the Minister deny that he was unaware of it. If the Government have been aware, why have they not taken a decision? Is it a case of ideological hang-ups between the two parties in Government? Is it a prolongation of the problems this deal created for this Government when Deputy Cluskey resigned on a point of principle at the time, or what is the real situation?

The reality in relation to Dublin Gas, to the consumers who depend on gas for their cooking and heating, the industries that have switched over to it and the taxpayer is simply that the Government have placed the whole situation at risk by their indecision over the past couple of months. One might well ask what is to stop any other creditor next week from going into the High Court and getting a judgment for money owed him. I am sure there are plenty of such creditors around. Seeing the way the Government have handled the situation, what is to stop them joining the queue, saying, "We will protect our money. We will go into the High Court, get a judgment and have a receiver or liquidator appointed"? I might point out to the House that if a receiver or liquidator was appointed then the existing supply agreements would cease to exist.

I have examined the possibility of a receiver or liquidator being appointed and that is the position that would obtain under the supply agreements reached between Bord Gáis and Dublin Gas. As it appears to be a continuing situation what is to prevent a creditor having this company put into receivership or liquidation? What is there to prevent any smart speculator from picking up this company on the cheap? One might then ask who will be the losers? I am sure there are people in competitive areas of energy who might be only too delighted to see the whole thing collapse, pick up the company for half nothing and make a nice business out of it. There are plenty of people around this city who would be only too delighted to pick it up on the cheap. This Government stand aside, perhaps through internal quarrels, points of principle, ideological hang-ups or whatever, while that risk remains. Apparently it will remain after tomorrow evening at the conclusion of this debate because the Government are not prepared to face reality and come to grips with the position.

What happened the marvellous deal that the present Minister for Finance proclaimed to the country at large was the biggest to have taken place this century? What has happened the confidence and optimism he expressed? We were told that the Government thoroughly examined the figures, called in experts, economists and so on. The present Minister for Finance said he was confident that this would be a successful deal. I could quote many times what he said about this deal. Indeed, he was reported in The Irish Times of 12 December 1983 as saying that this project would make substantial profits for the taxpayer. I should like to hear him intervene this evening and tell us what was the basis for those forecasts, explaining how he managed to conduct such a fine deal with financial institutions, not the banks in this case, for their £10 million loan stock. That is the reality of the position facing Dublin Gas. The taxpayer is at risk, as is State investment and the 150,000 consumers of gas. As I have said, no existing supply agreements would exist on the day a receiver or liquidator was appointed. What are the 150,000 captive customers supposed to do in those circumstances?

That is why we have tabled this motion calling on the Government to make arrangements for Bord Gáis to step in, removing the risks involved to a large State investment, to consumers and taxpayers. I see it as the only mechanism by which control can be brought about. I had examined the possibility of the appointment of an administrator. However, the legislation passed in this House for the appointment of an administrator in the last two years would not apply to these circumstances because this is not part of the insurance industry. That legislation was introduced for a specific purpose. Neither am I aware of any other legislation which would provide for the appointment of an administrator. If there is I should be glad to hear of it from the Minister. The only means available to the Government is to use Bord Gáis, asking them to step in, take over control, removing the risks involved, holding the reins on an interim basis.

That is not to say I would be totally happy with Bord Gáis or anything like it. Indeed, how could anybody stand up and say he was happy with the operations of Bord Gáis, especially when one views three-and-a-half years of inactivity with regard to another spur on the Cork to Dublin gas pipeline? Yet they employ 160 to 170 people. When one examines the number of customers and invoices that have to be sent out one wonders is another State empire being built. I have no ideological hang-ups about who runs an enterprise as long as it is run efficiently. But I am always wary where a natural resource is being handled by a State company, with that number of employees — in my opinion not justified — because had they been active over the last three-and-a-half years then Limerick, Clonmel, Waterford, Kilkenny, Dundalk and Drogheda would have got gas. Perhaps the accusing finger should not be pointed solely at Bord Gáis. Perhaps they have been hindered by Government policy, by the indecision or ideological hang-ups existing between the Government parties. There is a responsibility on this House to remove the grave risks obtaining in Dublin Gas.

I hope the Minister will respond to all the questions I have put to him this evening. Indeed, the Government amendment can be described only as "Coalition sellotape". That is all it is, keeping them together for another while while they dilly dally, cannot reach agreement or whatever. The Government amendment says:

Notes that the Government intends to bring to a conclusion as soon as possible its consideration of the problems facing the Dublin Gas Company

How does the Minister expect anybody to believe that, when the crisis has existed for so long, when everybody knew what the realities were, where Dublin Gas was heading? Perhaps that is the way the Minister wanted the company to head. If so, I should like to hear it from him this evening. Whatever the reasons, they are in crisis and something must be done about it. The Government amendment continues:

... with a view to finding a solution for these problems, including the alternative of a State takeover of the Company if this is deemed to be the most appropriate means; and that the Government's objective is to protect the substantial State investment and interests in the Company and to ensure the future supply of natural gas to the Dublin area at reasonable prices.

In the absence of the Government knowing where they are going how can they prevent all the risks I have enumerated here this evening? What I have said could happen tomorrow, the day after or before the end of the week.

Surely it is time the Government made up their minds in relation to it. If it is a fact that the whole crisis has been brought about by the argument on a reduction in the price of natural gas, let us hear it and examine it here. If the problem is deeper and more structured, we want to know it and to consider it. We want to know what protection we can afford. However, in the absence of proper data it is difficult for anyone here to make a rational judgment.

We are into a whole new energy era in the world because of the collapse of oil prices. I can understand the Department of Finance, which probably have their finger in this pie as well, trying to encourage the Minister for Energy to keep the price of natural gas up so that the Department of Finance can have the revenue they expected for the remainder of this year. It is nice thought, but it will not work because at the end of the day whoever sells natural gas in Ireland and in the Dublin area, whether it is private enterprise or State enterprise, cannot sell it if it is not related to oil prices. That was the way the thing was set up in the first instance.

Look at the situation in which that has placed Dublin Gas. Apparently, An Bord Gáis and the Government agreed that Dublin Gas would take on large industrial consumers in the city, Guinness being one. The contract between Dublin Gas and Guinness for a supply of natural gas is related to oil prices. Does anybody here reasonably expect Guinness to continue to buy natural gas at high prices when they can switch back to what they were using before they were converted? It is not on in the world of today. Do the Government seriously expect Dublin Gas to continue to supply gas at a low price to Guinness and suffer a loss, destroying the viability of the company in which there is such a large investment? I cannot understand the kind of economic analyses being done. It would be nice for the Government to sit back and say they will continue to get large amounts of revenue out of energy, gas, out of tax on the ESB, on diesel oil and all the rest of it, at a time when world oil prices are now lower than they were in 1973.

Ireland paid dearly because of the two oil crises which destroyed our economy as well as many other western economies. We paid dearly when oil prices were on the way up. When are we to get the benefit on the way down? The Government must face the reality, and it is a bitter pill for any Government to swallow when they have to say they will have to do with less revenue. But they are being compensated for it in many other ways. We have seen the drop in the US dollar vis-á-vis the púnt. How much money is that saving the Government in the service of the national debt? With fluctuating world currencies, what is the saving to the Government? This economy cannot reap the benefit of low oil prices that bring with them lower inflation until the Government make up their minds that the benefits that flow from the crash in oil prices will be left to sift through the economy in all aspects. That does not stop with industry or commerce. It goes down to the housewife. It was an insult to Irish housewives to be offered a paltry reduction in ESB prices next September. We all recall ESB bills in the seventies and eighties, all the surcharges. The ESB were very quick about putting on the surcharges, but when their cost structure collapses we are told we will have to wait until September for a derisory reduction of 4 per cent or 5 per cent.

The world is being changed by the energy position and it will change this country as well if the Government allow it to happen. This may well be part of the crux of the problem afflicting Dublin Gas. Everybody seems to be getting paid at the moment except the taxpayers. There are great returns there for the national institutions, the banks are getting their money, but Bord Gáis are getting no money and the Revenue Commissioners have to go to court to try to retrieve theirs. We seem to be totally bereft of ideas for the future as far as the Government are concerned.

The amendment does not mean anything except that it probably reflects the Cabinet meeting today which, I understand, had to be postponed until 4.30 p.m. Perhaps it will go on later tonight. That is no more than biding time, refusing to face up to the difficult decisions that have to be made.

I asked earlier how much of this financial deal is in place. The deal was for a total of £164 million, loans of £60 million from a consortium of banks and £10 million from other institutions and insurance companies, and £10 million in loan stock. I know that is in place — £40 million of the £60 million is right. I do not know what is in place from the point of view of the Government. Have Dublin Gas put in their total of £17 million of loans? Have the rebates of £40 million been passed on and has the subsidy of £27 million been passed on? Has the credit of £10 million been passed on as well? How much of that money has been put in place? It is a sizeable amount.

The Government cannot put the taxpayers at risk for money which could be upset in the High Court at any time. The people will charge them with that because they will always remember how they were treated by the Government in this case. They must have an assurance that natural gas will be kept on stream. What has happened in regard to the Dublin Gas conversion programme to natural gas which I understand had been completed to the level of 80 per cent? Will the Government recommend that the conversion programme be stopped?

I issue a warning to the Minister that if this programme is stopped it will cost millions of pounds to start up again. How far has that programme gone? How much of an analysis has the Minister done and would he mind giving us the benefit of the analysis so that the people, the taxpayers, can pass a value judgment? Is it true that early in January An Bord Gáis, having analysed all the presentations made to them by the banks and the companies concerned, accepted that a new price structure had to be arrived at? If that is true, this is now 8 April and why the delay? Do the Government not accept Bord Gáis's assessment of the critical situation? Why have the Government allowed it to drag on for so long? Even in February a series of meetings and representations took place, with the same negative result and the same happened in March. It was not until the Revenue Commissioners moved with their motion for judgement against the company that people began to take the matter seriously.

There is another serious matter to which I wish to refer the Minister, which is, why have not the Revenue Commissioners proceeded to recover their £2 million approximately from Dublin Gas? We all know the very short time it takes the Revenue Commissioners to proceed, having got a judgement in the courts. I want the Minister to confirm that neither he, nor the Minister for Finance, nor any Member of the Government, directly or indirectly, got on to the Revenue Commissioners and asked them to stay judgment, not to proceed. Is it true that this Government, by whatever means, stopped the Revenue Commissioners from taking the only course open to them on behalf of the taxpayers to recover the taxes due? Is it not scandalous, if that is the position, about the number of small companies who have been put out of business over-night by the Revenue Commissioners? When it is as a result of Government ineptitude and indecision, the Government step in to protect their skin and the Revenue Commissioners stand off. How long more will they stand off? It is a reality of the commercial world of today that, as soon as anyone moves for a judgement against a company, that brings in all the wolves.

Has comfort been given to many others to stay out? What is the position in relation to the letter of comfort given to the banks that if things should go wrong there would be an immediate get together and re-adjustment of the price structure? Has that taken place? We were told that a hardship clause was included in the agreement which gave the banks that opportunity to ask the Minister to come back to the table, with Bord Gáis, to renegotiate and restructure. Is that what is going on at the moment? Will there be a price restructuring? If that is to be one of the options examined by the Minister and the Government, we want to know the exact position in relation to the whole programme. Has it been a success or failure up to now? Has 80 per cent of the conversion programme been completed or not?

Have the management been worthy of the great confidence and optimism expressed by the then Minister, Deputy John Bruton, when announcing to the country at large that this was a marvellous deal? If they have not, what action do the Minister and the Government propose to take if they are travelling along the road of restructuring the price, in order not to be in the same situation in six months' or 12 months' time?

It was an unusual feature of this agreement that the best brains in the country and economists from outside were brought around the Cabinet table to explain matters. Everybody was supposed to be behind this deal at the beginning, but perhaps that was not the situation. Bord Gáis expressed very serious reservations in relation to some aspects. I was ill at the time but at the first opportunity I pointed out that far from being the marvellous deal it was presented as, there were serious errors of commercial judgment.

I would like the opportunity to put money into an operation which would guarantee me 20 or 30 per cent return and at the same time if the company turned out to be successful to be able to convert half the investment of £5 million into a 25 per cent ordinary stake in that company. That was a lovely deal, but what was the necessity for it? Where did it arrive from, suddenly at the last moment? Were we looking after old pals? Certainly that deal was not present for a long time during the negotiations. It would be interesting to see, as I intend to do, what institutions were enabled to participate in an extremely preferential deal done on behalf of the State and the taxpayers. We got an assurance in this House that everybody was absolutely satisfied, that every "t" had been crossed and every "i" dotted. We were told that this deal would not fail, that it would be a marvellous success. As I said, the Minister, Deputy Bruton, on 12 December 1983 was reported in The Irish Times as saying that this project would make substantial profits for the taxpayer. Where did the analysis go wrong, or the operation?

In a private company, if one is operating with one's own money out in the hard market place and one fails to deliver, there is only one road open. I want the Minister to tell me tonight what options he is looking at. I say that the appointment of an administrator is not possible under existing legislation and I ask him to deny that. If one appointed a liquidator or receiver or if that were forced upon one by any creditor, as they are entitled to do tomorrow morning, the supply contract agreement in existence would cease at that moment and what projection would there be for ongoing supplies of natural gas to 150,000 consumers? That is the reality as I understand it under the existing agreement. Where does the Minister propose to go from here? I shall have other things to say about the restructuring of Bord Gáis. I am not absolutely happy with their performance. Perhaps it is Government policy that is stopping them.

I have examined all the aspects and the Government would have to prevent the risk of loss of our total State investment against a speculator forcing a liquidation or receivership, taking the company on the cheap and leaving everybody high and dry and the Government would also have to protect the consumers in the event of anything like that happening. The only immediate option is for Bord Gáis to do this in the interim and let us move on from there.

Minister for Energy (Mr. Spring)

I move amendment No. 1:

To delete all words after "Dáil Éireann" and substitute the following:

"Notes that the Government intends to bring to a conclusion as soon as possible its consideration of the problems facing the Dublin Gas Company with a view to finding a solution for these problems, including the alternative of a State take over of the Company if this is deemed to be the most appropriate means; and that the Government's objective is to protect the substantial State investment and interests in the company and to ensure the future supply of natural gas to the Dublin area at reasonable prices"

The Lord save us from the poacher turned gamekeeper. I must say I listened to Deputy Reynolds and, in fairness, he outlined some of the complexities of the overall problem in relation to the Dublin Gas Company. This is a motion which deals with a very serious policy issue. I must comment on the nerve of Fianna Fáil in putting it down in the first place.

I note with interest that Deputy Reynolds has not added his name to the motion. The absolute hostility and dismissal of a nationalisation or State take-over option when Fianna Fáil were in office is well recorded. Whatever may be said about the consequences following the decisions taken by this Government in November 1983, the arrangements which ensued, were, from the State's viewpoint, far superior to those contemplated by Deputy Reynolds when he was in office as Minister for Energy in 1982. At that time, as well as presiding over an unseemly row in Dublin Gas, which after all is a public utility, whereby one set of private shareholders were striving to take control from another, the Fianna Fáil Government took a series of major decisions on Dublin Gas during an election campaign and interregnum period in the winter of 1982 which had the effect of undermining the State's negotiating position. The last of these decisions was taken in the morning before the new Government came into office. The controls envisaged to protect the State's interest were minimal. It was only when this Government assumed office that the complex detailed issues involved in the Dublin Gas project were examined carefully by Government eventually leading to some improvement in the State's position. This Government inherited the problems of Dublin Gas fashioned and structured in a particular way, and had to deal with the reality as they then found it.

Therefore, I am totally sceptical about the Opposition's motion here tonight. A feature of Irish life. Political conversions may arise from conviction, from a change of circumstances or from passing opportunism. I would need a lot of convincing that Fianna Fáil have changed their views at all on this matter.

I now turn to deal with the issues relating to the Dublin Gas project.

Mr. R. Burke

That will be unusual.

Mr. Spring

The usual good manners from Deputy Burke.

When the Government decided to build the pipeline to Dublin they did so as part of natural energy policy and strategy. They did it also because natural gas is a premium fuel and should be used primarily for cooking, home and other heating, for special industrial uses and after that for general industrial use. Dublin is the biggest premium market.

In Dublin the gas project could have been addressed in a simple way or a more ambitious way. The simple way would be to reform the methane gas to town gas, put it through the system, do no conversion and little development. Very cogent technical economic and safety reasons caused this simple approach to be ruled out.

The more ambitious approach was to convert the city's gas appliances — a conversion project — cut out the cost and loss in reforming the natural gas, put a very much increased volume of gas through existing pipes, which would not take that volume of reformed gas, develop and expand the grid — the Development Programme — and end up with an eight-fold increase in sales by 1991.

A financial package was negotiated by the company, part of which would come from the banks, part from the State and part from institutional investors and suppliers credit. The State agreed that part of its contribution would be in grant from known as conversion rebates, to connect consumers appliances and this was to be put into the company by a rebate off the price per unit of gas. Details of these amounts and of the financial package for development will be seen later on.

The prime objective of the Dublin Gas project is to develop and maximise the premium market for natural gas in Ireland. ESB and NET provided the vital initial base-load that permitted the development of the Kinsale Field. To maximise the long-term returns to the Exchequer and influence the balance of payments most positively, gas had to economically displace high cost imported fuels. The place to achieve this was in Dublin, where the potential premium market was greatest.

The key issues faced at the outset were the cost of building a pipeline to Dublin, the cost and feasibility of converting Dublin to natural gas, the potential market for gas in Dublin and the investment needed to capture this market: the vehicle for distributing Kinsale gas in Dublin.

A pipeline was built from Cork to Dublin in 1982. The conversion of the city of Dublin is now more than 85 per cent completed. This work has been a virtual 100 per cent Irish effort, employing the project management techniques and approach adopted on the Cork-Dublin pipeline. The conversion of the city should be complete by July 1986, on time and some £2 million under budget.

The potential market for gas in Dublin was separately estimated by various consultants. These estimates were all in broad agreement that some 150-160 million therms of this potential market could be captured by gas within a seven-year period. Since 1982 Dublin Gas have tripled their sales from just under 20 million therms to over 60 million therms last year. Currently, Dublin Gas are selling at a level corresponding to 90 million therms in 1986. Last year some 2,650 new connections were made capturing a further 37 million therms of new business for gas. The falling prices of competitive fuels and the relatively high price of gas have now largely halted the capture of new business.

However, the main aim of developing the premium market has not been achieved to the extent necessary nor within the timescale envisaged originally, even though the price of gas to Dublin is adjusted according to a mechanism preferred by Dublin Gas itself. Dublin Gas as it now stands is not viable. The company cannot meet all its obligations or service its debt. It has not met its marketing targets, is not providing its customers with the quality of service they seek, and has not made any significant in-road into reducing its heavy burden of overheads.

The Dublin Gas project consists of four parts — conversion, development and marketing programmes and an associated financial package. The aim of the conversion programme is to convert all gas appliances in the city to burn natural gas, thus cutting out reforming natural gas into town gas and so providing a much greater energy delivery capacity from the existing gas distribution piping. Natural gas contains twice as much energy per unit volume as town gas. A total of 150,000 appliances have now been converted. The total expenditure on the programme to date is £47 million.

The development programme connects up new areas and new customers in old and new areas. This involves bringing gas to all the suburbs in the greater Dublin area, and to industrial estates around the city.

The marketing programme is geared to achieving an eight-fold increase in the greater Dublin area.

The financing of the Dublin Gas project is provided for by a combination of bank loans, State loans and rebates, suppliers credit, and certain loan stocks held by the banks and institutions. Under the agreed financing plan the banks were to provide £60 million loan facilities which includes £6 million short term standby. This is not a State guaranteed loan. A sum of £5 million is provided by volume related loan stock and £5 million by index linked stock. Most of these stocks are held by the banks and Irish institutions. No new shareholder funds were advanced. The State was to provide £17 million in loans. A £40 million grant in price rebates for the conversion project and a £25.5 million grant in price rebates for the development project were also to be provided by the State. Of these moneys £5 million is to be repaid in 1991. In addition, a conversion loan budgeted at £11.6 million will be payable. The repayment of State loans does not commence until bank debt has been reduced to £26 million when subsequent debt repayments will be shared equally between the State and the banks.

Further assistance was provided in the form of bulk credits which effectively guaranteed a margin to Dublin Gas for sales to current heavy fuel oil consumers and Dublin Gas were allowed to accelerate the conversion and development rebates payable provided the expenditure had taken place and provided that Bord Gáis Éireann received a minimum amount of 17p per therm for gas. Any amount paid in this form is known as an acelerated rebate. A State guranteed £10 million is provided as suppliers credits by the Jones Group.

The base price for gas to Dublin Gas Company was struck at 32p per therm as of 1 July 1982. This base price was then related by a formula to Rotterdam oil prices and the anticipated mix of premium to non-premium sales. It was agreed eventually that the oil prices used would be the average of the 12 months prior to each price adjustment date. Prices were adjusted on 1 January and 1 July each year.

At the start of the contract the base price which was the gross contract price was set at 32p per therm, the conversion rebates at 10p per therm — 31.25 per cent — and the development rebate at 4p per therm — 12.5 per cent. At that time the ESB paid 17p per therm and it was considered that the Dublin Gas Company should never pay less than that amount for their gas irrespective of whether the gross price went up or down. Thus a clause was incorporated in the supply contract setting a minimum net price for gas at 17p per therm. There was an assumption in the base case of a steady growth in the oil price, and a precipitate fall was not foreseen.

Conversion and development grants are earned by the company by selling the volume of gas projected in the base case each year rebated by a fixed discount per therm until the total amount of grant provided for is drawn-down. Meanwhile, the company continue to invest very considerable sums on carrying through both programmes and in particular the conversion programme.

In return for the State's investment which I have outlined, certain rights have been granted to the State including 56 per cent of all distributable profits. In addition, ultimately under the arrangements envisaged, 50 per cent of excess profits will go to the State by way of an increase in BGE's gas price to Dublin Gas. I should point out that for this increased price to BGE, the Dublin Gas Company would not be allowed a consequential retail price increase to consumers. The banks and institutional investors put up £10 million. The State now has 29.9 per cent of the voting rights and has 25.01 per cent of the shares of the company with an entitlement to £20 million in dividends by 1992. One-third of the directors are State appointees including the chairman for the initial two and a half year period. Finally, the State has appointed a project co-ordinator in the company to oversee the conversion and development projects.

This participation achieved by the Government is a substantial improvement on the package negotiated by their Fianna Fáil predecessors. Under Fianna Fáil, the State would have received only 25 per cent of distributable profits up to 1988 and 50 per cent thereafter. There was no provision for excess profits. The State's voting rights were 25.01 per cent and the State would have had to pay to maintain its shares and voting rights in the event of a rights issue. The State's shareholding and voting rights are now guaranteed without additional investment. The provisions re directors, chairman and project co-ordinator were non-existent.

The Dublin Gas Company now face very serious problems. In August 1985 the scheduled financial projection presented by Dublin Gas to the banks indicated an unattractive and uncertain future for the company. In consequence, the company have not been allowed to draw-down any bank funds since then and a serious cash crisis has arisen. BGE have not been paid for their gas for many months. In addition, a large debt is due to the Revenue Commissioners.

These problems have many causes among which is the impact of lower oil prices. However, there is also a shortfall in the volume of sales and a deterioration in the mix of these sales with fewer premium sales being achieved than targeted.

The cash problem has arisen because, as a result of lower levels of sales, the cash outlays on conversion by Dublin Gas are running well ahead of what is being earned in rebates by the company. The amount due to Dublin Gas would take nearly two years to earn by sales performance and so leaves Dublin Gas out of pocket by approximately £16 million of conversion rebates and £3 million of development rebates. This problem will be further exacerbated by the fall in oil prices which has the effect of reducing the gross contract price and consequently the margin available above the 17p floor for bulk credits and rebates. In addition, Dublin Gas have continued to spend significant moneys on the development programme.

As well, competition in the market is increasing due to the rapid fall in the price of oil. The reduction in the volume of sales has reduced the total margin. Finally, there is the very high element of overhead in the company contributing to the retail price of gas. Failure to get this overhead trimmed drastically is a major contributory factor to the squeeze on margins.

From an operational point of view, the conversion programme is on target and within budget. Seventy-two of the 85 sectors have now been converted. Since the banks withdrawal, financing of conversion in recent months has been met from the company's cash flow which has been boosted by non-payment of State debt and deferment of other major creditors.

Support for the Dublin Gas project as agreed by Bord Gáis Éireann, the Department of Energy, Dublin Gas Company and their bankers and as approved by Government in November 1983, was based on a set of financial projections. These projections formed the basis for monitoring the project and were reviewed and updated on a quarterly basis thereafter.

Serious developments since these projections were drawn up have been the failure by the company to met their original 1984 and 1985 sales targets. This has delayed profitability and increased bank debt. In the second half of 1985 oil prices began to fall following the end of the UK miners strike. The problem was compounded by a weakening dollar; pressure to reduce gas prices mounted. It was against this background that Dublin Gas prepared their August 1985 review of their projections. These were not acceptable to the parties involved and led to the banks' refusal to advance any further funds to the company.

Consultations and discussions followed between Bord Gáis Éireann and Dublin Gas relating to adjusting the escalator and other issues. However, these did not resolve all the projected difficulties.

Subsequent projections run by Dublin Gas introduced further major new problems arising from significant revisions to forecast trends in external economic factors. A reduction by DGC in gas prices to remain competitive and meet sales targets and the company's ambition to maintain full conversion, development and other expenditures in accordance with the original programme further exacerbated the problem.

Further meetings and discussions took place between BGE, officials of my Department and Dublin Gas with a view to resolving this matter. Dublin Gas did not consider that any of the proposals made were adequate to meet their situation.

Under the supply contract with BGE, Dublin Gas are entitled to claim hardship on the grounds that provisions of the agreement are causing hardship as a result of external factors outside the company's control. In mid-December last Dublin Gas claimed that such hardship existed. The agreement provides that the matter should be referred to BGE in the first instance and this was done. No agreement could be reached between the parties. In accordance with the contract provisions the matter was then referred to me in February of this year.

Since that time all aspects of the complex situation have been examined in detail by my Department. The matter will be discussed with my Cabinet colleagues and I am confident that a decision on the future of the company will be reached shortly.

The Government will be reviewing all aspects of the project. Conditions in energy markets have altered dramatically over the last few months, and it is necessary to take account of these changes, as well as the structure and performance of the Dublin Gas Company. Public funds have been and are being used on a large scale in the conversion and development programme. It is necessary to ensure that the moneys are well spent, that the project is managed efficiently and that whatever changes are necessary are effectively carried through. It is most important to take whatever measures are required to ensure that gas supplies continue to flow to consumers and that reasonable prices are charged. Any ultimate rewards in a successful company must be related to the risks which the different parties have taken and the House will be well aware that it is my view that the State has taken virtually all of the risk to date.

In this context the issue of the appropriate ownership structure for the company is of major relevance and the amendment proposed includes reference to the alternative of a State take-over of the company. My view and the views of the Labour Party on issues related to natural gas distribution have been made clear in the past, for example in the case of Cork, Limerick and Clonmel, in the last two years.

They are no different in the present case, especially in view of the circumstances prevailing. As I have said I expect to be in a position this week, I hope, to bring forward a conclusion that will best protect the investment and interests of the people of this country and the consumers of natural gas in Dublin.

Mr. S. Brennan

This is a depressing saga, one that has burst on us in recent weeks. The horrific new cash crisis in Dublin Gas has taken all of us by surprise. Clearly, there are three options which the State and the people involved may consider. First, there is the option of mounting a rescue package involving further bank or shareholder finance; the second option is to liquidate the company and close it down and the third option — the one being referred to in the motion and in the amendment — is for Bord Gáis Éireann to take over Dublin Gas.

We must consider the issue coldly. There are 1,200 full time jobs in Dublin Gas while there are between 125,000 and 150,000 consumers in the Dublin area. The supply of natural gas is spreading throughout the suburbs with the conversion programme going ahead. It is clear that the State cannot continue throwing money at the company in an attempt to resolve the crisis in which they find themselves. There seem to be various contradictory claims both from the company and from other sources.

There are four major forces in this whole saga. These are Dublin Gas; BGE, who have their own interests; the banks, who have a substantial investment in this area; and of course the Department of Energy. About two years ago these four interests put together a financial package that amounted to approximately £173 million, depending on how one considers some of the figures. That package was designed to give Dublin Gas what was referred to at the time as a new beginning. The idea was that the investment would have the effect of leaving behind the industrial relations nightmare in the company as well as an inefficient billing system, poor management and the apparent nil prospects of the company at the time. The idea was to start a new company with cash from the banks and to launch forth on a new dawn of cheap natural gas involving a whole easy reach of new customers spread throughout the city and the county of Dublin. We know now that it all went badly wrong and less than two years later there is a cash crisis in the company. There continues to be a ridiculously inefficient billing system and some questionable management structures.

The seeds of the crisis go back to April 1985 when the New Dublin Gas had talks with BGE about the price of gas from the board. Dublin Gas demanded then that Bord Gáis restate the price of natural gas and relate it to oil prices. It must be known widely that BGE pay Marathon an oil-related price so the request in that regard was nothing new. As the Minister must know now to his dismay, by September 1985 the new Dublin Gas financial targets had gone badly wrong. This resulted in the banks freezing any advances above the figure of £60 million which had been agreed at the time. If the deal was done at that time with the consortium of banks, did everyone not know that the oil price situation was reasonably high? If there were difficulties when oil and energy prices generally were at an all time high, there would not be much chance of success when they were low. Dublin Gas would claim that their margins came under pressure as a result of the drop in oil prices, but the point I am making is relevant. Bord Gáis were too slow in reducing the price of gas. Therefore, New Dublin Gas would claim that they had to live off their creditors. They ran up bills with the Revenue Commissioners, Bord Gáis Éireann and other creditors. Dublin Gas claim that the profit squeeze led to a cash crisis. If that is the case and if the projections were done at that time of high prices, why did they turn out to be wrong when the prices changed? That is a central question which has not been answered properly by the Tánaiste. New Dublin Gas have been staving off creditors for many months. The Revenue Commissioners have already applied for a judgement in regard to the £2 million due to them. The dramatic fall in oil prices quite clearly worried Dublin Gas. They were right to be worried about whether or not the consumers would stay with them, especially those consumers who had the dual oil-gas facilities. They were also worried about the possibility of large customers — for example, Guinness — renegotiating the price of gas.

Bord Gáis, on the other hand, make almost contradictory claims. They claim that they responded quickly to the falling oil prices. They say that price adjustments are first of all agreed with the customer at the customer's discretion according to a timetable and that this was done with New Dublin Gas. They say that these adjustments take place every six months and that this also happened in the case of New Dublin Gas. They point out that an adjustment took place in January 1976 and that there was another adjustment in August 1976. They claim, with some justification, that they acted as unofficial bankers to New Dublin Gas in what they would call a generous agreement, with Bord Gáis Éireann providing loan facilities of some £17 million spread over two moieties. That agreement involved rolled up interest. It was regarded at the time as a soft loan. Added to that was a further £6 million of additional stand-by finance.

Bord Gáis claim that all this was underpinned by generous price agreement and a supply of natural gas. This allowed for further rebates of £42 million to New Dublin Gas. Conversion costs over and above that figure were to be funded by a conversion loan, also to be provided by Bord Gáis Éireann. Overall Bord Gáis would claim that that was not a particularly bad financial structuring. The Dublin Gas Company had also drawn down some £40 million of the £60 million line of credit before the banks decided that enough was enough. With all that assistance and support from Bord Gáis, the company have not been able to meet their financial projections, to break even or to reach the targets which they put before the country some time ago. This question remains: why? It has not been answered properly. The area of manning, which is an old traditional difficulty, should be looked at.

How did the Minister for Energy and the Department of Energy allow this situation to develop? Why did the Minister for Energy back a reasonably unwilling Bord Gáis Éireann into a difficult relationship with New Dublin Gas? Why, after all the Bord Gáis Éireann assistance, are New Dublin Gas still floundering? This is not a sudden crisis. It is not in its causes, as has been portrayed, totally related to the oil situation. It is more a financial restructuring difficulty. It was clear as far back as last January that this company were heading for major financial difficulties. I wonder why no action was taken at that time to deal with it. This company have over £130 million of taxpayers' money. If one were to put a valuation of it on the Stock Exchange at the time of that investment, one would have been talking about £1 million to £1.5 million. There are three years of losses totalling approximately £20 million.

In proposing this motion that Bord Gáis Éireann would take over Dublin Gas we are only taking account of the real situation as it is on the ground. The State have a substantial equity stake in the company, substantial profit rights if that ever occurred and they are virtually financing the conversion programme. Overall they are intrinsically and largely involved in financing New Dublin Gas. All we are asking is that this Government should realise the situation as it is, which is that the State are so exposed and have so much taxpayers' money in New Dublin Gas, that it would be as well for Bord Gáis Éireann on behalf of the State to administer that company. As Deputy Reynolds pointed out — and this is a real worry — if the Revenue Commissioners can get their hands on a judgement, any creditor in that company can go into the court in the next few days or weeks, get that judgment and bring that company down to their knees. In those circumstances the motion before us is a sensible one and is not based on any ideological decision or hang-up. It is based on a practical approach to much State investment and much taxpayer's money involved in the company already.

I regret that we have got to this stage. It should never have arisen. It is a second best solution. In a properly run company with proper accountability and given the demand on our gas resources, there is no reason why we should not have had an efficient, capable and well-run company. I do not see any reason why, if the State must now move in as is proposed, we cannot have an efficient, capable and competently run company. This is an indictment, first of all, of the original deal that was put together, of the Department of Energy and the Minister for Energy's management of the situation, and it is a second best approach to a very difficult problem.

On this side of the House we do not support the idea of the State rushing in to prop up any company that gets into difficulty. Given the size of the taxpayers' investment to date, given the need to eliminate uncertainty which would shake industry, disrupt households and undermine confidence, given the need to protect a reasonably committed workforce and given the situation that exists in regard to the finances of that company, regrettably there seems to be only one solution to prevent a substantial financial scandal. That is to adopt this resolution which Fianna Fáil put before the House. This situation has been boiling up for many months. It is a pity that it has taken the Minister and the Department of Energy so long to recognise this situation and to be forced onto the floor of the House tonight to do something about it. We need an immediate and thorough investigation of the company by the Department of Energy and a report to this House as soon as possible. We need an immediate moving in by Bord Gáis Éireann to take control of that company at least in the immediate future in order to stabilise the situation and to preserve employment and the investment of the taxpayer. We need a coherent energy programme and policy from the Minister for Energy involving the use of our oil and gas and the various interrelationships between our sources of energy. Most of all, we need proper and early accountability by companies in which the State has an investment. I wonder have we learned anything from the past in that regard?

I would like to pose a number of questions to the Minister for Energy and, indeed, to the Government. Is the Minister aware and has he been aware for some time that this company has been operating in an untenable financial position for over five to six months and what action did he take during that period? Was he aware that a company in which the state had a substantial investment was operating on the basis of a hand to mouth cash flow arrangement, where debts due to the Revenue Commissioners and to Bord Gáis Éireann came to some £15 million? Was he aware that was the situation for the past few months and what did he and his Department do about it in that time? Was he particularly aware of the sums due to the Revenue Commissioners by Dublin Gas? Was that brought to his attention and what did he do about it at that time?

I would like to pose this other question, not just to the Minister but to the Government, who have the ultimate responsibility for the management of the nation's affairs. Can this Government explain to us why no lessons appear to have been learned from the Irish Shipping debacle, particularly in regard to accountability and proper procedures. Considering what happened with Irish Shipping Limited, PMPA and the ICI, why does it take a crisis for this Government to do something about the situation? Why must we drag the Government into the House to explain what everybody in the street knows about — the impending financial situations in a number of these companies? I would like to ask that that question be given very serious consideration. If we look back on the record of this House for the past 12 months it seems to have had a crisis in each case — Irish Shipping Limited, PMPA and ICI and the present situation with Dublin Gas — as the Government waited until we were facing a financial collapse and we had a crisis on our hands before they took any action.

I will have to say tonight: are there any more companies out there in similar difficulties? Will we have to wait until Fianna Fáil put down another motion to drag some member of the Government into this House to explain what is going on in another company, or will you go to your desks and responsibilities and see what difficulties are looming up, because I suspect there are many more out there if this one is on our desk tonight? Why does it take a crisis for this Government to take any action? Why does it not act in time, because this situation was known six, 12 and perhaps even 18 months ago? Why did it not act then instead of having been forced to take some action in the face of a motion from Fianna Fáil in this House tonight?

I would also have to put the point that I do not honestly believe that this Government have properly thought out their options in regard to this energy situation. The absence of a coherent strategy for dealing with this crisis is reflected in the amendment which is before us tonight in that it allows the Department which have singularly failed to manage their own affairs and the energy affairs of this country to implement any solution that it so decides on, including a State take-over. By adopting this amendment tonight are we to entrust to that Department and the Minister, who, as I said, have singularly failed to manage the energy policy of this country, the decision-making power to sort out the great difficulties in Dublin Gas? We should be talking about a situation where we should be discussing in this House a motion of no confidence in that Minister and Department, which have failed to get our oil programme off the ground — let me hasten to add that I do not have any oil shares — and who have contributed to the present crisis by prolonging the negotiations on gas prices since last August and before that time. The Government are now asking us tonight in an amendment to this motion, with that history from that Department, to let the Minister consider the matter further and make whatever decision he thinks is possible or is in the right interests of the State. I would say that this House would have to refuse the Minister that request in the amendment because of the fact that his Department have singularly failed to manage the energy requirements and policy of this country going back over many months. We have been long promised an energy policy on a number of occasions in this House, a thought-out, coherent, written energy policy, throwing together the various resources available to the State. We have been promised that energy policy for many months and there is still no sign of it.

Mr. Spring

Before the oil drop or afterwards?

Mr. S. Brennan

In my capacity on the all-party Joint Committee on State-sponsored Bodies we have been looking at the ESB and Bord Gáis and one thing comes clear time and time again in our discussions with the boards of those companies — this very afternoon we met with the board of the ESB when they again agreed and pointed out that there was a need for a written, coherent thought-out energy policy from the Government. I would suggest that, if we had had that policy many months ago, and indeed some years ago when the Government came first to office, we would not be facing this difficulty in Dublin Gas, the mess we have in regard to the oil off our shores and the slowdown in negotiations in regard to the price of gas. Overall, we would have had a situation in which our gas and oil resources would be better managed for the benefit of the people of this State.

I should point out also in regard to Dublin Gas that the losses in 1983 came to £7.8 million, in 1984 they were almost £8 million and for the half year period in 1985 they were £2.4 million or so. It is quite clear that the Department of Energy, over the past 12 months particularly, have been aware of the serious crisis in Dublin Gas. It is also clear that the Department of Energy did little or nothing about that crisis throughout that period and no effort was put into designing and putting forward an energy policy.

Debate adjourned.