I move:
That a supplementary sum not exceeding £200,000 be granted to defray the charge which will come in course of payment during the year ending on the 31st day of December, 1989, for the salaries and expenses of the Office of the Minister for Energy, including certain services administered by that Office, and for payment of certain loans, subsidies, grants and a grant-in-aid.
The supplementary sum of £200,000 which I am now seeking from the Dáil relates to the necessity for my Department, on certain occasions, to secure specialist external consultancy advice. The subhead in question is thus A2 and before I dwell on the particular consultancy assignment that gives rise to this Supplementary Estimate, I would like to explain to the House why my Department, more than most, have to go outside and secure the best specialist advice available in order to discharge their functions to the best advantage of the State generally and the taxpayer in particular.
It would not be overstating the case to state that the work of my Department is radically different in orientation to that of most other Government Departments. Routine administration takes somewhat of a back seat when you are dealing with natural resources and four or five different energy forms. The emphasis is very much on policy and the complexity and diversity of the issues involved will be obvious to all concerned, and I do not need to dwell on them here tonight. It will also be obvious that the magnitude of the resources involved — both potential and actual — are of such size that even the slightest gap in the State's knowledge and negotiating position could ultimately have a very detrimental impact on the economy. My Department's position in this regard has always been that very valuable national natural resources are entrusted in our care and it would be the height of irresponsibility to treat that responsibility lightly.
The Department of Energy is a small Department and we simply do not have all the expertise inside the Department to deal with the full range of eventualities and scenarios that we face. We could, of course, carry a greatly expanded departmental salary bill, many extra and pensionable professionals, but this would be a wasteful and expensive approach with no guarantee of meeting evolving short term or once-off requirements. We have, therefore, on occasions to go outside the public sector to secure the best expertise available. Almost by definition, the best expertise does not come cheaply but the cornerstone of our policy in this respect is that there is no point in saving a penny wisely if you are going to spend a pound foolishly. I think this policy has proved to be a very wise one over the years as witnessed by, for example, the excellent reports done in recent years on the electricity and gas sectors, and more recently the consultancy work which was performed on the sale of the State's shareholding in Tara Mines Limited. It is payment for this latter work which brings me to the House this evening seeking the supplementary sum of £200,000.
The House will recall that earlier this year my predecessor announced the successful disposal of the State shareholding and royalty entitlement in Tara Mines Limited for a global consideration of US$50 million. The total sum received into the Exchequer was IR£35,300,577. The State's professional adviser in the transaction was NCB Corporate Finance Limited and the fee agreed for the services in question was 1.5 per cent of the total consideration plus VAT. Accordingly a sum of IR£661,885 now falls due for payment.
To enable Deputies to appreciate what was involved in this transaction, I will briefly outline the wide ranging scope of the assignment. NCB assigned three senior executives full time to the task which covered an 18 month period from the beginning of 1988 to July of this year. They produced a very comprehensive report on the valuation of the State shareholding, royalty entitlement and certain other State rights and privileges. A lot of work was put into this valuation process, not least because the shares in question were not publicly quoted. Because there was no share price as such which would assist in the more typical take-over situation, we had to get our figures right and I am satisfied that we did. NCB also paid particular attention to the strengths and weaknesses of the State's negotiating position and on the negotiating tactics to be employed. The report formed the basis for the State's approach to the negotiations which resulted in agreement being reached on the figure of US$50 million after protracted negotiations. The compilation of the information for this detailed analysis involved the commissioning of independent research reports on metal prices and currency exchange rates from a number of internationally recognised firms. It also involved an exhaustive review of the Tara mining operation and of the company's relationship with the State under the mining lease and associated agreements and projection of the company's cash flow over the remaining life of the mine.
Preliminary negotiations commenced in August 1988. An opening offer was made by Outokumpu, holders of the majority 75 per cent shareholding in Tara Mines Limited but it was rejected. An improved offer was made in March 1989 and again rejected but in April an offer of US$50 million was accepted of which $37.5 million was to be paid on 30 June and the remainder in annual tranches over a five-year period. In fact, the outstanding US$12.5 million has since been paid over. NCB were actively involved in all stages of these negotiations.
NCB's solicitors subsequently drafted the various agreements necessary to give legal effect to the settlement reached and the company also put arrangements in place which enabled the full amount due to be brought to the credit of the Exchequer without any delay and well ahead of the five year time scale envisaged in the agreement.
The final outcome of the negotiations, as I have already pointed out, is that the Exchequer received US$50 million for the State shareholding and royalty in Tara Mines Limited, a substantial part of which will be used to upgrade the oil refinery facilities at Whitegate. It will be crystal clear from what I have said this evening that NCB played a very important role in this achievement and, indeed, it is agreed by all concerned that a settlement at the level reached would not have been achieved without their expertise and whole hearted commitment.
While the total cost of this consultancy assignment amounts to nearly £662,000, the supplementary sum which I am now seeking from the Dáil is less than a third of this figure. By utilising savings achieved on other consultancies in subhead A2, and savings in subhead E — Minerals Development — combined with additional receipts, the supplementary sum now being sought is £200,000. Leaving aside the unforeseen NCB assignment, my Department's need this year to secure specialist external consultancy advice has proved to be a good deal less than had been anticipated and this is particularly so in the case of the petroleum exploration side of my Department. We have saved £127,000 in this regard.
In relation to subhead E — Minerals Development — a saving of £88,000 has been identified against the 1989 provision of £150,000. This arises because an expected refund of royalty in respect of the Tynagh mining operation will not now take place this year. The 1990 Estimates make provision for such a repayment.
The additional receipts of £247,000 arise in two areas. Firstly, there is a general buoyancy in fees related to the petroleum exploration sector and this will yield £138,000 more than that estimated. Secondly, receipts from the EC in respect of the FEOGA western aid electrification scheme will amount to £1.213 million this year, £152,000 more than estimated. After offsetting these savings and extra receipts, the net figure involved is £200,000.
I commend this Supplementary Estimate to the House.
