Vol. 451 No. 2
I move:
That Dáil Éireann condemns the handling of the ESB situation by the Minister for Transport, Energy and Communications and, while agreeing that progress must be made in positioning the company for the future, calls on the Government to honour the commitment to finalise negotiations consistent with the principles of social partnership set out by the previous Government.
A Cheann Comhairle, I may be giving the last ten minutes of my time to a colleague.
That is quite in order.
I am glad, as is my party, that the ESB unions have decided to go back into talks. These talks are vital to positioning the ESB for the future. They are important for the restructuring of the company and the preparation of the ESB for the challenging business environment which is unfolding.
The ESB has served Ireland well since its establishment in 1927. It has been the driving force behind the economic and social development of this State for 70 years, with rural electrification and the development of industry by Sean Lemass in particular. The fact is that Ireland, unlike many developed countries never had to turn away industrial development projects because of an inadequate electricity supply. We are now, however, in a new and changing Europe and the ESB, as well as other monopoly operators, has had to face up to change. Reinvestment is also needed to keep abreast of technological and environmental changes and costs will have to be reduced. The core issue of costs was being addressed in talks at the ESB in recent weeks. The Minister interfered in the talks. The negotiations should never have come off the rails and it is extraordinary that after five months of very sensitive talks the first person to try to derail them was the Minister.
The Minister has mishandled these negotiations in a most serious way and he is now being forced to back down. Like the famous humming bird and with equal alacrity, he has turned 180 degrees, but not before doing serious damage to the ESB talks. His undue interference has resulted in a politicisation of the ESB costs and competitiveness review. Prior to his meddling, the talks were on an orderly course and the ESB management, unions and the Department were at one. They had set and accepted a deadline of 31 May for the completion of the talks and procedures had been put in place for dealing with logjams and difficulties. The Minister muscled in and engaged in unnecessary shadow boxing. This led to the talks being disrupted and politicised.
The Minister is now being forced by his coalition colleagues to climb down. It appears that in future he has to bring his Labour Party Minister of State with him when meeting with the trade unions. It appears also that the Minister can no longer be let out on his own, and Labour or Democratic Left will have a word with him if he reverts to Fine Gael form and its view on the social partnership process. The Minister should tell the House why his Minister of State. Deputy Stagg, met the ESB unions before he did and why he was at meeting with them. What role did the Labour Party play last week in the ESB negotiations? Is there any connection between the replacement of Deputy Stagg on Kildare County Council and the Labour Party's approaches to ensuring that the Cabinet backs down on this issue?
The Minister's first 100 days in office has seen him dicing with disaster at TEAM Aer Lingus and the ESB. His public announcements on some of the other semi-State companies have amounted to little more than rhetoric. His promised initiatives at Telecom Éireann on the second mobile phone licence show that he is misguided and on an incorrect course of action, as I pointed out recently on the Adjournment. I pointed out that a crude auction approach is being adopted to the tendering for the second mobile phone licence.
The handling of the TEAM Aer Lingus difficulty was extraordinary. The Minister blurted out in the Dáil that he was not satisfied with the pace of progress and in one fell swoop wrecked TEAM's hope of getting business as the media picked up on the comments. The newspaper articles seemed to have alarmed potential customers who no doubt will use those newspaper articles against the company. In my view the Minister's public comments on TEAM were unnecessary and he could have achieved the same result by going about his business quietly. He has now seen sense and backed off his earlier untimely statements seeking instead a more measured five-year plan from Aer Lingus. His handling of problems in other semi-State companies leaves a great deal to be desired. Despite my requests on numerous occasions in this House, he is refusing to publish the report on the future options for Telecom Éireann. We cannot have a debate on the future of the telecommunications industry without this strategic document. Why can we not have this strategic document on Telecom Éireann — so much for the public accountability promised by this Government? If the article in The Sunday Tribune is accurate, Mr. Lowry was one of the key architects of this Government.
The Minister has not given a time-scale for the introduction of legislation for the establishment of an independent regulator for Telecom Éireann. He has been hesitant and uncertain in regard to Board na Móna's £180 million debt, with no clear decision being announced by Cabinet. There are also issues on which the Minister has not acted and in many areas of transport, energy and communications we are awaiting his decision.
The Minister's weekend media barrage was a diversionary tactic. He has not said if what he said on the airwaves during the weekend is a Government decision. Are there Government decisions to back up his proposals for an independent procurer, his proposal to shed 2,900 jobs and to put in a new board and chief executive at sub-board level in the ESB? Has a decision been taken at Cabinet level to appoint a regulator? It seems to me that the Minister and the Government's thinking on an independent procurer is extremely muddled. On the one hand the Government has announced that the procurer will be independent but in the next breath the Minister told the country that while he would be independent he will be reporting to a board, which board will be reporting to the main board of the ESB. How can one be independent and be reporting to the main board of the ESB at the same time? That illustrates what I mean when I say semi-State thinking is in a muddle.
The Minister appears set on a course of action designed to dismantle the ESB. The Fianna Fáil Party is opposed to this attempted systematic dismantling of the ESB. My party's policy is clear, we believe in the introduction of gradual competition in generation in keeping with the European Union requirements. The Minister's decision to enter the ESB negotiations two weeks ago appears to have resulted perhaps from believing some of the recent articles about his tenure as Minister. Some spin-doctors are presenting the Minister as a tough uncompromising figure who will not dodge the hard decisions but, as he knows, hard men win all the tackles, do not throw the ball stupidly or undermine the scrum and they do not come out of clashes with a serious loss of face. One would want to be very careful before believing one's profile as a hard man because those self same profilers will take one to task for not remaining one.
I suggest the Fine Gael Party is running scared from Labour and Democratic Left on this ESB matter. This augers badly for the future of the Government.
The Minister has denied that he was forced to climb down. In his letter to the chairman of the ESB, Mr. Paddy Moriarty, he stated categorically that cost savings had to be achieved within a very narrow timeframe, "possibly no more than two years at the outside". Now he says that was a negotiating position. He appears, rightly, to have abandoned his insistence that the organisation should be reformed within two years at the outside as he told the unions there may be elements in the plan which could take a little longer. Does the Labour Party agree with the Minister's timeframe? Has it been discussed by this three party Cabinet? Why is Democratic Left silent? Normally, if there was a prospect of 2,900 people being made redundant, it would be absolutely apoplectic in the Chamber with sheer rage. Instead, no member of that party is present.
What are the elements which could take a little longer? Did the Minister identify the same elements to the unions and management? Do they both understand the elements he is talking about? It appears the Minister has been saying one thing to management and a slightly different thing to the unions. If this is so, it could create a dangerous misunderstanding in the negotiations.
The manner of the Minister's embarrassing climb down has created enormous confusion in the ESB. It is clear there are now serious ideological fault lines in the Government about the way forward for semi-State companies. The Government does not have a coherent strategy. Each of the three parties in Cabinet has its own one. The sound Fianna Fáil policies implemented by the last Government are now in disarray. The Minister's meddling is hard to understand as he could not but have been aware of the special difficulties in the ESB. However, there is no sign that he was so aware as he approached the negotiations like a bull entering a china shop. The talks are important and necessary. The international consultants, McKinsey, identified cost cuts of up to £120 million which need to be achieved if the ESB is to be positioned for the future. I have no difficulty with that.
Talks between the company, its unions and the Department of Transport, Energy and Communications began last year on the huge agenda of change which is required in the ESB. Given the scale of the proposed changes such talks would be delicate in any company. However, at the ESB these talks were even more fragile as the parties are still rebuilding relationships after a bitter strike in the company in 1991. That strike was momentous and is seen in retrospect as the catalyst which led to the Government review of the electricity industry and of the board's cost structures. The electricians' strike was a watershed in the recent industrial relations history of the ESB in terms of its impact and consequences. The four day action has been a major factor in transforming industrial relations at the ESB in the four years since it occurred. The rapid escalation of the dispute, its public handling by the unions and management and its settlement through ministerial and political intervention all suggest it had some unique characteristics.
The issue at the centre of the April 1991 dispute was a 5 per cent pay claim sought by the electricians to compensate for changes introduced by management in the preceding four years. It was the formal rejection of this claim by the joint industrial council that led to the strike. The strike, which began as a row over measurement of and payment for past productivity, ended up as a major test not only of company management but of the board's industrial relations machinery and procedures and more specifically of national pay policy and the Programme for Economic and Social Progress. Billed by management at the time as a strike that would never happen, its settlement and aftermath were to have a lasting impact both inside and outside the ESB. Internally, it led to a joint review of industrial relations.
The final report of the committee which carried out a review of relationships within the ESB was published in February 1993, 18 months after the group was set up. Chaired by Irish Congress of Trade Unions General Secretary, Mr. Peter Cassells, it consisted of five management and five union representatives with a secretary and project co-ordinator. Its terms of reference were to commission and oversee a comprehensive review of relationships, including industrial relations in the ESB, to provide management and the ESB unions with the report and recommendations of the review and advise what further action, if any, needed to be taken. In the review, all parties at the company and the Government committed themselves to rebuilding trust and relationships. In fact, special mechanisms were put in place in the current talks process to recognise the difficult relationships at the company. These mechanisms included a monitoring committee made up of representatives of the company, unions and the Department. It met every week and was to deal with log jams. It was also the forum where any party to the talks could raise issues, such as the Minister's dissatisfaction with slow progress. Why did he not use this forum to raise his dissatisfaction with the progress being made? Until the Minister's intervention the talks were on a very orderly course and there was a real sense of trust and rebuilding of relationships. It took a lot of difficult work and patience on all sides to achieve that but it was dashed rather quickly.
The Minister's interference in the talks and his pre-emptive letters to the chairman of the ESB were highly dangerous. He put the entire process at risk and undermined the mechanisms put in place to take account of the special relationships at the ESB. Commentators might put some of this down to inexperience but combined with the Minister's handling of the difficulties at TEAM Aer Lingus the picture is being painted of a Minister with no direction. He must explain if his direct interference at the ESB is to be his approach in managing change at State companies. Are other State companies about to receive a letter in which the Minister lays down what he wants done within a certain timeframe? If that is to be his method of communication we are in for a stormy ride.
He must explain what he meant by his reference to external interests in his letter to the ESB when he stated external interests were now dictating ESB policy. He must clarify his position on a price increase for the ESB I understand he gave one indication to the unions but was not quite as forthcoming with the media on the same question.
I put a question to the Dáil and particularly to the three party Cabinet made up of Fine Gael, Labour and Democratic Left: is the Cabinet really calling for 2,900 redundancies over a two-year period? Is the Cabinet pushing for corporate anorexia at the ESB? If it is, the ESB redundancy bill will be £250 million over two years. What kind of national sanity have we if this three party Cabinet considers buying 2,900 jobs at a cost of a quarter of a billion pounds? If it is to attempt that, the least we must do is thrash it out on the floor of the House. The ESB could not bear such a bill over two years. Why the Minister chose two years is inexplicable.
The scale of changes proposed is enormous. To seek to achieve something like this over two years is totally unrealistic and raises questions about Fine Gael's commitment to the concept of social partnership. The scale of cuts envisaged must be talked out realistically in this Chamber and cannot be done by diktat as one departs on a trip to the United States for St. Patrick's Day. This Government and Cabinet must explain if it is sensible to axe 2,900 jobs at a cost of £0.25 billion. Will some or all of these employees be taken back, as happened in the case of another semi-State company not so long ago? Will they be taken back if there is an increase in demand for electricity, as predicted, or if the ESB expands, as expected, into telecommunications, retailing, new contracts and so on? Will these people be necessary to refurbishment work at the ESB brought about by a planned, new investment programme?
The social partnership process has been the key strategic element in this country's economic turn-around since 1987. The Programme for National Recovery at the end of the 1980s played a key role in reversing the appalling economic mess left by that Fine Gaelled Coalition Government at the beginning of 1987. The second national agreement, the Programme for Economic and Social Progress, continued economic recovery and provided stability. The latest agreement, the Programme for Competitiveness and Work, got unions, employers and Government to reach a consensus on an economic and social agenda. These deals were all negotiated by Fianna Fáil or Fianna Fáil-led Governments. While we were negotiating those agreements the Minister and his colleagues criticised the process. For instance, last year the Taoiseach, Deputy Bruton, told the Fine Gael ArdFheis that he opposed the Programme for Economic and Social Progress as its logical result would be extra taxation and claimed that national agreements led to insider-type policies. The Taoiseach and his Fine Gael colleagues fail to understand that the social partnership process has been central to the success of our small, open economy. However, in Government Buildings he claimed to have had a conversion, when one of his first acts was to call in the unions and reassure them that the leopard had indeed changed its spots. However, it is now emerging that perhaps the leopard has not changed its spots but is just as dangerous in interfering in the social partnership process.
That letter of instruction to the ESB has caused a rift in this three-party Coalition and exposed a dangerous crack in its foundations. The seeds have been sown for major tension and friction within this Cabinet in the months ahead unless somebody changes direction. Worse, the talks at the ESB have been jeopardised; by intervening, title fight fashion, the Minister politicised them and undermined the costs and competitiveness review. It is now quite clear that the Labour Party has demonstrated yet again — as we know to our great cost on this side of the House— its political clout within this Government. Having done it once, let me warn the Minister it will do so repeatedly, when he will have many occasions to come in here and explain, not his policies, but those imposed on him by the Labour Party.
What is now needed is a clear decision by this three-party Cabinet on its approach to semi-State companies, not three but one Cabinet approach to them, a rational assessment of the value of spending £0.25 billion on 2,900 redundancies and a clear statement of Cabinet policy in relation to the ESB.
Fianna Fáil decided calmly and coolly to table this motion wishing to make it clear that the handling of the ESB talks has been extremely dangerous, showing up the cracks appearing in the Coalition Government. We agree that progress must be made in positioning the company for the future but call on the Minister and Government to honour the commitment to finalise these negotiations consistent with the principles of social partnership set out by their predecessors.
I support the motion tabled by Deputy Brennan on the handling of the ESB talks by the Minister for Transport, Energy and Communications. I am glad to have this opportunity to contribute, particularly on the manner in which the ESB proposals will affect the south eastern region. I sought permission to make a case on an Adjournment debate on certain ESB proposals and tabled a parliamentary question for answer tomorrow. Both requests were refused on the grounds that the Minister had no official responsibility to this House concerning those matters.
While we accept that changes must be effected to enable the ESB to survive as our market opens up more and more and the ESB becomes a target for outside competition, we must ask whether we are happy with the road the Minister and the company are taking to achieve their aim. In this respect I, for one, have grave doubts.
The Bible for the restructuring of the ESB is the McKinsey report but it appears that ESB management takes a selective view of that report. Normally, when a package or proposal is presented to any company by a firm of consultants outlining their view on the manner in which to progress in the future, it hangs together only if all its components are implemented; if one begins removing chunks, the plan will begin to fall apart, as will be the case if one attempts to add other proposals. For example, nobody would decide to omit the foundations of a house as, obviously, it would collapse. The same is true of any consultant's report; it should be accepted in its entirety or rejected.
The Minister may say that the day-to-day decisions on how to run the ESB in the future are a matter for the company only. We contend he has a role to play, in that he must ensure that any decisions taken by the company will result in its long term viability. I cannot conceive of any Minister standing idly by, allowing measures to be implemented that could damage any company at some future date. Therefore, I cannot subscribe to the view that the Minister does not have responsibility for the ultimate decision taken by the board; management will merely put forward proposals.
At present there are six regional headquarters of the ESB located in Waterford, Cork, Limerick, Sligo, Dundalk and Dublin and two regions earmarked for downgrading — Waterford and Dundalk. The existing south east region is comprised of the old Waterford and Portlaoise districts amalgamated in 1987 under a previous reorganisation. The present proposal would lead to the division of the existing region, the most efficient nationwide, and does not make economic sense in that Portlaoise would be managed from Limerick and Waterford from Cork. The consequence of this proposal is that Waterford would lose its regional status, its effect on the south east region, Waterford in particular, being immense.
I advocated earlier the total acceptance or rejection of the McKinsey report which made no reference to reducing the six regional headquarters to four, nor has it been shown that a saving would be effected by taking this course of action. We are moving from the European definition of "region" in Ireland and from the area with the greatest future growth potential, the east coast. The present proposal would leave one region of the ESB on the east coast, comprised of Dublin, to cater for the city and its environs only. For instance, henceforth the Dundalk office would be managed from Sligo, leaving us with regions in the north-west, southwest, south and Dublin.
No sustainable argument has yet been put forward by anybody to justify a reduction in the number of regions. Various announcements by different spokespersons for the ESB have been long on rhetoric and short on facts, stating that an irreversible decision has been made. How can a decision have been taken when negotiations are continuing with the ESB unions which have not agreed to this reduction? In addition, I had always thought the board of the ESB made the final decision and, as far as I am aware, it has not yet approved this proposal. If the decision is made to reduce the number of regional offices, at that stage one must consider which regions have been most efficient. Sensible commercial criteria would dictate that they should remain as the head offices of new regions.
The Waterford and Cork regions are similar in that each has 218,000 customers. However, management's view appears to be that the Waterford regional office should close and the Cork regional office should prosper. Why is that so? I believe the reason is that the closure of the regional headquarters in Cork would provoke such a political outcry that the Government would not sanction it. However, it is prepared to sanction the closure of the Waterford regional office. While both regions have the same number of customers, the majority of Cork customers are in one county while customers in the south-east are scattered throughout a number of counties. That means that any lobby would be more focused from Cork than from the south-east. That is why the present recommendation is being put forward by management, and it has totally ignored commercial criteria which should be its primary consideration in reaching any decision. The Minister must have a duty to intervene to ensure fair play.
I will demonstrate what I mean. Both areas have the same number of customers, but there is a staff of 896 people in the Cork regional office compared with a staff of 676 in the Waterford regional office. There are 220 fewer people in the Waterford regional office serving the same number of customers. That has been achieved because the staff in Waterford have already embraced change in order to give a more efficient service to customers.
The revenue cost per customer for the Waterford region is £94.60 while it is £127 in the Cork region, a difference of £32.40. If that difference were multiplied by 218,000, the customer base, it can be clearly shown that it costs the ESB in excess of an additional £7 million to service the same number of customers in the Cork region as in the south-east region. Management proposals were based on cost effectiveness. What criteria are being used in the decision to close the Waterford regional office? Nobody will answer that question.
The south-east region has the highest growth rate in terms of units of electricity consumed and energy generated. Regarding unit growth, the Waterford region has shown an increase of 6.1 per cent while the lowest unit growth of 3 per cent was recorded in the Cork region. There has been income growth of 5.3 per cent in Waterford with the lowest growth rate of 3.6 per cent recorded in Cork and Dublin. Those are the ESB's figures. By downgrading the south-east region the Minister is moving away from an area with the current highest growth rate and greatest growth potential, thereby denying the ESB the opportunity to grow with the other social partners in the south-east.
The ESB proposals ignore European Union plans for the development of natural regions. The south-east region is a recognised natural region with its own development authority. If the ESB is prepared to follow EU guidelines on openness and competition, why not also follow its guidelines on natural regions? Last January the regional manager at a meeting of Waterford Corporation stated that only ten senior managers in the Waterford region will be affected. Since the managers in question will continue to be employed somewhere in the ESB, is it worthwhile destroying the ESB's high standard in the region for such a small saving? Is there any saving? It has never been shown that there will be a saving. The removal of ten people from the regional office is only the thin end of the wedge. Those people have a backup staff reporting to them, secretarial assistants and so on. While their backup staff may not be moved now, they will be moved at some stage in the future.
Some of the effects which will ensue from this decision include the immediate transfer of existing senior management to the Cork region which will result in the vital decision-making apparatus and higher value work being removed from the region. Portlaoise work, at present carried out in Waterford, will be transferred to Limerick, with the loss of further jobs. The south-east region often competes with the Cork region for major industrial and port developments. In such circumstances Cork will favour its own. That will be to the detriment of the local economy with major loss of business to many commercial concerns such as local suppliers, contractors, hotels, restaurants etc. In addition, financial support through educational, sporting and cultural bodies, which was always generously given in the past, will be curtailed.
The loss of the prestigious ESB headquarters will not help in our current efforts in the south-east to secure university status for that region. Neither will it assist in attracting other State or semi-State bodies to our region, but could lead to an exodus where others might follow in the future. In view of the Government's lack of action in progressing the decentralisation programme to Waterford it appears that it has little interest in that area. Its policy appears to be to take away as many of the decision-making functions as it can from Waterford. There is a proposal to close 48 shops out of a total of 120 nationwide. The south-east region alone could lose as many as eight shops. The customer will be affected directly by this move, although it is becoming increasingly evident that the ESB is not interested in the level of service it provides for its customers.
The proposed changes are intended to improve cost effectiveness within the ESB, notwithstanding that the south-east region is at the top of all tables where key financial indicators are used. This proposal defies logic on a purely commercial basis. The real purpose of the exercise is to obtain a price increase from the Government. A price increase has not been sanctioned for some time and every effort will be made to force the Government's hand in this regard. The case for the south-east stands on its merits, but equally the case for maintaining the six regions also stands up to all scrutiny. It appears that talk of their reduction is mere window dressing on the part of the ESB. It is evident that the principles of social partnership, as set out by the previous Government, are not being adhered to by the Minister or the Government.
I move amendment No. 1: To delete all words after "That" and substitute the following:
"Dáil Éireann endorses the approach of the Minister for Transport, Energy and Communications in encouraging and facilitating the achievement of efficiency and effectiveness and future employment in the ESB as part of the Government's strategy to revitalise State enterprises, to promote the interest of business and domestic consumers and to foster the spirit of social partnership."
I commend the Government's amendment to Deputy Brennan's ill-conceived motion designed to stir up conflict when the aim of the Government is to accelerate the pace of change which the ESB is undertaking.
In putting forward this motion I cannot believe that Fianna Fáil is acting for the good of the ESB, its employees or the people of this country. Instead, I believe that it is merely playing politics, attempting to score cheap political points at a time when the situation demands that a responsible and realistic approach be taken to the issue of providing a quality electricity service at a minimum cost to the consumer.
I should not be too surprised at this intervention, since this is the same unrealistic approach adopted by Deputy Brennan when he was a Minister. He proved incapable of grasping the realities in other State companies, and was a weak-kneed, ineffectual bystander as Minister. He consistently dodged, ducked and side-stepped the hard decisions. I do not intend to follow his example. On the contrary, I intend to confront the contentious issues in a decisive, fair and co-ordinated manner but I must warn Deputy Brennan that playing politics with a vital and essential service is a dangerous game. Unhappy with my success in bringing forward the timeframe for achieving cost savings at the ESB, the Deputy has now started to question the cost of rationalisation.
I note with interest the praise which Deputy Brennan has received from one element of the trade union movement in seeking a price increase for electricity. It is inconceivable and outrageous that Deputy Brennan, and Fianna Fáil, would want to impose an additional and unnecessary cost burden on every home and every business in the country.
Deputy Brennan is apparently satisfied to gratuitously impose extra unnecessary burdens on hard-pressed home-owners, widows and families. Does he not think that those people are finding it tough enough as it is? Deputy Brennan is also apparently satisfied to impose extra unnecessary burdens on small businesses which have to compete internationally to survive. Does the Deputy believe these companies are having it too easy just now and deserve to have an extra impediment slapped on them regardless of the consequences on job losses?
I assure Deputy Brennan that I will not contemplate any price increase for electricity until agreement to the implementation of very substantial savings is in place. The days of the Fianna Fáil type solution — the easy option — are well and truly over.
I thank the Deputy, however, for the opportunity to reiterate the Government's viewpoint on this important subject even if the thrust of Deputy Brennan's motion shows a poor grasp of the issues involved.
My approach, and that of this Government, to the semi-State sector is a balanced one which is wholly consistent with the commitment to revitalise State enterprise as outlined in our programme for renewal. In response to Deputy Brennan's comments I appreciate the total support and encouragement I have received from all my Cabinet colleagues for the actions and the moves I have made to date on this issue. Deputy Brennan will be disappointed, as will many Fianna Fáil Deputies on the back benches, to learn that the Government is working exceptionally well. Business is being conducted in a spirit of co-operation and trust. Fine Gael, the Labour Party and Democratic Left are giving real expression to the partnership style of Government.
Two words summarise my approach to semi-State bodies — consumers and competitivenss. I will consistently demand delivery of quality reliable service at the lowest price to the consumer My strategy is focused on competitiveness for companies to secure the long term future of employees and lead to job growth.
On the specific issue of the ESB I wish to remind the Deputy of a few facts. Independent consultants have identified excess costs at the company amounting to £120 million per year. That overrun, equivalent to £10 million a month, is a direct cost on the ESB's customers. I want to see that cost base addressed as soon as possible. This is vital if the ESB is to be a competitive player in Europe's deregulated electricity industry. It also means that the long term benefits of this cost-saving exercise will be felt by every household and business here.
Against this background I am astonished at Deputy Brennan's implication that the company's sole shareholder should have no input into the important cost and competitiveness review which is currently taking place at the group. Deputy Brennan's view is that I should have kept quiet and allowed electricity prices to rise unnecessarily. He seems to think that there is something wrong with the Minister responsible for the ESB having direct communication with the company's chairman on an issue as vital as the future direction of the industry. I also note that the Deputy is labouring under the illusion that my intervention has somehow threatened an agreed three to seven year rationalisation programme entered into by ESB management and its unions. Being in Opposition is no excuse for being out of touch.
The fact is that no such agreement was ever in place. Ongoing negotiations seemed to suggest that this would be the agreed timescale but following my talks with management and unions last Wednesday and Thursday I have succeeded in focusing the attention of all parties on achieving the bulk of the planned rationalisation in a much narrower timeframe. As I reported at the time, most of the savings will now be achieved within a two year timeframe. With substantial costs at stake every year, it is clear that rationalisation is not an option — it is an urgent necessity.
I cannot understand where Deputy Brennan got the notion that the pace of change in the ESB has to be restricted for financial reasons. I am well aware that the total redundancy cost will be high. Even a cursory glance at its annual reports will show that the ESB has no difficulty raising large sums of money from a combination of internal cash flow and borrowing. Investment in changing work practices which are directly aimed at reducing costs will have a short pay-back period. Relative to the ESB's conventional capital expenditure, this investment in enhanced effectiveness is much more attractive in financial terms. There is no financial constraints which could justify prolonging implementation of the programme.
I wish to put the cost of the total severance package in perspective. The ESB is a company with annual revenues of almost £1 billion. It is a company with a capital expenditure programme of £1.5 billion over the next five years which is £300 million per annum, almost £1 million per day. That is an enormous outlay. The cost of achieving cost-effective rationalisation will probably be in the region of £200 million but the payback period on achieving that efficiency is only about three years. That makes perfectly good financial sense.
As a result of my intervention the talks are now back on course, there is a commitment to have them completed by the end of May and there is a new sense of realism from all parties concerning the steps that must be taken to restore the ESB's competitiveness.
I take this opportunity to acknowledge the positive and constructive approach adopted by the unions at our meeting last week. All parties are now agreed on the broad objectives and timing for the negotiations which are expected to conclude by 31 May. I look forward to a positive and successful outcome to the CCR process.
In the rest of my contribution I will be touching on specific issues which affect the ESB's short and long term performance, but first I wish to refer to the general subject of State enterprises and some recent commentaries on electricity matters.
In overall terms, the State bodies play a very significant role in our economy. Many of them are among the largest companies in the State, and have a significant effect on overall economic activity. While the commercial State bodies have much in common with privately owned enterprises, there are some significant differences which arise from the fact that they are owned by the State and a substantial proportion of total national resources is under their control.
The State exercises the ownership right of State bodies on behalf of the community as a whole. It is the duty of Government to initiate and shape policy, in the broadest sense, for the State bodies. In turn, it is the Government's responsibility to ensure that where public moneys are invested in the State bodies, they are safeguarded and used effectively; that State bodies conform generally to overall Government policy and that the public sector operates efficiently and in a manner that serves the best interests of their customers and the wider community.
It is from that perspective one must look at the excess costs which exist in the ESB and my communication with the board on policy. The Government would not be fulfilling its public policy role if it were to allow the ESB a price increase without carefully examining the scope for savings and efficiency. The policy agreement between the partners in Government, A Government of Renewal, reinforces the commitment to the further development and strengthening of a dynamic and efficient State enterprise sector.
This Government has highlighted the importance of revitalising public enterprise. We believe there is a need for managed change in some State companies, among them the ESB. The environment in which these State companies operate is rapidly becoming more and more competitive as a result of the twin drivers of technological change and EU competition rules. As stated in the policy agreement forming this Government our approach to these inevitable forces will be to ensure that all change will be managed in the best interests of employees, taxpayers and consumers. One of the benefits of the new competitive environment is that costs and, thus, prices to consumers will be kept to a minimum.
In the ESB's case it is imperative that it tackles its costs and it is imperative that the Government provides an appropriate structure for the electricity supply industry so that the ESB can operate even more profitably and commercially in markets that are becoming increasingly competitive.
IBEC's recent report, Energy — 2000 and Beyond, is a welcome addition to the debate about moving forward in this vital area of economic activity: The report points out that Irish business needs a secure, competitively priced energy supply to make its contribution to the economy. In its discussion of electricity matters, IBEC stresses that competitively priced electricity is essential to the maintenance of employment and the continued growth of Ireland's industrial base. I, too, am vigilant on electricity pricing.
On pricing, I would also highlight an ESRI paper of 13 February 1995, entitled "Energy Utilities and Competitiveness". This paper includes an interesting review of current policy issues. In its discussion of pricing by energy utilities, it refers to the risk that a lack of competition can lead to excessive costs or abnormally high profits by monopolies. The paper also points out that unless these tendencies are curbed by public policy initiatives, there can be adverse consequences for the economy such as movement by firms away from electricity to other energy services, loss of competitiveness and a reduction in the disposable income of consumers. Analysis under the ESRI medium-term model suggests that cost savings in energy utilities such as the ESB could generate increased employment in other sectors. Firms in the tradable sector would take advantage of improved competitiveness to increase output and employment and the consequent growth in GNP would eventually benefit consumers as a whole.
The focus on the consumer must be central to any appraisal of the efficiency and effectiveness of the ESB. If we neglect to look at the ESB from the consumer perspective there is a danger that the self-interest of the utility will dominate our thinking. This is no criticism of the fine public spirit which the ESB management and employees have displayed over the years. However, we cannot rely solely on the goodwill of utilities to operate with maximum effectiveness and efficiency. The spur of competition and the pressures of strong and probing regulation can be a healthy feature of the day to day running of a utility. I intend that the optimum balance of regulation and competition necessary to make the ESB more consumer conscious and efficient will be established in a new electricity market. However, the most immediate benefits to the consumer hinge upon the outcome of the CCR.
The cost and competitiveness review embodies social partnership and consensus. If successful, as I trust it will be, the CCR could become the prototype for similar developments in other firms. Social partnership is based on engendering trust and understanding between management and employees and building on a shared commitment to the firm's welfare. It attempts to break away from conflict and confrontation and to substitute a partnership between management and employees. In such a relationship employees are recognised for their value to the effectiveness of the firm; their co-operation is viewed as an asset to the firm's growth potential and its capacity to respond to customer needs. Unfortunately, in the past the ESB was subject to some unfavourable criticism because of its industrial relations record. I recognise the CCR as a milestone in the board's history and that it has the potential to inject a new realism and maturity as regards the conduct of its business.
The CCR is overseen by a steering group, representing my Department, ESB management and unions. The tripartite nature of the steering group has enabled my Department to see at first hand the issues faced by the ESB, to review progress and to monitor the work of the consultants engaged to compare the ESB's performance with best practice in other countries. However, my Department has no direct role in the negotiations on changes within the ESB designed to realise the savings identified. My role and that of my Department is to champion the cause of the consumer and to represent the shareholder. In so doing I will encourage the new climate in the ESB and, where appropriate, set out certain policy parameters to facilitate the conduct of negotiations.
In the short term, the CCR represents the most effective opportunity to improve the economics of the electricity sector. In the longer term, competition, particularly in power generation, combined with new regulatory arrangements, will be the means by which we can achieve the best deal for the consumer. My Department is currently preparing legislation to modernise the electricity market.
I wish to give the House a clear picture of the issues which have to be considered in relation to any change in Ireland's relatively small electricity sector. First, electricity is different from other goods and services because it cannot be stored. It must be generated at the instant it is needed and at very high quality. Second, there is no practical alternative to the use of extensive electric cables to distribute power. Third, the electricity business is highly capital intensive — in particular, the economies of scale of electricity generation mean that each generating station represents a large long term investment. These factors have a major impact on the scope for competition and the realistic structural options which a Government can consider. Regardless of scale, nobody is recommending the duplication of transmission and distribution systems. There is no threat to the ESB's existing monopoly electricity networks. The key area of potential competition lies in the generation of electricity.
Generation accounts for over half of the ESB's costs and it is the area where the potential for competition is greatest. However, it is important to note that the small size of our market and the relatively large size of a cost effective new power station present a particular problem. An investor is unlikely to spend £200 million building a power station, if he has no guarantee of selling its power on a continuous basis for at least 15 years. The encouragement of market entry by investors requires a reasonably predictable and stable operating environment. Unbridled competition in power generation would have serious consequences for existing investment and would deter new investors. In a small market, we need to establish a competitive framework appropriate to the country's needs.
The best way to get savings in generation is to create a central power purchasing agency for the procurement of generating capacity. The characteristics of the Irish market mean that the benefits of competition can best be captured in long term contracts with investors. However, to be effective and to comply with EU law, competition must be conducted in a fair and impartial manner. I intend to achieve this by introducing arrangements to ensure the independence of the power procurer. The approach which I will propose to Government will ensure that this function operates at clear arms-length from the rest of the ESB. The power procurement office will be charged with establishing formal contracts — power purchasing agreements — with each of the generating stations on the system for the purchase of the electricity which they produce. These agreements will be complex, legally binding contracts, and will specify such things as the price to be paid to the generator for the electricity, incentive payments for above standard performance and penalties for failure to meet contracted obligations.
The EU Commission is pressing for the liberalisation of the electricity and gas markets. Negotiations on the Commission proposals are at an important stage and we must take steps now to ensure that the competitiveness of the electricity sector is protected in the long term. The ESB must address its cost structure if it is to be competitive in the coming liberalised market.
The Commission believes that the EU Treaty already entitles electricity businesses to establish in any member state and entitles consumers to buy electricity from producers in another member state. The Commission also believes that central planning of electricity systems has resulted in too much capacity at the expense of consumers.
Proposals for an electricity Directive put forward by the Commission last year are intended to provide mechanisms to give effect to these rights. The draft Directive provided for a tendering or authorisation procedure for new generating capacity, increased transparency in utility accounts and the introduction of third party access, that is generators contracting directly with consumers or distributors and having access to national networks.
As I just mentioned, the requirements of the small, isolated Irish market are different from those of highly interconnected continental systems and in the negotiations on the Commission proposals I have been stressing the importance of central planning and control in our system. The option of a "single buyer" has now emerged, where all power would be sold to a central purchasing agency as an alternative to the Commission's favoured third party access approach. This is similar to the power procurement function provided for the ESB's restructuring. The Commission has indicated a willingness to accept the "single buyer" provided certain conditions are met.
While considerable negotiation is required on the Commission proposals and in particular on the "single buyer" option it is clear at this stage that, if it is to be acceptable to the majority of member states, the final Directive will require open competition for all new and replacement generating capacity, a regulatory regime that ensures there will it be no discrimination against electricy producers in other member states and greater transparency in utility accounts. Bearing in mind that the "single buyer" model is the most appropriate in Ireland's small system the moves towards a liberalised market will bring a requirement to demonstrate that competitions for capacity and system operation can be carried out in a transparent and impartial fashion.
In parallel with pressing for liberalisation by means of the draft Directive, the Commission has also initiated legal proceeding alleging that existing legislation in Ireland and four other member states confers exclusive rights for importing and exporting electricity contrary to the requirements of the Treaty of Rome. Ireland is defending the Commission action on the grounds that it is based on a mistaken interpretation of existing statutory provisions and that the relevant provisions in the ESB legislation do not infringe Treaty obligations.
Recent media attention has been given to proposals by the ESB relating to Poolbeg power station. Planning, especially power station planning, also has a strong bearing on the price of power. Investment in new capacity must take account of future electricity demand—never an exact science as many utilities learned to their cost in the late 1980s when high rates of demand growth suddenly evaporated. To have a reliable electricity system it is essential to have reserve generating plant which can take over when a power unit breaks down or when a station is out of action for routine maintenance. The key requirement is to minimise the amount of that reserve capacity. This is largely achieved by minimising the downtime of existing power stations.
However, power stations cannot be constructed overnight. When one takes account of the need for planning permission, specification, design and competition as well as ordering and erecting complex plant it is unlikely that a new power station can be operational in under four years from when it is first considered necessary.
I must take this into account when considering the ESB's proposal to complete the new Poolbeg power station. In 1992 the ESB's view was that new capacity was needed towards the end of 1994, 1995 and 1996 and this would be catered for by the three phases of the Poolbeg station. The ESB argued that there was insufficient time for a competition and approval for the first phase was given at the end of 1992. That unit is now operational. However, approval for the remaining phases has not yet been given with the result that the earliest they can now be operational is mid-1997 and mid-1998. This delay has had the effect of reducing the amount of reserve generating capacity with a significant saving for consumers. In spite of continuing strong growth in demand, the ESB's programme of improving performance in existing power stations means that there will be no increased risk to power supplies.
The questions which I must now consider are whether the ESB is likely to build and operate the Poolbeg station as cheaply as a competitor or whether any risk to electricity supplies caused by the time needed to hold a competition would be offset by a lower overall cost of power from a competitively chosen alternative. The issue of Poolbeg is under consideration in my Department and I intend to make a decision on the matter by mid-June at the latest.
In commending my amendment of Deputy Brennan's motion. I have ranged over a number of issues which will influence the ESB's future and the potential gains for the electricity consumer. The Government has a coherent strategy for our State enterprises. In the ESB's case this strategy will be tailored to customer needs, the potential for improved efficiency and the beneficial impact of appropriate competition underpinned by new regulatory arrangements. However, the most significant immediate issue for the ESB and its consumers is the CCR. I will not countenance any price increase until agreement to the implementation of very substantial savings is in place. If the spirit of social partnership is allowed to flourish and a sense of realism prevails, I have no doubt the electricity consumer can look forward to a new value for money era. Consumers will have the reassurance that electricity pricing reflects best standards and performance, with the management and employees of the ESB participating in a new dynamic company with healthy prospects and rewarding employment.
My colleagues and I listened with interest to the Minister and we are amazed at his change of philosophy. He stated:
Social partnership is based on engendering trust and understanding between management and employees and building on a shared commitment to the firm's welfare. It attempts to break away from conflict and confrontation and to substitute a partnership between management and employees.
The Minister did not do much to advance that philosophy in recent times. He spent a great deal of time criticising my colleague, Deputy Brennan when he should be concentrating on the job given to him in the new Government. Only last week newspaper reports carried the headlines "Unions force Lowry retreat on cut plan" and suggested that the Minister, Deputy Lowry, was forced into an embarrassing retreat from his tough position with the ESB unions. He was certainly talking tough and warning the company about the timetable for a cost saving plan, but after a 90 minutes meeting with the union leaders all had changed and in hurling terms — in which he is well versed—he had been pulling at fresh air. It appears the Minister of State, Deputy Stagg, had stolen his sliotar and gone on a solo run.
The game is by no means over. The dust may have settled temporarily and the Minister and Minister of State are politically happily playing together again, apparently on the same team, but irreparable damage has been done to the whole concept of social partnership and the Minister, Deputy Lowry, has done little to promote confidence in the Government's input to this process. I would go so far as to suggest that he has damaged much of the good work done by previous Governments in this area. If this is what we are to expect from the Minister and the Government in dealing with sensitive issues where large numbers of jobs are at stake. I do not predict longevity for this regime.
We have witnessed chaos over the past few weeks. It is one thing to be a hard man and stick to one's position— I would expect that from the Minister and I respect what he has done in regard to hurling — but it is another thing to act the hard man and then run away when things get tough. We heard Deputy Lowry was good at getting things done, fixing things and was determined. I certainly was impressed by reports of what he would do as a Minister, but the reality has been different.
Our criticism of the Minister's handling of this crisis as it emerged is based on the facts as presented to us. The Minister has undermined the whole process of social partnership by what I can only describe as reckless interference in the negotiations between the ESB, management and unions on the company's rationalisation plans. He has backed the wrong horse. The whole process was developing steadily when, for some reason we cannot understand, he decided to intervene and then pull back. I would remind the Minister that the country has benefited immensely from social partnership and I am amazed that Fine Gael and the Minister have not yet realised the benefits of effective social partnership although, having listened carefully to him tonight, it seems he has been converted. Social partnership has worked very well in the semi-State sector under previous Governments. It is a pity this Government, through its incompetence, risked sabotaging the many achievements. I welcome the fact that this has not happened and that talks have resumed. I cannot help but feel that Fianna Fáil has been left as the sole defender and supporter of this process.
I welcome the resumption of the talks on the restructuring of the ESB. I can only describe the interference by the Minister as reckless and ill-judged. His approach does not augur well for this Government's respect for the principle of social partnership. The cost and competitiveness review involving ESB management, the unions and the Department has been steadily proceeding for the last year. The steering group, with representatives of the three parties, has been examining ESB costs and working towards a plan which will involve change in work practices and cost reduction. This was and is a unique approach, the first of its kind in the history of Irish industrial relations. The key element was that negotiations were taking place honestly and steadily behind closed doors. Trade unions and management have learned from disputes in other semi-State sectors that negotiations through the media can only lead to distrust and the hardening of positions on both sides. We have seen enough of that in recent times.
By interfering in the ESB negotiations, the Minister almost destroyed the work done to date by all concerned. The electricity industry is changing dramatically within the European Union and worldwide. We listened with interest to the Minister's lengthy presentation. It was a very interesting strong analysis and there were some suggestions, to which I will refer later, as to what he has in mind. The EU will soon come forward with new regulations for the electricity market. These will mean increased competition, and it is accepted that this will take place in the case of electricity generation. The central question as far as we on this side of the House are concerned is what exactly is this Government's policy for the ESB. We have received different and confused messages from the Minister. It is obvious he is being closely and suspiciously monitored by the Minister of State, Deputy Emmet Stagg. This double speak is a recipe for disaster. I have no doubt that before this debate is over we will hear treble speak as we heard here last week during the debate on the Non-Proliferation Treaty when Deputy Kathleen Lynch of Democratic Left said she strongly supported the motion proposed by my colleague Deputy Ray Burke, and had no time for the Government's position but then walked through the Government lobby. We look forward with interest to hearing that party's views. We need to know where the Government stands. We have heard some elements of its position tonight and no doubt we will hear more.
A new generating capacity will be required in a couple of years, and this will involve a tendering process. The issue of third party access will obviously be a crucial one, particularly for a small peripheral country like Ireland. The ESB, both management and unions, is alert to the competitive environment that lies ahead. The McKinsey report referred to job reduction of 2,900 workers and potential savings of £120 million a year. As Fianna Fáil spokesman on labour affairs I want to make it clear that we do not accept this. Imagine the social implications of 2,900 individuals losing their jobs and the effects on their spouses and families. The cost and competitiveness review should lead to a tripartite agreement. Its stated objective is to reach consensus on change and cost reductions. Fianna Fáil supports the union concerns that 2,900 job losses is being presented as a fait accompli. These negotiations will be extremely difficult. The essence of the approach is that any worker leaving the ESB will leave voluntarily. The unions have never accepted the McKinsey conclusion that there are 2,900 excess people in the company but are prepared to sit down and discuss the complex matters involved, taking into account the social implications.
In the Programme for Government this Rainbow Coalition promised to provide jobs in semi-State companies. It is therefore extraordinary that in their first outing in relation to the semi-State sector they are promoting massive job losses. Much concern was voiced by certain individuals in the Labour Party and the Democratic Left about jobs at the time of the TEAM Aer Lingus crisis. Where are the voices of concern about potential job losses on this issue? Perhaps we will hear them before this debate is through.
The ESB has been a soft target for right wing commentators. Whereas it has to be accepted that the company will have to undergo change in order to position itself for the future, it must be emphasised that the ESB has had no price increase for nine years, has achieved approximately 4,000 redundancies and has suffered from the virtual collapse of its rural network. It has to compete with its European fellow member states; yet it manages to have the third lowest price for its product in the European Union. It is important to take all these factors into account when discussing the future of the ESB.
There are, in effect, five key elements to the negotiating process. I will refer briefly to some of them. First, there is the question of the £120 million saving. McKinsey suggests that this will come about by staff reductions and savings in other areas. He looked at the practices operating in other utilities in the US and Europe. I suggest that a type of cherry-picking process was pursued and recommendations were subsequently made. The trade union position is that the question of the £120 million saving is down for discussion and I would accept their position on the basis that one needs to consider carefully how this position was reached and that an agreed position must be found. The second element is the 2,900 job losses and the timescale for the implementation of change. In view of his subsequent drawing back, the Minister was most unwise to state in public that changes were to be brought about in two years. He will find it difficult to recover from this debacle. We listened to him while he made an effort to address the matter. I have no doubt that the parties concerned will agree to certain recommendations, some of which can be implemented immediately. The approach must be based on consensus. We are not suggesting that the Minister should remain silent; on the contrary he should monitor the position in the ESB and other semi-State companies and involve himself in the process. We welcome the fact that he has climbed down and decided to agree to the timescale for change suggested by the unions.
On the question of the existing business unit structure, I trust the Minister will have no difficulty in adhering to the agreement reached between the unions, management and the Fianna Fáil-Labour Government. This would involve breaking-up the company into business units. There is also a necessity for a price mechanism. I understand the Minister will consider this when the review of costs and competitiveness has been completed. A cash injection will be required as the system is in urgent need of refurbishment, a cost of £600 million has been mentioned.
The Minister raised the question of supplies from Poolbeg. The position is that phase one has been completed. It is hoped that the Minister will consider favourably proposals which will be put forward by the unions for the future development of the plant. There is an open cycle system with exhaust steam released into the atmosphere and as a consequence, there is much unnecessary waste. What is required is a recycling process which would make for greater efficiency in making full use of the energy generated. I understand that agreements are in place with other parties which would result in Poolbeg becoming the leading plant of its type in the world. The Minister outlined some of his views and it appears he will be seeking private sector involvement. Will he clarify the matter in the next few days and weeks? It is important that he works closely with the unions involved.
The tripartite approach, which involves the building of a consensus on the best way forward for the ESB, is correct. We need to put in place a strong indigenous company with the capacity to expand both at home and abroad. When I was Minister of State with responsibility for overseas development I saw at first hand the quality of the services provided abroad by ESB International. Many people do not appreciate the invaluable work being done by this subsidiary of the ESB.
ESB International employs approximately 600 and offers engineering, design and consultancy services in practically every corner of the world, including central and eastern Europe. I was very pleased on behalf of the Government to provide grant assistance to support its project to provide electricity for the people of Phnom Penh in Cambodia and a similar project in Vietnam. It has enormous potential for expansion and to provide many additional jobs for Irish men and women and valuable services for those in need throughout the developing world in particular.
The treatment of the ESB by the Government has been disgraceful. In a macho-like manner the Minister interfered in delicate negotiations. Having been taken in hand by the Minister of State, Deputy Stagg, there was a damage limitation exercise. The Minister said that he succeeded in focusing the attention of all the parties involved, but not before he had made a mess of the matter. We now want to hear the Government speak with one voice, if possible. I appeal to the Government to demonstrate clearly its support and respect for the principle of social partnership.
I express surprise that in castigating the Minister Deputy Kitt quickly ran out of material.
I like to be crisp and to the point.
I am surprised he did not utilise all the time available to him; he could have continued for a further 15 minutes. Does he not have the support of his backbenchers?
As a Deputy who represents the area, I congratulate the Minister, Deputy Lowry, for going to Europe and obtaining a commitment that it will help fund a peat fired power station in the midlands. For two and a half years the former Minister, Deputy Cowen, huffed and puffed. While this project was included in the Community Support Framework 1994-99 it was made known repeatedly that the European Commission was not committed to it and that major barriers would have to be overcome before it could support it. Perhaps he did not try hard enough, have the necessary clout or consider the project to be important for the midlands but, for whatever reason, Deputy Cowen failed to meet Commissioner Millan to discuss it and deliver on his commitment.
In that context I am delighted to congratulate the Minister, Deputy Lowry, who, within such a short space of time, had met the relevant commissioner and secured a commitment that £21 million will be made available for the project. This is a tremendous boost for the midlands. The Bog of Allen will be a disadvantaged area unless an industry is located there. The only sources of employment are Bord na Mona and the ESB and that is why it gives me particular pleasure to see this project firmly on the rails.
The Minister said that there will have to be open competition with companies throughout the world being allowed to tender to build this power station at a location in the midlands. There is a decided plus in locating it there and I am sure the Minister will take the opportunity to draw this to the attention of the various companies concerned during the tendering process. A peat fired power station already exists at a strategic location within the Bog of Allen—the Rhode Power Station— with a small network of railway lines as well as cables and power lines. I would point out also that the unions concerned in this particular power station have taken a mature approach to the need for change, rationalisation and, hopefully, expansion.
