Seamus Brennan
Question:17 Mr. S. Brennan asked the Minister for Transport, Energy and Communications his views on the accuracy of the planned £60 million per annum savings at the ESB in view of the recently agreed redundancy programme. [10913/96]
Ceisteanna—Questions. Oral Answers. - ESB Cost and Competitiveness Review.
Helen Keogh
Question:45 Ms Keogh asked the Minister for Transport, Energy and Communications the current position regarding the implementation of the Cost and Competitiveness Review in the ESB: and if he will make a statement on the matter. [10859/96]
I propose to take Questions Nos. 17 and 45 together.
The CCR agreement is a milestone event, crucial not only for the future of the ESB but of critical national significance for the competitiveness of the Irish economy. Implementation has commenced with 95 per cent of staff who accepted the CCR. The ESB is continuing to work on a partnership basis with the group of unions to see how the situation with the remaining 5 per cent of staff might be resolved.
The CCR is costly but it is self-financing and according to the ESB has a pay back period of just over four years. From the year 2000 on wards, the annual gross savings are projected by the ESB at approximately £85 million but some of this will be offset by ongoing annual costs of about £27 million leaving the annual net savings under the CCR at about £58 million per annum. When I secured Government agreement for a substantial contribution by the State to this unique joint approach, it was conditional on an agreed level of annual savings.
In requesting the board to implement the CCR right away, I have made clear that the full ongoing annual savings of £58 million must be achieved even though one category has opted out as of now from the benefits of the CCR. The ESB has assured me of its commitment to seeing that these savings are achieved in full. This is the responsibility of ESB management and I have every confidence in their ability to deliver on it. The price increase to take effect in 1997 will be conditional on satisfactory implementation of the CCR.
Does the Minister have any external independent assessment of the cost savings of £60 million per annum, other than from the ESB or his Department?
I am pleased to rely on the advice of the ESB and my Department in respect of this matter.
Would the Minister not agree to an independent assessment of these figures, given that a number of economists and commentators in the business media have suggested that these cost savings are not possible? I do not believe either that the Minister will achieve the savings which have been projected.
It is a symptom of the Deputy's style that he is a doubting Thomas in respect of all matters. He asked several questions about the CCR and on a number of occasions I gave him detailed responses. I have made available to him and to the Oireachtas Joint Committee on Commercial State-Sponsored Bodies, of which he is a member, details of the costs and benefits associated with the agreement. I will go through the details of this and will outline for him the costs as they arise. It is important that the Deputy receives the full details as he has not grasped them up to now. I hope that he will take account of them on this occasion and will appreciate that they are accurate.
How long will this lecture take? Do we have five or ten minutes for this question?
There is a time factor involved.
Costs arise in two ways. There is a voluntary service scheme for those who elect to leave the ESB and there are ongoing payroll costs for those remaining in the company. In respect of the voluntary service costs, the ESB has estimated that the total cost of this package will be £210 million in present money terms. In accordance with accounting standards, almost all of this will be provided for in the 1995 accounts. This figure is made up of £102 million in payments to the superannuation fund in respect of pension liabilities and £108 million for payments to individuals who leave. These costs work out at approximately £100,000 per person leaving the ESB under the CCR.
The other costs, concerning primarily the reward package for those remaining in the ESB are made up, in the main, of a 2 per cent reduction in pension contributions by staff, payment of the 6 per cent outstanding category award to about half of ESB employees and lump sum payments to individuals. These come to an average of £20 million per annum in the first three years and approximately £16.5 million per year thereafter. These ongoing costs will be accounted for annually in the profit and loss account.
The bulk of the CCR's costs will be incurred between 1996 and 1999. Over this period the total cost projected by the ESB amounts to £260 million. Savings over the same period amount to £250 million. Thereafter there will be ongoing costs of approximately £27 million against projected savings of £85 million, leaving net annual savings of £58 million per year. I have been advised by the ESB that the CCR will pay for itself within four and a half years and that thereafter the situation will be positive every year for the ESB. After seven years the costs will total £350 million but savings will amount to £500 million. According to the ESB, after ten years total costs will come to £435 million but savings over the same period will be £760 million. The CCR is cost effective and will pay for itself. It makes good sense to implement it.
Is the Minister aware of a letter which the Secretary of his Department sent to me on 14 March in which he stated that the CCR deal is indeed expensive but that the Department will make an act of faith in the full delivery of the savings?
The Deputy is not eliciting information but is quoting.
Does the Minister share the view of the Secretary of the Department that these savings are an act of faith? He does not have an independent assessment and he will not permit one.
I am satisfied that the ESB will deliver these savings. The Department will be in a position to monitor on an ongoing basis the savings being made. The Government will make a generous contribution to this process but will only do so if the full savings of £58 million per annum are achieved. I am satisfied that they will be achieved and that we will be able to validate them at the appropriate time.
I am disappointed the Minister will not allow an independent assessment because this would settle the argument. The consultant to the Oireachtas Joint Committee on Commercial State-sponsored Bodies put the total cost at £351 million and not £250 million as stated by the Minister. There is a difference of £101 million between the two figures. Will the Minister confirm that as a result of this deal the staff who will remain behind in the ESB will receive an increase in wages of 10 per cent in 1997 which is 7 per cent above the figure specified in the Programme for Competitiveness and Work?
Let us not dwell over long on this question to the detriment of the remaining priority questions.
The external auditors will be requested to sign off on the savings to the company. If the Deputy does not accept the word of the Department or the ESB, I am sure he will agree the external auditors are in a position to validate the savings.
The Minister uses consultants for everything else, he might as well use them here.
The evaluation of the consultants to the Joint Committee on Commercial State-sponsored Bodies is based on the cost of the package over a period of seven years. The figure I have given is based on the cost over a five year period. It is cost effective and will pay for itself within four and a half years.
Will the Minister answer my question? Is it true that the staff of the ESB will receive an increase in wages of 10 per cent in 1997? All that is required is a straight "yes" or "no" answer.
If we dwell over long on this question we may not be able to deal with others.
I am happy to answer the Deputy and give him a detailed and accurate response.
I ask the Minister not to read the word processed stuff again. He has read it 100 times.
Does the Deputy wish me to respond to his question?
Yes, but I am concerned about the inordinate length of time devoted to this question.
The terms on offer, in a general package, to the staff in the ESB who will retain their jobs include: a lump sum of £2,000 per worker over three years, an effective 2 per cent pay rise through a reduction in pension contributions, an ongoing annual lump sum of £275 payable from profits and an employee share participation scheme of 5 per cent of the value of the ESB in shares with £325 in shares underwritten by the board subject to review after four years.
I must protest. The Secretary of the Department said the ESB has projected a 7 per cent increase, the Minister has given a figure of 2 per cent.
The Deputy will have to go back to his consultants.
The Deputy is dissatisfied with the Minister's reply. I have allowed him much latitude.
The Minister said the figure of 7 per cent mentioned by the Secretary of the Department does not apply.
The Deputy will have to take the matter up in another way, if he is dissatisfied with the Minister's reply.
The figure is 7 per cent plus the percentage specified in the Programme for Competitiveness and Work, giving a total of 10 per cent.
There are many ways open to the Deputy to bring the matter forward for discussion in the House.