I move: "That the Bill be now read a Second Time."
The purpose of this Bill is to raise the ESB's statutory borrowing limit with the aim of facilitating the ESB's current major infrastructure investment programme. The ESB's existing borrowing limit stands at IR£1.6 billion. This is equivalent to €2.03 billion and has remained unchanged since 1982. The Bill proposes increasing this limit to €6 billion to take account of the reality of today's economy.
Management of the finances of the ESB is a matter for the board and management of the company. Towards the end of 2003, it became apparent that the existing borrowing limit was beginning to act as a severe constraint on the company. The company recognised that if it was to accomplish its significant capital programme, it would need to rely more extensively on its borrowing capacity and that it could not continue business as usual within the confines of the existing limit.
The ESB's borrowing level is at €1.9 billion, which is very close to the existing limit. While the company is employing tight management of its cash outflows, the remaining cash balance is expected to be exhausted within a matter of weeks. This is, of course, based on the assumption that there are no unexpected demands for cash within that period. The urgent passing of this legislation is therefore essential for the company to continue to operate effectively.
Before going into the detail of the company's investment programme or of the Bill's provisions, I will refer to the ESB's financial results for 2003, which were published since this Bill passed all stages in the Seanad. As Deputies will be aware, the results revealed a healthy financial position in the company, with turnover up by 9% on the previous year. Profit after tax was also up on the previous year at €249 million with a resulting declared dividend of €67 million. It would be easy to make the assumption that these figures represent excessive profits, but this would be to ignore the complete picture.
The level of profits must be viewed in the context of the size of the company, which has fixed assets of nearly €5 billion. As mentioned earlier, the company's level of debt currently stands at €1.9 billion and this debt, which is set to increase over the coming years, needs to be serviced. The level of profits also needs to be viewed in the context of the company's capital expenditure programme.
To put this expenditure programme in perspective, in 1982 when the borrowing limit was last set, the annual capital expenditure for the ESB was approximately £200 million, which is approximately €254 million. This year, the approved annual capital budget is approximately €1.4 billion, nearly six times what it was in 1982. This is an all-time high for the company and reflects the enormous range of infrastructural development being undertaken at this time. It should be noted, however, that the ESB sees this trend reaching its peak this year and then taking a downward turn over the next five years. By 2008, the company expects its capital spend to be approximately €650 million, about half the current level. This will bring the company back in line with its more normal spending patterns.
As regards the proposals before the House today, I would like to put some perspective on the existing and proposed limit figures. The sum of €2.03 billion in 1982 terms is now approximately equivalent to €4.31 billion. The ESB has advised that its borrowings will increase to nearly €4 billion by 2008. Facilities of €1 billion are required for liquidity purposes. It is intended that these facilities will not be drawn down unless absolutely necessary. It is also proposed to factor in an additional €1 billion, thus bringing the limit to €6 billion in total.
Given the ever present pressures on Oireachtas time and on Government legislative programmes, the proposed limit is reasonable and prudent. It should be remembered that the current statutory limit had sufficient headroom built into it to cover the company for the past 22 years. It is envisaged that the actual requirements and the projected headroom built into the proposed new limit should meet the company's needs for the foreseeable future.
The ESB's debt strategy is designed to: ensure there is sufficient liquidity in the company; ensure flexible terms and conditions consistent with the achievement of the corporate strategy of the company; minimise the cost of debt while optimising the debt mix; develop strong relationships with a key group of banks; and ensure a diversity of funding sources. The ESB has many sources of financing including the European Investment Bank, syndicated facilities and bilaterals, leases, the private placement market and non-recourse financing. This range of different sources provides the company with the ability to avail of the best terms and keenest rates on offer. Keen funding rates underpin a more cost-effective capital expenditure programme.
The private placement arranged by the company in the United States last December has given the ESB a significant financial boost. The deal, which provided the company with $1 billion in finance at keen rates, is intended to fund major improvements in the power infrastructure in this country. The private placement market was an attractive option for the ESB because of the range of maturities and the competitive interest rates available. Two major banks, namely, ABN AMRO and Barclays Capital, jointly arranged the financial deal with principal participants being insurance companies and some pension funds. The very positive response of the private placement market reflects the ESB's high international standing and can also be seen as a vote of confidence in the Irish economy.
The ESB also entered into a separate €500 million revolving credit facility at the end of 2003. The facility, which was co-ordinated by the Royal Bank of Scotland, will be drawn on as and when necessary to ensure liquidity is constantly available and will therefore assist the ESB's overall funding programme. As I mentioned earlier, the main purpose of the increased borrowing limit is to fund the ESB's current major infrastructure investment programme. The proposed level of capital expenditure between 2004 and the end of 2008 is expected to be nearly €5 billion. This is designed to meet the strong increase in demand for electricity in the Irish market and will support development of the national economy.
In 2003, the ESB invested more than €650 million in the network infrastructure in Ireland. The replacement and upgrading of almost 17,000 km of distribution network was completed and a record 77,000 new customers were connected to the system. For 2004, the company has a target of more than 20,000 km of network renewal scheduled for completion. The most recent forecast from the company for new connections in 2004 is that over 80,000 new customers will be connected to the system.
The renewal and investment in the ESB's generation portfolio both here and abroad is continuing in line with the company's corporate strategy. During 2003, agreement was reached on the closure of the old peat-fired generating stations at Rhode, Shannonbridge, Lanesboro, Caherciveen and Bellacorick. Their decommissioning will take place as two new state-of-the-art peat stations at Lanesboro and Shannonbridge come into production later this year and early next year, respectively.
The ESB's international investment programme promotes the good reputation of the company among global energy utilities. Two major international power generation projects are expected to come to fruition shortly. These are the new 400 MW plant which will be commissioned in early 2005 in Coolkeeragh, County Derry, and a new 750 MW plant in Amorebieta, near Bilbao in northern Spain, which is due to be commissioned later that year.
A decision on the future of the coal-fired station at Moneypoint will have to be made over the coming weeks. The ESB is considering what commercial decisions it should take as an investment of around €360 million would be required for emissions cleaning technology to ensure compliance with environmental obligations and maintaining the plant in operation for the long term. If Moneypoint is not to be upgraded to comply with the new environmental requirements, it must close by around 2011 and an alternative electricity generating plant, probably gas-fired, would have to be in place by that time. It has long been recognised by both the company and the Government that if the company is to justify major new investment in Moneypoint it must be in the context of benchmarked best practice in all respects. In this regard, I understand that agreement on a best practice agreement for the plant has now been reached locally between management and workers. I commend all the parties involved for their efforts in ensuring a swift and positive outcome on this issue, which is a prerequisite to securing the future of the plant.
As I explained during the debate on this Bill in the Seanad, it was originally the intention to include the borrowing provision contained in this Bill in another new Bill called the energy (miscellaneous provisions) Bill 2004. However, the Attorney General subsequently advised me that a Bill dealing solely with the ESB statutory borrowing issue would be more appropriate in view of the time constraint on getting this new legislative provision enacted. Hence, the legislation before the House today. The energy (miscellaneous provisions) Bill 2004 will now be published later this year.
The Bill before the House is a short one with only two sections. Section 1 is the main provision and gives effect to the change of limit to €6 billion by amending section 4(4) of the Electricity (Supply) (Amendment) Act 1954. This section of the 1954 Act was originally amended when the borrowing limit was raised to its current level of IR£1.6 billion by the Electricity (Supply) (Amendment) Act 1982. The new subsection (4) repeats exactly the wording of the existing subsection (4), except for the change from the amount in pounds to the new higher amount in euro. Given the nature of the amendment and the size of the provision, the Office of the Parliamentary Counsel felt it more appropriate to re-state the subsection in its entirety with the new higher amount included as appropriate. I agree with this approach as it facilitates a clearer understanding of what is being proposed by all who will read this Bill. Transparency and clarity of understanding are key tenets of the Government's White Paper entitled Regulating Better and the approach being taken in this Bill is in line with those tenets.
Section 2 provides for the Short Title, collective citation and construction of the Bill and is a standard drafting provision.
The ESB is one of our major State companies in terms of its sheer size and the manner in which it impacts on the day-to-day lives of every citizen and on the whole economy. Throughout its existence, the company has delivered its essential services to the country to the highest standards of public service. The company is now adapting itself to meet new challenges presented by a changing business environment brought on by market liberalisation and the demands of competitiveness and environmental change. I am confident the ESB will continue to serve the Irish people with the same level of commitment and professionalism it has historically displayed in providing the country with a high-quality electricity supply and infrastructure.
I hope the foregoing provides Deputies with a clear understanding as to the background and need for this Bill, the early enactment of which is now a matter of urgency for the ESB. I commend this Bill to the House.