Vol. 625 No. 5
83 Mr. Bruton asked the Minister for Finance if he is satisfied that the pricing of services provided or regulated by Government is contributing adequately to containing price pressures in the economy; and if he will make a statement on the matter. [33447/06]
The annual rate of consumer price index, CPI, inflation was 4% in September, down from 4.5% in August.
However, a better measure of underlying inflation is the EU-comparable measure of inflation, the harmonised index of consumer prices, HICP. The HICP differs from the CPI in coverage. The most notable difference relates to the exclusion of mortgage interest repayments from the EU-related measure. Annual HICP inflation in Ireland was 2.2% in September, down from 3.2% in August. I welcome the reduction in inflation in September and remain committed to further restraining inflation.
When discussing inflation, it is important first to point out that the recent pick-up was largely owing to external developments over which the Government has no direct control, namely, higher oil prices and increased interest rates by the European Central Bank. Therefore, when we focus on inflation, we must concentrate on areas that can be influenced domestically. Annual services sector inflation is currently running at 7.5% and that is a cause for concern. That highlights the need for more competition in the economy as well as pay and profit restraint in all sectors to keep our cost base down.
Tackling the problem requires a response from all sections of society, not just the Government, as many of the domestic driving forces of inflation are outside its control. The Government is taking action in areas that it can influence. Thus, there is no value in bemoaning the need for fuel rises when those reflect changes in the world price at which commodities are bought or contracted for, such as the price of energy in the case of gas and electricity.
Where we can, we should take action to contain inflation by implementing responsible fiscal policies. For example, excise duties have not been increased in the past two years and the Government has removed the groceries order, which should in time lead to greater price competition. I understand that my colleague, the Minister for the Environment, Heritage and Local Government, Deputy Roche, specifically requested that, to support competitiveness in the economy and to protect the interests of communities, local authorities exercise restraint in setting increases in commercial rates and local charges for the year. The Government is also investing in public infrastructure, which will enhance our ability to produce more goods and services more efficiently and therefore help keep inflation down on a continuing basis.
To the extent that the prices of Government services reflect increased wage cost factors, the effort must be to make the provision of services more efficient. That is what we are seeking to do in modernising the public service. I am confident that over the course of next year inflation will moderate as the impact of higher oil prices falls out of the annual comparison.
Is the Minister aware that if one takes a five-year perspective from the end of 2001, when the current CPI was constructed, to the present day, looking only at Government services, one sees that the increase in their price has been 52%? By contrast, the cost of private services, which pay the same wage costs and endure the same environment, has increased by only 18%. Government service price increases have been three times more than private increases. That belies the Minister's suggestion that international factors are influencing Ireland's deterioration.
If the Minister considers the European comparison that he quotes, he will see what is happening in Ireland with prices largely determined by the Government. We have 60% higher inflation in such services than in the rest of the EU. It is not true that these problems are largely outside our control. Government pricing in all those areas — electricity, gas, health insurance, bus, rail, motor tax, bin charges, post, college registration, the drugs refund scheme, parking fees, TV licences, hospital charges and credit card duties have been the drivers of much recent inflation. Does he agree we must address those?
I do not agree that the weightings applied to such services in the overall basket are the drivers. The main drivers for inflation have been international factors such as the European Central Bank's interest rate rises over the past year and the increase in energy prices. The Deputy contends that the Government has been the main driver. If one considers the position between January 1997 and September 2006, the constant tax price index published by the CSO, a measure that excludes the impact of changes in indirect taxes on the CPI, shows inflation of approximately 33%. The full CPI, including the impact of indirect taxes, rose by approximately 39% over the same period, indicating that taxation has only a marginal impact on overall inflation.
It should be noted regarding the inflation in health and education to which the Deputy refers that those sectors have relatively small weight in the basket of consumer goods and services, meaning that their impact on overall inflation is relatively low. Factors that influence health inflation, such as doctors' and dentists' fees, are outside Government control. The gas and electricity sectors have regulators and increases in recent years largely reflect the global increase in oil prices, something over which we have no control. The oil price increase is not exclusive to Ireland since all oil importing countries are similarly affected. The impact on competitiveness will ultimately depend on how we respond.
Our long-term strategy continually to reposition the economy towards the production of more knowledge-intensive goods and services, which tend to be less energy-intensive, should help reduce our exposure to international energy price developments. The impact of higher energy prices on the economy will ultimately be a function of how economic agents, including policymakers, react. Higher energy prices have resulted in higher wage demands and increased public spending, which have a detrimental impact on economic performance. There is now greater awareness that we cannot compensate ourselves for those increases.
On local authority rates, the 1993 rates contributed 17% of total local authority income. Today the figure is closer to 12.5%. The Minister sought, in the adoption of budgets for this year, to have local authorities ensure that any increase in commercial rates and local charges took account of the impact on competitiveness in the economy generally. The response to that request was positive and to a large extent local authorities exercised significant restraint, with increases generally of a lower order than in previous years.
Does the Minister agree that the two VAT increases he implemented in 2002 have added approximately €714 million to his revenue, equivalent to approximately €500 per family? Does he further agree that the cost increases I outlined have added approximately €3,000 in extra costs for a consumer or family affected by them? Therefore, the Minister's suggestion that these are insignificant in terms of a family's spending is unrealistic. The implication of Government pricing decisions amounts to €3,500 extra for many families.
I do not know the basis on which the Deputy drew up those statistics and would have to examine how he did it before I could give a detailed answer. However, in the context of water charges, for example, water pricing policy now requires direct recovery of all non-domestic water service costs and certain areas reflect the coming on stream of major new schemes. The national non-domestic metering programme will facilitate a more transparent system of recovering water service costs where local authorities were not recovering full costs in that area.
Is the Minister proposing water charges?
I am making the point that there is a need for more transparency in all of these matters. In the past there was much cross-subsidisation with regard to cost recovery models and we must deal with that issue.
The Minister would have to change the law to introduce water charges. He does not have the legal authority to do so.
We must move on to Question No. 84.
I am not talking about introducing them. Waste management costs reflect the polluter pays principle, higher environmental standards, the need for additional infrastructure and the fact that we must get a full cost recovery method for both public and private services. Public services have recovery costs of just 80% of private services recovery. Therefore, there is still some way to go.
84 Ms Burton asked the Minister for Finance his views on the recent drugs seizure from a flight that left from Weston Executive Airport in County Kildare; his further views on the lack of surveillance by the Revenue and customs authorities at private airports here and the risk of illegal trafficking of drugs, goods and people arising therefrom; if he will report on the Revenue Commissioners promised review of approved licensed aerodromes; and if he will make a statement on the matter. [33562/06]
The customs service of the Office of the Revenue Commissioners has primary responsibility for the prevention, detection, interception and seizure of controlled drugs at importation. It has particular responsibility for implementing import controls at points of entry to the State, specifically at ports and airports, including licensed airfields, and on the land frontier. The control of licensed airfields in the State is carried out by customs enforcement teams. Those teams are dedicated anti-smuggling teams that focus on the smuggling of prohibited drugs and fiscal products.
The Deputy will appreciate that it would be inappropriate for me as Minister for Finance to comment in detail on the specific operation that resulted in the seizure of a reported 50 kg of heroin in Belgium a number of weeks ago. The fact that three Irish nationals were arrested and that the aircraft, detained by the Belgian authorities, had departed from and is based at Weston aerodrome is of major concern to the Revenue Commissioners.
I am informed by the Revenue Commissioners that best practice in customs administration worldwide shows that the development of information and intelligence is critical to the detection of drug smuggling. In Ireland, this has become very important since the completion of the Single Market in 1993, based as it is on the free movement of goods and people within the Community. As intra-Community travellers have the right of free movement, Revenue has no power to stop them except on the basis of a suspicion, normally grounded on specific intelligence.
Revenue's customs service also shares and receives information and intelligence on drug smuggling from a number of international bodies, including the World Customs Organisation, the United Nations Drug Control Programme, Interpol, the Council of Europe, Europol and the UK's Serious Organised Crime Agency.
Revenue's customs service liaises on an ongoing basis with other national and international enforcement services such as the Garda Síochána, the Naval Service, the Air Corps and foreign customs and police services. It takes part on a regular basis in European, bilateral and national surveillance operations focused at specific drug smuggling methodologies, including general aviation. Some of these operations have been specifically directed at light aircraft and helicopter movements.
The Revenue's customs service is continuously engaged in the analysis and evaluation of seizure trends, routes and smuggling risks and consequential resource deployment. All customs service operations are risk focused and staff are deployed to combat areas of greatest risk. Revenue constantly reviews staffing levels and structures to ensure that resources are matched to risk. The level of activity at licensed aerodromes is constantly monitored from a risk perspective.
Is the Minister aware there are 27 private airports in the country and that if statistics are to be believed, there is a significant upsurge in private ownership, leasing and chartering of aircraft and helicopters for private use? Is he aware that in the six-month period between February and end-July some 142 flights originating from EU countries and the European mainland and another five flights from outside the European Union's jurisdiction flew into Weston, but that in that period customs and excise paid only 11 planned and three unplanned visits to Weston? If one does the maths, this means that anybody could bring in guns, drugs or people illegally into the country. It is not a question of closing the stable door after the horse has bolted, but of leaving the stable door wide open.
I do not know if the Minister ever gets the chance to visit working class communities which are currently awash with drugs and where the price of drugs is cheaper than drink on a debs night out. These small private aerodromes are not subject to any form of serious surveillance by customs authorities. As the person with overall responsibility for ensuring customs officers try to keep the country safe from an explosion of imported drugs, what is the Minister's response to this problem?
A review is being undertaken by the Revenue Commissioners and it will include an examination of all the risks attached to the operation of and procedures attaching to aerodromes. The control of licensed aerodromes which do not have a permanent customs presence is carried out by dedicated anti-smuggling teams which focus on the smuggling of prohibited goods, including drugs and fiscal products. All of these operations are risk focused and staff are deployed to combat areas of greatest risk.
I am informed by the Revenue Commissioners that all the available evidence from customs administrations worldwide indicates that the most effective means of detecting drug smuggling is by concentration on the development and gathering of information and intelligence in taking targeted action or intervention as a consequence. I am advised that the review is being expedited, but that to ensure it is as comprehensive as possible, it is likely to take approximately six weeks for completion. The Deputy will appreciate that I cannot comment on the specific issue because of the prospect of court proceedings.
I am aware of the statistics mentioned. Approximately 125 customs staff are involved directly in policing airports. I am informed by the Revenue Commissioners that Weston notified third country arrivals by e-mail to a designated officer and customs enforcement administration unit at Dublin Airport. Weston Limited also supplies an extract from its electronic records of arrivals to customs at Dublin Airport on a monthly basis. Verification checks are carried out by way of audit of arrivals records and notifications received. This includes a visit to Weston and an examination of its records. There is no record of Weston having failed to notify Customs and Excise of a third party arrival.
Should a licensed aerodrome fail to give notification of third country arrivals, action may be taken under conditions of approval applicable to licensed aerodromes, condition 11 of which states that the Revenue Commissioners may at any time add to or vary these conditions and that they reserve the right to terminate the concession granted.
Is the Minister aware that at Weston and the rest of the other 27 private aerodromes, taxis and limousines can drive right up to the steps of the private plane? People who came to Ireland for the Ryder Cup, particularly Americans, were astonished that there was almost no customs security at these places to guard against people who might wish to flout the law. Is he aware that when planes are subleased, there is no requirement for the owners to be informed or provided with the knowledge of for what their private aircraft are being used?
Is the Minister aware of the current explosion in the availability of drugs throughout Ireland? We had two deaths this weekend in Dublin west, apparently as a result of overdoses. At Dublin Airport, even if one goes through the ministerial gateway, it can take three hours to go through the customs checks where there are even sniffer dogs looking for drugs. However, in the private aerodromes there is nothing bar an e-mail to say the customs may come. Is the Minister satisfied that this kind of supervision is adequate? It leaves the gate wide open. There were 11 visits this year so far and these were notified and planned, with only three unplanned visits. This is an open invitation to any serious drug criminal, many of whom have tens of millions of euro to spend, to use this mechanism to swamp the country with drugs. What does the Minister have to say about this issue?
We must recognise that this seizure was carried out on the basis of intelligence through the various networks and agencies that co-ordinate actions in this area. I do not think one should draw a conclusion that the flights that pass through our aerodromes are all drug laden. That is not a fair reflection.
They have the opportunity.
I do not think it is a fair reflection on the professionalism of the staff or the confidence we should place in the ability of Customs and Excise staff to do their jobs. They have indicated that best international practice in regard to these sort of facilities is put in place. All the evidence from Customs and Excise administrations worldwide indicates that the most effective means of detecting smuggling is by concentration on the development and gathering of information and intelligence and taking targeted action.
I have also indicated as a result of this incident the Revenue Commissioners are conducting a review. It is being dealt with as a priority matter. The review is likely to be completed within the next six weeks or so. Any lessons or recommendations that derive from it in terms of resource allocation will be considered. The review will cover the approval conditions attached to licensed aerodromes. It will also cover the risks attaching to the operation of these aerodromes from a customs perspective and the procedures in place for addressing these risks. I have every confidence that in regard to this or other instances the necessary action will be taken on foot of the seriousness with which the Customs and Excise view these matters.
Will the Minister publish it?
85 Mr. Connolly asked the Minister for Finance his views on the provision of exemptions to licensed hauliers to enable them to use green diesel fuel for deliveries within this jurisdiction; and if he will make a statement on the matter. [33320/06]
I have no proposals to extend the use of green diesel to hauliers. Green diesel, also known as marked gas oil, MGO, is a reduced-rate diesel containing a dye and a chemical marker. It is primarily used in the agricultural sector, for example, in farm tractors and certain vehicles used for the most part by the agricultural sector, and also by construction machinery and vehicles designed for off-road use. Under EU law, the use of marked gas oil in road haulage, or by passenger carrying vehicles, is strictly prohibited. The current rate of mineral oil tax for auto diesel that is used by hauliers and private motorists is €368 per 1,000 litres. The minimum rate required by EU law is €302 per 1,000 litres. Given the existing problems with smuggling and misuse of green diesel it would not seem wise to contemplate its extension to new categories, even if EU law allowed it.
I refer to the use of green diesel in this jurisdiction and to the harm caused by the use of washed diesel in lorries. I spoke recently to a lorry driver who drives occasionally who told me that 12 months ago it cost €300 to fill his lorry and now it costs €400. Somebody has to pay for this. A number of such hauliers are locked into contracts and they do not have the opportunity available to operators in the airline business of adding a surcharge and making the passenger pay.
I am sure the Minister would agree that the industry is already laundering and washing diesel. People are offering their products to hauliers and because the margins are so tight in the industry, at times people are tempted. In effect, they cannot compete with what is out there.
I am sure the Minister would also accept the problems this creates for local authorities, such as my local county council in the Border area of Monaghan, which has been left with a bill for hundreds of thousands of euro to mop up the sulphuric acid that is used in the diesel laundering process, in addition to large quantities of cat litter that is also involved. I believe it was necessary to dispose of 250 tonnes of cat litter. A black cat may have kittens but I do not know where the litter is coming from. The clean up after this illegal activity is a major issue of concern. This is an accident waiting to happen. The environmental consequences are serious because if a water supply is affected it could result in a major catastrophe.
Almost 90% of freight is moved by road rather than rail as we do not have that facility. I urge the Minister to consider this issue. The haulage industry held talks with the Minister for Finance some years ago. At that time the industry sought a rebate of 12 cent per litre. The indicators looked good at the time but the Department failed to deliver. If the Minister is averse to the extension of the use of green diesel I invite him to consider three other options to take the gangsters out of the system, namely, that everybody would be allowed to use white diesel and a full rebate would be given to all those entitled to it, including licensed hauliers; the use of a separate colour for diesel used by the licensed sector; or the setting up of a fund for the purchase and storage of diesel which could then be passed on to industry members. Much damage is done by speculators in terms of price.
Excise is charged on petrol and diesel at 44 cent and 36 cent per litre, respectively. Excise rates in the EU are subject to minimum rates under the EU energy tax directive. Irish rates are around the EU average and are considerably lower than many of our trading partners, particularly the UK. While rates could be potentially reduced to the basic EU minima, I remind the Deputy that EU Finance Ministers agreed in September of last year, in the context of rising oil prices, that distortionary fiscal and other policy interventions that prevent the necessary price adjustments should be avoided. Reductions are costly — even a 2 cent reduction in petrol and diesel would cost in excess of €80 million per year. There may be a concern that reducing fuel taxes conveys a message that increasing consumption can be tolerated, especially in terms of CO2 emissions.
It must also be recognised that diesel and petrol prices have begun to fall significantly over recent weeks. Last year I made a decision to direct Exchequer funding into alternative motor fuels, for example, bio-fuels, through excise reliefs, rather than reducing excise on conventional fossil fuels. That scheme is estimated to cost in excess of €200 million over the next five years.
It is also important to point out that where the chemical marker and dye is illegally removed from marked gas oil to facilitate illegal use as auto diesel, it can still be identified as MGO on the basis of its sulphur content which is higher than auto diesel, as the Deputy indicated. In 2005 a total of 127 detections of laundered oil were made, including 21 at retail and distribution outlets and 71 involving hauliers. Over 300,000 litres of fuel and five tankers were seized.
In addition to its primary use in the agriculture sector and by construction industry machinery and vehicles designed for off-road use, green diesel is also used in commercial and domestic heating systems as well as in ships, fishing boats, pleasure craft and trains. In each of these areas it is allowable under EU law for green diesel to be used in these sectors and in this regard Ireland is similar to other EU member states. I will consider certain issues raised by the Deputy and revert to him in due course.
Would the Minister agree that the number of seizures suggests the amount of washed diesel is a major problem? Millions of gallons of diesel are being washed and the black economy is thriving from it. I urge the Minister to consider some of the options I suggested. This industry was the first to be deregulated and since then its members have been hung out to dry. Inflation is another factor to be taken into account. We are a peripheral nation and we depend on the import and export of goods to and from rural areas. There is no transport option other than the roads, which are frequently congested. I urge the Minister to reconsider.
It is a moot point as to whether we should put in place some incentive just so that certain rogue operators will see that it makes sense to abide by the law. I am inclined to favour an approach which ensures there is greater compliance in the sector generally. I pay tribute to those licensed hauliers who are abiding by the law and dealing with very competitive issues. The best way forward is where all hauliers pay the appropriate excise on diesel and those who engage in diesel washing are met with the proper punishments.
Revenue inform me that under the current system the misuse of MGO in vehicles can be detected by means of a visible check for colour and a laboratory check for the chemical marker. A total of 173 convictions were obtained for marked oil offences in 2005 and fines of over €175,000 were imposed. A further 1,326 offences were settled on payment of compromise penalties totalling nearly €1 million.
86 Mr. Bruton asked the Minister for Finance if he is satisfied with the proposals for value for money reviews being put forward by Departments; and if he will make a statement on the matter. [33448/06]
On 11 June, I announced a revamping of the expenditure review initiative, ERI, which has been retitled value for money and policy reviews and has a broader coverage. For the period 2006 to 2008, the revamped framework will encompass formal reviews already agreed to be carried out under the ERI as well as all other policy reviews conducted and commissioned by the Departments which impact on value for money.
Under the new arrangements, the Government has, on my recommendation, approved some 90 formal value for money reviews to be carried out by Departments and offices for the period 2006 to 2008. The programme of reviews in each Department and office will focus on significant areas of expenditure and major policy issues and, as a general rule, will have a minimum indicative coverage of 10% to 15% of their respective budgets.
Departments have been directed to give priority to the timely completion of the new round of reviews. All the reviews will be published and submitted to the relevant select committees for consideration and I have written to the chair of each committee setting out the reviews to take place relevant to that committee's remit. Other policy reviews which impact on value for money will be published and submitted to the relevant select committee in general. Departments will also report on their progress on value for money issues in their annual reports and identify separately in their Estimates their expenditure on value for money and policy reviews.
This new initiative builds on value for money reforms already instituted such as the introduction of multi-annual capital envelopes, revised capital appraisal guidelines, public procurement reforms and measures in regard to information and communications technology and the major consultancies announced last October. They will also complement my budget 2006 initiative on the production of published annual output statements by Ministers to accompany consideration of the estimates of expenditure from 2007.
Has the Minister examined the list? It is bizarre that of the 92 reviews promised, 31 are politely referred to as roll-overs. To the layman, this means that reviews promised four or five years ago were never undertaken in most cases. The Minister now states that they will be undertaken.
Does the Minister know that the Department of Health and Children has not made a review since 2001 and will not produce a review under this programme until 2008? A full six years of the Department's spending, approximately €70 billion and half of our national income, will not be reviewed in value for money terms. Is this acceptable for such a programme? The Office of Public Works is in the same boat; no review will be completed by the OPW for seven years. Due to decentralisation, it has decided it is too busy to determine whether it is getting value for money. Is that acceptable for an office that will spend €3 billion during that time, which is a conservative estimate?
The promised reviews in the Department of Education and Science, which spends €8 billion per year, will cover €52 million or just more than 0.5% of its expenditure. Is this a sufficient review to determine whether taxpayers are getting value for money in that crucial area? We must see whether we are getting value for our money, but we can see everyday that we are not getting that value. The Minister must change the programme and focus it to a sufficient scale to make a difference.
The total amount covered by the reviews is in the order of €6.25 billion during the period concerned. When we introduced expenditure review initiatives previously, we found that one does not get the reports needed if one tries to cover every area of expenditure and assess the situation.
I have indicated that the roll-over reviews that were not done on time will be done in the initial phase of the programme, namely, the first six to 12 months. It was agreed that they would be done and I will make no excuses. In some cases, reviews have not proceeded because of changes in policy, if they are no longer relevant or if other issues took precedence. There has not been the type of output one would expect. I have introduced changes and outlined the various areas that should be addressed.
Some 14% of the Department of Agriculture and Food's budget would be reviewed, an exceptional 45% of the Department of Arts, Sport and Tourism's budget, 17% of the Department of Communications, Marine and Natural Resource's budget, 31% of the budget of the Department of Community, Rural and Gaeltacht Affairs and 10% of the Department of Defence's budget. Including the reviews not already undertaken by the Department of Education and Science, 10% of its budget will be covered. The total value of the reviews in the Department of Enterprise, Trade and Employment will be €231 million or 18% of its budget.
In the Department of the Environment, Heritage and Local Government, the amount reviewed will be €297 million or 12% of its budget. In the Department of Finance, that figure will be 28% or €31 million. In the Department of Foreign Affairs, the percentage will be 14%. In the case of the Department of Health and Children, the reviews to be conducted will address the allocation and utilisation of funds for acute hospitals, the equal opportunities child care programme and, in the context of mental health services, the efficiency and effectiveness of long-stay residential care for adults. The total cost of these programmes is €1.263 billion or 13% of the Department's allocation.
If we examined other Departments, the position would be similar. The amount is 10% or €211 million in the Department of Justice, Equality and Law Reform and €160 million or 38% of the budget of the Office of Public Works, including the provision of flood relief schemes and property management. The Houses have been asked to review 7% of their budget and the Revenue Commissioners will review 5% of their budget. The figures for the Department of Social and Family Affairs is 21% or €2.5 billion and the figure for the Department of Transport is 19% or €407 million. As the Deputy knows, large percentages of some budgets related to pay rather than services.
The Minister could give a master class in not answering the questions asked and in reading into the record mindless data that have nothing to do with the questions.
It is not mindless.
It is mindless.
It is an accurate representation of the reviews under——
The Minister should not use up the rationed time. I did not interrupt him.
I apologise.
History does not teach the facts stated by the Minister. The Minister's group did not find that these reviews should be reduced in scale or focused. Indeed, the group found the opposite to be the case, namely, the reviews taking place were of areas that were too small and had no significance. The group found no evidence that the reviews made any impact on expenditure decisions. The history of the review process under the Minister's watch has been one of dismal failure.
The Minister's predecessor stated that he could not understand how so much money went into the Department of Health and Children, but nothing was ever achieved or none of the problems was solved. Between 2001 and 2008, €70 billion will be spent in that area without review. How can the Minister convince taxpayers that he is sitting shotgun on health spending and ensuring that value for money is achieved when he has agreed to this programme?
We are undertaking the most significant reforms of the health service in 30 years.
Has the Government abandoned the value for money idea?
No. It has been suggested that one requires the expenditure review initiative to be the anticipatory reforms with which one would proceed. As the Deputy knows, we are carrying out considerable reforms in the health service.
The Minister has no understanding of what value for money means.
We are getting improved outputs in the health service despite the Deputy's efforts to suggest that we are not. Were that the case, it would be a damning indictment of the thousands of people who work in the——
The Minister has no understanding of the role of expenditure reviews.
Who is interrupting now?
When the Government decides on a decentralisation programme it is the time one needs a value for money review.
Order, the Minister is in possession of the floor.
Obviously, the Deputy does not want to hear the answer.
87 Mr. Boyle asked the Minister for Finance the role played by his Department in the IPO sale of Aer Lingus shares or in the subsequent sale of 7% of the over-allotted share option; and the role currently played in conjunction with other Departments in making arguments to the European Commission protecting competition in Irish aviation. [33321/06]
As Minister for Finance and a shareholder in the company, my officials and I worked closely on the IPO process with the Minister for Transport and his officials, who have primary responsibility for all aviation policy matters, including the sale of Aer Lingus.
The sale of the over-allotted shares was done under the price stabilisation mechanism generally known as "Greenshoe", a standard feature of IPOs. It was provided for by a formal agreement in mid-September with the underwriters. Under that agreement, the exercise of the Greenshoe was a matter solely for the underwriters in their capacity as managers of the share dealing. On 3 October, they notified my Department formally of their decision to exercise the over-allotment option, which was a technical matter in their hands and did not require permission to proceed.
It was the Government's intention to hold at least 25.1% of Aer Lingus post IPO. We reduced our shareholding of 85% to 28.3% in a staggered process. We hold 28.3% and the ESOT has the option to buy 2.9% of those shares should it want to do so. In any IPO provision is made for the underwriters to over allot shares at a date after the IPO to ensure an orderly market in the shares. This is because shares new to the market have no track record and can fluctuate. The mechanism to feed shares into the market enables investors to have some reassurance that the price will not fluctuate widely in the normal course of events.
In this case the underwriters, using their judgment, announced that they were utilising the over allotment option. This is a technical matter in the hands of the underwriters and they did not require our permission to proceed.
In essence, the underwriting agreement gives the underwriters authority to sell shares on behalf of the Government and Aer Lingus as a part of the IPO process and outlines how the transaction is to be conducted. It was signed on 12 September 2006.
In regard to the making of contact with the European Commission on competition in Irish aviation, this is primarily the responsibility of my colleague the Minister for Transport, given his overall responsibility for aviation policy and competition in that area.
This is a bit of a mess. The fact is that 7% of the over allotted share option that was sold two days after the IPO could have been sold four weeks later. The decision was made by someone. The Minister stated that he was informed by the underwriters. He might confirm whether he had a right to veto that undertaking when it was given to him two days after the initial IPO.
Is it not likely that part of that 7% might have subsequently ended up in the 20% shareholding of Aer Lingus's main competitor, which has built up a shareholding that puts it in a strong position to become not only a majority shareholder, but the eventual owner of Aer Lingus, thus obviating any competition in Irish aviation?
Is it correct that the probable reason the 7% was sold just two days after the IPO is that the share price rose sharply over the original share price of €2.20, which we now know in retrospect was the Government undervaluing Aer Lingus?
The Government stands indicted on several grounds. Not only is there the risk of Aer Lingus falling into the hands of its biggest competitor, despite the Government seeming to depend on the largesse of other people and the Aer Lingus pilots, but there is the possibility of the National Pension Reserve Fund using the State's money to relieve the Government's embarrassment on this issue. Can the Minister explain why the 7% was sold two days afterwards when he had the option, which I presume he maintained, of holding on to those shares for a full 30 days, seeing how the share sale proceeded over that period, and stopping others from accumulating the significant share bloc which they seem to have attained in the meantime?
I am afraid Deputy Boyle does not understand the procedures that are involved here.
The Government has less understanding than I have.
I am afraid Deputy Boyle is incorrect. The IPO was a success. There have been other IPOs involving reputable companies going to the market which had to be withdrawn. This IPO was a success.
We did not sell 7% of the over allotted share option, as Deputy Boyle stated in his question; we sold 100% of the over allotted share option.
The additional 7%.
That is just the second point.
The third point is that this is a normal feature of IPOs, where one withholds in a staggered process shares which are in the remit of the underwriters — it is not a question of veto by Government — to ensure that there is an orderly bringing to the market of the stock being purchased. One only holds it in the event that the share price goes under the bid price. One would put those shares out onto the market to support the bid price and to make sure it gets above the share price that was issued. When the share price was above €2.20, there was no need to hold those shares because they were part of the staggered process of an orderly floating of the stock. That is a normal feature of IPOs. There is nothing unusual about it and clearly it worked properly.
The price was obviously set at €2.20 on the strong advice of advisers in order to get the best possible membership of shareholding that would be committed to long-term investment in the company. Quite correctly, as is normal for a successful IPO, there was a 10% premium in the price so that people would go in and buy at that price. There was also the question of ensuring that one had sufficient shareholding floated on the stock market to bring in the sort of institutional investors who would take a long-term view of their shareholding and not take a speculative shareholding as Deputy Boyle suggests.
One then saw subsequently, with the intention of Mr. O'Leary to bid, a monopoly premium going into the price, speculating on the proposed bid that he has yet to formally make. Once he makes that bid, he has 45 days in which to acquire the stock.
The issue is clear. There was not a botched offer. This was an excellent sale of this stock as a result of management and other advisers getting support for its floatation internationally. The over allotment of shares is part of a staggered process, which is a normal feature of IPOs. It is only held and released in the event of the bid price going under the initial share price. That was not the case and therefore there was no need to hold onto that stock. That is the situation. It is explicable for anyone who has an acquaintance with the IPO as an offering.
I wonder what is the Minister's definition of success. If a successful IPO is managing to sell all the shares that are on offer, it is a limited definition of success. Success must be judged on whether the shares were sold at the right price. They were not sold at the right price.
Success must be judged on whether the Government maintained whatever leverage it had remaining, and it did not. Did the Minister have a veto on this 7% being sold within two days? If he is indicating he did not, I accept it.
If a 30-day period exists for holding on to such leverage in any IPO, why in this particular IPO were the shares sold within two days of the original IPO? I do not accept that is standard in any IPO process. There is something unusual about this particular process that these shares were off-loaded so quickly.
The Minister did not answer other questions I asked in my original question. The Government now seems to be dependent on third persons, and Aer Lingus pilots, to stop any likely takeover of Aer Lingus, but what about the possibility that the National Pension Reserve Fund is investigating whether it can invest in Aer Lingus? This, in itself, would be the ultimate irony, that funds of the State would be used to acquire what the State owned only a short few weeks ago.
Deputy Boyle either agrees with ensuring that Aer Lingus has access to private capital markets or he does not. He clearly does not.
I do not believe this was necessary. Many of us believe so.
Aer Lingus must have access to capital markets to compete on a level playing field with all of the successful carriers, even Continental Airlines, in Europe. We decided to hold 25.1% at a minimum so that we could have that minority holding to allow us to continue to play some role in the development of the company and to ensure the future of the Heathrow slots. The slots cannot be disposed of without a change in the articles of association, which a shareholding of 25.1% can prevent. In addition, under these articles the Minister for Finance's shareholding, along with an additional 4.8% of shares, can block any disposal of a London Heathrow slot. The Government's policy on the IPO was set out in the principles of the sale of Aer Lingus which were approved by the House in June last. That is the answer to that question.
On the next question, we cannot act in consort with anybody on this matter. Stock Exchange rules apply in this regard.
On the National Pension Reserve Fund, I would not comment on whether there is any truth in that suggestion. They would not confer with me in that matter. The National Pension Reserve Fund is statutorily independent in relation to its own investment decisions.
In the past many, including possibly Deputy Boyle, have asked, on the Finance Bill and at other times when the affairs of the NTMA and these sorts of agencies are considered, why such agencies do not invest more in Irish stocks. That would be a matter for themselves. Deputy Boyle cannot come in here and contradict himself. Those are independent investment decisions.
It is an excellent pension reserve fund. As Deputy Boyle will be aware, as of March last it had a total value of €16.6 billion, which thankfully cannot be touched by anybody in Government until 2025 because we want to ensure that there is sufficient provision for future pensioners at that stage.
Deputy Boyle cannot have it every way. The position is that he either agrees or disagrees that this company is entitled to get out there and develop, to get access to markets to which its competitors get access, and to implement its plan which is about doubling its long-haul fleet. As a result of the floatation, the company has over €430 million in its bank account that it did not have previously. In addition, it has been forgotten that the legacy issues relating to the pension fund deficit have been dealt with via a contribution of €106 million, which gives greater security to employees and future pensioners. We should be talking about getting on with the development strategy for Aer Lingus. Some people have become totally bedazzled because Mr. O'Leary indicated he wanted to make a bid. There are many obstacles to the successful launch of such a bid, yet there is an attitude that because he has indicated that intention, we should all throw up our hands. Let us get on with the business and ensure——
Does the Minister want him to——
Order, please.
This is a policy, not a personality issue, about maintaining a competitive aviation sector in Ireland with a strong Aer Lingus and a strong Ryanair. In the past when Ryanair was under pressure, Governments of all compositions vacated slots and, quite rightly, supported competition in the marketplace with all the benefits accruing to consumers and the economy as a result. Let us deal with this in a calm, professional and competent manner and allow Aer Lingus to get on with accessing new markets, doubling its long haul fleet, increasing its short haul fleet by 50% and attracting more passengers. I am sure Ryanair will continue with its strategy. Institutions that have invested in Ryanair have questioned how its interest in Aer Lingus fits the strategy of a low cost carrier. Let us wait and see how this develops. The notion that this is an inevitable done deal is totally untrue and at variance with the facts.
The Minister did not anticipate this takeover.
On the basis of many statements by Opposition Members, they do not even know basic company law.
