Dáil Éireann debate -
Tuesday, 18 Nov 2008

Vol. 667 No. 3

Gas (Amendment) Bill 2008: Second Stage.

Minister for Communications, Energy and Natural Resources (Deputy Eamon Ryan)

I move: "That the Bill be now read a Second Time."

I am pleased to introduce the Gas (Amendment) Bill for the consideration of this House. This is a short Bill with just one provision, namely, to increase the statutory borrowing limit of Bord Gáis Éireann, BGE, from its existing €1.7 billion to €3 billion. However, it is significant as its enactment will give Bord Gáis Éireann the legal ability to access funds to develop the strategic direction set out in its five-year corporate plan up to 2012 and beyond.

This Bill proposes to amend section 23 of the Gas Act 1976, which provides for borrowings by BGE for capital purposes. BGE was established in 1976 with a mandate to develop and maintain a system for the supply of natural gas that was both economical and efficient. The original borrowing limit in 1976 was £25 million. Since then, BGE has played a vital part in the growth of the Irish economy through the development of a gas network that runs to almost 12,500 km of pipeline serving more than 600,000 customers. A total of 18 counties in Ireland and four in Northern Ireland now are connected to the natural gas network.

The statutory borrowing limit has been amended a number of times in the last 30 years in order that BGE could have access to funds for the development of its network. In 2002, the limit was increased by section 31 of the Sustainable Energy Act from €700 million to €1.7 billion to provide BGE with access to the resources necessary to carry out an unprecedented programme of development.

In the past ten years, the network has been transformed through the construction of the pipeline to the west, which stretches from Dublin to Galway and down to Limerick; the South-North pipeline from Dublin to Belfast, providing security of supply of natural gas to Northern Ireland, as well as supplying towns en route; the Mayo-Galway pipeline, which has facilitated the delivery of natural gas to several towns along the route in both Galway and Mayo and which will facilitate the transportation of Corrib gas to the Irish market in due course; the north-west pipeline from Belfast to Derry, which also supplies towns along the route; and the second gas interconnector with Scotland, which has secured the supply of gas to Ireland since its completion in 2002.

Bord Gáis Éireann's gross borrowing is expected to reach the existing statutory borrowing limit of €1.7 billion early in 2009. The existing debt is made up mainly of long-term facilities put in place to fund the large gas transmission projects, to which I have just referred, that were completed over the last seven to eight years. For example, the pipeline to the west cost €400 million and the second interconnector cost €300 million. Both were delivered on time and within the final control budget. The expansion of the gas network in recent years from 8,200 km in 2000 to its current 12,500 km also has been funded by long-term debt matching the expected life of the infrastructure.

The operation and development of the gas network over the next five years includes adding another 1,500 km of pipeline to the network, the connection of 150,000 new customers, replacement of the remaining cast iron network with polyethylene pipes and investment in new systems and technology to provide improved customer service. BGE also will continue to meet its emergency response standards and pipeline safety standards. The expansion of the pipeline network includes the connection of 17 towns, including 12 on the Mayo-Galway pipeline.

In recent years BGE has entered the retail electricity market. While its customer base at present is mainly in the industrial-commercial sector, BGE intends entering the domestic retail electricity market in 2009. This will provide welcome competition for the existing incumbent. BGE already has the necessary customer service, billing systems and mechanisms in place in respect of its retail gas business to support a domestic retail electricity service. The savings made in this area will provide value to both BGE and its customers.

Bord Gáis Éireann also is in the process of constructing a 445 MW combined-cycle gas turbine electricity generating plant at Whitegate, Cork. The board's plan is to develop a portfolio of electricity generating plant, including renewable generation and flexible power plants to support the renewable generation. This access to its own supply of electricity will ensure a stable vertically-integrated business model which in turn will ensure BGE's long-term competitive commitment to the electricity retail market.

Overall, BGE has an ambitious capital investment programme of up to €2 billion over the next five years with a view to becoming a competitive dual-fuel supplier in the Irish market. The Government's energy policy framework document up to 2020, Delivering a Sustainable Energy Future for Ireland, supports the sustainable development of the State energy companies. Competition and environmental sustainability are key pillars of the policy framework. BGE's proposed investments in the coming years will play a key role in achieving these objectives. The enactment of this legislation, therefore, to increase BGE's statutory borrowing limit to €3 billion is an integral part of this process.

The development of business interests outside of its traditional core business of natural gas transportation and supply will not have a negative impact on the price of gas to BGE's customers. On the contrary, it should have the opposite effect. BGE's gas business is regulated by the Commission for Energy Regulation, CER. BGE is allowed a regulated rate of return on its transportation business. It can only recover costs on investments approved by the CER. In setting the rate of return, the CER applies the cost and level of borrowing of an efficiently operated and financed company with comparable systematic risks to BGE. The board therefore is incentivised to borrow funds as efficiently as possible. It is also incentivised to outperform regulatory targets to provide best value for its customers.

All Members are aware that BGE was granted a 20% increase in gas prices by the CER with effect from last August. It had been expected that a further increase would be granted in December to reflect the huge increases in world gas prices recently. However, BGE has advised that based on current trends in wholesale gas prices, it may not require another increase in December.

I referred earlier to BGE's contribution to the development of the Irish economy since its foundation. Not only has the board developed a robust gas supply network, including connection to the UK grid to ensure security of supply in the longer term, it also has contributed €630 million in dividends to the Exchequer since its foundation. A further dividend of €28.4 million will be paid to the Exchequer before the end of this year. In the eight years since 2000, BGE has increased turnover from €496 million to €1.2 billion and profits have increased from €70 million to €142 million. Moreover, net assets have increased from €672 million to €1.3 billion, putting the utility on a sound financial footing. This success has allowed BGE to develop its network continually, making a vital contribution to the national economy and providing excellent service to its customer base. It is in a strong position to meet the challenges facing it in respect of environmental sustainability and competition while ensuring a safe and secure supply of natural gas.

It is important to note that an increase in BGE's statutory borrowing limit does not give it permission to raise its borrowing to this level. Each project put forward by BGE will require my approval with the consent of the Minister for Finance. The board itself is obliged to act in the best interests of BGE and no proposals would be supported that would put the long-term sustainable future of the utility at any unnecessary risk. Ongoing borrowing levels will be monitored and will be subject to full commercial criteria, such as ability to repay and protection of the balance sheet.

In conclusion, this Bill is an important measure in the delivery of the Government's energy policy. I therefore welcome the views of Members on the proposed increase in BGE's statutory borrowing limit to €3 billion to provide access to funds necessary for the roll-out of its strategic investment programme over the next five years and beyond. I look forward to Members' assistance in furthering the Bill's progress into law.

Deputy Noel J. Coonan

First, I apologise to the Minister for the absence of my colleague, Fine Gael's spokesperson on energy, Deputy Simon Coveney, who is unavoidably absent. I trust the Minister will not take offence at a Tipperary man standing in for a Cork man.

Deputy Eamon Ryan

No.

Deputy Noel J. Coonan

We do so on a regular basis.

I wish to give a guarded welcome to the Bill. Fine Gael supports its introduction, subject to some concerns it has in this regard. However, it is important to recognise that Bord Gáis Éireann is ideally positioned and well placed at present to take advantage of the financial position that has been made available to it. It should be acknowledged that it has made good use of the funding it has received or the amount of money it has been able to raise since the last time its level of borrowing was increased in 2002. On consideration of its subsequent record, there is not too much to worry about. The company has made strident progress in recent years and is conforming to a large degree with the Minister's three pillars of security, competitiveness and meeting the environment's requirements. Much of Bord Gáis's current and proposed work is helpful to the Minister in meeting his targets.

The Minister pointed out that Bord Gáis is A plus rated and has a balance sheet capable of taking on increased debt and necessary expenditure. The Minister will confirm whether its debt levels are okay. It is important that a company like Bord Gáis, led by an energetic young chief executive, be given encouragement because it is brave and, given the recession, its major plans are vital. These will not only be worthwhile to the State, but also to the domestic and small to large business sectors. It is important that a competitive element be introduced and kept alive by Bord Gáis and that it be allowed to develop and increase its role.

Given some of its proposed work, particularly in gas storage by way of caverns, it will provide security of service in the event of, for example, the Russians suffering a rush of blood to the head and cutting off supply. The construction of a 445 MW power station at Whitegate is the type of development required by the country. When others are concerned, it is good to see a company led by an energetic CEO making strident progress. As parliamentarians, we have an obligation to support Bord Gáis and to allow it to provide necessary funding, which is the main purpose of the Bill. Small businesses and entrepreneurs are finding it difficult to raise money from banks. The Minister will confirm that Bord Gáis will have no difficulty in this respect and that finance will be available for it in Ireland, Europe or wherever.

Given some of Bord Gáis's recent acquisitions, such as its €50 million purchase of a wind farm in County Galway and the consequent €50 million on that wind farm's development, it is amazing that each megawatt produced by wind farms costs €200,000. The credit squeeze is helpful to larger players like Bord Gáis, which can buy wind farms when ordinary individuals find it difficult to arrange financing to establish and maintain them.

In light of how the Commission for Energy Regulation, CER, has increased the capacity available in the next round of licensing from 3,000 MW to 3,900 MW, Bord Gáis is placing itself in a position to avail of the current capacity and to be ready to sprint during the upturn. While I do not know when that will be, it will come as surely as night follows day. Bord Gáis is to be commended on placing itself in that position.

I noted in the Minister's speech that Bord Gáis will not be given carte blanche in terms of its funding or activities. Each project must be approved by the Minister and the Minister for Finance. We should look after the taxpayer if something goes wrong. To our cost, something went wrong in the banking sector in particular. I would not want Bord Gáis joining the four Bs that have created the recession. I am not referring to four banks. Rather, I mean Bertie, Brian, banks and builders. I am satisfied that adequate controls will be placed on Bord Gáis and that its money will be invested wisely.

The Minister stated there may be no increase in consumer charges, but he should be stronger on this issue. It is essential that there be no increase in January. Bord Gáis is seeking an increase of 3.9% on top of the 20% increase granted last summer. Businesses, particularly smaller ones, are to the pin of their collar and there are significant concerns regarding staff redundancies. Everyone, including Bord Gáis, the CER and the Minister, has a part to play in ensuring price increases are kept to a minimum. Given the collapse in global oil prices, the Minister should tell Bord Gáis that there should be no increase in January, particularly in respect of domestic customers. It would be unwarranted and unjustified and would do serious damage to businesses, particularly the small businesses and entrepreneurs on whom we are depending to create new business and employment. Will the Minister address this issue and be more determined in his objection to a price increase?

Like the ESB, many of Bord Gáis's competitive advantages lie in its being a dual power provider. An example of these advantages benefiting the business and domestic sectors is its scheme, in conjunction with the IFA, to provide gas and electricity to rural communities at a substantially reduced price.

That many households are unable to connect to Bord Gáis is a disadvantage for the company. Where the service is available, the connection cost is approximately €2,500 and is beyond many households' means. According to a Bord Gáis study, it introduced an incentive in one part of the country by providing a €1,000 bonus, but only 17 domestic users applied. The Minister should consider introducing a scheme whereby households could connect to Bord Gáis where its service is available. The Government might consider taking action in this regard in order to reduce the cost and to encourage people to use gas which, we have been informed, is a cleaner fuel than some others. I look forward to the Minister's comments on incentives of this nature.

The Minister referred to the good work Bord Gáis, in conjunction with assistance from the Government, has been doing and indicated that its gas pipeline runs to approximately 12,500 km and that some 18 counties are serviced by it. Not one inch of pipeline was laid in Tipperary North. The Minister might state that I would say this, given that I represent the constituency. However, that constituency, which has been crisscrossed by motorways, does not have access to natural gas. In addition, it has been left behind in respect of certain issues over a number of years. Will the Minister ensure that north Tipperary is included in the next round of developments? Towns such as Thurles, Nenagh and Roscrea should have access to this natural resource. I understand a draft report is being drafted by Bord Gáis, the Government and the CER. I urge the Minister to ensure north Tipperary, particularly the towns to which I referred, is catered for in the next expansion of the gas network.

As already stated, a number of motorways have and are being constructed in north Tipperary. Why was it not possible to put in place infrastructural corridors adjacent to these motorways? There should be joined-up thinking on the part of various Departments when infrastructural developments of this nature are taking place because it could assist in the avoidance of much disruption and the carrying out of unnecessary works. If such thinking were engaged in, the environment would not be disrupted to the same extent.

Fine Gael welcomes the introduction of the Bill. We look forward to Bord Gáis continuing to develop its network in the coming years. Security of supply is vital for the economy and from the point of view of infrastructure. It is also important that there be competition, which can only be of benefit to everyone. Based on the outcome of its investments since the previous increase in 2002, when it was allowed to borrow up to €1.7 billion, Bord Gáis will now be in a position to borrow up to €3 billion. That is a positive development. If the concerns I raised in respect of ensuring taxpayers' money is safeguarded and other matters are addressed, the Minister will find support for the Bill on this side of the House.

Deputy Liz McManus

I warmly welcome the Bill. It is particularly welcome at a time when recession, job losses and a contraction in business activity are affecting so many other areas of the economy. The Bill is designed to enable Bord Gáis to increase its borrowing capability to €3 billion. I hope the banking system will be able to oblige the company. As everyone is aware, the banks are in quite a sorry state at present. Bord Gáis is a State company and is taking on the job of the further development of an essential part of our infrastructure in the form of exactly the kind of investment that is required at present. It is to the credit of Bord Gáis that this Bill has been introduced.

In the recent budget, the Government did not provide an economic stimulus in order to ensure that people would remain in work rather than ending up on the dole. Even though the IMF has argued in favour of the provision of such a stimulus — countries such as the US and the UK have already taken action in this regard — all we have had are cutbacks and people claiming the dole who never expected to be obliged to do so.

The investment to which the Bill will give rise, which is being overseen and safeguarded by the State and the Government, is extremely important. I welcome that investment on behalf of the Labour Party because it represents good news. Energy security and sustainability are the major challenges we face. If one considers what is happening in the area of electricity generation, the ESB is to be commended on the major step it took in committing to a magnificent shift towards renewables. The Government recently raised targets in this regard to 40% by 2020. I have some concerns in that regard, even though I support what has been done. While the ESB is expected to reach incredible heights, I am concerned that the same demands are not being made in respect of areas, such as transport and agriculture, that give rise to high carbon dioxide emissions. The danger is that those organisations that are progressive will be obliged to carry an undue burden in respect of our commitments on climate change.

In the case of gas, the issue of energy security certainly arises. It is a feature of our increased reliance on gas, coupled with an absence of sufficient domestic reserves. Gas and electricity prices have skyrocketed and thousands of people are struggling to pay their bills. In 2006, natural gas accounted for a 12% share of total fuel consumption. It remains the dominant fuel in electricity generation. It is clear that investment in gas infrastructure is needed and should be progressed.

The issue of security of supply is central when discussing matters relating to gas. Some 90% of Ireland's requirement is sourced in the UK. Import dependency has grown in the past decade and all the figures illustrate our over-reliance on imported gas. We would all like to see developments designed to ensure we have an indigenous supply of gas. However, I hope lessons can be learned in the context of what has happened in recent times. Everyone is aware of the difficulties that occurred in respect of the Corrib gas field. In that context, development must be carried out in a way that does not lead to open confrontation with local communities.

I welcome the forum the Minister, in conjunction with the Minister for Community, Rural and Gaeltacht Affairs, Deputy Ó Cuív, has established. I hope it succeeds and I wish it well. However, we will be obliged to await the outcome of its work. I ask that goodwill be shown by members of the local community in order to ensure there is some opportunity for progress to be made.

Most people believe the find at the Corrib gas field will lead to lower gas prices. However, the startling evidence is that as we import less, the price of gas will increase because the same capital costs will be incurred in respect of the interconnector. Due to the fact that Corrib gas will be sold at international market prices, we could be in the invidious position of paying more for it. That situation appears to be untenable.

In January 2008, the Minister, Deputy Ryan, welcomed a provision in section 41 of the Finance Bill, which gave effect to a new profit resource rent tax on oil and gas production. At the time he stated:

The objective behind this new tax was to boost Exchequer returns from commercial discoveries off our shores, while at the same time maintaining Ireland's attractiveness for such exploration. Our oil and gas resources belong to the people. It is only right that Irish people benefit significantly from the profits these resources generate.

The return to the Irish people has been successfully whittled away over decades by Fianna Fáil Ministers, including former Deputy Ray Burke in 1997 and the former Taoiseach, Deputy Bertie Ahern, in 1992. Naturally, the Labour Party welcomed the change, albeit modest, introduced by the Minister for Communications, Energy and Natural Resources, Deputy Eamon Ryan, which while it did not significantly benefit the Irish people, as he claimed, did improve the tax situation somewhat, or so we thought. The problem is that neither we nor the Ministers for Communications, Energy and Natural Resources and Finance know if it did benefit the Irish people.

I asked by way of parliamentary question what had been the return as a result of this change and was told by the Minister for Finance that he did not know because there is not within the Revenue Commissioners any information on the breakdown of revenues collected that would provide an answer to my question. Also, the Minister of State, Deputy Power, said he had no function in the matter, which was not much of a surprise. All of this means that despite the high glowing phrases of the Minister, Deputy Ryan, last January, nobody can tell the Irish people whether there was any benefit from the change in the Finance Act. We need to address this issue.

It was clear, from a recent presentation to the Joint Committee on Communications, Energy and Natural Resources by the Irish Offshore Operators Association, that exploration offshore from Ireland is relatively costly because of geology, the harsh deep water environment and the fact it is generally a gas prone rather than oil rich area. These are natural limitations that will not change. As time goes on and we face an increasing scarcity of gas and oil supplies worldwide, we can expect that interest may well increase in obtaining rights to exploit whatever potential exists in this regard. In view of that possibility we should know, at the very least, how much revenue is or could be generated by this exploration in terms of the 25% tax already in place and the change declared by the Minister.

It would not be right to speak on this Bill without referring to the cost of fuel which has been a dominant topic in terms of public discourse and debate in this House. Petrol prices have gone through the roof and electricity and gas prices have rocketed. Transparency in regard to prices as provided for under the EU Gas and Electricity Price Directive is a welcome step forward in assessing how well or how badly Irish customers are faring in comparison to our EU counterparts. We have the highest overall dependency on fossil fuel. Electricity prices to industrial and commercial customers in Ireland in the second half of 2007, according to the information now provided to us, ranged in all consumption bands from 3% to 52% above the EU average. In the most common industrial consumption bands applicable in Ireland, electricity prices were 23% and 29% above the EU average, due in part to the high proportion of electricity generated by gas and oil. This is a particular factor for business at a time when business is under considerable pressure owing to the recession and the banking crisis. We must ensure that competitiveness is built-in. This is one of the pillars of Government policy and is one that we must keep to the forefront of our minds.

Another issue that arises is fuel poverty. While businesses can benefit from having a manageable fuel bill, many people cannot manage to pay their bills. The Minister recently announced funding for a new warmer homes scheme made up of €5 million from his Department, €5 million from Bord Gáis and €5 million from the ESB. While this is to be welcomed, it needs to be built on. We need much greater emphasis on insulation. The Labour Party in the debate on the budget argued strenuously for a national insulation programme that would put many people who are out of work as a result of the downturn in the construction industry back to work. Insulation is one of the most practical ways of ensuring a reduction in energy prices for households. We know that right across the board our insulation levels, in particular in older houses, are far too low.

Last Friday, I attended a conference on climate change in Cork. It was well attended, with presentations from an impressive line-up of speakers who reiterated the point that we have reached the point where we simply cannot avoid the challenge. I appreciate that the Minister for the Environment, Heritage and Local Government, Deputy Gormley, and Minister for Communications, Energy and Natural Resources, Deputy Ryan, are setting out their stalls and making as much progress they can. However, this cannot be done by them alone. It seems to me, in particular given the economic crisis and the Government's concerns voiced elsewhere, that the challenges in every Department that need to be addressed are simply being let slip. This is not good enough. We cannot ignore the challenges be they in transport or agriculture.

On infrastructural development, we are speaking in this regard about a fuel that is, at least, more environmentally sustainable than others upon which we are so reliant. We need to encourage development across the board to ensure there is no longer regional divide when it comes to provision of gas supply. We know that businesses very often locate in areas with particular infrastructure, be it water, gas, sufficient electricity supply, broadband and so on. These are the needs of our future in terms of the creation and development of sustainable jobs. It is to the credit of Bord Gáis that it is willing to take on that role. Members will recall the disaster of the sale of Eircom which led to a decline in the possibilities of infrastructural development. Bord Gáis paralleled by the ESB, another State company, is ensuring that Ireland will have muscle when it comes to developing our capability to compete and in regard to security of supply, which at the moment we do not have in terms of storage or resources. These are considerations which must be at the forefront of our minds.

I welcome the Bill. I do not expect anybody will have any major problems with it. I wish it well and hope we will find a resolution, in terms of the form the Minister has established with regard to the Corrib find, that can become a template for other finds into the future. If we do not learn from that experience, we are in danger of repeating our mistakes, which I do not believe anybody wants at this stage when energy is such a central part of our future and that of the planet which is dependant on us succeeding in reducing significantly our carbon emissions.

Debate adjourned.