Other Questions

Energy Prices

Bernard J. Durkan

Question:

5 Deputy Bernard J. Durkan asked the Minister for Communications, Energy and Natural Resources the extent to which he has been apprised of proposed gas and electricity price increases; the reasons given for such proposed increases; the extent to which an evaluation has been done as to the negative impact of any such increases on the economy with particular reference to job creation, job retention and competitiveness; if he will use his influence with the regulator and the service providers with a view to deferring any such proposals; and if he will make a statement on the matter. [23933/11]

Catherine Murphy

Question:

13 Deputy Catherine Murphy asked the Minister for Communications, Energy and Natural Resources the measures available to him to address the continuing escalating cost of energy; if he has or intends to have discussions with the energy suppliers; if so, the outcome of same; and if he will make a statement on the matter. [23880/11]

I propose to take Questions Nos. 5 and 13 together.

I do not have a statutory function in the setting of energy prices, whether in the regulated or unregulated market. Responsibility for the regulation of the electricity and gas markets is a matter for the Commission for Energy Regulation, CER, which is an independent statutory body. Ireland's electricity and gas markets, both wholesale and retail, are characterised by vigorous competition regulated by the CER. Prices in the retail electricity market are now fully deregulated. From 1 October, gas residential consumers will be the only segment of the electricity and gas markets where prices will be regulated. Prices in the electricity market and unregulated part of the gas market are wholly a commercial and operational matter for the suppliers.

The recent CER decision to approve a 21.7% increase in the Bord Gáis tariff from 1 October is the first price increase for Bord Gáis's residential gas customers since September 2008. It follows three successive price cuts approved by the CER. There have also been recent announcements by suppliers of electricity price increases.

The driving factor in these increases, and the point of Deputy Durkan's question, is the trend in international gas prices during the past year, which looks like continuing into the future. Wholesale gas prices for the coming winter will be more than 30% higher than they were last winter. Ireland is a price-taker in the global fossil fuel market and the economy, therefore, is vulnerable to energy price fluctuations and price rises.

Suppliers in neighbouring markets are also subject to similar pressures and price increases. Last May, Phoenix Gas in Northern Ireland announced an increase of 39% in domestic and small business tariffs. The big six gas suppliers in Britain have also increased domestic tariffs by 17% to 18%, following on from increases some months previously.

The Government is committed to competition as a way of exerting downward pressure on prices. Competition is achieving competitive pressure on suppliers. It stimulates them to offer better deals and discounts. Business and domestic customers can, therefore, increasingly avail of the competitive offerings from electricity and gas supply companies active in the retail end of the market. The first step that customers should take to reduce their energy costs is to work actively in securing better value offers in the market and in switching to suppliers delivering lower prices.

Actions taken in the two years prior to the end of 2010 improved Ireland's competitiveness in the gas and electricity sectors when compared with other European countries. Analysis by the Sustainable Energy Authority of Ireland, SEAI, of EUROSTAT data for the second half of 2010 shows that, for large business customers of electricity, Irish prices were between 91% and 93% of the eurozone average while prices for small to medium-sized business customers ranged from 4% below the average to 6% above, depending on the category. Gas tariffs remain competitive with business tariffs at 83% to 90% of the eurozone average. Increased competition has clearly had an impact.

In addition, we must focus on all possible additional actions to mitigate costs where possible for business and domestic customers. This is essential for competitiveness, employment and for economic recovery. I am committed to working with enterprise and with the energy sector to ensure that the costs of energy for business are as competitive as possible through those measures at our disposal. I urge all businesses of whatever size to place a relentless focus on energy efficiency. The SEAI is available to provide advice and, subject to available resources, financial assistance in this respect. In addition, there is extensive tax relief available to businesses.

I thank the Minister for his very comprehensive reply. Notwithstanding that, does he agree that energy price increases are never welcome, particularly in the winter and on foot of the current economic difficulties, which were, of course, not the responsibility of the current Government? Is it possible to monitor the impact of increases on both the domestic and commercial sectors as we approach the time of peak energy use, namely, wintertime? Arising from anything that might emerge, would it be possible at least to enter into dialogue with ComReg to ensure we do not allow circumstances whereby both industry and the domestic sector will be severely punished or disadvantaged arising from the proposals?

I agree with the Deputy that the last thing one wants to hear about heading into the winter is an increase in energy prices. I acknowledge that and that some will be more severely affected than others. It is for this reason that I was happy to be able to negotiate with the energy companies an arrangement whereby no family in distress will be disconnected this winter provided it participates in a payment plan or agrees to have installed a pay-as-you-go meter. I hope this gives some comfort to some people who will be in difficulty.

With regard to monitoring the impact, it is a condition of the memorandum of understanding that there be a review of energy efficiency in the economy. This will be conducted by the International Energy Agency and it is likely to commence before the end of September. The agency is a reputable international body.

Will the price be reduced?

Let us see. At least conclusions will be drawn as to whether there is an efficient energy sector operating in this economy.

I attended a briefing by the Society of St. Vincent de Paul last week in Buswells Hotel. The society has produced a major report, one of the findings of which points to the significant pressure on people at home all day, particularly the elderly, owing to the cost of energy. We heard about people who are choosing to go to bed at 7 p.m. so as not to have to sit up and shiver.

Those who are least likely to be able to shift from one company to another are those in arrears because the new rules appear to suggest one cannot move from one company to another and leave one's arrears behind. People in this category do not have the scope of those who can pay their bills.

Let me outline my motivation for my question and also the question I really want to ask. Competition between the energy providers is internal. Bearing in mind that this is a very small country, is there any question of a more collaborative approach between the energy providers in terms of purchasing, such as that adopted by the National Treasury Management Agency in negotiating a better currency arrangement? There is no point in telling someone there has not been any increase since 2008 and that there have been decreases, because an increase of 22% is horrific for people under serious pressure.

We are very short on time.

Yesterday evening I told the Joint Oireachtas Committee on Communications, Natural Resources and Agriculture that I was in the process of bringing to the Government a memorandum on an affordable energy strategy. For some months, very active work has been done by the Department and the Departments of Social Protection and the Environment, Community and Local Government on the question of affordable energy and fuel poverty. I expect to be in a position to make this public this month.

With regard to the question of advocacy by the Society of St. Vincent de Paul on switching, Deputy Murphy is correct that the national figures show 43% of customers switch. However, for the segment which benefits from the home benefits package the figure is approximately 16%. This is one of the matters about which I am speaking to my colleague, the Minister for Social Protection, with regard to the systems in her Department as they relate to the energy companies and the capacity to remove any barriers to allow this category of the population to switch with equal facility as those not in receipt of State aids.

However, I must make a point on arrears. The Society of St. Vincent de Paul, and similar organisations such as MABS, make representations to us to state we ought to address this issue because a significant amount of debt-hopping takes place. Somebody runs up a bill for six to nine months and, as bills are sent out every two months, before anybody catches up with them they switch to another supplier and repeat the performance before switching again. The Society of St. Vincent de Paul wants us to address this issue and I have been in discussions with the Commission for Energy Regulation about it. Moves have been made whereby now a flag is put up and arrears must be declared to a new supplier. However, a new supplier is not blocked from taking on the customer until the arrears are cleared.

I have a final point.

The Leas-Cheann Comhairle has been very tolerant.

Unfortunately, nothing in what Deputy Murphy stated — I understand from where she is coming — will alter world gas prices and this is the issue. If we were to have the collaboration about which she spoke in purchasing gas on the world market it would be a cartel and anti-competitive and I do not see it being able to run.

Sale of State Assets

Mary Lou McDonald

Question:

6 Deputy Mary Lou McDonald asked the Minister for Communications, Energy and Natural Resources his view on whether following the publication of the McCarthy Report on State Assets which recommends that ESB’s assets be broken up, the Cahill/Frontier Economic report which recommends against unbundling, should be published prior to the comprehensive spending review being completed in order to ensure a full and informed public debate on the future of the States assets. [20325/11]

I am sorry Deputy McDonald cannot be with us because she has been asking me to do this for a long time. I have done it, but she is not here and I feel let down.

You will get over it.

I suppose so.

The report by Frontier Economics was undertaken under a process overseen by Mr. Fergus Cahill as independent chair. The report contains an assessment of costs, benefits and regulatory impact of the options for unbundling the electricity transmission assets set in the context of the EU third package and the all-island single electricity market.

The process allowed for input from the direct stakeholders and other stakeholders. The direct stakeholders were the management and the unions of ESB and EirGrid and the ESB employee share ownership trust, ESOT.

Both EirGrid and ESB have vital roles to play in delivering our national electricity infrastructure. In July this year, the Government decided the ownership of the electricity transmission assets is to remain with the ESB while the operation and development of the transmission system will continue to be the responsibility of EirGrid. Following that decision, the Cahill-Frontier report was published on 27 July 2011 and is available on my Department's website.

Additional information not given on the floor of the House.

More generally, the programme for Government commits to the sale of €2 billion of State assets. The report of the review group on the sale of State assets has also been published and will be an input into the Government's consideration of any such sales. In this regard, I refer the Deputy to my earlier answer to the question concerning proposals for any sale of the ESB.

Although Deputy McDonald is not in the Chamber, she will study the Minister's reply closely. It is an area in which she has a tremendous interest.

As long as Deputy Colreavy shares her delight.

The State's assets were put together at great cost to taxpayers, often when times were hard. A percentage of these are now to be sold off to privateers as part of the diktat of the EU-IMF-ECB troika which was agreed by the previous Government and is now pursued enthusiastically by the current Government. It is not democracy but dictatorship.

Could the Deputy put a question?

The troika may be clapping Ministers on the back but it is only because this Government is following the rules it set down and agreed with the previous Government.

Will the Minister facilitate a full public debate on the sell-off of our national assets which will include discussion about the impact of such sell-offs on essential services, employment and what remains of our economic independence? What happens next year or the year after when the troika demands more? What happens when the so-called low hanging fruit is all gone? What will be left to sell? What then will happen to the Minister's claim that only minority shares of State assets will be sold?

The subject matter of the question is the break-up of the ESB. The Cahill-Frontier report recommended against that. The memorandum that I brought for decision to the Government was to implement those recommendations and avoid the break-up of the ESB. I am happy my Government colleagues approved this.

Deputy McDonald, in particular, was calling on me over a period before the summer recess to do precisely that. I have done so. That is why I am so upset that she is not in the Chamber to welcome that decision. I presume she will be in touch later.

That is totally the opposite to what she was calling for.

Deputy Colreavy broadened the original question of the sale of a minority stake. On the original question, I will be quite happy to facilitate a full debate on the issue, if the Deputy so wishes.

The Deputy also wants to know what will happen if the EU-IMF-ECB troika comes back for more. That is not a vista I want to contemplate. What has been imposed on us as it stands is very painful to meet. Deputy Colreavy does not think it is important we are seen to deliver on the severe targets set for us. The manner in which this Government has managed it so far, however, has brought relief. I cannot believe the Deputy is not reading the newspapers or watching reports on what is happening in Greece without realising the implications for any people or state that does not responsibly manage its economy. Far from coming back for more, there will be an acknowledgment by the troika of the heroic efforts being made by this Government to comply with the strictures placed on us.

Why did the Minister oppose the deal last year when in Opposition?

I must stop the Minister there because I want to allow two brief questions from Deputies Ó Cuív and Boyd Barrett.

Will the Minister confirm it is not legally possible for the EU-IMF-ECB troika to come back for more once the terms of the EU-IMF agreement are adhered to? Will he clarify for the benefit of Sinn Féin that if the agreement were not in place, then there would be severe cuts on social welfare, education and health budgets? Will he confirm the EU-IMF has made it abundantly clear that as long as the bottom line of the agreement is adhered to, they will be flexible as to how the programme is implemented?

Does the Minister agree lessons must be learned from past sales of minority shares in State bodies? The minute a minority share of a State company is sold off, the company's interest shifts from the national to the shareholders' interest. Pressure then mounts inexorably to sell more of the company until it is fully privatised. For example, in the case of Irish Sugar, we were guaranteed only a minority share would be sold while a golden shareholding would be retained by the State. We know, however, what happened to that company in the end.

The measure of people is not that they do not make mistakes but that they learn from their mistakes. In hindsight, I have come to believe some of the privatisations of State companies in the past were wrong. I am willing to learn from this, but it seems the Labour Party Minister opposite is not.

This is question time Deputy Ó Cuív. I call on Deputy Boyd Barrett.

I asked three questions.

I will pass over the irony of Fianna Fáil railing against privatisation.

We set up all the State companies in question.

As a State company, the ESB played a key role in transforming Ireland from a Third World country to a modern state. In any rational approach in dealing with the current economic crisis, is it not the case that a successful and profitable company such as the ESB should be kept in public ownership and investment be made in it to develop sustainable energy resources and so forth? This would allow us energy independence, thus ensuring people would not have to be shivering with the cold this winter in their homes, afraid to turn on the heating because of fluctuations in energy market prices.

How does the EU and the IMF justify its insistence on the sale of State assets which could drive economic recovery? Will the Minister agree such sell-offs are actually attempts to asset strip this country, using the guise of the current recession which was caused by the bankers and bondholders in the first place? How can anyone construe an argument that a sale of even a bit of the ESB could possibly be good for this country?

Deputy Ó Cuív asked me to confirm that it would be impossible for the troika to return when the EU-IMF deal runs out.

No, I was referring to it being impossible for it to return within the four years of the deal.

Assuming Ireland can get back into the sovereign markets which is the purpose of the programme in the first place, I still hope that it will be the case. It depends, however, how we manage it in the remaining lifetime of the memorandum of understanding.

Deputy Ó Cuív is correct, even if our colleagues in Sinn Féin will not admit it, that the alternative would have been serious cuts in social welfare payments, and the remuneration of gardaí, teachers, nurses and so on because of the woeful mismanagement of our economy by previous Governments. We are trying to correct that. Regarding Deputy Ó Cuív's point about a minority share, it depends on how that is implemented. I say to Deputy Boyd Barrett we are not handing over ownership of the ESB. The decision this morning was to sell a minority stake and there is no question of control passing out of the authority of the ESB. I am no fan of the deal foisted on us. In my view it was a bad deal and the people negotiating it did a bad job——

The Minister said he would renegotiate it.

——but it was a deal not with the Government but a deal with a sovereign state and this Government has inherited it and we have to manoeuvre within it to achieve improvements. We have achieved a number of not insubstantial improvements and I hope, as news continues to break, there is the prospect for more flexibility ahead.

We must move on to the next question, Minister. I call Deputy Boyd Barrett's Question No. 7.

Offshore Exploration

Richard Boyd Barrett

Question:

7 Deputy Richard Boyd Barrett asked the Minister for Communications, Energy and Natural Resources the quantity of gas produced from the three fields of Kinsale, Ballycotton and Seven Heads, in County Cork; the current commercial value of the gas being produced from these fields; the amount the companies have paid in taxation and the royalties that the Exchequer has received since the commencement of production at these fields; and if he will make a statement on the matter. [23931/11]

The total volume of sales of gas from the Kinsale and Ballycotton gas fields is approximately 1.75 trillion cubic feet since production started in 1978. Royalties from the two fields are payable to the State at a rate of 12.5% of the fair market value of gas at the well head. The amount received in royalties to date is just over €190 million. The total volume of sales gas produced from the Seven Heads gas field, since production started in 2003, is 0.025 trillion cubic feet. Royalties are not payable on production from the Seven Heads gas field as Ireland, following the lead of counties such as Norway and the UK, moved away from a royalty-based payments system to a tax-based system in 1987. The Kinsale area gas fields are nearing depletion and gas production is currently running at approximately 0.01 trillion cubic feet per annum.

The amount paid in tax is a matter between the operators of the gas fields and the Revenue Commissioners. However, for the information of the Deputy, the combination of tax, royalties and rental fees currently provides for a State take of 40% of net income.

On a more general and forward-looking note, the rate of tax that will apply to any future commercial discoveries made under an exploration licence granted since the Finance Act of 2008 will be between 25% and 40%, depending on the profitability of the field. The fiscal terms in the Finance Act 2008 were introduced following a review of the licensing terms by my predecessor and that was informed by a report from expert economic consultants. The fact that the Kinsale area gas fields are nearing depletion at a time when Ireland's only other commercial discovery, the Corrib gas field, is still in the development phase, is another clear indicator of why Ireland needs to encourage an increase in the level of exploration investment and exploration activity.

I think the Minister knows the point of my question, which is the extent to which the people of this country will benefit from gas and oil production under the terms that currently operate. It is not very clear to me what €190 million represents as a proportion because the Minister has not really answered that question. If I am correct in understanding what the Minister said, €190 million is the total tax take from the three fields I have asked about. I ask the Minister to clarify this for me. What I want to find out is how much tax revenue has been received from those fields as a proportion of the overall income generated so that we can know the actual percentage rather than the figures of between 25% and 40% being bandied around as to what we might receive. It is like the corporation tax rate which we are told is 12.5% but actually the effective tax rate is 10%. How much are we actually getting back? I doubt very much we will get 40% back, given the other methods for the tax write-offs on capital costs and so on which means, I suspect, that in many cases we will get virtually nothing back from some of these fields, no royalties and no security of supply. We cannot even control prices because we have effectively given away these gas and oil reserves under the conditions of the licences. How can we justify a situation where at best we are talking about 40% while in Iran, for example, there are service-sharing agreements by which the state maintains the ownership of the gas and in Norway the state receives a 78% tax rate and it owns 67% of the gas and oil? Why are we giving away the gas and oil and what will we be getting back in return? Some of us suspect it will be nothing.

The figure of €190 million is royalties only. The royalties system was terminated in 1987.

The Minister knows the point of my question.

Yes, I know the point of the Deputy's question and I understand the question and the importance of it. However, the problem is I do not know how he can say what we are giving away. The point is we are not giving anything away because until we find something, we have nothing to give away. That is the issue. If the Deputy is of the view that the fiscal regime is not tough enough, it was toughened by my predecessor, Eamon Ryan, in the Finance Act 2008. Before he did so, it had been 25% for the previous 20 years. Therefore, if it is a giveaway, why is there not a thicket of exploration rigs off the coast where the Deputy lives? Why have there been fewer than 20 holes drilled in the past decade? Nobody who has espoused the position — I sympathise with the Deputy's aspiration — has been able to explain to me why there is not a queue to drill for oil and gas off our shores, if it is a giveaway. If the Deputy decides that it is not practicable for this Government at this time to establish a State exploration company — at €70 million to €80 million a pop, we do not have the money to drill empty wells offshore — if he accepts the investment is not there to establish a State company, then we are reliant on the oil companies to do the exploration for us. Therefore, it is a matter of balance and how one attracts them to do so but we have done a very bad job in this regard so far, with an average of two holes drilled per annum. I am trying to balance a fiscal regime with the requirement to bring in the oil companies to do the exploration and the drilling and hopefully to make finds. That is the balance and that is my position. I was very conscious of what happened at Corrib having regard to the international reputation of Ireland in circumstances where we will be lucky to bring Corrib gas on shore after 17 years while Norway brings gas ashore within four years.

A brief question from Deputy Boyd Barrett as we are out of time on this question.

I apologise but I am bursting with information on this question.

Even at €80 million a pop, would it not be better for us to borrow the money to invest in a State company to do some drilling rather than borrowing €100 billion to bail out banks? Could we not have borrowed a fraction of that sum to drill because there are estimates of the equivalent of tens of billions of barrels of gas and oil offshore? Would this not have been a better investment than borrowing €100 billion to bail out rotten banks, speculators and bondholders?

The Minister did not answer my question. What I am trying to elicit is what are we getting back from the fields that were exploited. I understood the Minister to say that we were getting €190 million in royalties but what was the total take we got as against what the companies made? That would give a real sense of what we get back under those arrangements, even in a field that is in production.

There are other methods to entice in companies to explore. Why do we have this unique arrangement whereby as soon as the companies go into production we give it to them? That is unique. Why are we doing it?

The Minister made the point that we do not have money for exploration and that we cannot afford it but the reality is that all exploration carried out by multinational oil companies is written off. Effectively, we are paying for it anyway. It does not make sense. Deputy Boyd Barrett referred to the amount of money we put into toxic banks to bail out bankers and developers. If a small fraction of the money was used to develop our natural resources I am certain we would be in a far more lucrative state than is the case at present.

The Deputies and I are like ships in the night. I do not think we are relating to each other. I would love to be free of the shackles of the moneys that have gone into the banks but Deputies Boyd Barrett and Ferris do not accept that it was necessary in the first place. We could have a long discussion about why it was necessary and how it might have been done differently. That will be an interesting thesis for bright young people, such as Deputy Boyd Barrett, who will attend Trinity College in 20 years time but it is not much help in terms of trying to have a functioning banking system in the country.

It is not functioning.

Nobody denies that the previous Government made a hames of the situation. Everyone acknowledges that, but it does not help given where we are now. Therefore, I am reluctant to agree with the Deputy that it would be a better use of moneys that we do not have to spend €70 million or €80 million drilling holes that have largely been dry. Of 156 holes that were drilled there were three strikes. If one was to go to Paddy Power, I doubt if one would take those odds.

The Minister is aware that does not reflect reality.

I am very sceptical. Under the present licensing round the companies will be given a permit for two years to do the necessary exploration activity. After that, they have three years to drill and if they do not drill it is a case of use or lose it. They have to drill. We will see. I hope Deputy Boyd Barrett and I will still be in the House at that time and I hope bountiful resources will be found. Deputy Boyd Barrett must acknowledge that whether the tax rate is between 25% and 40%, as it is now, or 50% as he and Sinn Féin want, 50% of nothing is nothing. I hope and believe we have prospects but we have not found anything. What I am trying to do is strike a balance between bringing in companies to establish what are our reserves on the one hand while not frightening them away on the other. That is the challenge that confronts us.

Written Answers follow Adjournment.