I welcome Mr. Gabriel D'Arcy, CEO, Bord na Móna; Mr. Michael Barry, chief financial officer; Mr. Gerry Ryan, director, land and property; Mr. Tom Walsh, director, resource recovery; and Mr. John Reilly, head of power generation and renewables division. The joint committee has invited the representatives of Bord na Móna to discuss its annual report. Before beginning the discussion, I draw everyone's attention to the fact that, while members of the committee have absolute privilege, the same privilege does not apply to witnesses appearing before the committee which cannot guarantee any level of privilege to witnesses appearing before it. Furthermore, under the salient rulings of the Chair, members should not comment on, criticise or make charges against a person outside the Houses or an official by name or in such a way as to make him or her identifiable.
Annual Report 2008-09: Discussion with Bord na Móna.
Mr. Gabriel D’Arcy
Thank you. It is a great pleasure for me and my senior team to be present. This is my first appearance before the joint committee and I look forward to speaking about our results for 2008-09. I also look forward to speaking about our vision for the future. I am accompanied by Mr. Gerry Ryan, our company secretary and director, land and property; Mr. Michael Barry, our chief financial officer; Mr. John Reilly, head of power generation and renewables division, and Mr. Tom Walsh, head of resource recovery division.
Our year end is 31 March and this year we reported a turnover of €402 million. Earnings before interest, tax and depreciation were €57 million. Our operating profit was €37 million. Stripping away exceptions, there was an operating profit of €23.8 million, while profit before tax was €20 million. Our net borrowings at that date were €56 million.
Bord na Móna has over 2,000 permanent employees. At peak times such as during the summer months that figure can rise to 2,400. This year we paid a dividend of almost €13 million to our shareholder, the State.
Before discussing the segmental analysis, it must be said Bord na Móna is arguably the most diversified company in the country considering the range of activities in which it is engaged. We encompass every area from energy and fuels to horticulture, resource recovery and environmental activity. These are not included in my submission because I cannot include every area of the company's activity but they are certainly included in the annual report.
The company is the custodian of 80,000 hectares, or over 200,000 acres, largely located between the River Shannon and the greater Dublin area. Management of this area in a more sustainable manner is a big job. However, looking at the segments from a financial perspective, one notes our turnover in respect of energy was €121 million. This business is largely built around the supply of peat to the peat-fired stations. There are three such stations, two of which are owned by the ESB and the other by Bord na Móna, Edenderry Power.
Our fuels business which largely involves briquettes, coal and a range of eco and convenience products turned over almost €157 million. Our horticulture business turned over almost €48 million. This indicates a substantial reduction year on year, largely related to the fact that our horticulture business is mainly an export business. Our main market is the United Kingdom and the turnover reflects a substantial reduction in the value of sterling in the period in question. While our markets held up volumetrically, our revenues declined. I surmise this is a feature of most companies exporting to the UK market and it is very much a key issue on our table. While there are considerable advantages associated with this sector, Bord na Móna, as with every other company, faces a massive number of challenges with regard to competitiveness in the sector.
Resource recovery, a relatively new part of our business, contributed €52 million. This is a very important part of our business and links in very much with the other parts. For instance, an increasing volume of our horticulture business concerns peat diluents We are collecting over 50,000 tonnes of green waste that would otherwise be placed in landfill sites and generate methane, the most virulent of the greenhouse gases. We are preventing it from being placed in landfill sites and taking it to a mass composting site in Kilberry, the largest of its kind in Europe, on which site we process the waste and make a very rich, nutritious compost that we put into bags, thereby displacing peat. We supply this product largely to the market in the United Kingdom where it is regarded as one of the most nutritious growing media on the market. The business is about taking substances such as green waste which would otherwise be considered waste for a landfill site, as was the case heretofore, and extracting the resource. We are unique because ours is the only waste company with this horticultural dimension.
The energy side of the business involves the use of an increasing amount of biomass to displace peat going to peat-fired stations. This year we will be using a substantial amount of biomass, much of which comes through our resource recovery business.
Our environmental business turned over €24 million, mainly in the areas of clean water and clean air. We have global leading edge technologies in these areas. The business is largely based in the UK, European and North American markets. We have an operation in Greensboro, North Carolina. This is a very exciting part of our business in what one would term "green tech" or "clean tech" and there is substantial potential for growth. I have given a pie chart showing the impact of our strategy to reduce our dependence on traditional businesses but leveraging on skills and capabilities we have built up over many years in those traditional businesses.
A summary of the financial highlights shows what is, by any measurement, a very strong balance sheet. We have a strong earnings stream. Our net debt is €56 million, a relatively small sum, given the size and scale of the operation. We have permitted ratios such as our net debt to adjusted EBITDA, which is very important to the providers of this debt. Our actual debt ratio at 31 March was 0.92 times, well below the permitted level of 3.25 times. We have a very strong operating cash flow figure of €93 million. We recently went through a financing round which my CFO, Mr. Michael Barry, will deal with in greater detail, when we raised almost €150 million in a private placement market. This was very successful and is a strong testament to those debt providers who are supporting a company like Bord na Móna which is majority owned by the State. It is a vote of confidence in the company and the State.
I will now speak about the future of the company and how we went about devising a coherent, logical, imaginative and creative vision for the future. We did a huge amount of work in the last 12 to 14 months in consulting and engaging with many external sources, including Sustainable Energy Ireland, the media and consumers. We held consumer focus groups in all main towns and villages. We consulted our customers, a number of opinion formers, the Environmental Protection Agency, the Commission for Energy Regulation and so on. Our intention was to get an idea from the people in question of what Bord na Móna represented to them from a business point of view and what they felt it contributed to Ireland. We also engaged with our employees, our shareholder, the leadership team, the Department, other Departments and the board.
From this exercise we constructed a vision for the future, or a statement of intent that encompasses everything Bord na Móna will and can be about. It is encapsulated in the short statement, A New Contract with Nature. This might come across as abstract but, in fact, it is a powerful guiding force in everything we do. It implies sustainability which it puts at the centre of everything we do. This is an evolution as opposed to a revolution and we will evolve. The matrix I provided shows we are making substantial progress in moving to this sustainability model.
I believe the company is the first in Ireland to deliver a sustainability report. It was published and presented at the same time as our annual report. It is a powerful document. It gives an overview of our key figures and performance indicators. It also goes through our key objectives for sustainability, including renewables, gardening products, horticulture sustainables, organic waste resource recovery, biomass, district heating, clean air and waste water treatment systems, biodiversity and innovation. The document lays down a set of metrics by which we will judge ourselves. This is something we will use as an important management tool, internally and externally.
As I said, Bord na Móna is a very diverse organisation. Having developed its vision for the future, it has devised a model that is linked with its strategy and defines its objectives. It has set out more than 20 key business objectives. The organisation has defined the scope, breadth and depth of its business. It has specified the source of its advantage and the logic that knits it all together. That is all linked with the people, the architecture and the routines within the organisation. There is a very strong culture of service in Bord na Móna which is celebrating its 75th year of existence this year. Its culture is associated with the development of the State in the last 75 years. We have to examine whether the organisation's culture, routines, architecture and structure will continue to deliver the results required as it moves to a more sustainable model without peat as its core activity.
Bord na Móna is also looking at the outside market and environment. I refer to its customers and competitors, for example, or to the business ecosystem in which it operates. I have mentioned that we are very excited about some of the organisation's great export opportunities. Its strengths differentiate it from some of its competitors in the European and UK markets. We have to leverage these skills and strengths to deliver business performance. Like everybody else, we are dealing with currency challenges, including the weakness of sterling. As an innovative and competitive organisation which is becoming even more competitive, Bord na Móna is dealing with such issues. Growth accelerators and inhibitors are at the centre of all of this. We aim to accentuate the accelerators and try to diminish or get rid of the inhibitors.
I will not go into great detail about the list of key business objectives that Bord na Móna is aiming to achieve over periods of five, ten and 15 years. The organisation has an opportunity to become a leading renewable energy generator. It was the first company in Ireland to build, own and operate a commercial wind farm. It is sometimes forgotten that the 7.5 MW facility in question continues to operate in north-west Mayo. Almost seven years ago the organisation secured ten-year planning permission for the largest wind farm in western Europe, to be located in the same part of the country, which has the best onshore wind regime in Europe. Mr. Reilly can discuss in greater detail how much closer we are today to hooking up that 400 MW of wind energy which has been planned and is in the gate system than we were seven years ago.
It is interesting to consider that question in the context of the targets this country has set itself for 2020. We hope to provide approximately 500 MW of wind energy and biomass generating capacity by 2015. We hope and expect to replace 30% of the peat supply to the Edenderry power station with biomass by 2015. Bord na Móna will have achieved over 20% of this target by the end of this year. It is the largest user of sustainable biomass — the largest market for biomass — in Ireland. I am sure the committee will accept that we hope to act responsibly as we supplement our renewable capacity with flexible thermal capacity in the interests of achieving a balanced portfolio. As we all know, the supply of wind can be intermittent in the short and medium term. It often blows at the wrong time.
What does Mr. D'Arcy mean by "flexible thermal capacity"?
Mr. Gabriel D’Arcy
Flexible thermal capacity is what could be described as "rampable" capacity, whereby modern technology allows us to turn capacity up or down with greater ease in order to function, for example, as a peaking plant. My colleague, Mr. Reilly, will elaborate on this.
Mr. John Reilly
We are talking about a rapid response plant. The standard plants currently in use on the system can take anything from four to 12 hours to start up and shut down. Given the intermittent nature of wind energy, it is important to have plant on the system that can be started in minutes.
What fuel is used for this purpose?
Mr. John Reilly
It can be gas or distillate oil, depending on the sites. Such plants have very low capacity factors and their overall environmental impact will be minimal. Their function essentially is to support the deployment of wind energy.
However, is it not the case that they are very expensive to run while switched on?
Mr. John Reilly
That is correct. The flexible nature of these plants is such that from a capital costs point of view and in terms of the fuels they use, they are quite expensive. However, they are absolutely essential. We will not reach our target of 6,000 MW of installed wind capacity without these types of balancing plants on the system.
Is Mr. Reilly saying if the wind is not blowing, this extra plant is turned on in order to supply electricity and turned off again when the wind begins to blow?
Mr. John Reilly
That is precisely the principle upon which the system works. These plants are capable of starting any number of times during the day, whereas standard thermal plants such as coal plants and even gas-fired plants — what we term base load plants — are not designed to be switched on and off repeatedly.
I invite Mr. D'Arcy to resume his presentation after which members may put questions to him.
Mr. Gabriel D’Arcy
It is our objective to be Ireland's leading resource recovery business by 2013. In order to reach that target, we intend to achieve an 80% landfill diversion rate within that timeframe. We have a horticulture business that is taking all of our green waste and much of our brown waste; therefore, there is a market for it. Our organisation has the highest rate of landfill diversion, in excess of 50%, of any company operating in this business. We are confident we will be able to increase this figure to 80%, but we will have to broaden our reach to do so. For example, we must try to get our hands on more of the green waste currently being placed in landfill sites and other places. We intend to be Ireland's leading value-added organic waste recovery business.
We also intend to be the leading global provider of differentiated air pollution bio-technologies and a leading provider of differentiated residential and packaged wastewater treatment and water recycling products. Our main theatres of operation in this regard will be North America and western Europe. This is very much an international business and there is already Bord na Móna installed technology in places as diverse as Osaka in Japan, Rome, Paris and Lancashire. Some of the largest municipal waste treatment centres and composting sites in the world are using Bord na Móna technology, particularly in the area of clean air systems where we have developed patented technology. There is an opportunity to increase this business to between €50 million and €100 million from its current level of €13 million. It is a key business opportunity and entirely consistent with what has been enunciated as United States and European policy in the area of clean technology. This is the new economy and these are the types of green jobs about which we have heard so much.
Horticulture is a core activity of Bord na Móna and our objective is to be the United Kingdom and Ireland market leader in sustainable gardening and horticulture products and services. What people do not understand or realise is that Bord na Móna is the largest volume exporter out of Ireland, and as of today is either in No. 1 or No. 2 position. More and more of its product is sustainable material, created from composted green waste and other materials. In business speak, Bord na Móna because of its scale has certain capabilities that are very hard and difficult for its competitors to match on the international stage. In the height of the season, Bord na Móna distributes upwards of 20,000 pallets of material per week into the UK retail sector, which is some achievement. In business there are two main sources of advantage, either one's position or one's capability. It is a capability advantage that very few international players have and it presents significant opportunities from a Bord na Móna point of view but also from the viewpoint of Ireland Inc.
However, as I alluded to, the company faces major challenges, not least the effective devaluation of sterling over a number of years. I spent most of my working life abroad. I joined Bord na Móna in February 2008 from the Kerry Group and most of my time was spent in the European theatre. I was paid a salary in sterling. I remember my salary equivalent at the time because for every £1 sterling, I got €1.50. Today it is almost parity. It is very important to understand this in the context of the market. Effectively Britain has become hugely competitive, not because of price or salary cuts but because of the currency devaluation. These are challenges to be addressed by the board of management and we have addressed our competitiveness. This business is still profitable and the management of Bord na Móna has had to take difficult decisions because it is an area of outstanding opportunity. It is an area in which Bord na Móna and Ireland are naturally very strong. We just must keep on in there.
I alluded to the fact that Bord na Móna is a custodian of more than 200,000 acres of land on behalf of the State. Our goal as a management team is to be recognised as Europe's exemplary peatland and biodiversity company. We also understand that Bord na Móna is a commercial State company, which is very different from many other operators, and we must be profitable, remain profitable and grow. We see this as an opportunity to realise the optimal commercial, social and environment values from our land and property assets. We are looking at eco-tourism opportunities and integrating them into other related commercial activities in our heartlands.
I am very happy that another development since my arrival has been the formation of a land and property directorate, headed up by Mr. Gerry Ryan, on my right hand side, who is double jobbing as the company secretary. That is bringing great focus and expertise into looking after the fauna, flora and wildlife, as well as the eco-tourism and other development opportunities.
Members can now see a photograph of Lough Boora parklands tourism project, which is also an artistic project. Some world renowned artists and sculptors have created outstanding pieces of sculpture that are sited in this area. It is a successful eco-tourism visitor attraction that is recognised nationally and internationally as unique and significant. In these parklands, we have a habitat in which a number of endangered species can regenerate. This project highlights not alone our biodiversity credibility but our engineering and water management capability. This project comprises a large area of cutaway bog and what is involved is not a simple exercise of merely flooding it. An engineering, technical competence is required to run it in a sustainable and managed way. It shows our ability to manage those sorts of large water projects in a sustainable way, consistent with our contract with nature and biodiversity, while working in close unison with the national parks and wildlife service, the Irish Peatland Conservation Council and all the other stakeholders in this area.
Upwards of 40,000 people per year visit this place and this project has being developed out of nothing as it were. There must be further opportunities to develop other such areas in a similar manner. They present educational as well as tourism opportunities.
With regard to the key drivers of success within Bord na Móna, first and foremost is innovation. We have to innovate not only as a company but as a nation. We have committed to a €50 million investment in innovation over the next five years. I am very familiar with best practice in this area. We will allocate between 2% to 3% of our revenue per annum to investment in innovation. Since I joined the organisation we have set up a formal innovation team structure. We will be exhibiting at the graduate recruitment fair next week where we will set out what we consider to be the most appropriate skill sets, competencies and qualifications required within the organisation, which in many cases are different from the skill sets, competencies and qualifications we would have naturally sought in hiring people in the past. It is important for everybody to understand this.
Most of the opportunities arise from an innovation point of view in cross-linking certain technologies, for instance, cross-linking resource recovery with the customers of another part of our business. A great deal of innovation is being driven by the cross-linking of our technologies with our customer bases across all our businesses.
I have alluded to our competitiveness. This year we had a pay freeze across the organisation. A senior executive team, including myself, took a pay cut and we were happy to do so, as we sought a pay freeze from the other people within the organisation.
We are challenged in managing parts of our business. Like everybody else, parts of our business are predicated on the building sector and parts of it are exposed to the United Kingdom economy. We have general competitive issues, as has the country, but there is a strong focus on driving competitiveness in a sustainable manner within our organisation. The approach in that respect is not one of cutting and slashing. By using technology, changing work practices and implementing more modern management practices, there are ways for us to become more competitive.
Focusing on our brand, we have to shift to a more commercial focus with greater market orientation, given our new contract with nature. I spend as much time as I possibly can with our customers in the national and international environment. The resonance of our new contract with nature has been powerful. In its own right it is driving business because people and companies, such as B&Q in the United Kingdom, want to be associated with companies that have a similar focus on sustainability. It is very good for business. The work we do on our branding will be important in terms of whether the image we have developed in the past will be sustainable in future.
We are focused on the people and the communities we serve. Bord na Móna is seen as a community-oriented business. Many of our focus groups have emphasised the strong trust that is placed in the company and a level of dedication, almost to the point of national service. As a former member of the Defence Forces, I see similarities in the commitment and loyalty to the country which permeate our organisation.
On the financial side, we have a sound balance sheet and, more importantly, a strong reputation. We pay our bills on time and conduct our affairs with honesty and openness. We are rigorous in all our key business systems, whether that be procurement, sales or internal management.
When eminent people such as the members of this committee ask for a shopping list, I could set out a range of different requests. However, I would like assistance in two areas in particular, namely, connecting renewable energy to the grid and resource recovery. We have to connect our targets with actions on the ground by linking the various arms in this sector. If we have set challenging targets, we should be breaking down the obstacles, whether they are real or imaginary. In regard to resource recovery, I hope I have explained that our business is good for the country. It certainly is good for other parts of our company. We seek a regulatory environment which supports and accelerates our landfill diversion strategy, for example.
The delegation is very welcome. It is clear that Bord na Móna has taken this meeting seriously because it has sent its top people. That is appreciated because it is not always the case when companies appear before the committee.
I am keen to get a better understanding of how Bord na Móna plans to phase out peat. Mr. D'Arcy has indicated that it will be replaced by recoverable material from landfill, which I presume will include biomass and, potentially, other materials such as meat and bonemeal waste. I ask for more detail on how we can phase out peat progressively while maintaining the existing support structures for communities which heavily rely on peat at present.
One of the challenges I face as a policy maker who fundamentally believes that peat is a dirty fuel which has to be phased out is balancing that objective with providing continuing support for the people who depend on peat extraction for their living. Bord na Móna is at the centre of this issue. The company's target of replacing 30% of the peat it provides to the three power stations with other material by 2015 is an ambitious one, although perhaps it should be even higher.
In that context, does Bord na Móna work with other State companies such as Coillte? We spoke about this previously — the shift towards wood biomass and the importance of another large State company that manages even more land than Bord na Móna — in terms of the economies of scale Bord na Móna needs to do that. I have a fairly good understanding of Bord na Móna's relationship with ESB, which is another State company, in terms of supply contracts, etc. The relationship with Coillte is an interesting one.
In terms of the dividend to the State, I am interested in the relationship between Bord na Móna's shareholder and the company. I am quite impressed with Bord na Móna's long-term plans. It is a good example of a State company that is looking at where Ireland needs to be in ten years and how the company will be part of that, and the sustainability report is positive.
However, in terms of Bord na Móna's relationship with the State, the company gave a dividend of €13 million last year. What percentage of the company's profit goes back to the shareholder generally? Somebody could justifiably make the case that the company owns 80,000 hectares and the State should be getting more than €13 million each year out of it. How does Bord na Móna respond to that charge, particularly at present when the State needs to raise money and is under considerable pressure in terms of borrowing and expenditure? Can we use a company like Bord na Móna to increase the dividend to the State in difficult times when we need it? Hopefully, at some stage in the future when we do not need that dividend the balance can be addressed. In other words, is there something Bord na Móna can do for the State in the current crisis, particularly in terms of the deficit, but also in terms of job creation?
The consultation process the Bord na Móna delegation outlined for mapping its future includes the Department and the shareholder. Who represents the shareholder within Bord na Móna and what is the discussion between the shareholder, which presumably is the Government on behalf of the State, and the company? One of the criticisms I would have of the semi-State sector generally in Ireland is that the companies all operate by themselves essentially and drive their own agenda, which in some ways is good if they have good management and leaders. If they do not, however, who cracks the whip for the shareholder? Does Bord na Móna feel pressure coming from the shareholder to deliver because I get the sense that the company is self-motivated rather than the State driving that agenda. There is something wrong in that regard. Perhaps the delegation cannot comment in detail on the record on that issue, but if it could, that would be helpful.
Many would be surprised that Bord na Móna is continuing to keep its market share in the UK when, effectively, its produce has become 30% to 40% more expensive for people in the UK. Presumably, Bord na Móna has had to significantly reduce its prices in order to keep the volume up in the UK. Has that been the case? If Bord na Móna is still exporting 20,000 pallets for UK retailers each week when today the euro is worth 93p or 94p and moving towards parity, which is a challenging environment for the company, can it continue to find cost savings on what it is producing?
My final comment is on the request the Bord na Móna delegation made for assistance. Only a few days ago Airtricity was here stating exactly the same thing. Airtricity stated to the committee that it can build a 500 MW wind farm offshore on the Arklow Bank if only it could get connected to the grid. Bord na Móna is stating it can build a 400 MW enormous construction project for renewable energy in Mayo if only it could get connected to the grid. Will the delegates tell us in more detail what is holding up the project? Is it EirGrid, the regulator or the Department? Is it the allocation of funds for rolling out the grid, or is it a planning issue? I have a fairly good idea what it is in the case of Airtricity but it would be helpful to state the reason in this case.
In practical terms, what is the blockage, in terms of the regulatory environment, for a landfill diversion strategy? Can Bord na Móna go to Cork County Council and say it wants to start removing compostable product from its landfill? Can it do a deal with the council, essentially, or is there a blockage in terms of the regulations in this area?
I apologise for being late and thank the witnesses for their presentation. It is impressive that a State enterprise can be so successful, but I am also impressed with the transformation the company has been undergoing and the changes it has implemented. It is an interesting model in terms of how environmental demands can create opportunities in many ways that we are only beginning to realise and which we need to encourage.
Bord na Móna was a great employer historically in that not only did it employ many people but it was a very good employer. One need only see the midlands to understand that. I note that last year it employed slightly more at the peak than it did the year before. Presumably, however, with the changes occurring, the issue of employment arises. The company must need different types of qualification. Can the representatives say, looking into the future, that the company will have similar massive employment but people will have different skills, or will it be the case that fewer people will be employed but they will be more productive? In terms of the standing that Bord na Móna has, employment has been of tremendous value. In terms of where we are now — that is, in a recession — the role of State enterprise is being increasingly reconsidered. A kind of madness went on for the past decade. When one considers what happened with Eircom, one can see we lost the possibility of having a really good telecommunications infrastructure. I do not know whether the representatives will want to comment on that general political point about the role of a semi-State company which deals with both natural resources and meeting environmental challenges.
Like Deputy Coveney, I have a question about peat extraction. The year we are dealing with, in terms of climate change, is 2020. Perhaps the representatives could give a broad-brush view on where they expect the company to be by that time. With regard to the issue of grid connection, some of us on the Joint Committee on Climate Change and Energy Security were aware of the problem the company has in Mayo. It is very disturbing. We have raised this issue but have not had answers. The whole system used by the energy regulator, in which decisions on applications are based purely on the length of time involved, is a real problem. There is no strategic approach. To inform us on how we can help, perhaps the delegates could tell us more about the company's experience in this regard.
The recovery of green waste was mentioned. While there have been great advances in recycling and the collection and diversion of waste by private companies, it has not happened in the residential sector for green waste. I presume that is a fairly significant part of overall capacity, including for local authorities. This is creating difficulty for householders wishing to dispose of their green waste. Perhaps the delegates will comment on that.
I, too, am amazed by the success of Bord na Móna in terms of exporting what are very bulky products into the English market. I would have thought the cost of transport and so on would be an issue in that regard. Is the company also building up markets in the eurozone?
My final question relates to innovation which is obviously central to what the agency is doing. Having spoken about this issue to people in the universities it is clear we are not attracting enough young people into engineering courses. Perhaps the witnesses will state whether that is their experience or whether other skill sets are required. Is Bord na Móna linked with the universities? Investment in innovation was mentioned. Is research and development done in-house or is the company linked with third level institutions?
I welcome the delegation from Bord na Móna and thank the chief executive for his excellent presentation which was delivered with some degree of passion and knowledge of the subject.
I acknowledge the work of Bord na Móna and the important role it plays in the fabric of rural life and the employment it provides. While some of the questions I will put to the delegation might be perceived as complaining that is not my intention. I do not wish to go over issues already discussed by others, except employment.
Mr. D'Arcy stated in his presentation that Bord na Móna owns 200,000 acres of land, which is a decent holding. I presume this means it has many neighbours. I would like to know how it behaves as a neighbour. I am concerned about the number of issues that have arisen in regard to the fencing of and trespass on its lands. While it does not matter to me or the general public whether issues that arise relate to trespass or horses, because the lands are open horses are escaping on to the roadside and causing accidents and people are suffering because in many instances the animal cannot be tracked down.
A farmer is responsible for his or her land whether fenced or not and the owner of an animal is responsible for it irrespective of the state of the land. What is Bord na Móna policy in regard to fencing its land? What is its policy in terms of co-operation with its agricultural neighbours in cleaning and maintenance of drains? Does the company have concerns in terms of the amount of sediment that goes into the drains from Bord na Móna leading to fish kills and in many cases flooding of valuable agricultural lands? I have had some experience of this coming from North Tipperary where, despite the image of the Golden Vale, we have a great deal of Bord na Móna land. There are problems in this area which the manager, Mr. Yates, has done his best to address. I have spoken with him about this problem and I agree it needs to be addressed.
Another issue on which I receive complaints from the public is travel through Bord na Móna lands, be they county or regional roads. These roads are appalling. Council funding for roads is limited. Mr. D'Arcy stated that Bord na Móna has a strong balance sheet. Does it make a contribution to the local authorities for the upkeep of roads? Water will not support roads. When Bord na Móna develops its lands, the roads subside. That problem continues. Even if the roads are repaired on an annual basis, they are still atrocious. What is the attitude to that problem?
The farming community is interested in the production of biomass. Is it Bord na Móna policy to deal with second generation fuels from biomass? Is it the sole policy to grow the biomass to burn it, or will Bord na Móna try to extract fuel from it as well? What area of co-operation or discussion is there with the farming organisations? Is there a role for the agricultural community or an incentive for it when it comes to the production of biomass and bio-fuels?
I am concerned about the phasing out of peat production. In rural areas, peat production has always been labour intensive and many people have been gainfully employed in this area. Wind energy is less labour intensive so will there be job losses as peat production is phased out? Is there any way to offer hope for continued employment for people in rural areas?
Many people have been gainfully employed in Bord na Móna. I recently spoke to a man who was employed in the engineering and maintenance side. He served his time and then decided to leave. Later he decided to go back and when he did so, he found it difficult to stay because of the salary. His salary was only good enough when bonuses were added in. I realise Bord na Móna depends on the weather but salaries are based on a bonus structure. Could we get an idea of the chief executive's salary and the maintenance man's salary, and the bonuses for both?
I acknowledge and value the role of Bord na Móna and wish it continued success.
I thank the witnesses for the presentation, which was most productive. I welcome the fact that Bord na Móna is readjusting the thrust of the company, and alluded to branding. Perhaps, after 75 years, the name Bord na Móna may not be appropriate for the future when we consider that peat is a finite resource. Exactly how finite is it? When will the current bogs expire?
I welcome the money being put into innovation. I met Dr. Henry some time ago and was very impressed with the ideas he outlined. I am interested to see what is being done about wind energy. Has there been any work done on wave energy?
Does Bord na Móna face the problem of grid connection or is the connection based on the price being paid? What is the exact problem and how can we help to resolve it?
Bord na Móna is located in my constituency of Longford-Westmeath and since its arrival in Lanesborough, County Longford, we have had only the greatest respect for the management and staff there. The delegates have given us a positive presentation; they are good sales people for Bord na Móna. We would not expect anything less from them because that is the image the staff and management in Lanesborough, Cnoc Dillon and all around the midlands have been projecting for years. As was said, they give great service to the community. They are trusted and have a fantastic reputation. In my constituency, the management and staff are always willing to engage with the public and help out in every way. They are probably among the most innovative and helpful management-staff team of all.
Afterwards, I might have a word with someone about the future of the ESB power station in Lanesborough and for how long peat will continue to be used there, and about the Corlea interpretative centre. My association, and that of the people of Longford-Westmeath, with Bord na Móna has been of the highest standard.
Mr. Gabriel D’Arcy
There has been some overlap in some of the comments and questions. I thank members for all the comments, which show a keen interest. I am aware of some of the interactions which have taken place with some of my staff, for instance, with Deputy Devins. When he was in his innovation role in the Department of Enterprise, Trade and Employment, Dr. Hubert Henry met him to update him.
It is Bord na Móna's policy to be very open in everything it does. It is largely State owned. An employee share ownership plan, ESOP, was recently introduced so the employees of the company now own 5% of it. They get a share in the spoils, so to speak, a dividend and so forth.
I will bring in my colleagues because there is a large amount of overlap with specialties, in particular in regard to the grid, what is holding up grid connectivity and so forth. Deputy Coveney mentioned seven issues. The first was when peat will be phased out. Deputy Kelly also mentioned it and said long may it continue. There are two sides to the equation, the first of which is supply and the second, demand. From a supply point of view, we are carrying out an exhaustive study at present. We extract in excess of 3 million to 3.5 million tonnes of peat per annum. We use approximately 3 million tonnes in the production of electricity which is approximately 1 million tonnes per power station. Approximately 500,000 tonnes of material is used in other areas, including fuels, horticulture and so forth.
Quite a few of our bogs, for instance, Lough Boora parklands, which the Deputy saw, are depleted or are nearly depleted. We are carrying out an exhaustive study at present using pretty modern technology to try to ascertain how much peat we have left at the current rate of usage and at the proposed rate of dilution with other materials. That study is ongoing. Mr. John Reilly can come in on this but it is probably a maximum of 20 years to 25 years. This is at a very early stage.
Is that already opened bogs being finished and no new bogland being opened?
Mr. Gabriel D’Arcy
Absolutely. I have publicly declared that we will not open any more bogs. We are handing some bog areas back to the local communities, for instance, in Abbeyleix, as outstanding areas of biodiversity with potential for eco-tourism and so forth. This has been done in consultation with local communities. We have publicly stated that we will not open any more bogs. Therefore, these are bogs that are already open and drained and, in many cases, are in use. I have looked at the environmental and biodiversity dynamics and it is probably more environmentally sustainable to work them as expeditiously as possible to completion rather than stop. The carbon balance must be taken into consideration. Once a bog is exposed and drained, oxidation is taking place and carbon dioxide is being formed. That is our history but we do not intend to open any more bogs. We are looking at those that are open and evaluating what material is in them. Perhaps Mr. Reilly would like to comment on this.
Mr. John Reilly
As Mr. D'Arcy has indicated, the study is quite well advanced and is due to be completed in its entirety in early 2010. We are looking at the dilution rates of the resource we have, and I want to be clear on that. Deputy Coveney alluded to the 30% targets we have for switching from coal firing to peat stations. Those figures have been taken into account. Given that, a rough rule of thumb would suggest there are approximately 20 years left in our existing operational peat bogs for feeding power generation stations.
Mr. Gabriel D’Arcy
The second question on renewables is interesting because it is quite associated with the first question. The first question asked to what extent we will get out of this so-called dirty fuel and the second when we will get into more sustainable fuels. As I have outlined, there are only certain things we can do. We can select sites that have outstanding wind resources. This was innovative technology when we started, but it is proven technology now. We have an outstanding area in north-west Mayo and a number of other sites. We are phasing out peat and trying to phase in renewable energy, but the question is when it will start to come on stream. I will ask Mr. Reilly to talk about what is preventing the connectivity of this area in north-west Mayo. It has a fantastic wind regime and has gone through an exhaustive planning process and does not present visibility or habitation issues.
Mr. John Reilly
Unquestionably, the big issue is the capacity of the grid in that area. As members are aware, the further west and south-west we go into areas of low population density, the current grid tends not to be up to the same standard as the grid in midland locations and further towards the east. Therefore, it is the capacity of the grid that is preventing connectivity. This was identified from the word "go" with the project. We have been disappointed with progress. Deputy McManus spoke about the length of the queue. This project is the longest time in the connection queue. We have had the wonderful privilege of waiting for six years.
Thankfully, at the time we understood the issue of grid and building it up and we took the option of taking a ten-year planning permission, which is quite unusual. Unfortunately, that planning permission runs out in four years and, as mentioned by Mr. D'Arcy, we must question whether we will get connection for this farm within the duration of the ten-year planning.
Therefore, the problem is with EirGrid.
Mr. John Reilly
It would be very unfair to say the problem lies solely with EirGrid. It has outlined a programme of expansion of the grid, but there have been issues. A number of these come to mind. This farm could be partially connected with an upgrading of the existing grid and we have been working with EirGrid to consider that as an option. Unfortunately, it was indicated to us recently that for cost reasons that may not be possible and we will have to wait for the construction of a motorway so to speak, a large high voltage 220 kV line for the area, before connection of the farm can commence. We believe that is sub-optimal. We believe that with upgrading of the existing lines there is a possibility to connect a substantial portion of what would be Ireland's largest onshore wind farm.
Grids are replacing cables.
Mr. John Reilly
Yes, upgrading the lines. Technologies are now available and certainly EirGrid is considering operating the lines from other parts of the country, but it is has indicated to us initially that this is a problem because of the cost implications in Mayo.
I want to be clear that there is no gate 3 problem in this project. Bord na Móna is part of gate 3. The issue is the actual cost of upgrading and all of the planning and community issues around that.
Mr. John Reilly
It is the timing. I believe Deputy Coveney has hit the nail on the head as regards what this committee and other public representatives can do. In fairness to EirGrid, the challenge of building large high-voltage power lines, as we can see from the problems it is currently experiencing with the North-South interconnector, is probably key to this issue. However, if we are to achieve the target of 40% of electricity coming from renewable sources by 2020, we shall need to see a much faster roll out of the grid, and possibilities for connecting renewable resources to that grid, over the next decade. There is no doubt that public acceptance of power lines is an issue.
Tell us something we do not know. Leaving that particular aspect aside, we have had presentations from EirGrid about its grid development plan and it is very confident that it can pay for and deliver it. That is why I am amazed that this appears to be a problem.
Mr. John Reilly
These are the indications given to us recently. As part of the gate 3 process, EirGrid has offered us what is termed the least cost technically acceptable connection, and we now have details of that. It involves a much longer connection process than we believe is necessary and EirGrid has indicated to us that this is because of cost. Like Deputy McManus, we are quite surprised, because we cannot accept the incremental cost of upgrading this line is significant in the overall scheme, in terms of grid development. We will have further discussions with EirGrid as regards the potential for moving this project forward. I believe it is a flagship project for Ireland.
It is at Bellacorick.
Mr. John Reilly
That is correct and it is not just our project. In gate 3 there are somewhere in the region of 600 MW in that corner of the island. There is also the massive potential for wave and tidal energy there and we cannot see why this particular line is not being given immediate priority as regards the achievement of our 2020 targets.
There is obviously a grid connection there already. Is it a case of updating the existing line or installing a new one?
Mr. John Reilly
It may be done both ways. The Deputy is correct and we have a small wind farm there. There is 110 kV substation at the site and uprating the existing lines would allow us, we believe, to deliver a substantial portion of the farm relatively quickly. We should like to get on with that.
What are the costs involved?
Mr. John Reilly
Indicative figures indicate one is talking about €20 million to €40 million in terms of uprating costs for the connection of more than 100 MW of wind onto the system.
What about planning permission?
Mr. John Reilly
The uprating of the line would not require planning permission. It could be commenced immediately.
That depends on whether the pylons have to be upgraded and all the rest of it.
Mr. John Reilly
The option we are considering does not involve any significant changes in existing infrastructure and therefore would not involve planning.
EirGrid is saying it is too costly, so what is the difference, roughly speaking?
Mr. John Reilly
Effectively it has indicated that upgrading the existing line would, in effect, leave the assets stranded sometime in the future because in order to connect the full capacity of the farm — and the full renewable resource that is available in north Mayo — it will ultimately have to build a 220 kV line. The incremental cost of upgrading the line, it says, to move an element of the project forward would effectively lead to stranded assets.
This means that only part of the project could be got onto the upgraded section and a completely new line would be required in the future as well as the upgraded line.
Mr. Gabriel D’Arcy
That is correct. Everybody accepts that a 220 kV line will be required to deliver the promise from that part of Ireland. The issue Bord na Móna has is that we have a substantial wind farm in that area, a substantial amount of whose capacity we believe — and I defer to our technical people in this regard — could be put on with the existing 110 kV line infrastructure. This used to be the site of an old power station. It involves co-operation between Bord na Móna and the ESB and will be done using a joint venture vehicle.
I do not want to suggest we are critical of EirGrid. We are trying to challenge to find how we can provide as much as possible on the system with the existing grid. I believe everybody is trying to do this. It becomes a technical discussion and then a costs discussion — whether one should spend X amount to upgrade the existing line. However, there is a belief that in five year's time or beyond — I do not know the date — we will be building a brand new220 kV infrastructure.
There is a renewables target of 40% in the provision of electricity. If we are to meet that target by 2020, EirGrid should be building the line now. That surely is the answer, rather than trying to do it in stages.
We know how long it will take EirGrid to build a 410 kV line through counties Meath, Cavan and Monaghan. To build a 220 kV line, it is necessary to start at the beginning of the process — it is estimated a process of approximately eight years will be required to move from design to completion. That is the problem because in the meantime the planning permission Bord na Móna has received will run out——
Mr. Gabriel D’Arcy
We are seven years into a ten year planning period for a——
We are getting into the detail. Has EirGrid actually started? If Bord na Móna knew definitely the line was coming on stream, I presume it could then deal with the matter. The local authority in the area is very keen to help Bord na Móna; therefore, there is not a difficulty in that regard.
Mr. Gabriel D’Arcy
Absolutely.
Mr. John Reilly
As Mr. D'Arcy has noted, we understand the difficulties EirGrid is encountering in rolling out the programme. Let us be clear. It has announced Grid25 and clearly identified a corridor that will include a line to County Mayo. We are very satisfied with this. However, as Deputy Coveney has alluded, the process has not yet commenced in terms of detailed route selection and so on. The reality from where we sit is that we are looking at perhaps an eight to ten year timeframe before we can connect the farm, given what has been proposed. In that situation we will be looking at a period of over 14 years from the point where planning permission is received and the farm is constructed to the point where it becomes operational. This sends a very poor signal overall with regard to Ireland's commitment to achieving the substantial 40% RES-E target.
Will it be a joint venture with EirGrid?
Mr. John Reilly
It is not a question of who builds or owns the line. The law requires that responsibility for the line would have to be returned to EirGrid. The issue revolves around the incremental cost of an interim solution in connecting a portion of the farm. That is what we will be pressing for.
If the existing line is upgraded, how much of the proposed capacity in County Mayo will the line be able to handle?
Mr. John Reilly
EirGrid would have the full detail in that regard. From technical assessments we have carried out, we believe we could harness over 100 MW from the farm which is sizeable. The interim solution about which we are talking does not involve a small farm.
It would meet approximately one quarter of the capacity required. Is that correct?
Mr. John Reilly
It would meet about about one third.
If the current line is upgraded, will it be obsolete when the new line is built?
Mr. John Reilly
That is, in effect, what is being claimed. However, I would have great difficulty with this, given the overall level of resources available. I cannot see any——
What is the position on wind energy in that regard?
Mr. John Reilly
There is 600 MW of wind energy in that corner which we would look to have connected. There is also significant potential in respect of wave and tidal developments off Belmullet. It is one of the best——
These would be smaller farms.
Mr. John Reilly
Absolutely. I could never envisage a time when the line would not be used.
Is it correct to state the cost of upgrading the line would be repaid and that the line would be of benefit within the five or six years period referred to in the case of Bord na Móna?
Mr. John Reilly
Under the process, it is up to EirGrid to decide exactly how it apportions costs. We pay a portion of the connection costs but there are additional charges under the connection charging policy. We do not have the details of how exactly it would recover these charges.
Is it the case that within the five or six-year period to which Mr. Reilly referred, EirGrid's costs would be more than compensated?
Mr. John Reilly
That is a question that would have to be put to EirGrid. We do not have the details. That is the issue. At the end of the day the customer has to pay for the development of lines.
We will have to get EirGrid back before the committee.
Mr. Gabriel D’Arcy
I have not got very far. Deputy Coveney asked about working with other State companies. We work closely with EirGrid, with which we have a good working relationship. We all understand some of the issues involved.
Coillte is the biggest supplier of biomass in the country and Bord na Móna probably has the biggest biomass need in the country. In time we will be producing peat briquettes that are biomass diluted. This year we produced peat briquettes with a 20% biomass inclusion figure. It is a technical achievement to have an ignition and a heating product that provides for an intensity of heat commensurate with that of the original product.
And that will have the same smell.
Mr. Gabriel D’Arcy
Absolutely. Deputy McManus has hit the nail on the head. Coming from the food ingredients industry and considering flavours, there are ways and means of dealing with that issue.
Under the new contract with nature, the smell might not be as important.
Mr. Gabriel D’Arcy
We will not go into that business. My colleagues and I have a close working relationship and much interaction with Coillte. Two years ago we used zero amount of biomass in our business. This year we will be using approximately 70,000 tonnes to 80,000 tonnes of biomass. That is a significant logistical shift. I will tie it in with some of the comments made by other speakers on future employment intensity. The operation of a wind farm, as opposed to digging out peat, is a very different animal in terms of employment intensity. Biomass production is an employment intensive operation. There is much distribution and key characteristics, at which we are particularly good. We operate the largest rail network in the country. It is a system of arteries and veins around each of the three power stations. Getting 360° access to these stations for large volumes of biomass is a key strength in its own right. That is something we are considering also. We work closely with Coillte and will work even more closely with it as we try to devise methodologies to secure more access to biomass.
In terms of Bord na Móna's land mass of finished bogs or others, is Mr. D'Arcy considering making a contribution to afforestation of its own land bank or is it intended to work just with Coillte?
Mr. Gabriel D’Arcy
I will ask Mr. Ryan to deal with that question.
Mr. Gerry Ryan
There are two points to make about that matter. First, we have worked closely with Coillte. We have provided it with approximately 4,000 ha of our lands on which it has engaged in forestry. Unfortunately, the quality of that forestry is not acceptable in terms of the yield achieved on the land mass. The trees seemed to do very well initially but over a longer period there were not sufficient nutrients in the ground to result in a sustainable crop. Currently, we are involved in a project with Coillte to consider whether new methods of cultivation could be used to improve the yield from such products. The focus of the project is to identify approximately 2,000 ha of additional parts of our land mass on which we could plant a coniferous forest in co-operation with Coillte. That would require new technologies in planting and preparation of the ground. We are examining the matter in co-operation with Coillte and through the COFORD and BOGFOR operations. The latter is a research project carried out in co-operation with the universities which have been heavily involved in studying what methodologies could be useful in forestry yields. We are involved in afforestation but its success rate on peatland has not been great.
Mr. Gabriel D’Arcy
I will address the question on how much of our profit is returned to the State in the form of a dividend and tie in the issue with our interaction with our shareholder because they are related issues. Mr. Barry will discuss in detail what we are required to pay in the form of a dividend. In general, the key question is how much money Bord na Móna retains to invest in its business and how much it pays in the form of a dividend. Much of what we invest in is capital intensive. From a cash point of view, the more we pay in the form of a dividend, the less the company has to invest in innovation — I referred to a figure of €50 million in this regard — and many other areas. One cannot stay stationary in business. One must have some growth mechanism or engine. It costs money to invest in innovation and technology and to acquire and retain customers.
It also costs money to borrow, which is what the State is doing. Given that the Government is borrowing €400 million a week and must carry this cost into the future, can we temporarily and for the duration of the recession try to increase dividends paid by State companies? I accept Mr. D'Arcy's point on the need to reinvest in innovation, which is what makes Bord na Móna a strong company, but can it assist its main shareholder in this period of difficulty?
Mr. Gabriel D’Arcy
We are very cognisant of our responsibilities in that domain. Beyond that, the question is one of achieving balance in terms of whether the dividend to the State is too little or too much. There is no point in taking a short-term position. While the Deputy's motivation in asking the question is good, there is no point in acting in a manner that smothers the company or parts thereof and prevents it from developing. Ultimately, we are in the business of adding shareholder value. There is no point in securing a short-term win arising from the difficult national circumstances while, at the same time, diminishing the opportunity for the company to develop for the benefit of the shareholder.
Mr. Michael Barry
The dividend rate is currently 33% of after-tax profit. Three or four years ago Bord na Móna was not paying dividends before commencing dividend payments at a rate of 25%. The figures have escalated on a sliding scale up to the current rate of 33%.
I will pick up on the point made by Mr. D'Arcy and expand on Mr. Reilly's comments on planned investment in wind farms and flexible thermal plant as well as some of the planned investments on the resource recovery side, especially in areas such as mechanical biological treatment. Bord na Móna envisages investing approximately €500 million in the next five years. The company recently raised €146 million in finance and currently has total cash of approximately €200 million. We expect the remainder of the €300 million required to come from retained profits. This sum will allow us to invest in the business and create more jobs. Any decision to increase the dividend has to be looked at in that context. If we were to increase the dividend one would be faced with two choices. One is to continue with the existing plan and leverage the company more or, alternatively, cut back on some of the investment plans. That is the kind of balance involved here.
The first of those solutions would be more appropriate, if the delegation was to do it. It would be madness to cut back on investment plans. Does the delegation have the capacity to increase the leverage within the company? If one compares Bord Na Móna and some other State companies which are in similar positions to a private company, in terms of its reliance on debt versus its asset base, it is in pretty good shape.
Mr. Michael Barry
I acknowledge that, but following recent fund-raising we have now borrowed €260 million. It is no longer a tiny number because of the investment programmes we have engaged. It is a healthy level of borrowing. There is potential volatility in our business. We are exposed to things like weather and until a month ago we had only achieved 40% of our target at harvest. Fortunately, September was good and we were able to recover somewhat. The potential impact of the 60% shortfall in harvest is a €12 million hit to our profit and loss account. In terms of maintaining covenants, as a prudent financial person I do not think it is wise to leverage the company too much. We are borrowing on the international debt markets. Our primary financiers, as a result of our recent financing, are insurance companies and pension funds in the US. We have reasonable headroom within our covenants. We need that amount of headroom. The last place I want to be is in a situation where we cannot meet our covenants.
It is a pity Mr. Barry was not running the banks.
Or the Department of Finance.
As a State company, should the focus not be on consolidating jobs and creating new jobs rather than on dividends?
Mr. Gabriel D’Arcy
The focus — I pull my hair out to convince everybody I interact with this — is to look after our customers, add value to them, compete successfully with our competitors and grow our business. Our focus emanates from that and provided we do that successfully, we can have all these lovely conversations about where the spoils go. In the first instance — this could be a national mantra — we have to get back to looking at our customers, whether they are in the United Kingdom or Ireland.
If they will not buy our products and services, we have no shortage of competition or issues regarding horticulture, which is a core part of our business with a turnover of €55 million and some €48 million in previous years because of the currency. It is an area in which we see huge opportunity. Over the past 18 months we have had to completely change the business model on which the business operates.
We have increased our productivity by some 60%. We have had to take some serious marketing decisions. We operate in a competitive environment. I know this is a public meeting so the committee will excuse me if I do not discuss certain matters — there are elements of confidentiality from a business point of view. We had to take some serious operating and marketing decisions. We have done that and have created a solid platform in an incredibly difficult market which, if we get it right, has opportunities for us to grow. We have given ourselves a platform and a window of opportunity to grow.
It is tied in with many issues associated with the question the Deputy asked regarding how much investment goes back to the State and how much does not. Deputy Coveney is right to compare us to third party organisations which are non-State owned. Our ratios are healthy in that respect. As Mr. Barry said, this has to be minded on a daily basis. It does not happen automatically and there are huge challenges. When we leave the committee, we will be back into a melee in which we will be trying to get our strategy and internal and external alignment right to enable us to continue to grow the business. That is the only way we can operate.
We also hope to be able to grow employment. Deputy McManus is correct to say the skills sets we will need will be very different from those we needed in the past. For peat operations we will leverage the skills we have picked up in shipping large quantities of material. Our distribution capability and knowledge of fuel markets and power generation are significant skills which we will leverage for different fuel sources and growing the export business in clean technology and horticulture.
Another member asked about European markets and whether we were over-exposed to the UK market. We largely supply into European markets at raw material level. The total value of sales into European markets might have been of the order of €10 million and that figure will grow. In value-added markets for packaged retail products our first horizon is to become the major player in the United Kingdom and Ireland. The United Kingdom is our nearest mass market and one in which we will succeed, using it as a bridgehead to the European theatre for more value-added materials. We supply the European theatre predominantly with bulk commodity material.
We have spoken about what prevented the development of renewable energy and the assistance we required. We have also dealt with regulatory blockage. I will ask Mr. Walsh, director of resource recovery division, to deal with that topic.
Mr. Tom Walsh
Deputy Coveney asked about organic waste, to which our approach is quite straightforward. We believe the best place to deal with it is at the point of waste generation. We are rolling out an extensive programme of source segregated collection for brown bin materials, kitchen, retail, catering and horticulture wastes. This is happening in the midlands and will be extended to our secondary markets in the next year. The principal objective for domestic waste is to increase the landfill diversion rate from 25% of the typical contents of a recycling bin to 50% by also capturing the organic wastes in the brown bin. That is proving effective in terms of timing. We are very conscious that there is a significant organic content in the residual bin. Our plans for dealing with this material fall under the umbrella of mechanical biological treatment, MBT. As Mr. Barry said, we have plans for a large MBT facility by 2011-12 at one of two sites within the existing Bord na Móna infrastructure.
We talked about what we wanted from the joint committee. We are very much looking forward to completion of the review of our waste policy that is currently being conducted by the Minister for the Environment, Heritage and Local Government. The first stage of that will be the publication of a review of international best practice, which we expect between now and the end of the year. From our consultation under that process, it is evident the policy direction will support MBT-type technologies. These are technologies that mechanically separate co-mingled wastes and apply a form of biotreatment to the organic component, be it through composting or anaerobic digestion.
In so far as we understand the process, we applaud it and are seeking to come to a conclusion. Having said that, and ignoring matters of policy, an issue arises for us that is very relevant to our investments in this area, namely, large-scale mass-burn incineration. We are not averse to the recovery of energy from waste and believe it has a place. However, it should be opted for after all the higher order options have been chosen. Valuable resources such as paper, plastics and cardboard should be recovered and put back into closed-route recycling before one attempts to extract energy. We are concerned that large-scale incineration, as proposed at Poolbeg, will be of such a scale that it will inhibit our ability, or that of anybody else, to invest in the more refined treatments we consider to have a place in Irish waste management policy. That is a very relevant issue for us.
Is there a proposal for an incinerator in the midlands or anywhere else?
Mr. Tom Walsh
No. I answer that question categorically.
Is the ground being prepared for one?
Mr. Tom Walsh
To be frank, energy extraction can be conducted in many different forms.
It is a question of incineration after all the other factors are dealt with. Has the company plans to engage in incineration?
Mr. Tom Walsh
No.
Is it preparing plans for incineration?
Mr. Tom Walsh
No.
The material Bord na Móna would be able to use will be hived off for Poolbeg and, at a very basic level, it will be burned.
Mr. Tom Walsh
That is correct.
Send it up to the Minister, Deputy John Gormley.
Mr. Tom Walsh
Indeed.
The issue at Poolbeg is purely one of scale. It is of such a scale that, once the infrastructure is in place, the marginal cost of sending material to it will be quite low. That will act as a magnet for waste, not just from Dublin but from most parts of the 26 counties.
Has a presentation been made to the Department of the Environment, Heritage and Local Government on this?
Mr. Tom Walsh
We have made a presentation touching on this issue to that Department. Our views are well known to the Minister.
I asked about the relationship between the shareholder and the company in terms of strategic direction. Who is responsible for having the shareholders' interests comprise part of the company's decision-making process? Is this done at board level? I understand exactly how the Esat shareholder voice will be heard. What is the point in the State owning Bord na Móna if there is no input in terms of the strategic direction of the country? Where does this interaction take place? Does it involve the Department, the board, the Minister's appointees to the board or the Minister?
Mr. Gabriel D’Arcy
The State is a 95% shareholder. The custodian of the relationship between the agency and the State is the Department of Communications, Energy and Natural Resources. There are 12 members on the board, of whom four are elected from the employees of the company. I am a member of the board and the remaining seven are appointed by the Minister. Seven members of the 12 member board are appointed by the Minister on behalf of the shareholder.
On a quarterly basis, at the very minimum, I interact with an assistant secretary, Ms Sarah White, in the Department. I also interact with other board members. Bord na Móna sits in the Department of Communications, Energy and Natural Resources. While a substantial amount of our discussion, as seen today, concerns energy, a huge amount of what we do has nothing to do with energy. It has to do with the environment, biodiversity, horticulture and trading, which, in isolation, have nothing to do with energy. In that context, I make a point of going to people in the Department of the Environment, Heritage and Local Government and meeting officials of that Department, if not the Minister, on a six monthly basis to discuss issues, areas of opportunity and company strategy, to get alignment. It would be hypocritical for a company which is majority owned by the State to employ a strategy which is counter to Government policy.
By the same token, we operate in the real commercial world. When negotiating a contract of supply with a customer and competing with privately owned companies one is in the commercial world, which is slightly different from the world of many State, semi-State or public service companies. We get that balance right by communication. On a quarterly basis I meet officials of the Department. I meet the Minister on a six monthly basis, on average, and we discuss strategy and policy. Items such as those we are discussing this morning come up. Elements are challenged and so forth.
Deputy McManus referred to changes in employment. The skill sets required in the future will be different. Over the next 15 to 20 years we will deplete our peat resources, replacing peat with biomass and involving other materials. That will change the type of activities in which most of the company's employees are currently engaged.
The question of the role of the semi-State company is a philosophical one. We are a management team put in place to manage, to the best of our abilities with best management practice, a commercial entity which is majority owned by the State. Does our ownership structure impede us in what we are doing? No, it does not. Does it enhance what we are doing? In some cases it does and in more cases it may not. For instance, it helps us in international financial markets and so forth. What is the future of that relationship? That is a political question. We are here as a professional management team setting forth a vision for this great organisation which is 75 years old. I have studied this issue. All of us at this table try to keep our academic and business practice aligned. From my most recent study has emerged the issue of companies which were in existence 75 years ago, in Ireland and globally, and of how many are in existence today. If one examines the matter in greater detail, one will see that the accurate figure is much less than 5% — I would say it is less than 1%. If one examines the characteristics shared by the 1% of companies which have survived but not by the 99% of companies which have gone out of business, one will encounter a recurring theme — the ability of such companies to rejuvenate, innovate and move onto the next horizon. I will give the committee a brief example. Nokia, the biggest camera company in the world and also well known as a mobile phone company, started off over 90 years ago as a lumbering company. Over time the company became involved in the distribution and processing of timber before ending up in the mobile phone and photography businesses.
That is what Bord na Móna has done and will continue to do. I accept that the report of an bord snip nua has asked what the purpose of Bord na Móna will be if it is no longer involved in the extraction of peat, etc., which is what it was set up to do. That is a philosophical question. The management team and the committed employees of Bord na Móna have built up many capabilities over many years. I am trying to harness these capabilities in a leadership role in the context of a rapidly changing environment. That is what we are about. I am sure that when representatives of Bord na Móna come before an Oireachtas committee in 75 years time and are asked about what the company has been doing over its 150 years of existence, they will speak about a company which is very different from the company which exists today.
Perhaps Bord na Móna will be selling cameras.
Mr. Gabriel D’Arcy
God knows what we will be doing. I am trying to make the point——
Never mind Bord na Móna — there will be no Oireachtas at the time if a certain Minister has his way.
Mr. Gabriel D’Arcy
He would want to put a lot of formaldehyde into his bloodstream. I will not engage with the committee on such issues. It is up to the shareholder to decide what he or she wants. The management team of Bord na Móna is committed to aligning best management practices with the big market opportunities. That is compliant and consistent with what is being said by enlightened people who know a little about climate change, etc. It is totally aligned with it.
I hope I have spoken about developments in County Mayo to the satisfaction of the committee. I ask my colleague, Mr. Walsh, to pick up on an interesting point made about the recycling of domestic green waste.
Mr. Tom Walsh
The traditional outlets for domestic green waste have been civic amenity centres, which are typically sponsored by local authorities but run by private interests, and home composting. One of the reasons the industry has not presented a dedicated solution for green waste is that we live in an environment that is not densely populated. The benefits of the collection of this form of waste have to be measured in the context of the environmental impact of such activity. It might not be sensible to encourage eight-wheel refuse collection trucks which tend to do three miles to the gallon to travel the roads of Ireland collecting domestic green waste.
Our business has ensured the third bin — the organic bin — is able to take garden, horticultural and green waste, as well as brown waste materials such as foodstuffs. That is an important innovation. We notice that in the summer months there is a 200% spike in the volumes we take from household bins out on the street. People use these bins for their garden waste collection, as well as their kitchen, food and organic waste collection. We were encouraged by the direction issued by the Minister for the Environment, Heritage and Local Government earlier this year in which he directed local authorities to put in place by-laws to require all collectors of waste to provide third bin collection systems in centres of population above a certain threshold, typically 1,000 or 1,500 people. Most villages are covered by this requirement. Now that these by-laws are in place and being rolled out in some cases, we are looking forward to seeing the extent to which they will be enforced by local authorities. Getting out those brown bins is a practical and quick solution to the issue bearing down on us in terms of European Union landfill directives and the removal of organic waste from landfill. Large-scale mechanical biological treatment, MBT, plants certainly have a role to play, but taking into account planning lead times, construction lead times and so on, they are a solution for three years' time. In the meantime, we have at our disposal the ability quickly to put in place an effective solution through our existing collection networks. In this regard, we are encouraging local authorities to ensure the by-laws being put in place are enforced to that effect.
Mr. Gabriel D’Arcy
I have dealt with the questions on eurozone markets. The issue of the implications for innovation of the shortage of engineering graduates and so forth is part of a broader question. Bord na Móna will be represented at the graduate recruitment fair. Our need for scientists and engineers is probably proportionately more than that of many other companies because of the nature of what we are doing and our future plans. Perhaps Mr. Reilly will expand on this in reference to Deputy McManus's questions about electrical engineering.
Mr. John Reilly
Electrical engineering is a key skill or resource which Ireland Inc. is lacking. In terms of links with universities, Bord na Móna is heavily involved with the electricity and research centre, ERC, in UCD which facilitates co-operation among a group of companies involved in electricity research. Tapping into that collaborative effort represents the best use of our innovation resource rather than trying to do something independently. The ERC has consistently focused on the potential shortage of electrical engineers to build the grids we are planning and to meet the challenges we face in terms of producing energy in a new way into the future. We continuously seek to promote and support the acquisition of electrical engineering and science skillsets through the medium of the ERC.
We are also involved in the Energy Needs Ireland programme which has been expanded down to undergraduate level and is currently being introduced into secondary schools. The objective of that initiative is to promote engineering and energy disciplines and challenges as "sexy" issues which the students of tomorrow are encouraged to focus on from an early age. Bord na Móna is very much involved in that through our contacts with the universities.
Mr. Gabriel D’Arcy
I hope Deputy McManus's question has been answered to her satisfaction.
Yes.
Mr. Gabriel D’Arcy
Deputy Coonan had several questions, most of which related to Bord na Móna's land and property. He addressed one question to me regarding my salary and bonus. My total annual salary is approximately €320,000.
Pat Kenny would not be happy with that.
Mr. Gabriel D’Arcy
That is for Mr. Kenny to comment on. I joined Bord na Móna last February from the Kerry Group where I was commercial director of Kerry Ingredients — Europe. Deputy Coonan observed that pay is too much reliant on bonuses and so on. Included in my total remuneration is a performance-related element of 25% which relates to various criteria to do with the profitability of the company and key targets that are agreed between me and the remuneration committee of the board and in respect of which there is input from the shareholder and so forth. The sum of €320,000 also includes a contribution to my pension of the order of——
My point related to maintenance workers, whether engineers or others, who, having come back to Bord na Móna, are finding it difficult to survive on the salary they receive were it not for the bonus components. I am talking about a term up to three weeks or one month ago where, after a poor summer, such persons were struggling.
Mr. Gabriel D’Arcy
Indeed.
That is the point I was making. I am not so much interested in Mr. D'Arcy's salary as in the basic salary scale for such employees.
Mr. Gabriel D’Arcy
The bottom line — and I can give the Deputy the details separately — is that employees in Bord na Móna are relatively well paid and enjoy relatively secure employment. I make no apologies for that. As the Chairman said, the staff of Bord na Móna work hard in all sorts of inclement weather. It is a great organisation that he was able to come back to when things were so difficult outside. Thankfully we were able to provide Deputy Coonan's constituent with that opportunity.
The post was advertised.
Mr. Gabriel D’Arcy
I am sure that the advertisement included the rates of pay commensurate with the role. If he had a difficulty with that, perhaps I could revert to the Deputy later as I do not have the details.
For everybody on the management team and in the organisation, a large percentage of pay is performance-related. I came from an organisation in which more and more of the salary was performance-related. It is a philosophical issue. I propose that more rather than less of my pay is based on performance. In other words that I get a salary, of which 50% is paid on a monthly basis to cover my mortgage and expenses, and the other 50% is paid on the basis of my team and I achieving certain key targets that are commensurate with our strategies, as if we were the shareholders.
May I interrupt Mr. D'Arcy as there is a vote in the Dáil? Could Mr. D'Arcy go through the remaining items quickly?
Mr. Gabriel D’Arcy
Indeed.
Mr. Gerry Ryan
In response to Deputy Coonan's question on how Bord na Móna deals with its neighbours, it is policy to behave at all times as a good neighbour and to co-operate with neighbours in so far as possible. However, members will understand that with a land mass of 200,000 acres with approximately 160 different operational sites, there are a large number of neighbours and it is inevitable that issues will arise from time to time. We try to resolve issues as amicably as we can. We are concerned to ensure we understand what the issues are and we like our local staff to deal with the issues as they understand all of the nuances that we may not know.
It is worth saying that Bord na Móna operates all its activities on the basis of licences issued by the EPA, which places certain constraints in terms of silt and flooding control. We have a very good record of complying fully with the licences. If Deputy Coonan has a specific issue which he wishes to raise, I will be happy to deal with it off-line.
The bell has saved Mr. Ryan.
If there are major issues that have not been dealt with, would Mr. D'Arcy send a note to the secretariat and it will be circulated to the members?
On behalf of the members who are on their way to vote, I thank Mr. D'Arcy and his team for a very comprehensive presentation. We have gone way over time which is a testament to the level of interest in the annual report of Bord na Móna.
We make off-site visits and it would be interesting to visit Bord na Móna.
Can that be organised between the clerk and the management team?
Mr. Gabriel D’Arcy
We would like to facilitate that.
Again my apologies for the abrupt departure of members but we must vote. This was a worthwhile meeting.