I thank the Chairman for inviting me to discuss these important issues. I am accompanied by the officials he named and by Ms Eileen Fitzpatrick, the director of NewERA, which will soon have statutory responsibility for managing State assets, looking at a national State shareholding investment profile and getting good value for the State's shareholding in companies in the semi-state sector. I would prefer to deliver my presentation in a structured way. I will answer the question asked by the Chairman in the course of setting out the full position, as it now stands, regarding the sale of State assets.
The committee is well aware of the position this Government inherited when it took office. The economy was in crisis and the State was unable to fund itself. We were completely dependent on funding from the EU and the IMF for our day-to-day spending under a programme negotiated by the previous Administration. The original EU-IMF programme dealt with the issue of asset disposals, among other matters. It required the Irish authorities to undertake an independent assessment of the electricity and gas sectors, building on the work of the review group on State assets and liabilities, and to then consult the Commission with a view to setting appropriate targets for the privatisation of State-owned assets. The work of the review group on State assets and liabilities, which was chaired by Colm McCarthy and had been commissioned by the previous Government, was still in train at that time but was approaching finalisation. When the group subsequently reported in April 2011, it concluded that the realisation of proceeds from the sale of State assets offered the potential to assist in tackling the fiscal crisis by reducing the debt burden on the State and by supporting economic recovery through enhanced productivity, efficiency and competitiveness. It recommended that a planned programme of non-strategic asset sales should be undertaken.
When the two Government parties negotiated a programme for Government in 2011, we recognised that a new approach to the management and use of State assets was required as part of the overall solution to the fiscal crisis. In that context, we agreed that the NewERA concept would be developed as a new way of seeking to manage more effectively our commercial State companies in the key sectors of energy, telecommunications, forestry and water. We also agreed to seek to release value from the State’s portfolio of assets to free up badly needed resources which could be used for investment purposes to help to stimulate growth and employment. A target of €2 billion from the sale of non-strategic State assets was agreed in the programme for Government, drawing from the recommendations of the review group on State assets and liabilities, but with the assets only to be sold when market conditions were right and when adequate regulatory structures had been established to protect consumer rights.
It is well established and well documented that during our negotiations with the EU-IMF troika, initially there was very little willingness on the part of the troika to allow us to retain any proceeds from our asset disposal programme. They wanted us to use all of the proceeds for debt reduction. They also wanted us to engage in an asset disposal programme on a much larger scale than had been agreed in the programme for Government. Very tough negotiations over a protracted period of time were required before we finally got an acceptable deal on these matters. I visited Brussels as part of the negotiation process, in addition to the negotiations that took place during the many troika missions to Ireland. I believe we got a satisfactory deal in the end. I secured an agreement that, in return for increasing the level of ambition of our asset disposal programme to a €3 billion target, we could retain half of the proceeds to fund additional employment-enhancing projects of a commercial nature. It was further agreed that the other half of the proceeds, while eventually destined to pay down debt, could also be retained and, in the first instance, constituted as a fund to underpin additional lending into Ireland in support of further investment in job creation initiatives. If members are interested in the mechanics of that, I can explain them in some detail.
Importantly, we agreed that there would be no fire sales, that assets would be sold on acceptable terms and at a price that achieved fair value for the Exchequer, and that key strategic assets, such as our electricity and gas transmission and distribution systems, were not for sale but would be retained in State ownership. It was on that basis that the Government last year agreed the composition of a programme of asset disposals, with a target of realising proceeds of up to €3 billion. The programme involves four key elements. First, we agreed the sale of Bord Gáis Éireann’s energy business, not including its gas transmission or distribution systems or the two gas interconnectors. As I have said, they will always remain in State ownership. Second, we agreed the sale of some of the ESB’s non-strategic power generation capacity. Third, we agreed the disposal of the State’s remaining shareholding in Aer Lingus when market conditions are favourable and on terms that are acceptable to the Government. Fourth, after further consideration and after ruling out the sale of Coillte’s land holdings, the Government determined that a concession for the harvesting rights of Coillte forests represented at that time the best option to release value from Coillte in the short to medium term.
Interdepartmental steering groups were established to prepare for the disposal of each of these assets and, ultimately, to oversee the actual disposal transactions. These steering groups comprised representatives of the Department of Public Expenditure and Reform, the relevant sectoral Departments, the Department of Finance and NewERA. The steering groups have worked closely with the management of the individual companies to analyse the various financial, policy and technical issues that may arise in connection with the proposed transactions. They also prepared detailed valuations in each case. I will outline the latest position regarding each of the assets. After months of planning, Bord Gáis Éireann formally launched the sale process for its energy business, Bord Gáis Energy, on 3 May last. The closing date for initial bids under the first round of the sale process was 12 June. The board of Bord Gáis Éireann, along with its advisers and assisted by NewERA, is handling the disposal process. It is currently assessing the initial bids that have been received with a view to selecting the final bids to be brought forward for the second stage of the process. The interdepartmental steering group is overseeing the process on behalf of the Government. The transaction is expected to be concluded before the end of this year.
The ESB made an announcement last October regarding the sale of some of its non-strategic generation capacity, involving a package of assets being brought to the market on a phased basis commencing in 2013. In February, the ESB announced its intention to sell its 50% shareholding in each of its international tolling plants - Marchwood in the United Kingdom and Amorbieta in Spain. The Marchwood transaction formally commenced on 28 May last and the Amorbieta transaction is expected to be formally launched this week. Both transactions are expected to be completed before the end of this year. Work is also continuing on planning for the further components of the ESB's disposal package that were announced by the company last October. Details of these further components will be made public by the ESB, subject to commercial considerations, in due course.
The European Commission recently completed its investigation of Ryanair’s bid for Aer Lingus. The UK Competition Commission's investigation is ongoing. These investigations have been complicating factors in the disposal of this asset. The UK Competition Commission has issued a provisional finding that Ryanair's shareholding gives it the ability to influence the commercial policy and strategy of Aer Lingus on routes between Britain and Ireland. Its final findings are expected early next month. These matters will continue to be taken into account in the Government’s plans for how to proceed with the disposal of its stake in that company.
However, it is the Government’s view that optimal conditions do not currently exist for a sale of the Government’s remaining shareholding. Nevertheless, it remains open to considering opportunities to dispose of its shareholding and will, in the meantime, continue to manage the holding in a responsible manner to protect the State's interests, with the aim of maximising its value.
With regard to Coillte, a number of detailed financial, technical and other specialist reports were prepared for the company in late 2012 by external specialist consultancy bodies, in full consultation with the board of Coillte and its executive management. These covered all of the issues that have been raised by various interest groups, and on which I answered questions in the House on many occasions, including replanting obligations to ensure the continued existence of our forests, harvesting policy, the supply of timber to sawmills and the implications for a post-transaction Coillte. The reports concluded that a disposal of Coillte’s harvesting rights, which comprise much of the current value in the company, would have major implications for the future viability of the remaining business, particularly given its significant capital requirements.
The reports have been considered by the interdepartmental steering group established to oversee the Coillte transaction process, which recently reported to the Minister for Agriculture, Food and the Marine and me regarding its work to date. The outcome of this work was considered by the Government at its meeting this afternoon. The Government has agreed with the joint recommendation made by me and the Minister for Agriculture, Food and the Marine that it is not an appropriate time to proceed with the sale of harvesting rights in Coillte. Instead, the focus must be on the restructuring of Coillte as a company to address the issues that were identified in the reviews undertaken. To this end, the company is to undergo a fundamental restructuring to be overseen by NewERA and the relevant stakeholder Departments, namely, the Departments of Agriculture, Food and the Marine and Public Expenditure and Reform, which will include operational streamlining, financial deleveraging and a critical examination of the disposal options for its non-core activities such as telecoms and wind. A robust analysis will also be carried out to evaluate how to give effect to a beneficial merger of Coillte with Bord na Móna to create a streamlined and refocused commercial State company operating in the bio-energy and forestry sectors, as committed to in the programme for Government. A priority in this regard will be the annual delivery by Coillte of a material financial dividend to the State. We intend to fill the significant number of vacancies that will arise on the Coillte board this year by persons with relevant experience and commercial expertise to drive the restructuring process and merger with Bord na Móna if approved by Government.
I propose to comment on how we propose to use the proceeds generated from these asset disposals, as this is the reason we embarked on the process in the first instance. As members will be aware, it has been the Government’s consistent position that funds released from disposals should be used to support job creating initiatives in the economy. As I outlined, the agreement reached with the troika was that all of the Government’s proceeds from the State asset disposal programme will potentially be available, in one shape or another, for job creation.
The infrastructure stimulus plan I announced in July 2012 included an Exchequer element of €850 million to be funded through some of the proceeds of the sale of State assets and the new licensing arrangements for the national lottery. This money will be used as a project preparation facility for the new public private partnership programme and to fund additional Exchequer capital projects and other commercial and publicly needed projects.
The €150 million Exchequer investment I announced on 5 June represents the first phase of this Exchequer stimulus to support further investment in schools, non-national roads and housing insulation and refit. While this is a modest level of funding, it is additional to the €3.4 billion capital programme for this year and will be augmented over time once proceeds come on stream and additional projects are identified by the Government.
My Department, in conjunction with relevant spending Departments, will assess what further projects we can invest in once the proceeds are realised later this year. We will need to consider this issue carefully in the coming months. Any potential further projects for investment must be aligned with Government priorities, must meet infrastructural deficits and must pass all of the appraisal and evaluation tests associated with capital projects, an issue that members have underlined repeatedly.
The policy pursued by the Government over the past two years, in terms of the approach taken to release value from some of our non-strategic State assets to realise additional funds to help fund a stimulus programme remains valid and appropriate in the current circumstances. I am confident that the asset disposals we have outlined will be implemented in an efficient and effective manner and the proceeds generated will facilitate much needed additional investment in worthwhile projects in the months ahead in support of our common objective of economic recovery. I will answer any questions members may wish to raise on these matters.
The joint committee is interested in considering the quarterly position as regards expenditure, having recently discussed the position as regards taxes and revenue with my colleague, the Minister for Finance. Obviously, a key feature of the expenditure management structure is that responsibility and accountability for each area of spending lies, in the first instance, with the relevant line Minister and his or her Department. In addition, a range of Oireachtas committees have a remit in the various sectoral spending areas. I will be pleased to explore with the committee how best to approach this matter, including the basis the Chairman outlined, while being mindful of the roles of spending Ministers, their Departments and other committees of the House.
