Absolutely. It would remove the capacity of the Minister for Finance to guarantee borrowing by the Authority. This section gives the Minister for Finance the power to guarantee borrowings by the Irish Aviation Authority of up to £80 million. I must emphasise that the Minister is enabled in legislation to give these guarantees, he is not obliged to give them. With the Minister's guarantee the Authority will be able to borrow at a significantly cheaper interest rate. I am sure I do not have to emphasise that lower interest rate payments will give the Authority a competitive edge in the international market.
In setting both the borrowing figure at £100 million and the guaranteed figure at £80 million we took into account the Authority's potential future borrowing requirements. Over the coming decade or so, the Authority's capital development programme will cost approximately £60 million at current prices. Senators have argued that if the Authority is a good credit risk it will not need a ministerial guarantee of its borrowings and that if it is a bad credit risk it should not be borrowing at all, which would be stagnation. That would be ideal but we must be practical in a commercial world.
Its initial borrowing requirements will be determined by the capitalisation for the Authority involving fixed and current assets of £30 million and by its working capital requirements. Thus, the Authority which must be fully operational from vesting day will have a substantial initial borrowing requirement of a minimum of £10 million and a maximum of £20 million. The absence of a ministerial guarantee, especially in the initial years would make it difficult, expensive and perhaps impossible for the Authority to engage essential borrowings. As the House will appreciate, to accept Senator Quinn's amendment would strangle the Authority. Therefore it cannot be accepted.
I would like to mention the wider concern about £100 million and the £80 million guarantee and the comparisons made with the projected capital programme of £60 million. The next decade will see rapid and unprecedented changes in air navigation services. Satellites, synthetic radar and advance computing techniques will revolutionise airspace and air traffic management. We must be sure that the Authority has the expertise and the financial capacity to meet those challenges.
I would like to give some figures for comparison purposes. In Britain, the Civil Aviation Authority has a borrowing capacity of £500 million, all of which is guaranteed as most of the borrowings are made direct from the Exchequer through the public sector borrowing requirement. We have a large block of strategic airspace and we intend to ensure that we will always operate effectively and efficiently.
To deprive or radically reduce the Authority's capacity to borrow or have those borrowings guaranteed would give a strong and incorrect signal to the international aviation community. Depriving or reducing these limits would be equivalent to a supermarket chain signalling that it did not intend to defend its market share.
For some years ANSO has had a commercial insurance policy worth $1 billion to protect the Exchequer in the event of a catastrophic accident. We hope, pray and plan that we will never have to call on that insurance cover. However, simple prudence dictates that we should have it. Similarly in the case of the borrowing and guarantee limits, they may never be reached or required but we are putting them in place to demonstrate our determination and commitment in this area.
It is clear on any commercial criterion that if one has assets, one pledges them. Projection and anticipated performance is shown and borrowings are divided. One has one's equity ratio, liquidity and reserves and guarantees are given. Personal guarantees may be given in normal commercial life by directors of companies but they do not have to given by the State.
It is different in the State sector but in the normal situation subsidiaries are established and corporate guarantees are given by the parent company against borrowings by subsidiaries. It is a normal relationship in any corporate operation. In this case, we are removing the organisation from the Civil Service, asking it to have shares, giving it assets, equity and a normal commercial mandate.
In order for it to perform, we must put it in an environment where it has the security of the State as it is being asked by the State, on behalf of the taxpayer, to perform in a commercial environment without the security of the State carrying its expenditure. We must maintain the guarantee so that it is given a fair chance to compete in a difficult international environment and expand to contribute to the nation.
