Molaim an Bille don Teach. I commend this Bill to Seanad Éireann.
The purpose of this Bill is to raise the ESB's statutory borrowing limit which will facilitate its major infrastructure investment programme being undertaken. This includes significant investment in renewing and upgrading the electricity network. The statutory borrowing limit currently stands at £1.6 billion which is equivalent to €2.03 billion, which has remained unchanged for the past 22 years. The Bill proposes raising this limit to €6 billion to take account of the current reality of the economy.
Management of the ESB's finances is a matter for the board and management of the company. The board has discharged its fiduciary duty prudently down through the years. Towards the end 2003, the ESB became more acutely aware of the constraint which the existing borrowing limit was putting on the company. It became apparent that for the company to accomplish its significant capital expenditure programme, it would need to rely more extensively on its borrowing capacity and that it could not continue business as usual within the confines of the existing limit.
The ESB's borrowing level is almost at €2 billion which is very close to the existing limit. Although the company has employed tight management of its cash outflows over the last several months, the remaining cash balance is expected to be exhausted by the end of May, assuming no unexpected demands for cash in the intervening period. The urgency in passing this legislation is, therefore, essential for the company to continue to operate effectively. I thank the Seanad for its co-operation in allowing for the possibility of the Bill passing all Stages today. The Government had initially decided to include the new statutory borrowing provision in the proposed Energy (Miscellaneous Provisions) Bill 2004. However, the Attorney General subsequently advised me that a stand-alone Bill dealing solely with the ESB statutory borrowing issue would be more appropriate in view of the time constraint on the enactment of this new legislative provision. The Energy (Miscellaneous Provisions) Bill 2004 will now be published later this year.
I will outline the background to ESB's expenditure programme and overall borrowing requirement. In 1982, when the borrowing limit was last set, the annual capital expenditure for ESB was in the region of £200 million, which is approximately €254 million. This year, the approved annual capital spend will be up to €1.4 billion, nearly six times what it was in 1982. This is an all-time peak level for the company and is reflective of the enormous range of infrastructural development being undertaken at this time. However, capital spending of this magnitude is not envisaged as the norm for the foreseeable future. ESB views this trend as reaching its peak in 2004 and then taking a downward turn over the next five years. By 2008 the company expects its capital spend to be around €650 million, which is about half of the current expenditure levels. This will bring the company back in line with its more normal spending trends.
It is appreciated that tripling the limit from €2.03 billion to €6 billion in one go may seem to be a quantum leap. I will provide some context for the existing and proposed limit figures. A total of €2.03 billion in 1982 terms is now approximately equivalent to €4.31 billion in 2004 terms. This gives some perspective on the proposed new limit of €6 billion. ESB has advised that its borrowings will increase to nearly €4 billion by 2008. Facilities of €1 billion are required for liquidity purposes. It is intended that these facilities will remain undrawn unless absolutely necessary. It is proposed to factor in an additional €1 billion, thus bringing the limit to €6 billion in total. Given the ever-present pressures on Government legislation programmes, it is considered prudent to use Oireachtas time wisely and not to be returning for piecemeal statutory revisions on a frequent basis. It should also be remembered that the current statutory limit had sufficient headroom built into it to cover the company for the past 22 years. The actual requirements and the projected headroom built in to the amount of the proposed new limit of €6 billion should see the company in good stead for the foreseeable future.
The aim of ESB's debt strategy is to ensure there is sufficient liquidity in the company; to ensure flexible terms and conditions consistent with the achievement of the corporate strategy of the company; to minimise the cost of debt while optimising the debt mix; to develop strong relationships with a key group of banks; and to ensure a diversity of funding sources. ESB has many sources of financing, including the European Investment Bank, syndicated facilities and bilaterals, leases, the private placement market and non-recourse financing. Having a range of different sources at its disposal provides the company with greater opportunity to avail of the best terms and keenest rates on offer. Keen funding rates underpin a more cost-effective capital expenditure programme.
The putting in place of the US private placement in December 2003 has given the company a significant financial boost. The $1 billion deal, equivalent to €868 million, is intended to fund major improvements in the power infrastructure in this country. The private placement market was an attractive option for ESB because of the range of maturities and the competitive interest rates available. It provided ESB with another source of long-term financing at keen rates. Two leading banks, ABN Amro and Barclays Capital, jointly arranged the financial deal with the principal participants being insurance companies and some pension funds. The very positive response of the private placement market is a measure of the high standing in which ESB is held internationally and also a vote of confidence in the Irish economy. ESB has not ruled outsourcing further funds in the private placement market in the future. ESB also entered into a separate €500 million revolving credit facility at the end of 2003. The facility, which was co-ordinated by the Royal Bank of Scotland, will be drawn when necessary to ensure liquidity is constantly available and will therefore assist ESB's overall funding programme.
One of the main beneficiaries of the increased revenue stream is ESB's infrastructure investment programme. Investment over the next five years is expected to reach almost €4 billion. This is designed to cater for the strong increase in demand for electricity in the Irish market and will support development of the national economy. In 2003, ESB invested more than €650 million in the development and renewal of the network infrastructure in Ireland. The replacement and upgrading of almost 17,000 km of distribution network was completed and a record 77,000 new customers were connected to the system. For 2004, the company has a target of 20,000 km of network renewal scheduled for completion.
In any consideration of the future of ESB my views are already known. I strongly oppose the privatisation of the transmission and distribution systems, which are critical national assets and should remain in State ownership. I am also opposed to any privatisation which would result in a private monopoly or near-monopoly in the power generation sector. I confirm here what I said to the Oireachtas Joint Committee on Communications, Marine and Natural Resources recently, the privatisation of any part of the company is not on my agenda.
The renewal and investment in ESB's generation portfolio both here and abroad is continuing in line with the company's corporate strategy. During 2003 agreement was reached on the closure of the old peat-fired generating stations at Rhode, Shannonbridge, Lanesboro, Caherciveen and Bellacorick. Their orderly decommissioning will take place as two new state-of-the-art peat stations at Lanesboro and Shannonbridge come into production later this year and early next year respectively.
ESB's international investment programme promotes the good reputation of the company among global energy utilities. Two major international power generation projects are expected to come to fruition shortly. These are the new 400 MW plant which will be commissioned in early 2005 in Coolkeeragh, near Derry, and a new 750 MW plant in Amorebieta, near Bilbao in northern Spain, which is due to be commissioned in late 2005.
A decision on the future of the coal-fired station at Moneypoint must be made over the coming weeks. ESB is considering what commercial decisions it should take as an investment of around €250 million would be required for emissions cleaning technology to ensure compliance with environmental obligations and maintain the plant in operation for the long term. If Moneypoint is not to be upgraded to comply with the new environmental requirements it must close by 2011 and an alternative electricity generating plant, probably gas-fired, would have to be in place by that time. If the company is to justify major new investment in Moneypoint it must be in the context of benchmarked best practice in all respects.
The Bill before the House is short, with only two sections. Section 1 is the main provision and gives effect to the change of limit to €6 billion by amending subsection (4) of section 4 of the Electricity (Supply) (Amendment) Act 1954. This section of the 1954 Act was originally amended when the borrowing limit was raised to its current level of £1.6 billion by the Electricity (Supply) (Amendment) Act 1982. The new subsection (4) repeats exactly the wording of the existing subsection (4) except for the change from the amount in pounds to the new higher amount in euro.
Given the nature of the amendment and the size of the provision, the Office of the Parliamentary Counsel felt it more appropriate to restate the subsection in its entirety with the new higher amount rather than making the amendment by the isolated substitution of the monetary amount. I concur with this approach as it facilitates a clearer understanding of what is being proposed by all who will read this Bill. Transparency and clarity of understanding is a key tenet of the Government's White Paper on better regulation, which was launched by the Taoiseach in January this year and the approach being taken in this Bill is in line with the spirit of easier accessibility of legislative provisions. Section 2 provides for the Short Title, collective citation and construction of the Bill and is a standard drafting provision.
ESB is one of the major State companies and its operations and service affect the entire economy and every citizen. It is a major source of employment and its expenditure budgets are substantial by any standards. This year marks the company's 77th year in business. I commend the board, management and staff for their commitment and professionalism in delivering reliable electricity down through the years. There are many further challenges and opportunities facing ESB in the deregulated energy and electricity markets. ESB is changing and adapting to meet the new demands of the energy sector. I wish the company well as it continues to adjust in the new area of deregulation, and in its endeavours to give the country a high quality electricity supply and infrastructure. I hope the foregoing will give Senators a reasonable summary and outline of the ESB's borrowing requirement in the context of the present infrastructure investment programme. I will be glad to provide any further information to the Senators to facilitate their consideration of the Bill, and I thank them again for their forbearance in bringing the Bill quickly through the House.