SELECT COMMITTEE ON COMMUNICATIONS, MARINE AND NATURAL RESOURCES debate -
Tuesday, 22 Jun 2004

Electricy (Supply) (Amendment) Bill 2004 [Seanad]: Committee Stage.

SECTION 1.

Mr. Eamon Ryan

I move amendment No. 1:

In page 3, line 15, to delete "€6,000,000,000" and substitute "€4,000,000,000".

I regret that it is not possible to have the Minister for Communications, Marine and Natural Resources, Deputy Dermot Ahern, here, but I welcome and have always enjoyed discussions with the Minister of State, Deputy Browne.

I had hoped that the Minister would be here because the substance of my amendment, as I discussed on Second Stage, is that it is inappropriate for us to allow very large scale borrowing in this manner. By anyone's standard, the €6,000,000,000 loan facility we are seeking to give the company is a large amount. It is inappropriate for the State, which is the owner of the company and ultimately responsible for the lending, to allocate that without setting out in clear terms what exactly our strategic vision is for the development of the company.

The Minister of State may know that we had the chief executive of the ESB and a number of his fellow directors before the joint Oireachtas committee last week and had a very interesting exchange of opinions. That to a certain extent provided me with some sense of where the company wants to go. To summarise, their policy seemed to me to indicate that they would maintain a dominant position in the Irish market. In essence, the electricity generation business in Ireland would remain as it is. There would be a small number of new entrants but the ESB would maintain what is in effect a dominant, monopoly position in the market. It would also develop overseas as part of its main development strategy.

The chief executive gave examples of the ESB's recent building of a plant in Bilbao and another one in the UK. He stated that the company strategy for the next few years would be a quite significant investment of up to €150 million per year in similar facilities overseas as part of an expansion programme in which the ESB is effectively competing in a European-wide market with other European energy companies.

That may well be the strategy of the company, but I have no sense of whether that is actually the approved Government strategy or whether it is necessarily the best or correct strategy for this country or for electricity consumers, who have seen a 23% increase in prices in recent years in this current arrangement. I have a sense that what we are left with, in effect, a monopoly position and very little competition, will see energy prices rise significantly further.

From an environmental perspective, there is no sense whatsoever that the company has any intention of developing new, cleaner low emissions generation facilities. Thus, given that the ESB has a domination position, the electricity market will continue to be characterised by large fossil fuel burning plants, which suits the current company. From a purely business point of view, there is no sense that the status quo is necessarily the correct development. I have serious questions about what is the Government strategy for the ESB and I have serious qualms about allocating quite significant lending ability before we set out exactly the strategy for the development of the company. On that basis, rather than just flatly rejecting the Bill, I decided to table an amendment which would allow the company increase lending to €4 billion, which would more than adequately cover any investment it might need to make in the network. Obviously it will be a State-owned facility and will remain so. Nobody could object to that.

The amendment would allow for the company to invest in those important new assets but would impose a limit, which might bring the Government to book in terms of stating its view on the strategy and development of ESB. That is a sensible measure. The €4 billion, in the context of any figures I have seen, will give the company significant room to manoeuvre for the next number of years. However, it will show, that we need to be clear on what it is doing and what is its future strategy and, under the Minister and this Government, that is far from certain. The Bill's intent is to allow for the necessary investment but to restrict any investment the Government might not approve or view as part of the ESB's long-term strategy.

Mr. Broughan

I join Deputy Ryan in deploring the absence of the Minister, Deputy Ahern. I have a high opinion of the Minister of State, Deputy Browne. Indeed, I hope in the forthcoming reshuffle that he will finally be considered seriously for a place at the Cabinet table.

Mr. Browne

I thank the Deputy.

Mr. Kelly

Deputy Broughan would not be considered.

Mr. Broughan

Most of the time I have been at this committee Deputy Browne has been the effective Minister. That has been the reality. It is not good for parliamentary democracy that this has been the case so many times during Question Time and on important Bills. The Minister, Deputy Ahern, may not have felt these Bills were important but they were important for this vast Department. Whatever about the vital work he might be doing across the territory, he has spent much of his time recently criticising the Progressive Democrats. He seems to want them out of the Government as soon as possible, in which case we will get an opportunity to return to the hustings. Deputy Kelly and you, Chairman, would be anxious that we would get back on the hustings as soon as possible.

Mr. Kelly

I am in no rush.

Dr. Fitzpatrick

There is a distinct lack of anxiety on this side of the House.

Mr. Broughan

Maybe we could have a real centre-left Government composed of some of the parties on this side of the House. It is regrettable that the Minister, Deputy Ahern, is not present when we are discussing important business, although he may have good reasons for being absent on this occasion.

I do not support the amendment. I can understand precisely where Deputy Ryan is coming from and I welcome the fact that he gave us an opportunity to discuss the fundamental issues again, which was exactly the purpose of his amendment.

It is impossible for us to know the level of borrowing required by a progressive company like ESB and its various sections. If we had a different of style of administration for semi-State companies and if their borrowing was not being combined as part of the general Government borrowing, one could imagine a situation where we would let it behave in a commercial way and make its own decisions without borrowing limits.

Obviously the Minister has been asked specifically to give a bit of leeway and scope to ESB for some of the developments. We heard from the Minister on Second Stage that the company is reaching the borderline of the old €2.3 billion limit and therefore it is incumbent on us to allow it some breathing space.

I wish that we would have an opportunity, even before the end of this session, to have the Minister, Deputy Ahern, come here to lay out the range of issues we discussed with Mr. Pádraig McManus and his colleagues last week. I wish to discuss the issue of the massive increase in prices to the consumer, from which we are all suffering. We hear we are facing possibly another 30% rise as a result of the Kyoto Agreement if we do not have a clawback, which my colleague, Deputy Ryan, covered well the last day. There are also the issues of security of supply and all of the problems we have about renewables. Mr. McManus spoke the other day of major efforts in wave power, etc., but we expected the publication of a Green Paper and a White Paper and discussions thereon into which the committee could have an input. However, we have not had such debate. In that context, I applaud Deputy Ryan for giving us an opportunity to talk about the issues again. Unfortunately, I cannot support the amendment.

Mr. Coveney

The one good aspect of this Bill is that it gave Opposition spokespersons an opportunity on Second Stage to raise their concerns about the lack of energy policy and what I call "energy ambition" coming from the Government in areas which are forging ahead quickly in other European countries, the USA and Canada. Ireland is really dragging its heels, particularly in the area of renewables.

It has also given us the opportunity to raise the question of whether market liberalisation is working in Ireland. Following an effort to introduce competition, we have not seen any of the benefits of competition. There has been a slight increase in choice for customers, but not a significant one. Prices have increased. Levels of efficiency have not improved within ESB. We are paying for preparing the marketplace for competition yet are seeing no benefit from it. Something is wrong and the Government needs to give more leadership on that. Only last week we saw the regulator putting the brakes on the new market system it was planning to introduce. It is now being delayed for another three or four months.

The Government is up in the air about energy policy. Obviously the priority must be consistency of supply so that the Irish economy can know it will have the necessary capacity at somewhat affordable prices in 12 or 24 months time; that is the primary responsibility and role of ESB.

It was fortuitous that the committee happened to meet ESB representatives between Second Stage and Committee Stage of the Bill. Based on the lengthy discussions at that meeting, I am happy to see an increase in what ESB is allowed borrow. Clearly, slightly over €2 billion is grossly inadequate for what is required at present. That has been the limit for the past 22 years. The investment required in the grid alone amounts to approximately €3 billion, which comprises more than 50% of what is being proposed here.

We must note the difference between giving ESB money to invest and giving it permission to borrow. There is a difference in the rationale in that case. ESB is seeking a capacity to borrow to invest and it is not unreasonable that we would allow a significant increase. A sum of €6 billion is the figure the ESB has been seeking from the Minister.

One aspect does concern me about which the Minister of State may provide some clarity. The Minister, Deputy Ahern, stated - this is why it is unfortunate he is not here to answer these questions directly - that he did not see a requirement for €6 billion in the short or medium term for ESB but he had arrived at that figure because he was anticipating that in the long term the company may want to increase borrowing to €6 billion. Certainly the impression we got from ESB was that the company was looking seriously at using the full borrowing capacity in the medium term or even earlier. If €3 billion is spent on the grid alone, there is only another €3 billion left. They were talking about substantial investments abroad. I ask for some clarity on that aspect.

I also wish to establish a little more clearly in my mind what the relationship is between the ESB and ESB International. ESB International has been hugely successful and is run like a private company, as far as I can see, unlike the ESB in Ireland. That is a good thing because it has been ambitious and its projects abroad have been very successful. Is the Government trying, in the Bill, to give ESBI the capacity to borrow as much of that €6 billion as the ESB chooses, or what is the relationship? Is there any limit regarding the €6 billion in terms of what can be spent outside Ireland? I ask for some clarity on that matter and also on whether the Minister influences policy in regard to ESBI or if that is essentially run as a separate company with a private sector mentality. That is not necessarily a bad thing, but we should understand the situation.

On the whole, like other Opposition spokespersons, I have been hugely frustrated at the lack of direction and policy in the energy sector generally, particularly on the renewable side, where other countries have basically shown us how to do it, but we are refusing to follow. That is unfortunate. In regard to the specifics of the Bill and what it is trying to achieve, Fine Gael has no objection whatsoever.

Mr. Kelly

I support the Bill and propose that €6 billion should be given to the ESB. My experience of the ESB has been a pleasurable one and I compliment the management, employees and unions. They give a great service in both summer and winter. I am sure all of us will recall that any time we have ever had a breakdown or extreme weather conditions, ESB workers were out there Sunday, Monday or whenever, until 2 a.m. or even 4 a.m. People should not forget that the ESB is always there, through thick and thin. I am very proud of the quality of the service and the personnel working for the ESB. They epitomise the type of people we have in 2004 - nothing but the best working in the best interests of the nation.

I say that from a business, service and safety perspective. Every house in the country now has electricity. It does not seem that long ago, when I was young, that Tom Molloy became the first man to turn on the electricity in County Longford. He was the most famous man in the county and everybody remembered him. He arrived at the house one night and it was dark, but when he left it was all lit up. That was before the time of some of the committee members——

Mr. Broughan

Was he a Fianna Fáil politician?

Mr. Kelly

No, he was not involved in politics whatsoever. If he had been involved in politics with Fianna Fáil, he would have seen the light sooner and it would have been brighter.

Apart from its business acumen, the ESB is very involved in the community. As we saw recently, it was very involved in People in Need. It mixes it and I invite everybody here, particularly you, Chairman, to come down to Lanesboro, County Longford, for the Lough Ree environmental summer school, which starts on Friday, 2 July 2004. The ESB was a former——

Chairman

Deputy, I do not want to turn off the lights and cut you off, but please speak to the amendment.

Mr. Kelly

The ESB was a former sponsor of the Lough Ree summer school and I hope some of this borrowing would enable it to become a sponsor again in the future. Nobody could disagree with the ESB and what it is doing. I do not think anybody could disagree with allowing it to borrow a couple of billion here and there. While I have the height of respect for Deputy Eamon Ryan, who is an expert on energy and knows this subject inside out, we should give the ESB another €2 billion. Why not? It would make a difference to the company.

Minister of State at the Department of Communications, Marine and Natural Resources (Mr. Browne)

First, I apologise for the absence of the Minister, who is en route to Norway for an EU Presidency related conference on aquaculture and food safety. I will relay the views of the Deputies who would like to meet the Minister, particularly after the meeting with the ESB, to discuss the——

Mr. Broughan

Is it true that he was carpeted by the leader of the Progressive Democrats in her office?

Mr. Browne

Not really, no, he is in the air at this point.

Mr. Coveney

Was he sent to Norway to cool off?

Mr. Browne

The Minister is able to defend himself. I accept that, due to pressing commitments, he was unable to be present for all the contributions, including Deputy Eamon Ryan's speech on Second Stage last week, for which he sends his apologies. However, he has taken a keen interest in the issues raised, particularly by Deputy Ryan in regard to his amendment. He has considered the amendment very seriously but he does not propose to accept it for the following reasons. The ESB's existing borrowing limits stand at £1.6 billion, or €2.03 billion, and this has remained unchanged since 1982. The Bill proposes to increase the upper statutory borrowing limit of €6 billion to take account of the reality of today's economy.

The level is deemed appropriate in light of the ESB's current and forecasted financial position. At the end of 2003, the ESB's net debt was €1.7 billion. It is now at €1.9 billion and rising rapidly towards the existing €2.03 billion limits. While the company is employing tight management of its cash outflow, its remaining cash balance is expected to be exhausted within a matter of weeks. The urgent passage of this legislation, therefore, is essential for the company to operate effectively.

The ESB expects that by the end of 2007 its peak net debt levels will be almost €4 billion. Facilities of €1 billion are required to be put in place for liquidity purposes. The ESB does not intend to draw down these facilities unless absolutely necessary. It is also proposed to factor in an additional €1 billion primarily for headroom purposes. This is considered sufficient to cover the ESB for at least ten years, which is the financial forecasting horizon period for the company.

This brings the proposed new statutory borrowing limit to €6 billion in total. The inclusion of the €2 billion for liquidity and headroom purposes, on top of the anticipated borrowing level of €4 billion, is considered reasonable and prudent. Without that flexibility the prospect of piecemeal statutory provision over the next ten years could become a reality. Such a scenario is not considered desirable given the ever present pressures on Oireachtas time and the legislative programme. Furthermore, it is worth noting and remembering that the current statutory limit has sufficient headroom built in to cover the company for the past 22 years, so the concept of an adequate upper statutory limit has already been accepted.

Some issues were also raised by the Deputies in regard to the ESB's corporate plan and the strategic vision of the company. The ESB has a five-year corporate plan covering the period 2003 to 2007. The company is currently undertaking an internal strategic review of progress to date and envisaged progress. This strategy takes account of Government energy policy.

In regard to market dominance, the ESB has publicly stated that it is committed to reducing its generation market share in Ireland to 60% by 2005. As Deputy Coveney outlined, when the corporate plan was being devised the ESB took the view that it needed to accelerate investment in the networks and this is where most of the money is being spent. In the five-year period up to 2005, the ESB is committed to spending €3 billion on rebuilding the networks.

In regard to the renewable sector, the ESB is committed to investment in wind power. However, the company does not aspire to being the dominant player in that market. The company has set a target of 200 MW and will invest accordingly to achieve this objective.

The fundamentals of Government energy policy are set out in the statement of strategy of the Department of Communications, Marine and Natural Resources. This is further informed by the Programme for Prosperity and Fairness, other relevant Government policy papers and by relevant EU developments. However, it is important to understand the dynamic nature of the energy sector. The Department is involved in ongoing work in developing, updating and refining the detailed element of its policy in the many and wide-ranging issues that impact on the energy sector. For example, it recently completed a consultation process on options for a future renewable energy policy, targets and programmes. This would help in the formation of a new policy for the renewable energy sector and this will be submitted to the Government for approval later this year. Also yesterday the Minister, Deputy Ahern, in conjunction with his Northern counterpart, Mr. Barry Gardiner, MP, issued for consultation a draft development framework aimed at delivering an all-Ireland energy market.

One of the most pressing issues facing the Department involving the ESB is the question of the future of Moneypoint. This is an issue that needs to be resolved in the very near future. This will be shaped to a significant extent by fuel diversity considerations as over reliance on gas for power generation purposes becomes an increasing problem.

Deputy Coveney also asked about the ESB and ESBI. The €6 billion is for the ESB group which includes ESBI. However, ESBI is operated very much as a stand alone company. In financing its various projects abroad, it avails of non-recourse financing to the greatest extent possible. The repayments of loans taken out by ESBI is, in this context, a matter for ESBI and not for the parent company.

For the avoidance of doubt, it may be worth explaining the relationship between the ESB's expenditure and borrowing. Management of the finances of the ESB is a matter for the board and management of the company. The ESB takes its commercial decisions on expenditure and borrowing in the context of the company's corporate plan. However, the company is required to get annual approval from the Minister in respect of its annual capital expenditure budget. Capital expenditure associated with stand alone large scale projects such as overseas investments requires the prior consent of the Minister, given with the approval of the Minister for Finance. While the sourcing and raising of keen financial facilities is a commercial matter for the company, it can be seen that the shareholder has a role in approving the major capital projects being underpinned by such borrowing facilities. Therefore, the current proposal to raise the statutory borrowing limit is not conferring a carte blanche or unfettered right on the ESB regarding its borrowing status.

Mr. Eamon Ryan

The amendment is supported in a sense by what the Minister of State stated in that the €4 billion the company needs is well provided for in it. The extra €2 billion is for headroom and liquidity on the basis that we could be providing for the next 20 years, given that the previous issuing of €2 billion liquidity allowed the company to develop over 22 years.

In the next 20 years we will see a revolution in the energy market because we are coming to the end of the use of oil. Peak oil production will be reached within the next five to ten years. That will result in a revolutionary change in the energy market. It is in that context that I am trying to get from the Government a sense of how it sees that revolution evolving in this country or the role of the ESB in that regard. I am not in any way critical of the ESB. My criticism is of a lack of clear direction from the Government.

Is the policy, as enunciated by the ESB, that the company will become a player in the European market? This appears to be the strategy it is outlining. It will maintain a dominant position and it will set the prices. When one has a 60% hold on such a small market and an 800 MW station such as Moneypoint, one effectively sets the prices. Is the strategy that the ESB will maintain a dominant position here and then develop in Europe through opening up other power stations? Is that what the Government sees as the future direction of the ESB?

Mr. Browne

The ESB has no plans to be the dominant player in the market. It wants to reduce to 60% by 2005. Therefore, it is not a question of the ESB being the dominant player. I stated that the €1 billion for liquidity purposes and €1 billion for headroom purposes will be considered sufficient to cover the ESB for at least ten years, which is the financial forecasting horizon period for the company, instead of having to come back to the Houses on a piecemeal basis. As I stated, this is based on the fact that previously the provision for headroom and liquidity purposes served for 22 years and there is a precedent for this type of borrowing being allowed by the Government.

Mr. Eamon Ryan

"The future is not what it used to be" is a famous phrase which encompasses my point. However, there is a strong argument that we should be decentralising the energy sector and bringing the ESB back into a much more dominant position. Centralised control may be much more effective than the current halfway house, where we have half liberalised but have not liberalised fully.

Deputy Coveney is correct. We may be in a fortuitous position in that we had the head of ESB before us last week. The Minister, Deputy Ahern, was not available for that meeting that day and he is not here to give his views. When asked whether he believed the ESB would maintain a dominant position in the Irish electricity market, given that it would have a 60% share of electricity generation, my memory is that he stated it would effectively be in a dominant position. In my talks with the people involved in the market, everyone agreed that the ESB is effectively setting the price of electricity approximately 99.9% of the time.

Even if the ESB reduced its electricity generation capacity to 60%, which is highly unlikely on the basis that we cannot get any player into the country because of the dominance of the ESB, the company would still effectively set the price 99.5% of the time in such circumstances. The ESB thinks it is in a dominant position. It will effectively set the prices and we know it is looking for price increases. In those circumstances, I return to my main question. Is it Government strategy that the company maintain a position, which, although the Minister might not want to say it, is dominant according to the ESB and effectively grow overseas through investment in generation stations under the borrowing capacity which is being increased?

Mr. Browne

In the short term, the ESB will be the dominant player in the market. With the east-west connector and the North-South interconnector, it is impossible to estimate what the landscape will be in 20 years' time. The Deputy has already stated it will change enormously.

The Minister, in his address to this committee some months ago, stated that while the regulatory approach is appropriate and necessary now to deal with the ESB's position in the market as we enter full liberalisation, he is aware of the need to consider what steps are necessary or desirable to address the concerns about dominance in the medium and longer term. His position is as it was then, that any decisions he makes in this regard will be predicated on a rigorous assessment of all the issues relevant to the ESB's dominance.

He also stated on that occasion, and on a number of other occasions, that privatisation of the ESB is not on the agenda. He is opposed to privatisation of the networks, which are a critical national asset and should remain in State ownership. He has also stated his opposition to any privatisations which would result in a private monopoly or near monopoly in the power generation sector. The Minister is committed to ensuring that the ESB will not be overly dominant in the market in the future, but no doubt the company will continue to be so in the short term.

Mr. Eamon Ryan

I will table the amendment again on Report Stage. It is unfair on the Minister of State to press an issue on which, in effect, the Minister, Deputy Ahern, must answer my questions.

Amendment, by leave, withdrawn.

Sections 1 and 2 agreed to.

Title agreed to.

Bill reported without amendment.

Chairman

I thank the Minister of State, his officials and the members for their co-operation. I also thank the clerk and his assistant for their co-operation.

Mr. Browne

I thank the Chairman, the Opposition spokespersons and the officials for agreeing to defer the meeting today until 3 p.m. I thank the Deputies on the other side of the House for their contributions. I am sure we will have a further lively debate on Report Stage.