Select Committee on Enterprise and Economic Strategy debate -
Wednesday, 21 Jul 1993

SECTION 27.

Mr. O'Malley

: I move amendment No. 16b:

In page 20, subsection (2), line 21, to delete "£80 million" and substitute "£20 million".

Section 27 (2) provides for guarantees by the Minister for Finance in respect of borrowings by the company. Section 26 fixes the borrowings at £100 million. Section 27 (2) proposes to guarantee those borrowings up to £80 million, which is 80 per cent of the borrowings. This seems excessive. I accept there may be a need for a guarantee of some part, but not all of the borrowings. The probability is that because of the high proportion of the total borrowings, banks will not lend unless, perhaps, they get a guarantee from the Minister for Finance. These guarantees have proved costly in the past and they are unnecessary in many cases. Certainly, they are unnecessary at the high limits which some legislation fixes them at.

A company like this will have a guaranteed annual income. It is not dependent on the vagaries of the weather, like Bord na Móna, for example, and it is not dependent on the vagaries of the market, as many companies are. It has a large guaranteed annual income. A guarantee as high a £80 million is unnecessary. The banks will only insist on the guarantees being given.

The cumulative effect of these guarantees, which the Minister for Finance has to give under legislation, will cost considerable sums of money. We only hear about them when they are called in. To my knowledge, there are a number of companies in difficulty at the moment where borrowings are guaranteed. If the Minister is asked to honour those guarantees, the sums payable will be substantial. The nature of this company means that a guarantee as high as this is unnecessary. I ask the Minister to accept that and to substitute £20 million for £80 million, which is more than adequate.

Mr. Flood

: I would like the Minister to explain why the figure of £80 million was chosen. Perhaps there is a good reason. Before considering the points raised by Deputy O'Malley I would prefer to hear from the Minister why that figure was put in, and what would be the perceived repercussions if, for example, the guarantee amount was lower, as requested by Deputy O'Malley?

Mr. N. Treacy

: Section 27 follows a standard pattern governing the guarantee by the Minister for Finance of borrowings by the company up to a limit of £80 million. Section 26 provides that the company may borrow up to £100 million, so in effect the Minister for Finance would be able to guarantee 80 per cent of the borrowings.

The purpose of the amendment is to reduce the proportion of borrowings by the company that can be subject to ministerial guarantee. However we are not giving a total guarantee for the borrowings of the company or for the absolute borrowing capacity. The £80 million limit is discretionary and there is no obligation on the Minister for Finance to provide such guarantees. Indeed, such guarantees are now rarely given. It is expected that the company would be fully able to meet both current and capital borrowing requirement commitments.

It is, however, desirable that the company should be able to operate in the most cost effective manner, especially if heavy capital borrowing becomes necessary later in this decade. It is better to plan for that now rather than have to amend the legislation in the future. Such borrowing may be required to finance development and expansion, including the possible development of back-up control centres. The availability of a Government guarantee would reduce the cost of borrowing to the company and hence its operational costs, thus making the company more competitive. This is very important in the commercial environment in which it will have to operate.

This guarantee is consistent with those pertaining to other commercial semi-State bodies. Although we are not giving a total guarantee of 100 per cent and the guarantee is discretionary, the fact that it is enshrined in legislation will give the company more opportunity in the market place to get capital at a preferential rate. It is important that we sustain the company and give it every incentive to be commercially effective and competitive. Consequently, I would suggest to the committee that we should retain what is proposed in the Bill rather than amend it.

Mr. O'Malley

: The Minister emphasises that if there is a State guarantee the company will be more competitive. Who are its competitors? This is a 100 per cent monopoly, not a normal commercial company. Who are its competitors? Who else is trying to collect fees or charges from planes that fly in Irish airspace? The question of competitiveness does not arise.

The Minister believes it is commendable that only 80 per cent of the total amount which can be borrowed would be guaranteed. I hope the company will never borrow £100 million. He also says that he wants to retain this guarantee because it gives a competitive advantage to the company even though it has no competitors.

He says that such guarantees are rarely given nowadays. That may be true of the last couple of years, but unfortunately we accumulated a number of these guarantees in the past, which the Minister for Finance may well have to meet, Examples include NET with guarantees of £180 million, Bord na Móna with guarantees of a similar order, Irish Steel and several other companies.

This is not a competitive case. Of course, any company can borrow more cheaply if it has a State guarantee, but I suggest in this case that there is no need for it because the company has no competitors and the Exchequer should not be exposed to potential liability where it is not necessary. This company has a guaranteed annual cash flow. Whatever happens, planes will continue to fly over Ireland. It is not even dependent on the tourist trade or the terminal traffic in Ireland, because the bulk of fees collected by this new company will be route charges from aircraft that do not land here at all. For these reasons I believe the Minister of State should reconsider the matter, since his main argument is on the question of making the company competitive and competition does not arise.

Mr. N. Treacy

: I wish to reinforce what I said in my initial response to Deputy O'Malley. It is vitally important that we keep this company competitive and we have many competitors. Not alone have we a duty in national airspace, but we also have a duty to service international airspace by agreement with various international organisations. At the moment we operate United Kingdom airspace, because we give a very competitive service and in the north Atlantic we operate international airspace for the same reason. If we did not maintain competitiveness we would lose that.

If our charges became excessive we would be confined to the airspace over Ireland and planes would not fly over Ireland. They would be re-routed away from our country. It is vital that the company is competitive in its performance and its ethos. Consequently, we must give it every opportunity to compete in the marketplace on the same basis as any commercial organisation. The State guarantee will allow the company to deal with the banks, and get the best deals possible for the borrowings it requires.

We are not giving them 100 per cent guarantee on those borrowings, but up to 80 per cent, and it will be at the discretion of the Minister of Finance whether or not he will utilise that guarantee. As Deputy O'Malley and the committee well know, guarantees are only necessary and called on when there is a crisis in an organisation. We are very optimistic about this organisation but we must legislate for every eventuality. Obviously, it is important to protect the company and to give it this facility. We should be consistent and deal with this company as we deal with other commercial State bodies.

Chairman

: Is Deputy O'Malley pressing the amendment?

Mr. O'Malley

: I wish to comment on what the Minister of State has said. He says that there is a competitive element and that if our charges were too high — and he believes they might be too high if there was not a State guarantee of the borrowings——

Mr. N. Treacy

: I did not say that. Do not take me out of context, please.

Mr. O'Malley

: I do not see what the point of having this provision is, if he does not believe that. He says that——

Mr. N. Treacy

: I did not say our charges would become excessive if we had not a State guarantee.

Mr. O'Malley

: He says that if our charges become too high, aircraft will fly outside Irish airspace.

Mr. N. Treacy

: We would lose the airspace, which we control at the moment, on both the eastern and western sides of Ireland.

Mr. O'Malley

: Yes, the "Shanwick" airspace which goes out for perhaps as far as 800 miles and also goes north of the country for hundreds of miles. The Minister of State is wrong if he believes that aircraft will fly hundreds of miles out of the way to avoid increased charges. The route of an aircraft is planned in advance by specialists using computers, taking into account the wind speeds in various places and calculating the optimum route to fly across the Atlantic, not necessarily the shortest route, on a given day.

They will fly that route anyway, irrespective of whose airspace they fly through. The argument does not stand up.

Chairman

: Is the amendment being pressed?

Mr. O'Malley

: I have been given no reason not to press the amendment.

Amendment put and declared lost.

Section 27 agreed to.

Sections 28 to 30, inclusive, agreed to.