However, I believe that if services can be provided on a cost effective basis where none exists, then the least we should do is facilitate that process. Clearly some service has to be better than no service.
A franchising system would only be possible if the State split what is now Iarnrod Éireann into separate train and railway companies with a large part of the total subsidy being paid to the latter to maintain the infrastructure. This is likely to happen anyway as an accounting exercise designed to make the train operating company look profitable. The Government plans to make some £500 million available to CIE during the next few years to fund a whole array of railway projects. I am concerned that more evaluation has not been carried out on some of these projects. Everybody would like to see faster train services but how many millions should we pay to knock 15 minutes off the Dublin-Belfast trip for instance? We should also ask ourselves would we go ahead with these projects if free money from Brussels was not available. If these projects are uneconomic with our money they are also uneconomic with somebody else's money.
The controversy in which the Minister for Transport, Energy and Communications, Deputy Lowry, has become embroiled centres on the way in which CIE manages its property portfolio. This problem might never have arisen if the company had adopted a more businesslike approach to the management of its property estate. The company is sitting on under-utilised land all over the country. Does anybody believe that a huge commercial site in a prime location, Donnybrook, Dublin 4, could not be put to better use than a bus garage? Instead of pursuing mobile phone licences, CIE management should immediately set about the task of realising cash for their unwanted and under-utilised property assets.
The suggestions I have made in both the bus and rail areas are designed to improve and increase the level of service available to the public without additional cost to the taxpayer. As such they should be capable of winning a broad degree of support right across this House. We must adopt innovative and imaginative measures in the management of our public transport system. It seems that neither CIE management nor the Minister is capable of doing this.
The importance of modern telecommunications networks for industrial development cannot be over-emphasised. It is reckoned that the contribution of telecommunications to gross domestic product in the European Union will double from 3 per cent to 6 per cent during the next ten years. This is an area where technology is moving fast. The agenda is set not by Government but by hi-tech corporations developing even more advanced communications systems. What we are witnessing in effect is a rolling revolution where what is modern today is obsolete tomorrow.
Old style State monopolies have little role to play in this new world. Around the world Governments are exiting from the telecommunications business as owners and operators. Privatisation is the order of the day. Instead they are taking on the role of facilitators, opening up their markets to competition and ensuring that proper regulatory systems are in place to cope with the technological explosion that is occurring.
The investment requirements of the telecommunications industry are heavy. There can be no question of the taxpayer being asked to fund the massive developments that will be needed in Ireland. Burdened with debts of over £860 million, Telecom Éireann urgently needs access to external sources of capital. I believe that the arguments in favour of privatisation are compelling and if the company's management needs to be beefed up to prepare it for privatisation then so be it. A stock market quotation would provide the company with the means of financing its long-term expansion without cost to the taxpayer. As I said in this House last week, I am not convinced of the need for a strategic partner. My fear is that a foreign company would buy effective control of Telecom Éireann on the cheap before the company has been put on a sound commercial footing.
Whatever happens Telecom Éireann needs to get its own house in order. A former chairman of the company recently was quoted as saying that its charges were wildly excessive and a burden on the Irish economy. He went on to add that the company was famous among industry watchers for its high prices and noteworthy for its inefficiency. The company may be overmanned by as many as 5,500. In terms of lines per employee, Telecom Éireann is only half as efficient as New Zealand telecommunications and only half as profitable. Major progress on cost reductions and efficiency improvement will have to be made before any involvement by a strategic equity partner is considered.
I have mentioned the situation regarding the new mobile phone licence. With Telecom Éireann facing possible competition from another semi-State company we are, as I said last week, headed for a quite ludicrous situation. At a time when other countries are privatising their phone companies — Spain being the most recent example — we could soon have a situation in Ireland where the Government is running not one but two telecommunications networks.
I am not as well versed in the dogma of socialist economics as some of the people sitting on the Government benches claim to be, but I think even the central planners of the old Soviet regime never went quite as far as creating two competing State monopolies, if it is possible to use such a term. Perhaps they did for all I know. We need a clear statement of policy for Irish telecommunications. The Government's strategy should be to open up the Irish market to competition to the widest possible extent and to put in place the regulatory framework needed to make that competition work. In terms of our future job creation potential we must bear in mind that we live side by side with the country which has perhaps the most liberalised and competitive telecommunications market in Europe, namely, the United Kingdom. Unless we here embrace the philosophy of competition, we will be placing ourselves at a major disadvantage in terms of our ability to attract job creating foreign investment into this country.
I wish to turn to the electricity and energy market. This is another area in which we should strive to create competition. Five years ago my colleague, Deputy O'Malley, established the Culliton review group, and that group stressed the importance of a coherent energy policy in our overall industrial development effort. That group's work was welcomed by the main political parties. In its report the group highlighted the need for adequate energy provision at competitive prices. It pointed disapprovingly to the monopolistic practices of the State-owned energy companies which dominate the sector and recommended that opportunities to increase the degree of competition and energy supply should be promoted. Four years on I am not sure much heed has been paid to what Culliton said about competition, yet competition is essential if we are to ensure that both private and industrial consumers get their supplies at the best possible price.
We are being directed by the European Union to introduce competition in our electricity market, but the Minister's efforts in this regard have not been very impressive. His main contribution to date has been the announcement that he would set up a power procurer to act as a central buyer of electricity for the national grid in a competitive market. I have no problem with that. An independent power procurer is an essential prerequisite for any arrangements where different generators are contributing to the national grid. However, that is not quite what the Minister is proposing. He wants the power procurer to be a wholly owned subsidiary of the ESB. For the system to work it is patently obvious that the power procurer must be entirely independent of the generating companies and must be in a position to operate a transparent pricing policy. Otherwise the whole thing becomes a farce. For instance, how could a power procurer, as an employee of the ESB, be expected to act fairly in his dealings with private electricity generators vis-à-vis his own employer? The system, as proposed by the Minister is unworkable. It is a cop out, merely a device for getting around the European Union's competition guidelines, and I would not be surprised if the Brussels authorities rejected this formula out of hand.
Under the Minister's proposals the ESB would effectively be buying electricity from itself. It is difficult to see how such a move could do anything to introduce an element of competition into a sector where it is badly needed. If we are serious about introducing competition into the electricity market, we must take a different approach. The basic objective should be to comply not just with the letter but with the spirit of European Union liberalisation regulations. In short, we must aim for competition in both the generation and the supply of electricity.
Any attempt to create a competitive electricity market must, of necessity, involve the splitting of the ESB into two companies, one to handle the generation, the other to manage the national grid and handle transmission and distribution. This should not be a very difficult task to accomplish in administrative and operational terms as the ESB is already divided into separate business units.
A similar demerger was carried out in New Zealand a couple of years ago. Competitive tendering for the construction of new power plants would bring new generators into the industry here. It will be several years before these have any impact on the market, however, given the long lead-in times involved in the construction of such stations. Construction and operation of the proposed peat-powered plant in the east midlands will be open to outside bidders, but the ESB will also be able to pitch for the contract. In any event, the plant will account for less than 3 per cent of national generating capacity and will not be strategically significant in national terms.
A great opportunity to introduce real competition in generation much more quickly has been lost however. The decision that was made to allow the ESB to proceed with phase one of the combined cycle plant at Poolbeg in Dublin means that the board will be the automatic choice to complete the final two phases of the project on the same site. When fully commissioned the new Poolbeg complex will account for about 10 per cent of total generating capacity which is very significant in terms of the national market. The decision to allow the ESB to go ahead with phase one was tantamount to ruling out competition for several years to come. The ESB would have an obvious cost advantage in building phase two and three over any outside generator trying to put the same capacity on a greenfield site.
Other initiatives offer more immediate prospects for the introduction of some degree of competition. Management of individual ESB power stations could be put up for public tender and contracted out to external bidders if they were capable of running them more efficiently than the State company. An important source of electricity supply could be combined heat and power plants attached to major industrial installations. There are a number of large sites which could be in a position to contribute electricity to the system once the market was liberalised.
The reopening of the interconnector with Northern Ireland may not make much of a difference in the short-term as the volume of power traded is likely to be small. I wonder if this piece of equipment should now be fitted with some kind of an ideological filter to keep the Labour Party happy, given that all of Northern Ireland's electricity is generated by privatised stations. In the longer term, however, an upgraded interconnector with Northern Ireland could be the link through which this country is finally joined to the European grid. This depends on the completion of the interconnector between Northern Ireland and Scotland, a project which has run into considerable environmental opposition in the Galloway region of Scotland. The obvious alternative is the construction of an interconnector between Dublin and the Welsh coast, but this would take much time and money to construct.
Whatever the source of the electricity, it is important that major industrial users have direct third party access to it. Thus, if a major industrial plant is generating electricity via combined heat and power technology, other industries should be able to buy directly rather than go through any kind of centralised power procurement agency.
Implementing the TPA principle will be crucial to ensuring that there is competition not just in generation but in supply also. In a liberalised market power generation will clearly no longer be a monopoly. It will be capital intensive and commercially active, like the cement manufacturing and steel making industries. As such, the rationale for retaining it in State ownership will disappear. Otherwise the State will run into conflict with itself in its role as independent regulator and policy maker for the industry on one hand and as owner of a generating company on the other. The kind of tension to which this conflict necessarily gives rise is already becoming apparent in the Government's deteriorating relationship with the ESB, because one cannot be the referee and play the ball at the same time. It follows that ultimate privatisation of the ESB generating arm will have to be considered. There is nothing unusual about this in today's world — the Hungarian Government, which is probably closer to left wing orthodoxy than anyone in this country, is currently selling off its whole electricity industry. The proceeds could be split, helping to defray both the ESB's massive debts, and make some impact on our £30 billion national debt.
It may also be possible to privatise part of the generating network now, though the sheer scale and efficiency at Moneypoint make this problematic. The Moneypoint generating station accounts for 41 per cent of all the electricity generated here. Whoever got hold of it would be in an extremely powerful position relative to other suppliers. The ESB itself is not unfavourably disposed towards competition in the generating of electricity — it is the operator and part-owner of the Corby power station in Northamptonshire in England. It is somewhat ironic that an Irish-State-owned monopoly should be among the pioneers of a Thatcherite experiment in free market economies in the energy field.
Incidentally, before I leave electricity and the ESB, I am sure the House is aware that the Minister has linked the ESB price increase application directly to the successful completion of the cost and competitiveness review. All the reports on the CCR indicate that little, if any, progress has been made and it is now most unlikely this review will conclude by the set date of 31 October. In the event of failure to meet the October deadline, it is important that the Minister outline in his statement to the House the action he proposes taking.
I would like to refer briefly to natural gas supply. Natural gas is a major source of primary energy here, accounting for about 20 per cent of the total. As a clean and environmentally acceptable fuel it will play an increasing role in our energy policy in the years ahead. It is important that Bord Gáis, as a State monopoly, operates a transparent pricing policy rather than merely publishing an indicative list of tariffs, as it does at present. With the interconnector with Britain coming on stream next year, it is vital that large customers have direct third party access to gas from the interconnector. While the Government accepted the recommendations of the Culliton review group to this effect, there have been recent noises from the Labour Party that this may not be followed through. Third party access is as vital a policy imperative in natural gas as it is in electricity. We will not have a competitive market in gas without it.
Before leaving the energy sector, I want to ask one question. The Government and its predecessor spent a great deal of time talking about cross-Border bodies in the context of the peace process. Has consideration been given to the creation of a single electricity market on this island? At present Ireland is at home to two of the smallest and most isolated electricity systems in Europe and suffers huge diseconomies as a result. While I do not underestimate the legal and political problems the creation of an integrated single island electricity market would involve, the savings that would accrue would be considerable. It would deliver clear economic benefits to both parts of the island and would be of much greater practical importance than the inconsequential quangos that are more likely to emerge under the guise of cross-Border institutions.
Aer Rianta was originally established to manage the country's international airports. As a monopoly operator in an expanding market this has proved to be a lucrative franchise in recent years. Last year the company made pre-tax profits of £31 million and generated trading margins of 17 per cent, a figure to which few businesses in the private sector could aspire. Aer Rianta invest those monopoly profits in building up a considerable business empire. For a company whose main profit base is its Irish airport monopoly, the company is developing a rather exotic corporate profile.
Through its wholly owned subsidiary, Aer Rianta, the Government provides catering services at Stanstead and Southampton Airports in Britain, runs airport shops in several locations in the former Soviet Union, in Bahrain and Karachi and will soon operate a duty free store in downtown Bangkok. Not only that, if the company's further plans are realised, it will shortly display its retailing expertise to the people of Hong Kong and China. Given the present pace of economic reform in China, our Government may be the only Government running shops in that country.
Last month Aer Rianta announced its intention to purchase a minority stake in Birmingham International, the fifth largest airport in Britain and the company, though the Great Southern chain, is one of our largest hotel operators. The more deeply Aer Rianta becomes involved in extraneous ventures, the less money it can afford to pay the Exchequer in dividends. Last year the company paid the Government £10.6 million, 38 per cent of its after-tax profits, and, apparently, the Minister for Transport, Energy and Communications has agreed to peg the dividend contribution at this level for the rest of the decade. This effectively gives the company the freedom to indulge itself by investing its monopoly profits in all manner of corporate expansion in the next five years. For example, Aer Rianta is well advanced with plans to construct a 145 bedroom hotel at Dublin Airport, surely not good news for the hoteliers in the city who pay tax on their profits at 38 per cent. It also plans to invest £170 million in upgrading Dublin Airport and, early in the next century, a further £200 million in building a second terminal at the airport.
