The cost and competitiveness review in the ESB is now almost complete. The average cost per redundancy under the CCR will be approximately £100,000. This is made up of lump sums of about £20,000 and reducing ongoing payments, with contributions to the ESB superannuation fund making up the balance.
The CCR is undoubtedly a costly deal. However, the issues involved are complex. For the past 70 years the ESB had a monopoly in the generation, transmission and supply of electricity in this country. It has a highly skilled and well paid workforce. Its cost base, as shown by independent consultants, McKinsey's, is seriously out of line with best practice elsewhere. Against that background, the job of tackling the excess costs was never going to be easy. Successive Governments have ruled out the option of compulsory redundancy. Therefore, to achieve a reduction in numbers of 2,000, intensive negotiations were required and attractive terms have had to be offered both to those electing to leave on a voluntary basis, and to encourage those remaining to accept modern, more flexible and more productive work practices. There was no practical alternative to this tripartite process and the outcome was the best that could be achieved in the circumstances.
In overall cash terms, the bulk of the CCR costs will be incurred in the first few years with the ongoing costs reducing to a more modest level thereafter. Over a four year period, the total cost of the rationalisation package is estimated to be in the order of £270 million and this cost is likely to be provided for in the 1995 accounts. Gross savings over the same period are expected to amount to some £260 million, thus giving a payback on the investment of about four and a half years. The annual net savings are expected to be approximately £60 million by year four and will rise gradually thereafter.
The ESB application for a price increase was rigorously examined in my Department and a subsequent proposal was put to Government seeking approval for an overall average price increase for the ESB of 2 per cent in 1996, 1.5 per cent in 1997 and 3 per cent in 1998. Government approval of these increases was announced on 19 January 1996.
The 1996 price increases will be effective from the April-May billing period at the earliest. Detailed tariff changes will be published by the ESB in advance of the increases coming into effect and the precise impact on the various categories of consumers will then be clear. With regard to the industrial sector, the average increase this year will be 2 per cent. However, small and medium sized enterprises will be subject to an average increase of only 0.7 per cent. The bulk of small firms will not incur any increase and many will see reductions.
The agreement to these price increases is conditional on the acceptance of the CCR by the unions and the ESB, and for 1997 and 1998 on its satisfactory implementation.
I wish to state categorically that consumers are not being asked to fund the incentive package being given to ESB workers under the CCR. The ESB has agreed with my Department that the CCR should pay for itself over a period of four and a half years. Its application for a price increase has been examined in my Department on its own merits.
I am satisfied that the price adjustments are fair and balanced. They are needed to finance the very significant capital investment programme planned by the ESB over the next four years.
I should point out that electricity prices in Ireland compare favourably with charges in European Union countries. Domestic electricity prices are currently 24 per cent below the European average and Ireland has lower prices than ten of the EU member states including the UK, for this sector. Prices for householders in Northern Ireland were 25 per cent higher than in the Republic last year.
