I move: "That the Bill be now read a Second Time."
The purpose of the Bill is to give effect to a 5% employee shareholding scheme in the ESB without waiting for the passage of legislation to change the status of the company from a statutory corporation to a plc under the Companies Acts. The 5% shareholding for staff of the ESB was provided for in the cost and competitiveness review – CCR – agreement between my Department, ESB management and unions. The current Bill will provide the necessary legal basis to allow that commitment to be honoured. The tripartite CCR agreement was designed to prepare the ESB for competition. The agreement was submitted to and approved by the previous Government on 3 April 1996. Over the following three years, the 2000 voluntary staff exits provided for in the agreement were achieved as well as the targeted cost savings.
The ESB has been setting aside 5% of the company's annual profits for 1997, 1998, 1999 and 2000 for the purpose of the employee sharehold ing scheme. A total of £46.8 million currently stands in a special reserve in the company's balance sheet, to be passed to the trustees of the employee shareholding scheme when it is established shortly.
At present, ESB management and unions are finalising negotiations on a further major change programme for the company before the electricity market opens fully to competition in 2005. The new round of change derives from the February 2000 tripartite agreement between my Department and ESB management and unions. This sets out a framework for the new electricity industry in a competitive environment. The establishment of the employee shareholding scheme and allocation of shares to staff will be an important element in promoting this new round of change.
For some time now, the ESB and my Department have been working on a proposal to create "virtual" shares under existing ESB legislation. The Attorney General recently deemed that proposal to beultra vires the provisions of section 4 of the Electricity Supply (Amendment) Act, 1954, as that Act empowers the ESB to issue debentures or stock to the public but only for the purpose of raising borrowings. The Attorney General has advised therefore that the ESB proposal requires amending legislation to render it intra vires existing ESB legislation. The Bill now before the House will authorise the board to create and issue capital stock representing its net assets and permit the allocation of not more than 5% to the staff, the balance going to the Minister for Finance. The allocation to staff would thus fulfil the commitment made in the original 1996 CCR agreement.
The holders of such stock will enjoy dividend, voting rights and board representation. These rights and obligations will be set out in regulations to be made by the board with prior ministerial consent, such regulations to be laid before each House of the Oireachtas for the customary 21 days. The Bill provides that the capital stock created shall carry the right of conversion into ordinary share capital once the ESB is established as a plc. under the Companies Acts.
The ESB has operated under a break-even mandate since its establishment in 1927. This is enshrined in section 21 of the Electricity Supply Act, 1927. Surpluses recorded by the ESB over the years have been ploughed back into the business. I would like to draw the attention of the House to section 8 of the Bill which provides for the repeal of section 21 of the 1927 Act and the effective termination of the board's break-even mandate. This is an important and historic change.
The repeal of the break-even mandate is now a logical and necessary requirement as the board prepares to transfer 5% of its worth to its workforce. The "virtual" shares provided for in this Bill will carry the normal entitlement to dividends for both staff and the State. This in turn requires that legal provision be made for profits, out of which dividends would flow, and legal recognition of profit-making by the ESB inevitably requires repeal of the break-even mandate. The continuation of the break-even mandate is, in any event, no longer tenable in a liberalised market where the ESB becomes a player like other players in the market and must be allowed the same level playing field as other commercial players, including the legal right to make a profit. The repeal of the break-even mandate will effectively bring the ESB into the 21st century from a commercial operating perspective.
Section 21 of the 1927 Act specifies that electricity prices are to be set at a level consistent with the achievement of a break-even mandate taking one year with another. The repeal of this provision will not givecarte blanche to the ESB in relation to electricity prices. Regulation 31 of the European Communities (Internal Market in Electricity) Regulations, 2000 (S.I. No. 445 of 2000) gives the independent Commission for Electricity Regulation the power to examine electricity charges to franchise customers, in effect, domestic consumers, and the costs underlying such charges and the right to issue directions to the ESB regarding either the nature or amount of any charge or proposed charge.
The foregoing provision achieves two effects. First, it affords protection to electricity customers against the possibility of excessively high electricity charges. At the same time, it allows the ESB to argue its case before an independent regulator for a reasonable level of charges, including, in particular, a rate of return sufficient to service its borrowings and remunerate its investment programme. The section aims to achieve, through the vehicle of an independent regulator, a proper balance between electricity consumers on the one hand and the rights of the ESB as a commercial player on the other hand.
The House had a very useful and wide-ranging debate in Private Members' time last week about electricity and energy matters generally. I do not propose to go over again all the ground covered in that debate. However, it might be useful for me to present a short overview of the electricity sector in Ireland at present and ESB's role in it.
As the House will be aware, 30% of the electricity market has been opened to competition since 19 February 2000. The milestone tripartite agreement, signed between my Department and ESB management and unions in February of last year, provides for further liberalisation of the market to 40% in 2002 and full market opening in 2005.
The electricity sector in Ireland continues to experience high growth in demand. The ESB has signed up over 200,000 additional customers over the past five years, while the number of units purchased has gone up by over 30% in the same period. These are the highest rates of growth in the western OECD. I gave the House details last week of the massive investment, totalling over 2 billion, which the ESB and EirGrid will be undertaking over the next five years, to provide the country with an ongoing electricity infrastructure to international standard.
The tripartite agreement of last year committed the State, among other things, to ongoing shareholder support for the ESB, general shareholder support for the company's international growth strategy, a robust but reasonable transition arrangement for the ESB prior to full opening of the electricity market in 2005, the ESB to retain ownership of the transmission and distribution system, and a public service levy to compensate the ESB for uncompetitive obligations, including the operation of peat stations.
In return for this, the management and union sides committed themselves to a further major round of change and transformation, the ongoing provision of a modern electricity infrastructure in Ireland and, for that latter purpose, agreement to the use of outside contractors. The rejection earlier this year by ESB network technicians of new work practices and outsourcing was a severe setback. As I said in the House last week, the management and unions in the ESB are working intensively to achieve a turnaround in that situation and their efforts deserve support.
In the establishment of EirGrid last year, the ESB asked for, and was allowed to retain ownership of the transmission assets. The company is also the owner of the country's distribution network. Under the tripartite agreement, responsibility for the physical upgrading, maintenance and extension of these networks falls squarely on the ESB and the onus for delivery of the new investment programme also rests with the company. I should make clear to the House that the outsourcing arrangement poses no threat to ESB workers. The investment programme is of a scale sufficient to keep all ESB network staff, as well as outside contractors, fully employed for many years to come.
I have provided Deputies with a list of the key milestones since 1996 in legislation concerning the ESB. I commend the Bill to the House and I am happy to participate in the debate on it.