(Mayo): I wish to share my time with Deputy Enright.
Adjournment Debate. - ESB Acquisitions.
That is agreed.
(Mayo): The decision by the Government to scupper the £1.35 billion acquisition of eight major power companies in Gdansk in Poland was wrong commercially and politically. In commercial terms this was a major coup for the ESB and Ireland. It was also a profitable coup that would have yielded rich dividends as the Polish economy continues to thrive and grow. The acquisition by the ESB of the eight major power companies in Gdansk would have given the ESB a powerful foothold of 16% of the Polish market and 2.5 million customers. The eight companies in question have an existing annual revenue of approximately £764 billion. With this strong market share and given the ESB's track record and experience, this was a market share which the ESB could only grow in time. In winning the competition for the eight companies, the ESB had successfully fought off strong competition from other European utilities, including Eon of Germany and Endesa and Iberdrola of Spain.
The ESB had spent millions of pounds preparing the successful bid. One can imagine the bombshell when the Irish ESB representative arrived at the Polish tenders office at 4 p.m. on Friday last only to be told that an instruction had come from the Government ordering the official not to submit the bid and to return home. One can imagine the further embarrassment when the Polish authorities agreed to extend the tender deadline to 11 p.m. in order to enable the Irish bidders to undergo a change of heart. However, there was no change of heart at home. A Cabinet subcommittee consisting of the Taoiseach, the Tánaiste, the Minister for Public Enterprise and the Minister for Finance had decided to block the ESB bid and literally had hung the ESB out to dry, which once again unveiled the divided thinking within Cabinet and displayed the weakness of the Minister for Public Enterprise, Deputy O'Rourke, in terms of her being unable to defend the project to which she was supposed to be deeply committed.
That decision has done irreparable damage to the ESB on the international stage. For years the company has broadened its horizons and developed commercial opportunities in many corners of the world. The Polish decision has not alone left the Poles with a major headache, it has completely undermined the credibility of the ESB in its quest for overseas markets from now on. How can the ESB muster the enthusiasm to bid for overseas contracts henceforth? Even if it decides to bid for more foreign business, how can the bid be taken seriously after the manner in which the Government sabotaged one of our longest serving and successful State utilities?
The blocking of the acquisition is deeply embarrassing for Ireland on the international front coming in the wake of the "No" vote on the Nice treaty, which was received very negatively in Eastern Europe. It will inevitably be perceived as a vote of no confidence by Ireland in the Polish economy. There is also the interpretation that the decision to block the deal is a clear signal of the Government's lack of confidence in the ESB management. The decision is also wrong in that there was a clear understanding between the Government and the ESB that the latter would be allowed to develop on the international market in order to compensate for its loss of domestic market share because of the opening up of 30% of the market to the private sector with full liberalisation in just two years' time.
I call on the Minister for Public Enterprise to put the full facts surrounding this sad saga before the House. Why was the ESB encouraged and allowed to make this bid? Why was the Minister for Public Enterprise not strong enough to protect the State utility of which she is the major shareholder? Why did she not take on the Minister for Finance and the Tánaiste in defending the ESB decision which commercially was very sound? What does the Minister propose to do to try to promote, protect, regain and salvage the pride of one of our strongest national assets, the ESB?
Rarely have I spoken on a matter as important for our economy as the one we are discussing. The Electricity Supply Board has an enviable reputation internationally for its expertise and skill in managing, designing and operating electricity generating stations. ESB engineers and staff have played key roles in designing and operating power plants in Britain, Malaysia, Bahrain and African countries. The advice, skill and technical expertise of these Irish workers has been much sought after at international level.
In recent years there were major power failures in Britain and France due to bad storms and the ESB was asked by its counterparts in those countries to send staff to help to restore power. We were proud of our ESB staff who had the expertise to help restore such power. They displayed their ability to be challenged at home and abroad.
When the European Union demanded that the ESB open the home electricity market to competition, staff and management realised that to meet this challenge it was essential for the company to continue its expansionist policy overseas. Staff and management knew that to meet this challenge it was essential to continue with its expansionist policy overseas. At the time, an agreement was reached with the Government allowing the ESB to continue overseas development to enable the board expand. The ESB was, in line with this policy, about to place a bid in excess of £1 billion.
I have allowed Deputy Enright an extra minute. In fairness to the staff of the House at this hour of the night, we should stay within the allowed 40 minutes.
Like the Leas-Cheann Comhairle, I never agree to keep people out late. I am anxious that the staff of the ESB, who have a strong international reputation, are allowed continue what they are doing. I am referring to an investment of £1.35 billion.
Deputy Enright is being grossly unfair to the House. I gave him leeway, which he has abused.
I know Deputy Jacob for a long time and hope he will allow the ESB continue with its developments.
The ESB was one of six shortlisted candidates invited by the Polish state treasury to lodge a bid for the acquisition of eight electricity distribution companies in Poland. The Polish group is about the same size as the ESB. The investment would have involved a potential outlay of up to 1.4 billion, with roughly l billion of that to be committed in 2002. All the investment would be funded by borrowings, with approximately half involving recourse on the ESB itself.
The tripartite agreement of February 2000 commits the State to support international investment by the ESB as a counter to the expected loss of market share because of the development of competition in its home market. The quid pro quo for this support is ESB delivery of the required electricity infrastructure programme in Ireland.
The two big issues which the ESB proposal presented for the State as shareholder were the financial impact on the ESB as a group and the knock-on impact on the ESB's ability to finance and deliver the roll-out of its domestic infrastructure programme. The totality of the investment plans by the ESB includes a major investment programme in the electricity networks in Ireland, the Polish investment proposal on a scale not previously attempted by the ESB and other investment plans, including new power plants at Coolkeeragh near Derry and at Bilbao in northern Spain. All the investment plans would involve a massive increase in borrowings from less than 1 billion at present to around 4 billion to 5 billion going forward to 2010. This level of borrowing raises the prospect of huge strain upon the finances of the ESB.
The conclusion was that the risks associated with a project of the sheer scale of the Polish one at this time outweighed the potential benefits. There was particular concern over the potential implications of the investment for the core business in Ireland, in particular, concern at the possible impact on funding roll-out and delivery of the domestic electricity infrastructure programme. The risk in the Polish proposal of over-extending management resources and dissipating management focus at this time was an additional significant concern, given the competition challenge facing the company in its home market. The decision reached was no different from that which might have been arrived at by a private commercial shareholder in similar circumstances.
There have been suggestions that the ESB has spent a sum of £10 million so far on the Polish bid process. This is not correct. The ESB has confirmed that the actual figure is closer to 3.5 million, which would be within the normal expenditure range at this point for a process of this nature.
The stated commitment to a growth strategy for the ESB as a counter to the anticipated loss of market share at home remains firmly in place, subject to tangible progress in meeting the challenges facing the company on the home front. The ESB has, over the years, received unstinting support from my Department for its non-core, international business. The Ocean deal, the Moneypoint leasing transaction, the issue of the Corby plant in the UK and the recent investment in a power plant at Port Dixon in Malaysia are some of the most obvious examples.
The ESB is currently developing other potentially attractive international investment proposals involving new state-of-the-art power plants at Bilbao in northern Spain and Coolkeeragh near Derry. The company is keeping the Department informed of progress on these proposals and has indicated that it expects to be in a position to seek shareholder approval for these investments later in the year.
For the present, the outcome of the ballot of ESB staff on the new change programme is awaited and we look forward to the launch of that programme, including the accelerated roll-out of the domestic infrastructure programme.