I move: "That the Bill be now read a Second Time."
I am pleased to introduce the Gas (Amendment) Bill for the consideration of this House. This is a short Bill with just one provision, namely, to increase the statutory borrowing limit of Bord Gáis Éireann, BGE, from its existing €1.7 billion to €3 billion. However, it is significant as its enactment will give Bord Gáis Éireann the legal ability to access funds to develop the strategic direction set out in its five-year corporate plan up to 2012 and beyond.
This Bill proposes to amend section 23 of the Gas Act 1976, which provides for borrowings by BGE for capital purposes. BGE was established in 1976 with a mandate to develop and maintain a system for the supply of natural gas that was both economical and efficient. The original borrowing limit in 1976 was £25 million. Since then, BGE has played a vital part in the growth of the Irish economy through the development of a gas network that runs to almost 12,500 km of pipeline serving more than 600,000 customers. A total of 18 counties in Ireland and four in Northern Ireland now are connected to the natural gas network.
The statutory borrowing limit has been amended a number of times in the last 30 years in order that BGE could have access to funds for the development of its network. In 2002, the limit was increased by section 31 of the Sustainable Energy Act from €700 million to €1.7 billion to provide BGE with access to the resources necessary to carry out an unprecedented programme of development.
In the past ten years, the network has been transformed through the construction of the pipeline to the west, which stretches from Dublin to Galway and down to Limerick; the South-North pipeline from Dublin to Belfast, providing security of supply of natural gas to Northern Ireland, as well as supplying towns en route; the Mayo-Galway pipeline, which has facilitated the delivery of natural gas to several towns along the route in both Galway and Mayo and which will facilitate the transportation of Corrib gas to the Irish market in due course; the north-west pipeline from Belfast to Derry, which also supplies towns along the route; and the second gas interconnector with Scotland, which has secured the supply of gas to Ireland since its completion in 2002.
Bord Gáis Éireann's gross borrowing is expected to reach the existing statutory borrowing limit of €1.7 billion early in 2009. The existing debt is made up mainly of long-term facilities put in place to fund the large gas transmission projects, to which I have just referred, that were completed over the last seven to eight years. For example, the pipeline to the west cost €400 million and the second interconnector cost €300 million. Both were delivered on time and within the final control budget. The expansion of the gas network in recent years from 8,200 km in 2000 to its current 12,500 km also has been funded by long-term debt matching the expected life of the infrastructure.
The operation and development of the gas network over the next five years includes adding another 1,500 km of pipeline to the network, the connection of 150,000 new customers, replacement of the remaining cast iron network with polyethylene pipes and investment in new systems and technology to provide improved customer service. BGE also will continue to meet its emergency response standards and pipeline safety standards. The expansion of the pipeline network includes the connection of 17 towns, including 12 on the Mayo-Galway pipeline.
In recent years BGE has entered the retail electricity market. While its customer base at present is mainly in the industrial-commercial sector, BGE intends entering the domestic retail electricity market in 2009. This will provide welcome competition for the existing incumbent. BGE already has the necessary customer service, billing systems and mechanisms in place in respect of its retail gas business to support a domestic retail electricity service. The savings made in this area will provide value to both BGE and its customers.
Bord Gáis Éireann also is in the process of constructing a 445 MW combined-cycle gas turbine electricity generating plant at Whitegate, Cork. The board's plan is to develop a portfolio of electricity generating plant, including renewable generation and flexible power plants to support the renewable generation. This access to its own supply of electricity will ensure a stable vertically-integrated business model which in turn will ensure BGE's long-term competitive commitment to the electricity retail market.
Overall, BGE has an ambitious capital investment programme of up to €2 billion over the next five years with a view to becoming a competitive dual-fuel supplier in the Irish market. The Government's energy policy framework document up to 2020, Delivering a Sustainable Energy Future for Ireland, supports the sustainable development of the State energy companies. Competition and environmental sustainability are key pillars of the policy framework. BGE's proposed investments in the coming years will play a key role in achieving these objectives. The enactment of this legislation, therefore, to increase BGE's statutory borrowing limit to €3 billion is an integral part of this process.
The development of business interests outside of its traditional core business of natural gas transportation and supply will not have a negative impact on the price of gas to BGE's customers. On the contrary, it should have the opposite effect. BGE's gas business is regulated by the Commission for Energy Regulation, CER. BGE is allowed a regulated rate of return on its transportation business. It can only recover costs on investments approved by the CER. In setting the rate of return, the CER applies the cost and level of borrowing of an efficiently operated and financed company with comparable systematic risks to BGE. The board therefore is incentivised to borrow funds as efficiently as possible. It is also incentivised to outperform regulatory targets to provide best value for its customers.
All Members are aware that BGE was granted a 20% increase in gas prices by the CER with effect from last August. It had been expected that a further increase would be granted in December to reflect the huge increases in world gas prices recently. However, BGE has advised that based on current trends in wholesale gas prices, it may not require another increase in December.
I referred earlier to BGE's contribution to the development of the Irish economy since its foundation. Not only has the board developed a robust gas supply network, including connection to the UK grid to ensure security of supply in the longer term, it also has contributed €630 million in dividends to the Exchequer since its foundation. A further dividend of €28.4 million will be paid to the Exchequer before the end of this year. In the eight years since 2000, BGE has increased turnover from €496 million to €1.2 billion and profits have increased from €70 million to €142 million. Moreover, net assets have increased from €672 million to €1.3 billion, putting the utility on a sound financial footing. This success has allowed BGE to develop its network continually, making a vital contribution to the national economy and providing excellent service to its customer base. It is in a strong position to meet the challenges facing it in respect of environmental sustainability and competition while ensuring a safe and secure supply of natural gas.
It is important to note that an increase in BGE's statutory borrowing limit does not give it permission to raise its borrowing to this level. Each project put forward by BGE will require my approval with the consent of the Minister for Finance. The board itself is obliged to act in the best interests of BGE and no proposals would be supported that would put the long-term sustainable future of the utility at any unnecessary risk. Ongoing borrowing levels will be monitored and will be subject to full commercial criteria, such as ability to repay and protection of the balance sheet.
In conclusion, this Bill is an important measure in the delivery of the Government's energy policy. I therefore welcome the views of Members on the proposed increase in BGE's statutory borrowing limit to €3 billion to provide access to funds necessary for the roll-out of its strategic investment programme over the next five years and beyond. I look forward to Members' assistance in furthering the Bill's progress into law.