I welcome Mr. David Gunning, chief executive of Coillte, and Mr. Gerry Egan, group director of corporate affairs, to today's meeting. We decided to invite them following the publication of Coillte's annual report. Before calling on our witnesses to make a presentation, I wish to draw their attention to the fact that members of the committee have absolute privilege but the same privilege does not apply to witnesses appearing before the committee. Members are reminded of the long-standing parliamentary practice to the effect that members should not comment on, criticise or make charges against a person outside the House or an official by name or in such a way as to make him or her identifiable. I invite Mr. Gunning to make his opening statement.
Annual Report 2007: Discussion with Coillte.
Mr. David Gunning
On my behalf and that of my colleague, Mr. Gerry Egan, I thank the joint committee for the opportunity to present the fascinating story of Coillte so far. We have a great story to tell the committee. Page two of our presentation contains an outline of Coillte's key achievements in the 20 years since the company's foundation. We would also like to talk about the forestry sector in Ireland, including our view on its future development. We will give the committee some insight into the Coillte group's businesses and specifically our performance in 2007.
In 2007 we spent a lot of time looking towards the coming five years of this company's operations. We will be able to give the committee some insight into our strategy for the next five-year period. We also want to bring to the committee's attention a range of issues, following which I will conclude the presentation.
Page three of the presentation deals with Coillte 20 years on. As many members of the committee will know, Coillte was founded in 1989, so next year we will celebrate our 20th anniversary. It is quite a different company from what it was 20 or even five years ago. In the 20-year period since the foundation of the company, the forest estate has grown by about 50,000 hectares. Over the period, profits of about €292 million have been achieved and all reinvested in the business. The value of the group's assets has grown to €1.4 billion over that period. The company's business base has expanded to include a number of related areas, as per the company's remit. In 2007, 54% of Coillte's sales were in export markets. It is fair to say that Coillte is fulfilling its mandate, and the serious number of directives it has received from Ministers down through the years, to pursue the full commercial development of the company.
I will now talk about the forestry sector. The first line of Mr. Peter Bacon's 2003 report, entitled Forestry: a Growth Industry for Ireland, stated: "Forests are recognised as having a major positive effect on people's lives in economic, social and environmental terms." We resoundingly agree with that sentiment. Coillte is the anchor tenant of forestry in Ireland but is not the only player in the sector. We are one of the players but we are the largest provider of logs as well as having the largest area under forestry. We are also significantly involved in the processing sector.
Forestry accounts for about 10% of the country's total land area. The estimated economic value — these are 2003 numbers — to the economy is about €1.65 billion. Employment in the sector is about 16,000, which is significant given that most of this employment tends to be in rural areas. There are many businesses in this sector, from very small to very large operators. In our log sales, for example, ten large customers account for about 90% of our business. They tend to be large, family-owned sawmills, but we also have large multinational operators, including Masonite in Carrick-on-Shannon, Finsa in Scariff, and Coillte's own processing operations in Clonmel and Waterford. The processing sector in Ireland today is world class with in excess of €150 million having been invested over the past ten years to deliver a high-quality product to domestic and overseas markets.
In addition to the 16,000 employed day to day in the forestry sector, from seed to sawdust levels, there are approximately 12,000 private forest owners. Since the late 1980s, more than €1.5 billion has been invested in private forestry in Ireland. Coillte is aware of its responsibility to bring this material to markets and to be an anchor tenant in the processing of that material.
I will now discuss the Coillte group as it stands today. Coillte is a forestry and forest products company. We have three operation divisions. The first one is Coillte Forest, which manages the forestry business. I will go into these in a little more detail on the next slides. Coillte Forest's turnover last year was about €100 million. The managing director of Coillte Forest is Mr. Tim Crowley. Coillte Enterprise is the venturing arm whereby we try to extract other value from the large estate we have outside the timber area. In 2007, Coillte Enterprise's sales were around €30 million. Coillte Panel Products covers our set of processing operations, which includes SmartPly in Waterford Port — it is actually in south Kilkenny.
I was going to correct Mr. Gunning.
Mr. David Gunning
It was a slip of the tongue. In addition, Medite is in Clonmel. Coillte Panel Products is a little shy of €200 million in its total revenues. Many people appearing before this committee would talk about their primary producer element. Our primary producer, Coillte Forest, has a turnover of €100 million, while our processing sector is just under €200 million. This underlines where the value is, not only in this business but in many businesses that appear before this committee.
We have a staff of approximately 1,200, the majority of whom are in Ireland. We also have 25 people in the United Kingdom and a small staff in the Netherlands who serve our near Europe customers.
We see ourselves as well placed for growth in all of these business areas. In 2007, Coillte invested approximately €58 million in capital investment in our business, predominantly in the forest estate. We are involved in a significant capital-hungry business. It is important that we generate the returns to reinvest in the business to maintain competitiveness.
The rising nature of the numbers is what shareholders and those involved in the sector like to see. I mentioned the capital expenditure, the profitability and the turnover as it has increased down through the years. This is a significant good growth story, from Coillte's point of view and from our shareholder's perspective.
I want to spend a little while going through each of our business areas, starting with Coillte Forest. Coillte Forest generated approximately €100 million in revenue in 2007. The estate is 445,000 hectares in size, which sounds better as 1 million acres. We are the largest landowner in the country. Some 79% of this is forested and 21% is made up of roads, water, fire breaks and various other things. We are as close as could be to 100% forestation capacity on our own estate.
During the 1990s, as I mentioned, the estate expanded rapidly. Coillte acquired approximately 50,000 hectares between 1989 and 1999. With the increasing price of land it is not possible to expand the estate in that way currently and our focus now is on farm partnerships — partnering with farmers, other landowners and providing planting services. We also have acquired some lands, either bare lands or immature forests, which we will take to maturity and the proceeds of which we will use. Our focus in this area is to maintain and grow the productive capacity of our estate, on which we are very focused.
Our principal business is the supply of logs to the processing industry, including the sawmills. I mentioned that ten large customers account for 80% to 90% of our business, but we have perhaps 100 customers in that area in total. We have the panel board mills, which are Coillte's own operation — SmartPly and Medite. We also supply to Masonite and we supply to Finsa from time to time.
We have an emerging energy business in this area for pellet, chip and, increasingly, even this week, for firewood, the traditional use of logs in the energy sector. Our annual supply, which is relatively flat for the next 20 years, is approximately 2.6 million cu. m. involving 100,000 truck movements every year. We are a large mover of material around the road network. If one is stuck behind these guys, I apologise but it is part of Ireland on the move and an important contributor to the economy.
Coillte Forest employs approximately 700 staff directly in its operations but we are dependent on a range of contractors to fulfil our activities. We have approximately 75 harvesting contractors and approximately 35 haulage contractors, and a large number of one and two-man contractors who assist in the establishment of new forests in planting saplings. In 2007 we planted 8,500 hectares of lands that we had harvested.
We provide a forecast to the industry of our supply and guarantee to make that material available evenly over the period of the year with significant information available to our customers on what we supply. We see an emerging business in this area in providing forest management services to the private forestry operators and private owners of forests. It is critical that this material, which has involved investment to the extent of €1.5 billion of EU or Exchequer funds, comes to market, and we see Coillte as having a role in that and wanting to make a contribution in that area.
We are conscious of Coillte Forest's environment and social responsibility. As an owner of 7% of the land area of the country, we are everybody's neighbour and conscious of that responsibility. We have more than 6,000 properties throughout the country. It is a good position to be in.
The framework within which we manage our activities is one of certification, which is administered by the Forest Stewardship Council. The council is a non-governmental council that sets the highest standard, the gold standard, for the responsible management of forests around the world. Coillte has been certified as being compliant with this gold standard since 2001. It looks at how we manage our business, not just from an economic but also from an environmental and a social perspective.
Some 15% of our estate is managed with nature conservation as the primary management objective. This involves protection of habitats, flora, fauna and various other activities. Diversity and biodiversity are all important features within that 15% of the estate.
Occasionally, Coillte encounters marginal spokespersons on the sideline speaking about our environmental record. In recent years Coillte is the only organisation in Europe to win sponsorship from DG Environment for three EU life-nature conservation projects. We look on this in itself as a badge of honour. There are three priority areas within this, one of which is a raised bog protection activities project. This raised bog restoration project include sites in Kerry, Clare, Mayo, Donegal, the Ox Mountains in Sligo and the Slieve Bloom Mountains in the midlands.
The blanket bog restoration project, which was the second project, will restore 571 hectares of blanket bog. It is the largest single bog restoration project in Ireland, at 14 sites throughout the midland counties. This is a significant environmental statement from Coillte's perspective.
On priority woodland, we are restoring 550 hectares of four different woodland types. These are recognised under the EU habitats directive as being critically rare, not just in Ireland but from a European perspective. These are in counties Mayo, Clare, Sligo, Laois, Limerick, Tipperary, Galway, Cavan and Offaly. There is quite a spread throughout the country of these prioritisation and environmental activities.
We have made major investment in public consultation, species diversification, landscape design, protecting and accessing archeological monuments, water quality monitoring and protection. These are all areas we must take seriously within all our operations.
I want to make one specific point on public consultation. This is not a hollow issue for Coillte. We are very much aware of the responsibility of talking to our neighbour. We take seriously our working with the local authorities and I would describe our relationship with the local authorities as excellent. I am very proud of the staff of Coillte, who are all upstanding members of their own communities and make a significant contribution in that area, thereby bolstering the perception of Coillte within the community in general.
Forest recreation is also under the Coillte Forest headline but is an important area. We see countryside recreation as being an activity that will become more important as Ireland's population becomes more urbanised.
There is a vote in the Dáil.
We will finish this page of the presentation.
Mr. David Gunning
On the forest recreation side, a study conducted by consultants Fitzpatrick Associates estimated there are 18 million to 30 million visits to Coillte's forests every year. We would be the largest provider of outdoor recreation in the State by a country mile. The estimated direct value of this is just under €100 million per annum but the multiplied value is approximately €268 million of economic impact in those areas where this recreation is taking place. We take this seriously. Not only have we put a policy in place, we are now delivering a broad range of real recreation enhancements in the forest estate. A great example of this is Lough Key forest and activity park outside Boyle, County Roscommon, where we have, in co-operation with Roscommon County Council, provided a radically upgraded collection of activities that attracted in the region of 50,000 visitors in 2007, even though it only opened in the May timeframe. We hope that between 70,000 to 100,000 people will visit that attraction this year.
The forest recreation infrastructure programme, which is 75% funded by Fáilte Ireland and 25% funded by Coillte, has led to the putting in place of a range of upgraded facilities at recreational areas throughout the country. As a result of this, there are some 30 new and upgraded walking sites, five new mountain biking and family cycling trails and three forest parks were upgraded and redeveloped. We have also put in place a new website which provides domestic and international visitors who want to walk through and use the forests of Ireland for recreational purposes with access to the necessary information. We have developed a new "Walkers Welcome" brand in this regard. When people enter Coillte lands they will no longer be confused because they will see a "Walkers Welcome" sign. Walkers from Germany and other countries will be able to use our facilities and we welcome them with open arms. There is a significant multiplier effect for local areas in the context of the facilities we offer.
The Dublin Mountains partnership involves co-operation between Coillte, South Dublin County Council, Dún Laoghaire-Rathdown County Council and others to provide enhanced services in the Dublin Mountains for international and domestic visitors.
I apologise for interrupting but we must suspend the sitting in order that members may attend a vote in the Dáil.
Mr. Gunning may continue his presentation.
Mr. David Gunning
It might be helpful to highlight the recreational facilities on a map, which also refers to current activities. The activities are complete and they involved 35 sites at a cost of €8 million. Ballyhoura Wood has an 80 km world class trail, which was been well received by the mountain biking community and the local community and has attracted warm reviews. I visited Guagan Barra Forest Park a few weeks ago. It has enhanced parking facilities and an improved road and trail network, a number of which are tough to get up and down. I also recently visited Glenteenassig Wood, which has four new and improved trails. In addition to the trail upgrades at Portumna Forest Park, we have put in a family cycling trail, a nice, level, safe place for parents and children to cycle in the forest. It is a fantastic addition to the area.
The map is colour coded and the two locations marked in white are at the feasibility stage. We are seeking the co-operation of Cavan County Council in providing a geopark, possibly with UNESCO designation, in west Cavan, which would be a North-South initiative, co-operating with the UNESCO park on the other side of the Border. In addition, we are conducting a feasibility study on a wilderness recreation project in north-west County Mayo.
I refer to Coillte enterprise in the next slide, which covers a range of activities. We are involved in our 1 million acres in the sale, lease and development of non-strategic properties. Typically, we sell between 300 and 600 hectares per annum. Last year, approximately 60% of what we sold went on compulsory purchase orders and various other community projects. Almost 200 radio masts have been erected on Coillte lands, providing services to mobile telephone operators, other radio operators, the emergency services and so on. Stone, sand, gravel and other aggregate-type deposits are available in ten or 12 of our locations, for which there is significant demand currently through the NDP road programme and so on. It is an important area for commercial gain from Coillte's point of view.
The largest area within the Coillte enterprise business is also a new area: Coillte's entry into the renewable energy space. The Government target is the generation of 30% of national electricity requirements from renewables. Coillte's land holdings means it is uniquely placed to address this issue. One of the big barriers today in getting wind farms operational is a sufficient footprint of land in an area with a strong wind regime. Coillte has a great advantage in this regard in that we own the land with excellent wind regimes. That land is well disposed towards a grid connection. We also have about 8,000 km of forest roads so we have very good road access to all of these areas.
Coillte has three live wind energy projects, the first is in County Leitrim, and the second and third are in County Donegal and County Cork, respectively, where we are building about 128 MW. These are partnerships with three other companies. We have grid applications in process for a further 17 sites, almost one GW of power. We do not expect to be given approval for all those sites but a significant portion will be brought to bear. Approximately 7,000 MW are in the planning phase so we have roughly one seventh of that amount on Coillte's estate. We are looking beyond the first three projects and the first 17 sites to a range of other sites where we are willing to co-operate with others in bringing wind energy to bear.
Because of its perspective, Coillte is also focused on wood biomass and developing an effective supply chain. This is the key issue in this area. A supply chain of wood from the forests through to the users of wood is very important. We are specifically targeting commercial and industrial users of heat energy. We see an opportunity for Coillte to be an aggregator of material from the forests, not only Coillte's own forests but also those forests owned by others such as farm foresters, to bring that material to market.
Other activities within enterprises are displayed on the next slide in the presentation. Coillte operates the largest conifer nursery in western Europe, producing about 38 million plants annually. A total of 60% of these are for our own use and we export others through various activities. We have facilities in Carlow, Wicklow and Donegal and a sales operation in Scotland where we sell our product predominantly in the Scottish lowlands for afforestation schemes in that area. We have a wood products business in Dundrum, County Tipperary. This is a specialist business which takes Irish hardwoods and brings them to market in the form of material for flooring and various joinery uses. We also have a large training and safety business which provides specific training for the forestry industry. A lot of Government money has been expended on this scheme and it is bringing a new professionalism and competence to the whole operations of the forestry sector in Ireland, which has a very good safety record, I am glad to say.
The next slide in the presentation shows details of our panel products business. This is nearly €200 million of a business with a total of 700,000 cu. m. of finished product. Some members of the committee may be interested in DIY. These panels are typically sheets measuring four by eight of oriented strand board which is used predominantly in timber-frame housing.
For election posters.
Mr. David Gunning
Yes. They are off-cuts which are sold far too cheaply, in my opinion. We also have medium density fibreboard from Clonmel, a significant amount of which has been used in this room. In this type of fit-out of rooms, medium-density fibreboard is an excellent product to take low-grade fibre and turn it into a high-quality panel product for use predominantly throughout fit-outs. It is used a lot in various other areas such as exhibition stands. The corporate boxes in Wembley Arena are fitted out in Irish-grown MDF. I hope to get there some time but one never knows.
One would need a seat, never mind corporate boxes.
Mr. David Gunning
We have two very strong brands, Medite and SmartPly, which are very well regarded in the Irish and the UK market. We are in the process of making significant investment in this area.
I made the point with regard to certification of the forests. We are using certified material in these panel products and this is a specific emerging customer requirement. Our customers want to use renewable, sustainable materials in the fit-out and construction of both residential and business premises.
The next slide in the presentation shows a picture of the Medite plant in Clonmel, which is next door to Bulmers. It is a large site. On the right hand side it shows pictures of some of the applications, such as the O'Mahony Hall in the Helix which is completely fitted out in MDF and veneered in Tipperary. The middle slide shows the use of Medite MDF in Dubai's new international airport terminal and the bottom slide shows the use of OSB in housing construction. I emphasise that Clonmel is just one of the sites. We have an equally large site in Waterford producing about 400,000 cu. m. of OSB annually.
The next slide in the presentation shows the future of Coillte. We carried out a significant review of the whole strategy and we came to the conclusion that our future is not too far away from our past, with some slight changes. We see the opportunities in forestry, land, panel products and renewable energy and we see these as being very consistent with the remit of the company. Our objective is to grow turnover to approximately €550 million by 2012, which we see as one stop along the way to the ten-year programme of €1 billion in sales by 2018. This is our objective. Over that period we will invest approximately €750 million in capital to get us to that particular point.
The key strategies of Coillte are described on the next slide in the presentation. It shows the expansion of our forestry business, which is our core and our foundation but we need to expand it. This is an important part of our programme in line with national policy considerations. We need to get greater commercial return from our land assets and this is part of our strategy. We need to become more proactive in that area. We have a great position in the wood panels business. As trends in construction change with more off-site construction and greater use of sustainable materials, we see Coillte well positioned to avail of those opportunities. The renewable energy space is a fantastic business opportunity and we already have great bona fides in that area. About 20% of the wind energy generated in Ireland today is on land previously owned by Coillte.
The final three points are looking at our capability enhancement. We see many business opportunities which we need to address. We need to strengthen our business development capability. We need to develop our research and development capability and bring new products and services to market. We need to identify new services and new solutions for farm foresters and this is within that remit. We need to transform the group. We have an excellent group of 1,200 committed employees. They are very professional and committed to the mission of Coillte. However, no chief executive would appear in front of this committee and say his company could not achieve more. I am of the same opinion that we can work together to achieve more.
We have big plans for the future. The year 2008 is a difficult year for all involved in this sector. The construction market is difficult both at home and in the UK where there is a reduction in the market which is exacerbated by the sterling-euro difficulties. We are scaling back production in our forests to meet the current level of demand from our customers. We are implementing some contingency plans to deal with this particular issue but in parallel, we are very focused on our strategy of continuing to invest in new areas. We are investing in SmartPly, Medite, the forest infrastructure and in our broad capabilities to continue to grow our businesses in the future.
The current issues are funding for recreation and the public good within Coillte's forests. Coillte receives no funding to provide recreational services. For example, the Forestry Commission in the UK gets £1 for every visitor to its forests. Coillte has no such income stream. Unfortunately, as very little revenue stream comes from this recreational area it is a net cost for Coillte. We are not here to complain about that, but with an appropriate level of funding we could probably do more and provide a better class of recreational service than we do at present. We are very grateful to the Minister for Community, Rural and Gaeltacht Affairs, who has committed to provide a level of funding this year. That is gratefully received and will be used to fund the day-to-day maintenance of our facilities. However, we believe we could do more.
Dividend payment is an issue that was covered in the press recently and I would like to clarify the situation. Coillte has not paid a dividend to date as every cent of profits Coillte has made in the past has been reinvested in our business. Given a profitability of €40 million in 2007 our board was keen that we would pay a dividend and we have made proposals in this regard to our shareholders, the Departments of Agriculture, Fisheries and Food, and Finance. We look forward to engaging with them on those proposals.
We see the area of "green procurement" as one in which the Government could show leadership. The environmentally responsible procurement in the selection of products and services that minimise environmental impact is a hot area internationally. To date there is no Government policy on use of sustainable building materials. We would be strong advocates of adopting an approach that would encourage Minister for the Environment, Heritage and Local Government to introduce formal policy starting with the Government's procurement activities to specify sustainable and renewable materials. The entire life cycle of such products should be considered in procurement decisions.
The next set of issues relate to the national forestry programme. I am sure members will be aware that the programme has slowed dramatically in recent years. Coillte is contributing to the current programme by working through farm partnerships, providing services to farm foresters and working with other landowners in the semi-State sector to find opportunities to increase forestation within entities already owned by the State. The Malone report outlined a range of recommendations to improve the sector. We would welcome the implementation of those recommendations.
Energy cost is another issue close to our hearts and to the forestry industry sector. The forest industry is probably the largest user of wood biomass for boilers and for heat. We are already using the material that is on our doorstep. In our panel products business, SmartPly and Medite, our 2007 energy bill was approximately €17.3 million. Our electricity bill is €14.4 million of that. A 30% increase is not good for us or for anyone in this business. It goes to the core of the competitiveness of our business in these difficult times.
The last issue relates to climate change and the role of forestry. Forest owners have a major role to play in combating greenhouse gas emissions. We would support the inclusion of forests carbon sequestration within EU emissions trading scheme. It is not included in that scheme at the moment. Forest owners, including Coillte, own but cannot trade the carbon in our estates because that carbon is included in what Government has reckoned within its ownership. Consideration needs to be given to how forest owners should be compensated for value of this carbon asset.
Coillte has been very successful in the past 20 years in embracing the commercial mission and vision set for it in the Forestry Act 1988. Forest products contribute approximately €1.65 billion to the economy, supporting 16,000 valuable jobs, predominantly in rural areas. We have a clear vision on where we want to take this company by embracing new opportunities. We see the potential to increase our sales to €500 million by 2012 and to achieve revenues of €1 billion by 2018, while sticking to the knitting within the business we have. This commercial success can be achieved in tandem with responsible environmental management and delivering social benefits.
I thank Mr. Gunning for a very comprehensive and interesting presentation.
I welcome Mr. Gunning and Mr. Egan. I compliment them for a very comprehensive presentation of their report, which gave an outline of the strategies and challenges for the future. They said they had reviewed Coillte's corporate strategy during 2007 and developed a platform for the next stage of its development. The strategy envisages focusing on four business sectors, forestry, land, panel products and renewable energy. I want to tease out the last one. Strategically how do the witnesses see the role of Coillte in the context of an energy provider, energy player, supplier of raw materials and partner?
Coillte has 1 million acres of land, much of it suitable to harvesting wind energy. Some private operators are availing of that site potential. Mr. Gunning mentioned the energy costs in SmartPly and Medite. Do the witnesses see Coillte's future role as a player in the energy market or as a facilitator of others in areas such as wood energy? I would like elaboration on the issue of pellets versus chips and the firewood matter. I am not clear as to where the company sees itself strategically. Many technologies are emerging in the area of woodchip and there are numerous success stories. Inchydoney Island Hotel in Deputy Sheehan's constituency is successfully utilising woodchip or wood-pellet. Will Coillte be involved just as a provider of these materials or will it have a larger role?
The witnesses referred to two projects, one in Donegal and one in Cork. I would like more information on those as I am not clear where they see the company going strategically. Regarding the clear felling of forests, obviously everyone knows of the use made of the logs. However, there is a significant energy potential left in the tree stumps and other residues, which to date have been left there and are an eyesore. However, they may have significant energy potential. It is always an emotional issue in the countryside when a clear fell takes place. The delay in reforestation is a real concern to people, as is the unsightly state in which those felled forests are left. Coillte should extract all the energy potential from the entire residue. I am not clear as to what its strategy is in this regard.
I believe a figure of 100,000 truck movements was mentioned, which ties into the energy issue. I suspect Coillte is drawing thinnings from all over the country to its two plants in Clonmel and Waterford or Kilkenny — I am sure Deputy Aylward can advise us. Is it sustainable or best environmental practice to haul thinnings from County Donegal to the south of the country? Would it not be more sustainable to use these energy resources locally? Certain volumes are clearly needed to sustain the plants in Clonmel and Waterford. Is there potential to link up with private suppliers of thinnings?
All of us are aware of the downturn in construction. While I welcome the news that last year was a great year for Coillte, eaten bread is soon forgotten and alarm bells must be ringing for 2008 and 2009 given that construction activity is set to decline significantly. What percentage of output at the two plants is exported and what percentage is produced for the domestic market? In light of the downturn in construction, what are projected earnings for 2008 relative to 2007? Mr. Gunning indicated Coillte is taking steps to reduce its harvest. Will the mills close temporarily as a result of the significant backlog which will develop?
My colleague, Deputy P. J. Sheehan, will discuss in greater detail an issue on which we have received a substantial number of representations, namely, the weight-volume conversion method for payment used by Coillte. I do not claim to understand this complex issue. Is Coillte open to some form of independent scrutiny of its payment system or mediation? The ongoing contention about this issue, with people feeling short-changed by Coillte, is unwelcome. I am not arguing the allegation is true but it has been made.
On a more parochial issue, there is a long-standing proposal to construct a regional office complex for the south west in the new eco-park in Macroom. While I am not privy to the costs, given the multiple locations in which Coillte rents office accommodation, I suspect it would make financial sense for the company to have its own operation.
Mr. Gunning referred to the sustainable energy standards introduced by the Department of the Environment, Heritage and Local Government. The company has an opportunity to lead the way in this area by constructing a high standard, sustainable, state-of-the-art complex using renewable technologies. What is the position regarding the new regional office many regard as a key component of the eco-park in Macroom? Given the company's outgoings on rented accommodation, it would be sustainable and make economic sense to have an office at the site.
I received correspondence regarding Ticknock Wood, near Sandyford in south Dublin, raising the lack of transparency involved in how land is sold by Coillte. I understand this issue has also arisen in County Galway regarding the proposed sale of Coillte lands in an area where there may be gravel or rock deposits. Notwithstanding Coillte's commercial mandate, many people regard these lands as publicly owned assets and believe members of the public have a right to be consulted or informed about proposals to sell them. While I support Coillte's commercial mandate, I ask Mr. Gunning to comment on the manner in which it informs members of the public of proposals to clear-fell forests, specifically in Ticknock.
On the question of paying a dividend, the Exchequer is under such pressure that it will smash and grab whatever and wherever it can. In recent years, the level of planting by Coillte and in privately owned forests has declined significantly and we have fallen far short of our target. Mr. Gunning indicated the board of Coillte was anxious to pay a substantial dividend to the State. I would prefer if the company were to engage in a much more aggressive planting programme in lieu of paying a dividend. I accept, however, that land costs and other factors are a constraint.
The use of forestry in addressing the issue of climate change was also raised. The failure to recognise forests as carbon sinks is a missed opportunity in terms of the national climate change strategy which dovetails with our EU responsibilities. It would have given added commercial value to forestry and increased the balance sheet value of Coillte's land holdings. Ploughing investment into new planting in lieu of paying a dividend should be actively considered. I ask Mr. Gunning to comment.
I thank Mr. Gunning for his presentation, which contains much to digest. I will confine my contribution to making three or four points. The work of Coillte is regarded positively. It has a clear operational structure and a mandate to try to maximise the potential of wood and forestry in the State. However, speaking as layman, one senses from the figures that there is much greater potential to maximise the return from forestry, given the lands held by the company and the markets for wood related products, whether for sustainable energies and fuels, construction or other areas.
Based on a €40 million profit on a turnover of €318 million, which is predicated on the Medite acquisition, and given the slowdown in construction, what are the projections for profit in 2008 and 2009? Perhaps my analysis is wrong but the Medite acquisition will create a blip in the company's books. Will profits decline in the next two or three years?
To be parochial, I have a particular interest in the Ballyhoura Mountains as I trek regularly in that area and the Galtee Mountains. I wonder whether the clear potential for forest parks is being fully exploited. Mr. Gunning indicated the forest park in Ballyhoura is operated at a cost and does not deliver a return on investment, save the social benefit which accrues from it. He also stated the UK Government pays the Forestry Commission £1 per visitor. In the context of increasing urbanisation, perhaps the Government should consider introducing a similar scheme here. Forests will become natural playgrounds for families. I think especially of the Ballyhoura project and the mountain bike trails, which is a fantastic resource. Friends of mine come from far and wide to use the trails. I sense that this aspect of forestry is still at an early stage and that it has even greater potential. Does Coillte have the potential to build infrastructure around those projects? For instance, there is the Griffner Coillte partnership. Is there any scope to develop a residential component or visitor centres within forests to encourage people living in urban areas to visit and holiday in or adjacent to forests? I am merely throwing out ideas.
Given that forestry in Ireland comprises 10% of the total land area and that the EU average is 44%, what is Coillte's position on the acquisition of land and is there scope for greater land acquisition? I accept that the current price of land is prohibitive. Wood could become the new gold in the sense that it has boundless potential, especially taking into account the potential for forestry and wind energy on Coillte's land holdings. This could help to offset our carbon footprint but there is also scope to make money from the development of the economic potential. The €40 million profit in 2007 seems small given the potential of the assets in question. I would like to see greater exploitation of the resource. What can we as legislators do to assist Coillte to add value, or what Government policy needs to be implemented in order to increase the potential further?
I represent a constituency that is largely urban but there is a strong rural mix. There is some mountainous area among the low land and a lot of the land in the constituency of Cork East belongs to Coillte. Does Coillte have the power to diversify further into the broadband market if broadband is not being provided through fibre optic or Eircom exchanges? Coillte could step in where there are variations in topography. Does Coillte have the potential to become involved in that regard or is it only capable of allowing access to its lands? I would like to see Coillte become directly involved in the market if it has the wherewithal to do so.
I welcome today's presentation. We all know people who traditionally worked in forestry. One can see that forestry has diversified from just growing trees. I would like to see more diversification and I can see great potential for it. I welcome the fact that Coillte appears to be going in that direction, which is very encouraging. I thank Coillte's representatives for their contribution.
I welcome Mr. Gunning and Mr. Egan and thank them for their comprehensive presentation. They said at the outset that they had a great story to bring us. From what we have heard so far, we have to go along with that. Coillte's story is a success by any yardstick, which we all welcome. It is true that Coillte is a vastly different company to what it was 15 or 20 years ago. I will return with some points to illustrate that later.
It was stated that Coillte owns 7% of the land mass, which is a substantial holding. The point was made that Coillte is everybody's neighbour. I wish to make a point about neighbourliness. It was indicated in the presentation that Coillte's gates are welcoming. Constituents of mine — I will not mention their names as I am prohibited from doing so — are prevented from accessing their own land. In fact, they are landlocked due to Coillte's actions. I have experience with Coillte going back 15 years, as my land shared a boundary with its land and at all times I found that Coillte was most co-operative. We worked together to make a road into my land. However, the culture appears to have changed. Reference was made to a change in how Coillte operates. It is now a commercial company, which was not the case 15 years or 20 years ago. I am worried that the change is affecting Coillte's neighbours adversely. People's property is landlocked and land is no good to people if they cannot access it.
It was also indicated in the presentation that Coillte has 200 radio masts on its properties. People who located their businesses on Coillte property find they are being pushed off the sites. Those people were pioneers who built up their businesses over the years but they are being cleared off to make way for multinational companies that are big names in business and operate on a Europe-wide basis. Family businesses that invested years in their enterprises are being pushed off and they find gates are being locked so that they are unable to access their business. That is a serious matter and it is not doing much for the reputation of Coillte. The company should examine the PR aspects of the matter. I feel strongly about this issue.
Overall, what I heard from Coillte this morning is immensely positive. I congratulate Mr. Gunning and Mr. Egan on the way they have moved the company forward. I can see immense potential from a recreational point of view. We are very short of activities and facilities for families and young people. Coillte lands have rivers going through them with potential for water sports. Coillte land is of high scenic value and it is ideal for all types of outdoor activity. Coillte stated it had nothing to gain from this and that it would incur expense. Therefore, I would support a proposal to entice it to engage further in promoting recreational activity which has considerable potential. Every other matter has been dealt with. Deputies Creed and Sherlock have dealt with the economics but I advise Coillte to consider seriously the issues to which I refer. When they come to the fore and enter the public domain, they will cause concern. It will probably leave a taste in people's mouths and negatively influence a very good story.
I welcome the delegation and congratulate Mr. Gunning on his comprehensive presentation and the great achievements of Coillte.
As party spokesperson on forestry, I have a number of questions, one of which concerns the retained profits of €22.5 million in 2006 and €40.1 million in 2007. Why have no dividends ever been paid to the State since the establishment of Coillte in 1989, bearing in mind that it is no longer in a position to invest in new lands for afforestation? Has the board of Coillte ever considered the possibility of managing an investment fund for developing additional land for forestry that would allow private investors without land to invest in forestry, perhaps for pension purposes?
Coillte is the producer and purchaser of raw materials in the wood products sector. How can we, as representatives of taxpayers, be satisfied that a good price is sought for these products and that goods are purchased at a fair price by SmartPly Europe Limited and Medite?
I note from the 2007 annual report that Coillte has stated it has made considerable investments in the renewable energy sector, especially in wind farms, including the provision of lands on which to locate such farms. How many sites have been provided and to what extent is Coillte involved? With how many wind farms is Coillte involved and how many turbines are located at those sites? What income did Coillte receive from investments in this area in 2006 and 2007?
Coillte mentions investment in the recreation sector, including Lough Key Forest Park. Does it have plans to provide high-rope adventure courses similar to the Go Ape projects at 17 locations around Great Britain, particularly near highly populated areas or locations that attract tourists?
I note from the 2007 report that the chief executive had not received his bonus for 2007 at the time of drawing up the accounts. What was the bonus, which I presume has now been paid? Taking this sum into account and adding it to the package already paid in 2007, amounting to €409,000, can one explain why the full-year figure for 2006 is equal to an annual salary of €401,000? This is much greater than the Taoiseach's salary, even if one does not take the proposed increases into account.
They are all complaining about the Taoiseach's salary.
The average wage or salary of the 1,269 employees of Coillte is €49,635, which is just over 10% of the chief executive's remuneration package.
Let me refer to a number of contractors to Coillte, the harvesters or workers in the field who collect the products and are paid on the basis of productivity. I understand they feel very aggrieved over the methods used by Coillte to calculate their payments. As their only employer is Coillte, the duty falls on it, as a State monopoly, to provide a transparent, honest method of calculating their payments, which are often made many months after they have completed their work. The longer the cut wood is left in the forest, the more their payments decrease.
I recently tabled a parliamentary question to the Minister responsible for forestry in which I outlined reasonable proposals to determine whether the matters I raise could be brought to a satisfactory conclusion. Is Coillte prepared to work with an arbitrator, jointly agreed with the harvesters, to address the outstanding issues raised by a consultant hired by harvesters such that an open and transparent method of calculating their payments can be agreed?
I am concerned at the number who have raised with me the lack of forest wardens on the ground. Their first concern is that a lot of wood is being drawn from woods without authorisation. They are also concerned at the scale of dumping taking place at night and weekends, with a consequent risk of fire. Is Coillte happy with the number of forest wardens? Has it considered recruiting local people, on a voluntary basis, to keep an eye on plantations?
I raise the issue of the cleaning up of debris and rubbish after felling has taken place, especially at locations visible from the public road in scenic areas. Let me outline two examples that I have seen recently — at Barr na Gaoithe between Bantry and Ballydehob, and at Rosscarbery Wood, as seen from the N71. How much of the debris is being considered for use as bio-fuel rather than having it rot back it into the ground? It is clear that it is a very valuable source of bio-fuel energy.
What percentage of Coillte's nursery products is retained for use in replanting by the agency and what percentage is sold to commercial operators? What are such sales worth to Coillte?
I recently tabled a question to the Minister on millennium trees, which I understand have a very high survival rate. What arrangements has Coillte made to advertise and invite the public to inspect the trees planted for them for the millennium?
I note from the submission Coillte considers 18 types of preferred tree species: sitka spruce, Norway spruce, lodgepole pine, Japanese larch, European larch, hybrid larch, Douglas fir, Scots pine, Serbian spruce, Lawson cypress, Leyland cypress, Monterey cypress, Austrian pine, Corsican pine, Monterey pine, coast redwoods, western red cedar and western hemlock. Coppice willow, which could have a bearing on alternative energy supplies, is omitted.
As a Deputy from the most highly forested area in the country, County Wicklow, I had better get in my questions. I welcome the delegation from Coillte. I am aware of the company's eco-friendly headquarters which it built in Newtownmountkennedy, the sculpture and woodland project in Devil's Glen and its work on the Avondale Estate, the home of Mr. Parnell, the pioneer of forestry plantations. What is the progress on the conference centre being built at the estate?
The Malone report referred to the relationship between Coillte and the national parks and wildlife service and avoiding duplication of services. When I was a member of Wicklow County Council, a Dublin-Wicklow mountains board was established to bring together all stakeholders in the area. Coillte and the ESB, because of its plant in Turlough Hill, were also involved. It aimed to address all issues such as farming, recreation and walking. I live near Roundwood, which is surrounded by Coillte woods. I use many of them, such as Ballinastoe Wood, for recreational walking. Issues have arisen over quad bike use, rallying and horse riding in these woods. Is there a management plan for these activities?
National targets have been set for biomass energy production and land under afforestation. To have a sustainable agricultural sector, I do not believe the percentages add up. They could add up if Coillte lands and resources were used for renewable energy sources. Bord na Móna and Coillte seem ideally suited to a joint venture where some of the former's lands could be reconstituted for biomass and other wood products for renewable energy. Are there any plans to address this?
I note land use breaks down to between 80% for forestry and 20% open space. Coillte differs significantly from the old forestry service because it is a company that deals in land transactions for the bottom line. I am aware of some projects where Coillte, which has some of the best development sites around villages, worked with local authorities in housing development. Will Coillte continue working with local authorities in this regard?
On the low uptake of Medite, OSB and MDF from Coillte's panel board manufacturers, much of that timber has the potential to be used in wood pellet production for energy supply. Have the two plants the potential to be adapted to produce pellets on a commercial basis?
The potential of renewable energy supply from the windrows of brush left after forest clearing has been mentioned. Some years ago the forest harvesters would hardly be out of a clearance when it would be replanted. Currently there is a two to three year time lag with replanting. Is this a new procedure?
I thank the delegation for its presentation. Coillte employing 16,000 people is phenomenal.
Mr. David Gunning
That figure is in the overall forestry industry. Coillte directly employs 1,200 people.
Is Coillte still buying land for planting? The delegation referred to 100,000 lorry transport journeys during forest harvesting operations. Given that one third of plantations are in the north west, would Coillte consider establishing a processing plant in the north west to avoid this large volume of road transport? Politicians get many complaints about the damage done to roads during forest clearance operations.
I was contacted recently by a private planter who had 100 acres under forest. The Department of the Environment, Heritage and Local Government designated half of it a special area of conservation, despite it being a 20 year old plantation which cannot be harvested for another ten years. The planter in this case believes it will have a serious effect when the time comes to process the timber. Does Coillte have this problem with the Department? If so, how does it overcome it?
I welcome the delegation from Coillte and compliment it on the work it has done in rural areas. With 1 million acres, 7% of the national acreage, it is the largest landowner in the State. They are neighbours to nearly every other landowner. Is there a supply chain to ensure wood products for alternative energy supply will efficiently come out of Coillte's plantations? While Coillte exports finished timber products, is timber as a raw material being imported or has Coillte begun to export it?
There is great potential for Coillte to work in conjunction with other bodies. For example, there is a fantastic opening to work in co-operation with Bord na Móna to reseed spent peat lands for forestry. There is also potential to work in partnership with farmers and other landowners. I was part of a delegation from the Joint Committee on Climate Change and Energy Security which recently visited Sweden, where some 60% of the land is given over to afforestation. This compares to a figure of 10% for Ireland. Despite this figure of 60%, Sweden still imports from Russia because it is cheaper to do so. We are light years behind countries such as Sweden. As Deputy Sheehan observed, Coillte is using the trees but the waste from the trees is being left to rot, as I understand it. In Sweden, by contrast, all the waste material is cut into sawdust and made into pellets for use in waste to energy and other purposes.
There is also great growth potential in nurseries. Under the rural environment protection scheme and other provisions, farmers have to plant natural hedgerows and so on. There are also fantastic opportunities in wind farming given that Coillte owns a significant amount of land on high ground.
Coillte has a major part to play in ensuring we increase the amount of land under forestry from 10% to 20% or 25%. I compliment the delegates on the work Coillte has done throughout the State in rural areas such as my own, and particularly in south Kilkenny where SmartPly provides employment. I wish the delegates the very best for the next 20 years. I hope Coillte can play a greater part in the development of rural areas.
This discussion reminds me of an annual general meeting with members as shareholders. The delegates must have been delighted at the decision of the Minister for the Environment, Heritage and Local Government to reduce substantially the grants towards wood chip burners. I assume that would have had negative implications for Coillte's production of wood chip.
On research and development, what is to be done in cases where there are asset sensitive areas, such as in my own constituency of Kerry South? Has Coillte any proposals to cater for that? It has been suggested that broad leaf and native trees could be grown there, but that discussion has been dragging on for a long time. There is a view among some of the agents applying for forestry grants on behalf of landowners that the appeal should be sent in along with the application because almost all the applications in my area are being refused. South Kerry Development Partnership is trying to establish a pilot programme on a co-operative basis with hotels in Killarney and elsewhere whereby clippings from the harvesting of trees could be turned into energy products. That is one way of adding value to the timber industry.
How much did Coillte have to pay to local authorities for the reconstruction of roads in view of the 100,000 movements of loads? There are several roads in my area requiring investment, with much of the damage having been done by vehicle movements. The only heavy good vehicles travelling there are those engaged in forestry. Kerry County Council is quick to point to that as the cause of the destruction of roads and that it does not have the funding to bring them up to standard.
I call on Mr. Gunning. I ask that he be careful not to name any persons with reference to salaries, bonuses or other payments.
Mr. David Gunning
I thank members for their good wishes. It is our privilege to have the opportunity to discuss these matters with the committee. Members have shown a great awareness of the issues we deal with on a day-to-day basis. There were some commonalities among the points made by members and I will try to address the main issues. I will ask my colleague, Mr. Egan, to help me out as I pause for breath from time to time.
Deputy Creed referred to wind farms. There are three strands to our wind farm strategy. We are entering this area because we enjoy some competitive advantages which we can bring to bear on the national agenda of achieving 30% of energy from renewables. Strand one involves three co-development agreements. The first is in Leitrim and involves a 50:50 joint venture in partnership with Hibernian Wind Power, which is a subsidiary of ESB. This project comprises 13 turbines and is producing some 50 MW. The second is in Straness in Donegal, in co-operation with Veridian. It began as a partnership with Eco Wind Power, a subsidiary of Treasury Holdings, before the latter was acquired by Veridian. The third project is in Cork and is in co-operation with SWS. We see all these projects proceeding in the next two years.
Where is the Cork operation located?
Mr. Gerry Egan
At Knockacummer.
Mr. David Gunning
That is strand 1. The second strand is our application for 17 other wind farms. Our intention is to seek approval from our shareholders to exploit those opportunities on Coillte's own account. The third strand is to identify other sites for development with potential partners. We are open to partnership with all players in this area, whether small local operators or larger operators such as Hibernian Wind Power, Airtricity and so on. The path to our door is worn down with people wishing to talk to us about co-development and partnership. We embrace such endeavours because they offer the opportunity for us to make a decent return. It is a great way of extracting value from the estate.
As I mentioned, the energy bill in our panel business is €17.3 million. The opportunity to have an income stream from the energy area, as we will in wind energy, which will rise as energy prices increase, is an excellent hedge for Coillte. This will allow us to maintain the competitiveness of our panel business, which provides an outlet for pulp and other forestry products.
I wish to clarify our position on wood energy. Coillte is the largest user of wood for energy within our manufacturing operations. We also have several activities under way with various pellet manufacturers in terms of supply. We do not see ourselves going into the pellet business. Various pellet manufacturers are already considering entering the business and we are talking to some of them. Others have already entered the business without talking to us, which is amazing given that we are the largest providers of wood biomass. However, we will support them in terms of selling them the fibre and other products they need. We are also talking to chip manufacturers who provide materials for hotels and so on. Firewood is also an increasing part of our business.
We also have been engaged in discussions on large-scale supply with organisations such as Bord na Móna which has been mentioned. Last week a number of my colleagues met a senior delegation from Bord na Móna, including its chief executive and others, to discuss issues of common interest which included the use of bark from Coillte and our customers in its horticultural operations, the afforestation of large areas of its cutaway bog, co-operation on the supply of wood biomass to its Edenderry power plant and other matters. There is a range of issues on which we can, and already do, co-operate. We would like to be in a position to make some announcements in this regard.
I refer to the north west which was mentioned. This year Coillte is piloting what it calls its wood for energy biozone in the north west, whereby we will take material from both our forests and private forests and bring it to market in a wood for energy application. Our first customers will be signed up shortly and will include hotels, some institutes and Government offices and possibly others in the region that will take woodchip from Coillte and use it to create heat. We consider this to be a significant area. It also is an excellent attractor for material from private forests which, as I noted previously, have drawn in investment of approximately €1.5 billion since the late 1980s. These are some of our activities in the area.
I wish to talk briefly about sustainable transport. Coillte engages in 100,000 truck movements every year and any organisation which runs a manufacturing facility will wish to optimise the supply of material into that operation. We believe we can supply our businesses from our 1 million acres. Coillte has a gross supply of approximately 3 million cu. m. However, material from private forests will come on-line in the next five to ten years and by 2015 half that volume will be available from the private forestry sector. Given that supply and its distribution, there will be much better opportunities to optimise how material is moved around the country. It is a material of low value with high weight and one cannot afford to transport it very far. Against this, our large customers are well distributed around the country and essentially local procurers and users of the material are in their localities. The markets they supply tend to be relatively local to overcome the cost issues.
As for our pulp mills, SmartPly and Medite, we use the most sustainable form of transport we can. We have railheads at Iarnród Éireann sites in the north west, from which we transport material to Waterford for consumption in the most cost-efficient fashion. These are important issues for Coillte, both from the perspective of sustainability and cost production in respect of supplying one's plants in the cheapest possible fashion.
A specific issue arose regarding volume-weight conversion. I believe it was brought up and that Deputy Sheehan mentioned it in respect of the contractors. I will ask my colleague, Mr. Egan, to respond to the points made.
Mr. Gerry Egan
I will begin by giving a sense of the issue involved for the benefit of those who are unfamiliar with it. Timber can be measured for payment purposes in a number of ways. I refer to payment by the customer who buys it, the haulier who hauls it and the contractor who cuts it in the first place. The most basic method is to pay by the tonne. However, doing so raises the issue to which Deputy Sheehan alluded — that timber that sits on the side of the road for two months is drier by the time it is moved than it was when it was cut and that this places the person who cuts it in the first place at a disadvantage. Consequently, there are well recognised systems, whereby one can convert the weight to volume which does not change. This is the essential point and one can do this in many ways.
Until approximately four years ago, all the material drawn into the pulp mills, Medite and SmartPly, was sold on a tonnage basis. A great deal of the material drawn into the sawmills is still paid for on this basis. A number of years ago, however, we introduced, with the agreement of the industry, a volume-weight conversion system to convert weight to volume at the point where it is delivered to the customer. One can do this in a number of ways, one of which is to measure every log or load. As members can imagine, this is highly expensive. Another method is half-way between measuring everything and paying by the tonne, whereby one converts weight to volume using a fixed factor that one then adjusts throughout the year as seasonal conditions change. That is how the system operates at present.
While we are open to the idea of meeting the industry to review how this might be done, we refute absolutely suggestions anything untoward is going on, as some allegations have been made in this regard. Moreover, for any contractor who is unhappy with the factor used to convert weight to volume on a particular occasion, there is an appeals mechanism within the system, whereby it can be adjusted subsequently, if on investigation by an independent person it can be demonstrated that the factor used was inappropriate because of weather conditions, for example.
Mr. David Gunning
I will continue in the order in which issues arose. Although I live in south Dublin, I travel to County Wicklow every day where there have been compliments about the eco-nature of our headquarters. To respond to Deputy Creed, we intend to proceed in the Macroom area and consider it to be an important location. As of last year, Coillte had approximately 70 points of presence nationwide and we intend to try to rationalise the number of offices. As our workers become more mobile through the use of mobile communications and other facilities, we will rationalise the number of offices downwards to a more manageable level. Certainly, however, Macroom has been identified as our focal point within the Cork region.
When?
Mr. David Gunning
We will commence work on it early next year.
Does Mr. Gunning refer to construction?
Mr. David Gunning
Yes.
Mr. Gerry Egan
In that case, what happened was we originally had intended to move to one site within the eco-park. Subsequently, however, on foot of a decision to bring more people to that office, we opted to change to a different location within the park, which necessitates applying for planning permission again. While that has set us back by a couple of months, we anticipate going ahead because, as Deputy Creed noted, we are paying rent on a number of offices. We want to try to develop flagship locations nationwide, on a smaller scale than at Newtownmountkennedy, to enhance Coillte's presence and standing.
In respect of Coillte's forest business, we intend to commence construction before the end of this year on a new office at Emo Court, Portlaoise, which again is a central location, using similar building methods based on sustainability principles to those used at Newtownmountkennedy. We want to practice what we preach.
Mr. David Gunning
I will respond to a number of the other issues raised. While specific points were made about Ticknock Wood and Moyode, this is more of a broader issue pertaining to land sales. Coillte's board and I are content with the process the company runs in respect of its land sales process. It is fully transparent, we advertise the properties and meet the local landowners. An issue has arisen and members may be aware of some activities in Moyode, County Galway, where there is some local resistance to quarrying activities. The reason the local community was aware that Coillte was considering the commercialisation of those deposits was it was informed by Coillte as part of its process. It is important to make this point.
In the time available I wish to address the broader important issue raised by Deputy Christy O'Sullivan regarding Coillte's good name and the way it works with its neighbours. I certainly would not like there to be an impression that opinion to the effect that Coillte is not a good neighbour is widespread. I wish to explore one case which perhaps Mr. Egan might discuss further. Good fences make good neighbours. We are obliged to work with our neighbours, which we do. I will ask Mr. Egan to cover the case in question, again without mentioning the details. As part of his responsibilities, he is responsible for some of our legal work, as well as being company secretary and other things.
Mr. Gerry Egan
I am conscious of the Chairman's caution about naming people and so on. In respect of the situation referred to by Deputy O'Sullivan, rather than it being a normal dispute between neighbours, it is, in effect, a commercial dispute about which 13 individual court hearings have been held at Circuit Court, High Court and master's court level. On foot of those 13 hearings, nine separate court orders have been issued in respect of the company and individuals involved. In that particular case, the court has ordered the payment of €40,000 in arrears on a lease and all Coillte's court costs, and for representatives of the company and the individual in question never to set foot on Coillte land again, along with a myriad of other orders. The committee will appreciate that given the approach we take, the last place we want to be with any of our neighbours is in court. It was after a very protracted process of trying to negotiate a solution to the particular issue that we got to the point that this went to court in the first place. It is important to put some of those facts on the record given that the legal process has been fully exhausted on that issue.
May I comment?
Perhaps the Deputy can come in when the speakers are finished.
Mr. David Gunning
I have mentioned the position we have in respect of the dividend payment and that we have made a proposal to our shareholders — the Departments of Agriculture, Fisheries and Food and Finance — in respect of this topic. We have had dialogue with them in respect of that dividend payment and other topics that are related to that, such as the afforestation agenda and how they might be interlinked. We await further dialogue to get some clarity on that issue.
Deputy P.J. Sheehan mentioned a figure of €22.5 million in 2006, €40.1 million in 2007 and the fact that there has been no dividend since 1989. Even in 2007, we made €40.1 million in profit. Coillte invested €58 million in capital expenditure. Every penny and more that we earn is invested in the long-term sustainability of the business and it is a very important point.
It is also important to emphasise the public good that Coillte provides and that this is in itself a dividend. Recreation, for which Coillte is not funded, is a very large dividend to the people of Ireland. The biodiversity and habitats that Coillte provides in our forests are very important elements of a social dividend that does not have a cash value. We have made a proposal to our shareholders and look forward to engaging with them.
In respect of afforestation, Coillte is not currently buying lands, with certain exceptions. Last year, we bought a small amount of immature plantations. From 1989 to 1999, Coillte bought 50,000 hectares. We could buy the land at that time at good prices and it made sense. It is very difficult for us to buy land given that the return we can make from our core business on it is questionable given current land prices. This is a fundamental issue.
What are we doing? We are looking to buy immature plantations which we can buy at a better price to maintain and grow the productive capacity of our estate.
Are these immature plantations privately-owned properties? Farmers and landowners are selling them off.
Mr. David Gunning
Yes. In respect of the investment issue raised about pensions and private investors, Coillte was certainly a founder of the Irish Forestry Unit Trust which is still in existence. We see opportunities to attract money into forestry and provide a decent return to investors. In discussing this, we cannot reveal any particular issues but we see this as an area where funds can be attracted and we will do so.
In respect of Coillte's investments and returns in wind farms in 2006 and 2007, no investments have yet been made by Coillte in any wind farms. It is our intention to invest in the first wind farms, namely, the three wind farms in Cork, Donegal and Leitrim mentioned by me, over the next two years. That process will be under way. We hope to turn the old sod in Leitrim in the summer and progress is continuing.
A question was asked about adventure courses and Go Ape, which we like to do from time to time. Mr Egan is involved in Lough Key Forest and Activity Park and other places and can perhaps give some details on that.
Mr. Gerry Egan
In this specific case, we have made an agreement with a UK company called Jungle Park, which is the other party in this market along with Go Ape. We had proposals from both companies and decided to go ahead with Jungle Park. We see this as a very natural add-on to the Lough Key Forest and Activity Park in Roscommon. The operators there have applied for planning permission and we hope this would be in operation in the autumn. Once we evaluate the first one and if it takes off, we will certainly look at three or four potential locations around the country.
We must be out of here by 2 p.m.
Mr. David Gunning
We will try and hack on through these particular points. A question arose about debris and rubbish after clear felling. This is a classic example of waste to energy. There is no such thing as debris or rubbish in this business anymore. We are probably the largest users of wood for energy in the country.
The challenge in respect of the harvesting residues or the post clear fell residues is to economically get that material to where it can be consumed. We are working with the Swedes and other people throughout Europe on that challenge. We have just initiated a project to extract the maximum amount of harvesting residues within a footprint around our Clonmel site where we can consume that material for various reasons. Assuming we can solve the problem of the economic harvesting of this material, there is no reason we cannot get it to market and it should not have a purpose. We believe that not only will it have a purpose, it will have an economic return as oil and energy prices continue to rise. The committee will be seeing more from Coillte in that particular area and in the area of bio-fuels as we go forward.
Another question concerned nursery plants. We consume about 60% of our total production of 38 million plants. The rest are exported at some return. We see an opportunity for that and are very much in the REPS hedging market. We have relationships with a number of co-ops around the country who sell considerable volumes of our product grown in our nurseries, bought in or grown by subcontractors either here or abroad.
Willow is one species. We are in the business of producing large volumes of timber. I want to make it clear that we are looking at willow. As we look at the coppicing of willow, we have cleared a number of areas that we perhaps bought in the 1990s for Christmas tree farms and are now using those areas as research and development plots. We are growing some traditional forestry plants. We are looking at willow, growing poplar and planning to grow other types. This is to see what will work and give us the return in these areas. We think it is an important area.
We have also used willow in the production process at Medite to make MDF. There has been an investment in willow for energy purposes. Those markets have not materialised as quickly as people thought they would in terms of consumers for energy purposes. We have provided a market for that willow output in Clonmel and have used it for a combination of energy for our boilers and drawing the material. However, we have also made board out of it, which is a much higher value proposition, as the committee can imagine.
I will ask Mr. Egan to talk about the conference centre in Avondale.
Mr. Gerry Egan
The work there is well under way. The roofing contract has gone out to tender and the contractor is on site. The roof should be on that centre, which is the largest piece of the work, by September. We expect it to be functioning as an events centre by mid 2009.
Mr. David Gunning
I shall comment on the Malone report. Its 18 main recommendations were broad, but a number focused on the Forest Service and one mentioned Coillte. The Forest Service, the National Parks and Wildlife Service and a number of other bodies are involved in the approval of farmers' applications. Coillte has a role to play in terms of afforestation. While we view it as a business opportunity, we are not involved in the approval of the scheme, grants and so on, which is the responsibility of the Forest Service, the NPWS and other bodies.
The point on recreation areas was important. Walkers believe that they have an inalienable right to walk in forests and mountain bikers, horse riders and quad bikers believe that they also have rights. As a landowner, our challenge is to manage the conflicting uses. As displayed on the map submitted, Coillte has built new walking and mountain biking trails. The latter are internationally regarded as some of the best in Europe. We are in the process of conducting a feasibility study on putting in place the Dublin Mountains' first quad bike trail, which we will do shortly. This will take people from Ticknock and elsewhere and place them in a dedicated facility. That they have not had similar facilities previously offers an opportunity for us.
Land development forms a strand of our strategy. Areas in our estate have more value than non-forestry areas. They can provide housing in local communities and have other applications, such as extensions to golf courses, an activity people enjoy from time to time. We often work with our neighbours. I have addressed the purchase of land for planting.
Regarding the SAC designation, Coillte is a landowner and must deal with these issues like everyone else. The protection of habitats for freshwater pearl mussels or hen harriers is one example of an issue that affects how Coillte runs its business, but we are proud of our record in working with the NPWS and other stakeholders.
Regarding the supply chain and demand, Coillte's ability to supply will remain flat between now and 2020. Approximately 2.6 million cu. m. of Coillte's estate will be brought to market, but there is a considerable amount of material within the private forestry sector. By 2015, the latter will amount to approximately half of Coillte's estate, assuming it can all be brought to market. The Forest Service is involved in creating an inventory of that material and we intend to do what we can as an aggregator to support it. We have markets for the material in SmartPly, Medite, energy applications and so on.
There is an element of importing of logs from Scotland, which is marginally economical due to the sterling-euro exchange rate. There is not much exporting of raw material. If we do not have demand within our panel mills, we will consider the possibility of exports of pulp as a temporary measure because we do not want to risk undermining the set of forestry contractors. In the long term, it is important for Coillte that they continue in viable operation. If we could find markets for output, it would allow us to continue to operate in those areas.
We have addressed a number of other topics, including harvesting residues and energy plants. In terms of the latter, Deputy Sheahan asked about our activity regarding the wood-for-energy biozone in the north west. We have no reason to doubt that it will be viable and we plan to "cut and paste" that activity elsewhere in the country. In this context, our people are keen to explore the west County Kerry and County Cork areas.
Concerning payments to local authorities, our process for working with local authorities on harvesting operations is extensive. We agree designated routes for haulage from the areas in question, allowing county engineers to modify their maintenance programmes. For example, if they know that there will be a clearfell next year, they may delay the upgrading or surface treatment of a road until afterwards, thereby allowing authorities to optimise their limited resources, which is important.
In each of the past two years, Coillte contributed approximately €500,000 to the CLÁR programme for the upgrading of roads.
We have not covered every topic raised but we have addressed most of the key issues.
There may be a few short supplementary questions.
Regarding the ongoing saga to which I referred, Mr. Egan did not address the reason for the arrears in rent. I will not discuss the issue's legal side because this long saga has not yet been concluded whereas Mr. Egan made it sound as if it is done and dusted.
Mr. Gerry Egan
It is unequivocally done and dusted. No other avenue is available.
I dispute that.
Could the Deputy and Mr. Egan discuss this matter after the meeting?
Mr. Gerry Egan
I would be happy to discuss it.
I am not digressing from the issue of Coillte closing and locking its gates against landowners who need to access their lands. Mr. Egan stated that the issue is legally done and dusted but being unable to access one's land is a serious matter and would not have been the situation 15 years ago. While I mentioned Coillte's positive achievements, I have reservations about this negative change. Mr. Egan made it sound as if my example was the only case of a dispute with a landowner. Was this his intention?
Mr. Gerry Egan
No.
That clarifies my point.
Mr. David Gunning
I would not like the impression to be conveyed that there are——
There are other cases.
Mr. David Gunning
There are a few, but I would not like to give the impression that we are in dispute with all our neighbours.
I did not say that, but Coillte made it sound as if this was the only case.
We do not want to become entangled in this legal matter.
We will not. This is just a discussion.
Not all contractors and hauliers stick to their designated routes, of which I could provide proof. At 6 a.m. no one is around to know where they go. They are not supposed to take shortcuts but that is another issue.
The amenity recreation areas comprise a good news story. What is Coillte's policy on gun clubs, a matter raised in County Kilkenny and in respect of which I wrote to the local Coillte office? The gun club in question is insured and wants access because the natural buffering in forests would be useful for a shooting range. Is there any truth in the rumour that Coillte will diversify into hotels and leisure centres in south County Kilkenny?
Mr. David Gunning
It is the first I have heard of our entering the hotel business.
I believed that we would hear more about the impact of the downturn in construction in terms of log and panel prices, Coillte's export levels relative to the domestic market and so on. We are discussing last year's report, but the past is another country and we should consider the future.
It was mentioned that Coillte is considering nursery plots for coppice willow and so on. While I am unsure of the British forest service's budget for research and development, it has approximately 300 staff. Do we buy research expertise from Teagasc? This issue is key to the future. The potential of the energy sector, the trees we should be planting and where we should be planting them comes from appropriately-funded research and development.
Is there an alternative for acid sensitive areas?
I am unhappy with Mr. Gunning's answer to my question on coppice willow. Coppice willow is not included in the acceptable tree species for grant aided commercial crops. It is a fast maturing tree. After three years it can be cut. It should be included for grant aid by the Department of Agriculture, Fisheries and Food.
It is.
It is not.
Mr. David Gunning
Regarding Deputy P. J. Sheehan's question on the acceptability of coppice willow, that is a question for the Forest Service and not a Coillte. Coillte is working in this area, planting willow and processing it in our plants.
There are many gun clubs, we have a good relationship with them and they pay us licences or fees. We would be happy to meet with them and we will accommodate them if we can.
It is a bad situation if the chief executive is finding out that we are building a hotel in County Kilkenny.
Rumour has it. Perhaps Coillte is not building it but facilitating it.
Mr. David Gunning
With regard to the downturn in the construction industry, the demand for sawn timber in Ireland has dropped from 1.8 million cu. m. to 1 million cu. m., a 40% drop. Much of the demand in the past was satisfied with imports and by pricing our product appropriately and working with the customers, we can displace a significant amount of imports.
On the panel mill side, demand is 75% of last year's run rate. In order to balance supply with demand, we are taking steps in SmartPly, where the issue is more acute. We will take some down time in SmartPly, probably one week of closures every month. There will be temporary layoffs in SmartPly. This has been communicated to staff and will commence. The situation is less acute for Medite.
What about the export markets for panels?
Mr. David Gunning
This is predominantly an export market, with over 80% of our product exported. Of that, the majority goes to the UK. The issue is the drop in demand, exacerbated by the relationship between sterling and the euro.
Is Coillte saying that people are being left off one week per month?
Mr. David Gunning
There will be temporary lay-offs from now until the end of the year. We will then review the situation.
Although the plant is closed for a week every month, will it continue on a 24 hour basis?
Mr. David Gunning
We will take a longer summer holiday but from September on we will stop for a period of one week per month.
Is it because demand has dropped?
Mr. David Gunning
We all know that demand has dropped.
Regarding research and development, there is an absolute necessity to have products that are somewhat counter-cyclical so that we are not always exposed to the construction sector. We are conducting significant research and development in the forest area and forest services. We hope to introduce a new range of products in the panels area. We have set aside €4 million for investment this year.
Coillte is not the equivalent of the forest service in the UK. The National Council for Forest Research and Development, COFORD, is the focal point of forestry research. Coillte has carried out research with UCD, WIT and others. We will continue to do so but must give it more of a focal point. This is a key part of our strategy in which we will invest.
Mr. Gerry Egan
The question on acid sensitive areas posed by Deputy Tom Sheahan is very similar to the one raised about the relationship with the National Parks and Wildlife Service and the Forest Service. A private landowner operates in an acid sensitive area and we suffer from the same difficulties. We lobby the Forest Service and the EPA about the designation of those areas. Until there is a change, we are subject to the same rules as anyone else. We do not have more capacity to do something about the situation than the IFA, which is lobbying on the same issue.
My point was on research and development. Is there any avenue to open up that land?
Mr. Gerry Egan
There is no silver bullet to resolve it. Rather than trying to manage environmentally sensitive areas for conventional forestry purposes, and this applies particularly to peatlands along the west coast, we will consider a recreation and environmental designation as opposed to operating on the basis that forests should only be used for timber production. From the perspective of a farmer, who is looking at this as a source of income, that does not offer a solution. For us it is different because it is a small part of an overall estate. If all of someone's land lies within an acid sensitive area, that closes off the forestry option.
On behalf of the committee I thank the delegation for the presentation and the answers to the questions put by members. At the next meeting we will discuss GM issues.