JOINT COMMITTEE ON EUROPEAN AFFAIRS díospóireacht -
Tuesday, 19 May 2009

European Commission Annual Policy Strategy 2010: Discussion.

Chairman

The joint committee meets to discuss the European Commission's annual policy strategy for 2010 which paves the way for establishing a policy agenda for 2010 and launches a dialogue within the institutions of the European Union on what should be the priorities for the next year. As part of this dialogue, the joint committee intends to make a submission to the Commission outlining its views on what areas should be prioritised by the Union in 2010 and, therefore, included in the Commission's annual legislative and work programme for next year.

The joint committee held an initial discussion on the annual policy strategy at its meeting on 24 March and agreed that the top priority for the year must be economic recovery. It is, therefore, agreed to focus on two key policy objectives identified by the Commission in the strategy, economic and social recovery, and climate change and sustainable Europe. The committee agreed to seek the views of experts and practitioners on what they believed the Commission should do to meet these key policy objectives and what the European Union could do in the immediate term to facilitate economic recovery and sustain and create employment and whether new and creative ideas could be brought forward in this report. The committee also agreed that these views would form its submission to the Commission. The committee appreciates the written responses it has received from the delegates appearing today and is delighted they have made themselves available to discuss the issues further.

We have received an apology from Mr. Martin Cronin, chief executive of Forfás, who cannot be here. On behalf of the joint committee, I welcome the following: Mr. Paul Rellis, CEO, Microsoft Ireland; from Forfás, Mr. Declan Hughes, divisional manager, competitiveness division, and Mr. Eoin Gahan, department manager, regulation trade and policy foresight; from Enterprise Ireland, Mr. Frank Ryan, CEO, Mr. Feargal Ó Móráin, executive director, and Mr. Neil Cooney, senior policy adviser; from IDA Ireland, Mr. Denis Molumby, executive director, and Mr. John O'Brien, head of business environment division; and from ESB International, Ms Bríd Horan, executive director, customer supply and group services, Dr. Eoin Wilson, manager, group health, safety and environment, and Mr. Adrian Kelly, regulatory affairs.

Before we begin, I draw attention to the fact that members of the joint committee have absolute privilege but this same privilege does not apply to witnesses appearing before the committee. Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the Houses or an official by name or in such a way as to make him or her identifiable.

We will hear the presentations by Mr. Rellis followed by Mr. Hughes, Mr. Ryan, Mr. Molumby and Ms Horan. As we have a large number of guests, we would, therefore, appreciate it if presentations could be kept to five to eight minutes to allow time for questions. We will group questions and if we need to return to them a second or third time, we will try to do so. We will try to be out of here within two hours in the normal course of events. I ask members and participants to keep that in mind.

Mr. Paul Rellis

I thank the Chairman and members for their time and the opportunity to attend and discuss this matter. It is a very important subject for businesses in Ireland, both multinational and small. Like many others, I believe all businesses today are global, whether they are small businesses in the heart of County Clare or large businesses in Dublin. They are fundamentally grappling with the same challenges, which challenge one's aspiration to innovation and scale. I prepared a submission from which I want to pick out three points. The EU will be the most important bridge and gateway for small and large business for the next 20 years. The EU provides scale for Irish business and allows access to a market that could not be achieved in any other way. These turbulent economic times focus us on the need to provide this support and scale to small business around Europe. The EU levels the playing field for Ireland with regard to other countries. For a small country with few natural resources outside of the most precious natural resource we have, namely, the fantastic talent, Europe and the EU can be a place in which Irish businesses play a full part.

I was fortunate to have spent two of the past seven weeks in the US and I was struck by the number of people from around the world who are dealing with the same economic issues as us. I was struck by the number of people who were aware of the fantastic opportunity Irish business has with a market of 500 million people on its doorstep. From talking to Microsoft colleagues globally and the people in the Irish business scene, what is most important is building a sustainable knowledge economy. The three core elements are skills, innovation and infrastructure. I have a couple of points to make on all three.

Europe has entered a turbulent period and one reason for this is the growing unemployment, which was estimated at 18 million in January. The resilience in the number of unfilled job vacancies across Europe is striking. There are some 4 million unfilled job vacancies across Europe, generally in the high tech, highly skilled roles. A Europe that takes that to heart and builds a knowledge economy along the lines of the Lisbon Agenda — which had information technology at its core — is extremely important. As a reminder, the vision for ICT in the Lisbon Agenda, in the words of the EU Commissioner with responsibility for the information society and media, was that regardless of health, wealth or location, technology would allow one to participate fully in society wherever one was in Europe.

Regarding innovation, a total innovation strategy is needed in Ireland to compete with innovation strategies in Europe. When I talk to colleagues in Scandinavia, I am amazed at the focus they have on innovation and technology in the economy. I am amazed how their economies and societies seem so resilient to the changes in the world. Clearly they are affected but they are resilient. A total innovation strategy that draws together public and private, social and commercial innovation, entrepreneurship and where innovation becomes more embedded in our culture is urgently needed so that we are ready for the future.

After skills and innovation we come to infrastructure. Having a modern ICT infrastructure is a vital prerequisite to building a sustainable knowledge economy. I do not just refer to broadband but having the right access devices, the right education and skills in business, students and homes. I appreciate the opportunity to contribute to this discussion. The EU is the gateway for business, large and small, from this country to a market of more than 500 million people. We see the sustainable knowledge economy as an initiative worth pursuing in Ireland and in the EU, which addresses both economic recovery and the climate change challenges. Microsoft is ready to play its full part in making that vision a reality. I thank the committee.

Chairman

We will move to the presentation from Forfás, which will be made by Mr. Declan Hughes.

Mr. Declan Hughes

I thank the committee for the invitation to address it this afternoon. I am joined by my colleague, Mr. Eoin Gahan, and we again extend apologies on behalf of our chief executive, Mr. Martin Cronin. We very much welcome the focus by the committee on the two key areas of economic and social recovery, and also regarding environmental development, sustainability and climate change.

As one of our key markets as a major source for trade and investment, recovery in the EU is very important to our own economic recovery and particularly with regard to an export-led recovery and a move away from dependence on domestic demand in construction, which we had over recent years. The focus of the Commission's strategy and work programme for next year on the area of economic and social recovery, and also its seeking to address the challenges around climate change and exploit such opportunities, is an area that Ireland can subscribe to wholeheartedly.

We have highlighted areas where actions by the Commission at European level have been particularly beneficial to Ireland in the past two decades and where accelerated action by the Commission in its work programme would be particularly beneficial. The first is the area of infrastructure and network development, particularly with regard to next-generation networks. As Mr. Rellis mentioned, this will underpin the development of the knowledge society and, as important, the development of e-commerce and the knowledge-based economy of the future. This regards trade internationally and also trade within the country and connecting regions.

Similarly, there is development around energy and transport networks, and Ireland has benefited greatly in the past 15 or 20 years from the investment in those transport infrastructures which have facilitated the free movement of people, goods and services to our main markets.

The second area we would highlight for particular focus and of particular relevance to Ireland is improving the effectiveness of the Single Market as part of the Commission's work programme for next year. Much progress has been made but we are of the view that Ireland and Irish firms have not yet exploited this market to the degree possible, both in terms of accessing those markets for goods and services and in regard to competitive sub-supply.

There are several elements which would be particularly beneficial to Ireland in terms of new business opportunities and developing new areas for exports, particularly with regard to the change in VAT rules for cross-border supply. This means VAT at the rate of the country of consumption applies rather than the country of supply, and this will be particularly beneficial for Ireland and companies based here in supplying goods and services into those markets. There are also initiatives in the areas of public procurement and the transposition of the services directive.

A number of those points were set out in our letter. In our judgment, the implementation of additional measures to improve the functioning of the Single Market would help business to trade across European borders more easily. It would encourage those who have not yet done so to enter new markets, which is a particular issue currently for companies which are highly dependent on the UK market and seeking alternative opportunities.

The third area which we focus on is the challenge relating to climate change and environmental goods and services opportunities. There is very significant investment in those areas in Ireland and internationally. We have good resources and a good enterprise base in areas such as eco-construction and related materials, products and services which develop renewables. Developments in the smart grid area and the European grid will certainly provide opportunities for Ireland in terms of developing technical expertise, accessing research and supplying those markets.

The final point we make is consideration of the longer term perspective with regard to the development of the knowledge-based economy and improvement in the competitiveness of Europe overall. Europe is a major location for trade investment and we are of the view that good progress has been made under the Lisbon agenda, which sought to develop Europe as the most competitive knowledge-based economy in the world by 2010. There is still significant progress to be made. The review of that agenda will commence in the autumn, starting with a public consultation programme announced by the Commission in recent days.

In looking forward in Europe over the next ten years and taking cognisance of the current downturn, Europe will also need to take account of its position in the world. It must, therefore, not just consider the position internally but also examine key areas and industries in which it can be a leader. Recognising the rapid pace of globalisation of trade, investment and knowledge flows, it is obvious that countries in Europe are competing with each other but that the Union as a whole is competing with other major regions across the globe. The competition between Europe and other regions must be borne in mind in the context of policy development.

We have also highlighted the issue of the free movement of people which has an impact in the context of the functioning of the labour market. It also has an economic impact with regard to tourism and other sectors. We welcome the focus placed on the Schengen Agreement in the Commission's document. It might be appropriate to have this matter reviewed at national level.

Mr. Frank Ryan

I thank the Chairman and members for providing me with the opportunity to attend this meeting and make a contribution. I am honoured to be joined by colleagues from the other organisations represented at this meeting, the purpose of which is to further the discussion on this matter. The Chairman kindly introduced my colleagues, Mr. Feargal Ó Móráin and Mr. Neil Cooney.

It is perhaps apt to begin by referring to the challenges we face. However, it is best to do so in the context of some of the more positive aspects of that position, with particular regard to indigenous enterprise. There is no doubt that the economy faces some difficult truths in the short term. It is clear, however, that the global downturn has sparked a renewed resolve to build a prosperous and sustainable economy. The fruit of a similarly global economic and social challenge 60 years ago was the European Union, the framework relating to which has assisted in engendering trade and co-operation since.

When the European model was first proclaimed in 1950, in the light of their central importance to a fractured and rebuilding Europe, the core trade elements concerned were coal and steel. Europe is now presented with a number of opportunities. It is clear that innovative environment products and services, including those in the areas of renewable energy and efficiency, are this generation's coal. Likewise, advanced economies are now built on technologies such as those relating to information and communications, rather than steel. I assure the committee that Enterprise Ireland is extremely focused on supporting the indigenous enterprise base in order to target these emerging sectors of opportunity. We are well placed to do so.

In the light of the challenges we face, it is possible to overlook the advantages the economy possesses. As a small, open economy on a much larger stage, Ireland has tremendous assets in the context of its recently acquired economic and business infrastructure, its enterprises and people. The answer to the challenges we face is a return to export-led growth which drove the economy forward in the foundation stages of the boom. A fillip for Ireland is the fact that more indigenous enterprises than ever before are regularly exporting to international markets. In 2008 and even in the downturn Irish enterprises grew their exports. These companies are targeting markets — Brazil, India, China and, of course, the enlarged European market — which were thought barely accessible to Irish enterprise heretofore.

I refer the committee to the famous words of Jean Monnet, "We unite people, not states." These sentiments are evident today in that there is a European-wide market, consistent with the principle of unfettered access. Within this market, 500 million consumers make daily choices regarding the products and services they consume. This has been vital for the growth of the Irish export base. It has also proved to be a bridge to third countries beyond our European borders. The Commission's policy strategy for 2010, while setting out issues at the core of economic recovery, also has an eye on pragmatic issues relating to future development and on measures to encourage innovation and competitiveness. I will deal directly with some strategic elements of the Commission's policy which have an impact on enterprise and trade.

A key element of the Commission's strategy is putting into effect the European economic recovery plan. In that context, I draw attention to the enterprise stabilisation fund administered by Enterprise Ireland and approved by the Commission under the temporary measures. Irish companies in the manufacturing and internationally traded services sectors are experiencing tough market conditions, notwithstanding the fact that many of them have viable products and processes and sound business models. There is an obvious need to support those companies which are capable of growth. The introduction of the enterprise stabilisation fund is a key step in securing the future of Irish companies and sustaining employment. As the administrator of the fund, Enterprise Ireland, supported by guidance from the European Commission, will ensure this initiative is aimed at viable but vulnerable exporting companies. Finance will be available to support companies in the development and implementation of a business plan that will map the actions to enable them to survive and reposition.

The environment is given high priority in them European Commission's objectives. Its focus is on helping to drive forward associated industries, notably the clean-tech sector, and is a welcome strategy, given the Government's commitments to the smart economy and the approach of Enterprise Ireland, in which a clean-tech division has been established to support a growing base of companies trading internationally. There is also an onus on companies to become more efficient in their energy use, waste capture and so forth. Enterprise Ireland has a long established green offer, including the green-tech support pack which is designed to help take advantage of the opportunities presented by integrating environmental sustainability into business.

Enterprise Ireland also welcomes the European Commission's support for structural investment projects under the European energy programme for recovery. The programme outlines funding measures for gas and electricity interconnection projects, offshore wind energy projects and projects for carbon capture and storage. Better and more efficient energy networks will significantly increase the international competitiveness of European exporting companies.

It is imperative that Ireland continues to focus on promoting the level of quality and commercial applicability of all research and development undertaken, ensuring industry leads the response to rapid changes in customer needs. The seventh framework programme, FP7, is a large multi-annual research programme with a budget of over €50 billion. It provides funding for academic researchers, large enterprises and SMEs to engage in collaborative research partnerships. FP7 is key to ensuring Irish researchers and enterprises achieve the targets set out in the strategy for science, technology and innovation. Enterprise Ireland manages the programme's support network in Ireland and welcomes the provision of additional substantial funding for the programme.

From the commencement of the programme in December 2006 to December 2008, 1,794 applicants from Irish-based organisations took part in proposals and submissions requesting European funding. Up to 418 applicants were successful and received €107 million, giving an overall Irish success rate of 23.3%, above the EU member state average of 21.76%. The high level of activity of Irish researchers, both academic and industrial, and their success rates are positive indicators of the prospects for Irish participation in the programme and in line with targets set out at national level.

Our universities and institutes of technology are keenly focused on delivering a competitive knowledge-led economy. The research being carried out in delivering commercial benefits to Irish companies with Enterprise Ireland's support is through technology transfer, the spin-out of high potential start-ups, collaborative research networks and innovation vouchers.

Ireland will continue to be eligible under the regional competitiveness and employment objective for 2007 to 2013. It can expect to receive approximately €901 million in Structural Funds from the European Union, with €375 million coming from the European Regional Development Fund and €375 million from the European Social Fund. The remaining €151 million is for territorial co-operation programmes, including the PEACE II programme. Structural Funds are designed to raise the long-term growth potential of the economies which receive them. The European Commission's decision to increase the financial resources being allocated to cohesion for growth and employment by €980 million can be welcomed.

The Commissioner for Enterprise and Industry, Günter Verheugen, recently attended the joint committee to discuss the EU strategy for growth and jobs and his comments reflected the need for the European Union to bolster its competitiveness once more. In this regard, the European Commission's strategy is an important element in achieving this objective.

The European Commission's annual strategy outlines many other initiatives linked to increased economic integration and sustainability, including a Community patent and patent litigation system, a modernisation of trade mark and copyright systems and an integrated approach to the digital services economy. Enterprise Ireland, through the Department of Enterprise, Trade and Employment, is actively engaged with the European Commission and supports its policies, as they will contribute to the sustainability and growth of Irish exporting enterprises.

I thank the Chairman and committee members.

Chairman

The next speaker is Mr. Molumby of IDA Ireland.

Mr. Denis Molumby

I thank the Chairman and the committee for the invitation to IDA Ireland, the representatives of which are honoured to attend.

The European Single Market has been and continues to be a crucial factor in attracting foreign direct investment to Ireland. I will put this investment in the economy in perspective. There are approximately 150,000 people directly employed in IDA supported foreign-owned companies in Ireland and if indirect jobs are included, this probably increases to about 300,000. Foreign direct investment companies spend €16 billion in the economy with a payroll of €6.7 billion, contribute half of the total corporation tax take and account for 60% of exports. They play a critical role in the development of the economy.

In 2008 IDA Ireland supported 130 investments by new and existing clients. This included 35 companies which were new to Ireland and 55 investments in research, development and innovation. Some 60% of the jobs supported carry salaries in excess of €45,000 per annum. We are continuing to compete for high value, smart economy investments. We are focused on the life sciences, information communication technology and globally-traded businesses in engineering, professional services, digital media, consumer brands and international services, all of which compete globally in new technologies and new business models. We see opportunities in convergence, particularly convergence between the life sciences and ICT, in clean tech and environmental technologies and innovation in services. We have reorganised to dedicate staff and resources to these areas.

Foreign direct investment companies account for 60% of Ireland's exports, which exports have grown by 50% since 2000. Within the sector there is an increasing emphasis on high tech manufacturing and services. Virtually all of the output of the foreign direct investment sector is exported — predominantly to other states of the European Union. Ireland's membership of an efficient, well functioning Single Market has been the single most important factor accounting for the location and success of these companies in Ireland. We, therefore, welcome the commitment shown by the Commission to the Single Market so as to ensure the cohesion and prosperity of the European Union. In addition, it is important that the Union continue to press for free trade outside its borders. In the current environment it is easy to lose sight of the importance of free trade policies but these offer the best long-term source of global prosperity. The Single Market is always evolving. It is vital that Ireland continue to be in a position to influence that evolution, to ensure companies located here can continue to competitively access the market, particularly in areas where regulation plays an important role and in services which account for an increasing proportion of our exports.

For many of our companies, particularly service companies, it is important that they have access not just to European markets but also to skilled personnel. Companies located here employing large numbers of Irish people can only do so if they can also recruit other staff with a variety of skills and languages. For example, Google Ireland supports more than 25 countries from its base in Ireland; there are up to 50 languages spoken in its Dublin office. In this regard, the free movement of people through the European Union has brought significant benefits to the economy and allows IDA Ireland to market Ireland on the basis of a pan-European talent pool.

Increasingly, foreign direct investment companies are focusing on knowledge-intensive activities driven by research and innovation. It is estimated that foreign-owned companies account for about 70% of this research and development spend which is spread across all areas. These investments are facilitated by our ability to provide appropriate financial support through a grants programme which operates under the horizontal framework for research and development adopted by the European Commission and also by the collaboration of many of the companies with research programmes in the third level institutions supported by funding from Science Foundation Ireland and under the programme for research in third level institutions, PRTLI. We also work closely with our sister agencies to encourage foreign-owned companies to participate in projects funded by the Commission under its framework programmes. We welcome the Commission's continuing support for the Lisbon Agenda and its emphasis on increasing competitiveness and market liberalisation, particularly in services. The reforms and policies in the strategy should help Europe to take advantage of the global upswing when it comes. Our strategy is fully in line with the Lisbon strategy. We are committed to focusing on research and development and innovation, as well as the green economy.

As the agency responsible for the promotion of foreign direct investment into Ireland and for working with our existing investors to sustain and grow their business, we are keenly aware of the difficulties the current global environment poses for them. We are continually working with companies and supporting them in their efforts to improve competitiveness and develop new business. In the current environment, our priority is to maintain the maximum number of people in employment and to position the companies to take full advantage of an international recovery when it comes.

In this light, we welcome the Commission's response to the crisis based on both the short-term stimulus and the ongoing work to improve productive capacity in Europe. As Mr. Frank Ryan of Enterprise Ireland noted, the temporary aid scheme on which we worked with the Department of Enterprise, Trade and Employment ensured we could get Commission approval for up to €500,000 for companies in financial difficulty due to the financial and economic crisis. We also welcome the funding allocated under the European energy programme for recovery. In our case, the Commission has supported the development of a 500 MW east-west interconnector linking Ireland and Wales. We believe this will improve the competitiveness of the Irish electricity market and help reduce relative energy cost, which is an issue of major concern to our client companies.

It is important that during the course of 2010 the European Commission continues to implement and monitor the measures in the European economic recovery plan and is open to the idea of extending them beyond 2010 if that is deemed necessary. Recovery is forecast by the OECD to occur towards the end of 2010 but if this recovery is not forthcoming, the Commission may have to take further action to stimulate the European economy.

In summary, the key issues in sustaining and developing FDI in Ireland are the framework for the competitiveness of Europe in technology, the continued development of the Single Market in services and the free movement of labour and skills, which will allow innovation in those services to proceed at an increased pace.

Chairman

I call Ms Bríd Horan, executive director for customer supply and group services, ESB.

Ms Bríd Horan

I will begin by noting I represent ESB, not ESB International, which is part of the group. I thank the Chairman and members for taking the time to address the important issues on the agenda today. The ESB welcomes the opportunity to make a submission to the committee and to set out its views on the European Commission's annual policy strategy for 2010 and the possibilities for economic recovery in the immediate term. I propose to address the conditions that are needed to support investment in energy and to identify a number of measures we believe the EU might employ to support economic recovery.

In the context of the present economic downturn, we particularly welcome the additional stimulus provided by the European economic recovery plan, which provides a €3.5 billion package for investment in gas and electricity infrastructure, offshore wind farms and carbon capture and storage out of a total package of €5 billion. In particular, the funding of €110 million provided for Ireland to fund the electricity interconnector between Ireland and Britain represents a significant commitment from the European Commission for the development of the Ireland-Britain-France regional electricity market. Greater integration of these markets will lead to benefits in terms of more competition, the delivery of renewable energy targets and enhanced security of supply. We also welcome the EU decision to allocate €165 million of the recovery package towards the development of a North Sea offshore wind grid, which will incorporate an Irish link.

In its written submission to the committee, the ESB emphasised that investment planning in the electricity is long term, typically with seven to ten-year lead times. Consequently, the economic benefits from policy changes adopted in 2009 or 2010 will not be realised for several years in many cases. However, from our perspective it is really important that such policy changes are made, as they will deliver results in the medium to long term.

The EU funding allocations I have just mentioned must be viewed in the overall context of a required investment of €1.8 trillion in Europe's electricity sector by 2030 which has been deemed necessary by the International Energy Agency. That is the enormous scale of the investment required; approximately one third of this investment is needed for the transmission and distribution networks alone. Given the European Commission's limited resources, we believe its key role in the immediate future should be the provision of framework conditions to maximise the speed and depth of recovery which can best be achieved by ensuring a stable policy and regulatory regime which is essential if such a level of new investment is to be achieved. However, it is worth noting that there also are significant difficulties relating to planning and permitting which will present a challenge to the delivery of the planned investment programmes.

In addition, the ESB welcomes the further estimated €6 billion to be made available from the EU emissions trading scheme to support innovative renewable energy systems and carbon capture and storage pilot projects. While Ireland has not been selected to host a carbon capture and storage project, the ESB nonetheless welcomes the provision of funds to accelerate investment in this technology because we believe it is vital if Europe is to reach its long-term emissions production targets. As for this particular funding, we also require clarification on the split between carbon capture and storage and the development of innovative renewable technologies, as well as on the type and numbers of renewable projects that will qualify for support. If the European Commission wishes to expedite the delivery of such technologies, it should move to clarify this issue with immediate effect. The ESB hopes some of the allocation to be made will be made available to support ocean energy and other developing green technologies. For our part, we are investing in this area and see significant potential for further development.

I turn to a number of measures we believe the European Union could adopt to help facilitate economic recovery in the short term. First, it could create conditions that would underpin confidence for investment in critical infrastructures. Investors in the energy market need certainty following a decade of policy and structural transformation. Second, it could use the opportunity presented by the update to the EU energy efficiency action plan for 2010 to 2014 and the revision of the energy services directive to address the lack of real progress in respect of energy efficiency. We believe the urgently needed changes in this regard have been held back by a lack of accessible finance, consumer awareness and industry expertise. The ESB is engaged actively in addressing these difficulties in the Irish market. EU action in this area should involve a stimulus to allow wide-scale uptake of existing energy efficiency measures. Improving energy efficiency will reduce overall costs for businesses and families, improve households' quality of life and, very importantly, enhance Ireland's economic competitiveness. Taking such measures will also sustain and create employment at a time when this is a key priority for the economy. However, EU and national authorities must ensure any proposed new regulatory regimes for financial institutions would not result access to funding for businesses and households for energy efficiency projects being restricted.

Third, the European Commission should ensure a consistent, harmonised and rapid implementation of the third energy market liberalisation package. We consider this to be essential for the attraction of energy investment in priority areas. A stable framework, implemented without delay, would accelerate development of a single European-wide energy market. For such a market to function properly, individual markets must be adequately interconnected. This point has been mentioned already today. From an Irish perspective, this means interconnection with Britain, as mentioned previously, and ultimately the rest of Europe. As I noted previously, strong interconnection with Britain and mainland Europe would facilitate the achievement of high levels of renewable energy electricity capacity in Ireland.

As for research, development and deployment, the European Union should seek to take the lead in new technology developments, with particular reference to transport. It should redirect transport research and development programmes to support electricity and plug-in electric hybrid vehicle development and commercialisation. We have noted with interest that the new Energy Secretary in the United States has proposed terminating funding for some technologies, for example, fuel cell vehicles, in favour of electric and plug-in hybrid technologies. The ESB and the Government have agreed to prioritise investment to provide the necessary recharging infrastructure for electric vehicles and to develop expertise in this vital area.

In more general terms, the European Union should ensure funds are released as quickly as possible to eligible projects and that the regulatory burdens on business are addressed. For example, the green package requires a broad range of secondary legislative instruments to be adopted at EU level. These should be expedited to ensure stability in electricity markets and facilitate the required long-term investments. I emphasise three key issues: first, the need for stability and certainty around the policy and regulatory frameworks to facilitate critical investments, particularly in the energy sector; second, the rapid delivery of agreed funding for selected infrastructural projects, especially the Ireland-Britain electricity interconnection; and, third, early decisions on the provision of capital for renewable technologies.

For its part, the ESB has set out ambitious targets involving major investment particularly supportive of renewable energy projects, energy efficiency, smart meters, smart networks and electric vehicles. We have also outlined an employment stimulus, whereby up to 6,000 jobs and training opportunities will be created in the next five years. The majority of these jobs will be created in areas related to what is now known as the green or smart economy. Again, this has been referred to on a number of occasions by other speakers.

On behalf of the ESB, I again thank the Chairman and members of the committee for giving us the opportunity to take part in this discussion. We would welcome an opportunity in the future to assist the committee when it comes to discuss the policy and strategy priorities of the next European Commission.

Chairman

There has been an interesting range of submissions which will be used in the compilation of a report which will be laid before the Houses of the Oireachtas and submitted to the European Commission. The committee has previously expressed the importance of a serious input by the providers of industry and services, major players in this country. Many points of interest were raised, starting with Mr. Paul Rellis's point on the importance for the future of innovative technology. One of the issues that arises is that some of us believe the European Union as an entity has punched considerably below its economic weight in recent years. A population of 500 million is a very sizeable market. The Union, therefore, needs to lead the global economy but, by virtue of its history, has never really come to grips with this. However, there is huge potential and it is hoped this will emerge in the course of the review.

According to Enterprise Ireland, Ireland did well, even in the downturn. The European Commission's strategy on economic recovery is something Enterprise Ireland is taking on board. There was reference to environmentally friendly enterprise and education which are importation issues. Issues that arose in regard to Forfás were competitiveness, world markets and the Schengen Agreement. In terms of IDA Ireland, the issues were the high value smart economy, regulation and services, and the importance of services in job creation. We have commented on these issues many times. The committee believes there is huge potential in terms of the smart economy and high value enterprises. However, we should keep in mind the necessity to ensure we are competitive in manufacturing. If we lose our competitiveness in manufacturing and we have slipped a little in recent years, we will be at a serious disadvantage in world markets. This is an open economy which relies heavily on exports. Therefore, it is hugely important for us to maintain our competitiveness.

Regarding the ESB, it is significant that it has embarked on such an innovative development programme at this time, on which it is to be congratulated. One of the issues that occurs to me — members will raise these issues — is the degree to which the ESB, a large company with plenty of innovative technology and expertise, can make a major impact. This augurs well for it.

Many people have inquired about microgeneration, the involvement of smart metering and the degree to which they should embark on expenditure likely to generate home generation, the excess of which could be off-loaded to the grid. A cost benefit analysis needs to be done. There is grave danger that some willing entrepreneurs may spend money about which they are not too certain at this stage. Given the current banking situation, it could be very difficult to do that. If a person is to spend €40,000 or so on microgeneration, he or she needs to get the benefit from it in his or her lifetime. That is hugely important and I am anxious to ascertain that as well.

Deputy Joanna Tuffy

I thank the delegations for their presentations. An area in which the European Union has helped Ireland in the past, in terms of its economic development, is in funding for education and training. For example, we had a large number of graduates, in particular in the technology area, thanks to the European Social Fund. Before the abolition of third level fees, one could attend an institute of technology for free and study science, engineering and so on. There were programmes, with which I am familiar, that tried to encourage women to study engineering. Some FÁS training was also funded by European funding.

There was not much in any of the presentations in regard to that area. Do the delegations believe the European strategy should get back into that role to try to ensure we have the right graduates? For example, Mr. Paul Rellis mentioned the importance of the knowledge-based economy. What does he believe Ireland needs to do to provide the right graduates? In which areas do we need to provide graduates?

What work is Microsoft doing with colleges, schools and VECs to ensure Ireland produces the right graduates? How can the European Union help? Has Microsoft on-the-job training for its workers? Does it use any of the services of the VECs or the colleges? Does it liaise with them? Does it believe it can provide opportunities for the thousands of people who are losing their jobs in construction, manufacturing and retail to ensure they are ready to participate in the knowledge-based economy in Ireland in the future, including in Microsoft?

Deputy Timmy Dooley

I welcome the delegations and compliment them on the thought they have put into their presentations. I am interested in probing a little further into views they might have on areas which do not fall, or have not fallen, into the policy strategy which they might consider important and which should be in it. Is there anything missing from this strategy which they believe is important in the current climate or is there anything which is not being addressed? They have dealt adequately with the areas in which they have competence and are already working.

I compliment the ESB on the very progressive approach it has taken in dealing with the green energy issue. My next question is somewhat covered by what Deputy Tuffy said. In terms of the strategy it has laid out, does the ESB believe it will have the requisite amount of expertise coming forward in that field? Has it any concerns on the availability of people qualified to the level needed? If so, is there a role for developing associations with the various universities to ensure it has the skill sets necessary? Is there a wider role for the European Union in terms of identifying certain countries to develop certain technologies rather than having many states effectively chasing the same star?

Chairman

Deputy Joe Costello and Senator Terry Leyden are tied to speak next but the Senator may have to leave for a vote. Perhaps Deputy Costello will concede, but I will not argue about it.

Deputy Joe Costello

Of course. The Upper House always comes first.

Senator Terry Leyden

I thank Deputy Costello. This is a very important discussion and I welcome all the people who have come here today to contribute. If more people had realised the contribution Europe makes to this country last year's vote result would not have been "No". I hope it will be a "Yes" next time. Let us be frank about it — without Europe at this crucial point we would be in dire straits.

I thank Mr. Rellis, the chief executive of Microsoft Ireland for what he has contributed and what his company has done in offering leadership and attracting companies from the United States to Ireland. His company proved this country is the gateway to Europe and that speaking English and having our levels of education are of such benefit to all of us. There are difficulties. I recall leading an IDA delegation to the Hague in 1982 when inflation and interest rates were 18%. We negotiated a deal with Heineken to come to Cork to buy Murphy's. It was an extremely hard sell but would now be a much easier one, with interest rates at 1.5% and inflation at zero, plus the fact that in this country we have an abundance of people available to work in industry.

It is possible to turn a very negative situation into a most positive one. I have this great confidence from working abroad with the IDA and Enterprise Ireland over the years as Minister of State in trade and marketing. I know the ability of those organisations to put the work in and turn this situation around. At this stage, Forfás, IDA and Enterprise Ireland should become one seamless company which would be less complicated and confusing. When I was in the Department the Irish Trade Board was amalgamated with Enterprise Ireland and although I was not particularly keen about that at the time it seems to be working out well.

Our interest rate of 12.5% is absolutely vital for companies coming to Ireland and I hope President Obama's Administration will ensure there will not be repatriation of profits to the United States. It is in the best interests of the United States to have a good market in Europe.

I have worked also with ESB International abroad, in Malaysia and it is a professional organisation that is second to none. I commend it for its current work in creating jobs. It can continue with its international engagements and its leadership in the creation of electricity. It provides employment for enterprising young Irish people who work for ESB International and come back to this country. Its chief executive was the head of ESB International where he played a very important role. I am being complimentary and positive because at this time we have much to achieve. It can be achieved if we think positively and work together for the best interests of the country.

Chairman

Senator Leyden mentioned the interest rate of 12.5% but I believe he meant the corporate tax rate.

Senator Terry Leyden

My apologies. The corporate tax rate is 12.5%.

Chairman

That is correct. This is an issue that has been raised on several occasions in the past. Obviously, the justification is that we are on the fringe of Europe, being on its western seaboard rather than at the centre. There are economies of scale which others who live at the centre of Europe can avail of that we cannot and this is one way of balancing out the situation. We should not allow ourselves be pushed out of the circle at any time in that debate.

Deputy Joe Costello

I welcome everybody and thank them for giving us of their expertise which was extremely valuable to us.

Perhaps they might respond to my initial point, namely, that the situation is about our failure to deliver on the Lisbon strategy in respect of jobs and growth and to make the European Union the most competitive knowledge-based economy in the world. The Commission's annual policy strategy for 2010 is simply trying to recover what we have already failed to address by way of a recovery programme, sustainable development, investment and all the other issues. We are not close to being the most competitive economy in the world. The reason for the recession in most of the countries is reduced competitiveness. For Ireland in particular, we who are export-led, our whole Exchequer returns and economy are basically dependent on the ability to export and be competitive. We, above all the countries in the European Union, have failed to deliver on the Lisbon Agenda and the Lisbon strategy. I should like to see how the witnesses might reply to that.

We have heard that 60% of our exports are as a result of foreign direct investment. At the same time Forfás tells us that our indigenous enterprises are now more competitive than ever and we are selling to more areas of the world. Who is falling down? In recent years we have become reliant purely on the construction industry, which creates nothing in terms of exports. What has been happening — are we operating in a vacuum? Have we stopped competing and exporting in recent years? We hear that there is nothing coming into the Exchequer, we are in massive deficit and that ours and the EU's renewed commitment to the Lisbon Agenda and strategy is merely a reflection on our failure not to have delivered on this already.

Has Ireland lost its cutting edge in terms of drawing down money from Europe? We were supposed to be the sharpest country in the European Union for availing of matching funds, Cohesion Funds, Social, Structural Funds and all the funding that was available. We have failed dismally to draw down the €30 billion that was made available for bolstering small and medium enterprises, giving them a cash flow. The banks and financial institutions are not delivering on that.

As a result, we saw last week where the small and medium enterprise sector compared a survey it did with one it had done three months previously. The situation had deteriorated in the interim — and we are simply not drawing down money that is available to us in Europe, which would give us a level playing pitch. Perhaps Enterprise Ireland might clarify whether the same thing is happening with the Enterprise Stabilisation Fund, and the EU Seventh Framework Programme. We are on a 23.3% success ratio, but that is €107 million out of the €50 billion that is available. Some 12 eastern European countries joined the Union in the past three or four years, so they would not have the same expertise in drawing down the money. The fact that we have a good record, 23% as against 21%, is not necessarily something to write home about, since in effect we have a 77% failure rate. Have we lost our cutting edge in availing of the funding that Europe has made available for recovery, reconstruction and investment? How do we deal with that, in the event? We are way behind in research and development, nowhere near the 3% average the EU has recommended for all member states as part of the Lisbon strategy. Are we on 2% yet? There are matching funds available, too, for the academic institutions, and as Deputy Tuffy has said, that was the key area which gave us the cutting edge in the lead up to the Celtic tiger period.

The funds for the knowledge economy ploughed into the regional colleges and institutes of technical education gave us the knowledge-based generation that made us able to compete and underwrote the Celtic tiger experience. What are the witnesses doing as regards dealing with that, those who have responsibility in this area?

I was impressed by all the witnesses' contributions and particularly by what Ms Bríd Horan said. She is in a different category from some of the other witnesses in that she has a specific agenda. The ESB seems to have responded very well in the present climate. We are to invest €110 million in an interconnector with Wales and between €4 billion and €5 billion will be spent on the Irish grid, but what are we doing about the creation of new sustainable energy? Technology for generating energy from wind and water is proven and available. We do not have proven technology for tidal generation, where the greatest potential lies. What research is taking place in this area? Is there a recovery package to allow us to develop tidal energy? Tidal energy could allow us to export energy to Europe, rather than the other way around.

Were any of the witnesses present two weeks ago at the EU job creation and retention summit in Prague?

Deputy Billy Timmins

I apologise for my late arrival. I have been following the discussion on screen. Politicians are busy campaigning for various elections. While we never lose touch with the people, meeting voters constantly from Monday to Friday is a reality check for us. The only issues in people's minds are job creation and the economy. Objections to mobile phone masts, lack of gardaí and anti-social behaviour are all history.

While it is interesting to hear submissions on the importance of enterprise, anyone trying to set up a business faces tremendous obstacles. What role have Irish wage levels, the burden of regulation and the cost of utilities, including energy, played in the development of business in Ireland? Most local authorities will not allow a finger-post sign for a business or even a sign for a hospital. Temporary signs contravene litter regulations. Regulation is crippling business. The lack of proper local authority funding means businesses are crippled by rates and charges for water and other services. How does Ireland compare with other countries with regard to wages, regulation and utilities?

The last time Mr. Rellis addressed the joint committee, he spoke about the impact of the Lisbon treaty referendum on how Ireland is viewed as a base for American companies? Has that view changed? Is there now a view that we will pass the treaty and want to be part of Europe? How do energy costs impact on his company? I also put this question to the ESB. Everyone I speak to refers to the high cost of energy. The ESB has intimated that it intends to reduce its charges but it is difficult for businesses to compare the cost of energy from various providers. Unless one has a contact within the ESB, it is very difficult to access accurate information. It is particularly difficult for consumers.

We have discussed wind energy. I do not wish to discuss it at a micro level but I am aware of some people who received permission for a wind farm, but who had a previous commitment to connect to the grid at a certain location. In some cases by the time matters were settled the planning arrangements had changed and the cost of connecting to the grid had changed from perhaps €200,000 or €300,000 to more than €1 million. That was because they had to move the connection to the next station, perhaps 20 miles down the road.

I received a submission from an individual who told me that wind energy is not economically viable. I am unsure but I intend to forward the matter to the Minister. Perhaps it is and perhaps it is not economically viable over a period of time. I wish to know the views of each of the groups in this regard.

Deputy Costello referred to exporting energy. What about the idea of creating our own nuclear energy in this country and exporting it? It certainly would be good for the environment.

Deputy Timmy Dooley

Fianna Fáil is unlikely to launch that policy document before the election.

Deputy Billy Timmins

As Deputy Dooley is aware, it is simply to form the question. What is the view? Why do we shy away from it? Is there good reason to do so? The delegation represents the professionals at the coalface. Is this issue a political hot potato that politicians do not have the courage to grasp? Politicians may discuss the establishment of various bodies, but are politicians letting down the competitiveness of the country or its economic viability by our failure and lack of courage in grasping these issues? Is there any logical reason we should not address these issues?

I refer to the regulatory burden upon businesses, previously mentioned in one of the submissions. How do we compare with other European countries with regard to the regulatory burden? This issue really gets under my skin. We discuss it but every time we go anywhere we are looking to create more regulation and more safety statements. Every one of these comes at a cost.

I will finish by putting two final questions. Green energy sounds nice but I am unsure whether carrot peels will see us through or meet our energy needs in future. Do we overemphasise these things which appear to be populist and make us feel good about ourselves? One would have to process a good many banana skins and carrot peels and much cabbage juice by the time one moved the bicycle from here to the gate. Do we need to get real?

I refer to competitiveness and our fall in the competitiveness league. What was the principle issue that caused us to slide down the competitiveness league? When did the organisations represented by the delegation realise this? I believe Deputy Costello mentioned the need to address this issue. One of the weaknesses of the system in Ireland is that — I am unsure if there is such a term as a futurologist — we do not spend enough time planning. We deal with crisis management here and now. We do not have someone sitting in the armchair looking into the future and anticipating events based not on being a clairvoyant, but simply on previous experiences.

Deputy Joe Costello

There were too many in armchairs.

Chairman

I thank the Deputy. That was a reaffirmation of some of the previous issues raised by the delegations along with some new issues. I refer to the point made about regulation. The committee has come to recognise that very often there is an issue with the manner in which we apply regulation. It is generally driven by Europe because one usually receives a request from the Commission to the effect that measures should be taken. However, Europe does not specify the measures, we do so ourselves. Very often we go over the top resulting in the over-regulation to which members have referred. I will not go into specific details but I could provide chapter and verse on the matter.

I refer to the question of competitiveness. Many Members on all sides of the House in the past ten years have referred to the growing loss of competitiveness in the economy. I read some parliamentary questions which I put in 2001, 2002, 2003 and every year since, drawing the relevant Minister's attention to the apparent lack of competitiveness in our export sector. It is a salutatory lesson. One company associated with financial services has proposed to relocate to Bangalore, India, from where it will be able to compete in the Irish market against home-based industries, and in the international market. That firm will have a considerable competitive advantage. It would be apt to consider the question of competitiveness which has been raised by members.

I had occasion to read about an innovative technology applicable to Ireland. Members mentioned the potential development of our seas and harnessing our seas for energy generation. The innovation I read about was a simple technology that involved making a cavern under the sea or a lake and using that as a means to drive turbines. This seems an obvious possibility. One thing is certain, we will not run short of water in the foreseeable future, as anybody working in the meteorological office in recent times could verify.

I suggest that those groups who have not handed in a written submission should give us a resumé of their submission later for inclusion in our report. Those who have made submissions can add to them if they wish. I will now take whoever wishes to reply to particular issues.

Mr. Paul Rellis

I will reply to some of the issues raised by Deputy Tuffy. She asked about how the European Union helped develop people's education and training and how we have done that in Ireland. She inquired about the right areas in which to produce graduates, how we are progressing in that and how we can provide more opportunities to people looking for jobs and struggling in the current environment.

I refer to a report we conducted jointly with NCEAD, Shell and the Belgian Federation of Enterprises in Europe, entitled Providing Skills for an Innovative and Sustainable Europe. It mentions six specific actions that can address the skills gap Europe is already experiencing. While there is significant unemployment in Europe — approximately 18 million in January — there are jobs that are still open. The first specific action recommended in the report was to launch a Europe-wide public private alliance to ensure reskilling of excess labour. The report also recommended refocussing the European Structural Funds earmarked for training and retraining in 2007-2013 to the sectors most impacted and that contribute most to Europe's competitiveness. It also recommended enhancement and development of high-level business-universities partnerships to develop the global knowledge economy. Three other specific actions are recommended besides these. We can make the report available to the committee if it is of interest to it.

I would like to put a myth to bed with regard to competitiveness. Competitiveness is not something we wake up some morning and do one thing about. It is something on which we must continually focus, quarter after quarter and year after year. Competitiveness is a continuing focus for the companies that have been most successful in dealing with it. They keep a continuous focus on helping people and processes become more productive, and — in my experience — use technology in the right way to speed up the transactions and decisions in business.

Outside of its close links with educational institutions — institutes of technology and universities — Microsoft is launching its new data centre in September. This is a $500 million investment we are making in Ireland. It will be the future of our cloud-computing network for Europe, the Middle East and Africa. This important hub will be in Ireland. We are making this investment for the next decade, not for a year or two, to scale up for the future. We must be very competitive to ensure we can continue to support that investment.

We also launched a programme recently about which I am passionate. This is a programme that helps small and young technology sector companies start up. We have a burgeoning technology sector here that we should nurture and grow. We launched a programme called BidSpark in many countries to give small companies some help. Of all the countries in Europe in which we launched it, Ireland did the most work to get small companies to sign up. That indicates that there is a genuine appetite to help small companies. We are working with our colleagues at Enterprise Ireland to help to get small companies off the ground. That will help small companies to be more competitive and to get scale very quickly. I hope that answers the points raised.

Mr. Declan Hughes

I will respond to a number of points made by members of the committee. Deputy Tuffy raised issues like education, training and skills. Some programmes are continuing to work well. The Marie Curie programme, for example, facilitates the exchange of researchers and postgraduate candidates across borders. Ireland does particularly well in that programme, as it does in the ERASMUS programme. FÁS is examining the opportunities for the exchange of trainees and craft apprentices to other environments. Structural Funds and Cohesion Funds may have to be used in the future. We will face a significant reskilling and retraining challenge over the next couple of years. The Commission will have to be cognisant of that, particularly in light of developments over recent months.

I should mention that in the past year, the expert group on future skills needs has analysed the skills that will be needed in the future, for example in the financial services, medical devices and medical technology sectors. We are doing quite well in those sectors. The group is taking recent developments into account as it completes its review of the food and retail sectors.

On Deputy Dooley's point about the expertise that will be needed in the future, the expert group is reviewing the skills that will be needed in the environmental and energy goods and services sector. It is considering the opportunities that exist in that regard and evaluating the skills that will be required. It is also working on the conversion and progression opportunities that are available. For example, electrical engineers and those who have craft skills may wish to move into the energy and environmental areas.

The Deputy also asked about what is missing from the Commission's work programme. I refer to the point made about taking a longer-term perspective. While many immediate issues are rightly being addressed in the context of the difficult economic environment that exists at present, we also have to take a view on the longer term. That was probably absent from the Lisbon strategy, which did not deal with the type of structural change needed within the European enterprise base. Ireland has quite a modern enterprise base, for example in ICT services, financial services and medical devices. We have also moved up the value chain in traditional sectors. My colleagues in Enterprise Ireland and IDA Ireland can talk about that. The EU has certain strengths in a range of sectors that are characterised by relatively low productivity and low levels of research and development intensity and technology intensity. The Union has been slow to develop leadership in areas like biotechnology and high-end ICT services. Other parts of the world have been making progress in such areas. The EU is up with the best in the world in terms of research and research output. We have seen examples of that in areas like GSM technology, but it is not broadly based, particularly in the health and life sciences areas, which have further potential.

We need to look at our future industrial structure in the context of issues like competitiveness. We need to reflect on how Europe is competing for trade and investment. I have already spoken about the tendency to take an inward-looking view, which means we are constrained by State aids and by a range of regulations. We need to take account of the fact that the EU is competing for investment with countries around the world. We have to be able to compete for trade and investment. We need to set some targets for the future. We could try to double inward and outward trade and investment links. We should try to double the number of European corporations that are on the list of the largest corporations. We could double the number of European universities in the world's top rankings. We should aim to double the EU's share of world production in advanced sectors. We should be beginning to think about putting the appropriate strategies and policies in place at European level to meet such targets in the future.

Competitiveness was raised by Deputies Costello and Timmins. We suffered a 30% loss in competitiveness in the period since 2000. Some two thirds of that was due to exchange rate movements and the stronger euro, the other third was due to inflation and the higher costs of doing business in Ireland. These costs are wages, property, utilities, and business and professional services. These are due to rapid growth in the construction sector, reliance on domestic demand and the growth in demand and consumption. Each issue has been well documented and now is the opportunity to address these constraints, particularly in energy where there is a greater opening of the market to alternative sources and the development of interconnection.

The responsiveness of the regulatory system, with regard to the reduction in electricity prices by 10% and in gas by 12% from the beginning of this month, tracks developments in international commodity prices in a more proactive way and drives efficiency in the market. An area in which we are not competitive is waste management, where the cost of waste management services is twice that of the UK. The issue is the investment in alternative infrastructure to ensure we have the full range of waste treatment options and infrastructure in place.

In property we will start to see some reductions in cost. We see this in commercial rents and land prices. The adjustment process is of major importance in improving our competitiveness for manufacturing, commercial developments and office-based employment.

The third area is business and professional services. In some cases, the costs for legal, ICT and accountancy services are between 50% and 100% higher than locations such as the Netherlands or Denmark. In some cases, this is due to restrictions on supply and regulation. The Competition Authority has made a series of recommendations on the actions that could be taken to increase access to markets, reduce barriers to entry, increase competition in those areas and drive down costs.

Mr. Frank Ryan

Deputy Dooley referred to gaps in the policy strategy. It is not so much a gap as an emphasis. The emphasis on entrepreneurship and its importance could be increased. It is understood in Ireland but not deeply or generally understood. It is much more likely that all our sons and daughters will work for themselves or an SME than work in any other environment. At times that can be lost in the education system. This refers to Deputy Tuffy's comments on educational skills and opting for various courses and programmes. Innovation, small business and start-ups will be central to the future of the economy.

Our exports have held up quite well, which is great. In the first two months of 2009, exports were down by 2% while they were down by 20% in the UK in the same period. We are in difficult times and world trade will contract by 9% in 2009. Against that, we have thousands of SMEs in every county that are managing to export well. That is because they are well advanced on what I would call the transition from the old Irish economy, which was based largely on skills and cost, to a new Irish economy based on skills and innovation. In that regard, today we have more companies involved in research and development within indigenous companies than at any time in the history of the State, and our funding from Enterprise Ireland in support of innovation and research and development in 2008 was €129 million. We expend no greater amounts of money on anything else that we do, such as capital grants, growth funds and so on. It is clearly the number one priority in terms of money expended.

Deputy Joe Costello

Some 70% of research and development was spent by foreign direct investment companies.

Mr. Frank Ryan

Yes.

Deputy Joe Costello

Therefore, some 30% was indigenous.

Mr. Frank Ryan

Yes.

Deputy Joe Costello

The people engaged in research and development are the companies coming in rather than indigenous companies.

Mr. Frank Ryan

In terms of moneys, that would be correct but in terms of the number of companies involved, the relationship would be the other way.

Chairman

There is also a problem in that the banking position is very difficult. The banking sector has much to answer for in terms of funding small and medium enterprises at the moment and the provision of working capital. That sector has been strangled and I have heard some hair-raising stories in recent weeks where well established companies are humiliated when they seek ongoing working capital, which will have a significant impact further down the road if these events continue. The committee may well have to meet the banking sector again — we had a previous meeting with representatives — because that is fundamental to any economic recovery.

Mr. Frank Ryan

We agree with the Chairman in that respect. The number one issue facing our companies is access to capital. That is largely why we approached and sought the support of Government with regard to the enterprise stabilisation fund. We now have many technology-rich indigenous Irish companies and they need support, particularly between now and the end of 2010, to ensure they are in a position to benefit from the upturn when it comes.

Deputy Timmins mentioned the issue of setting up a business in Ireland. It is very possible to set up businesses in Ireland today and between ourselves, the county enterprise boards and FÁS, it has never been more straightforward to get advice and assistance in setting up a business. With many of the people who come forward to establish their business, experience has taught us that they risk their own money and we have a duty of care in that respect.

FÁS offers a course on starting up one's own business and the county and city enterprise boards assist companies, particularly in their early days. We take over the export dimension. We are very aware of the process and we are concentrating on jobs. I assure the committee that we are paying particular attention to the process and we would like to hear from the committee if it can identify further barriers or challenges facing companies. It is essential that we focus on that activity.

The Chairman raised the matter of competitiveness and there are only two ways to improve this. One either becomes more innovative or more productive. It is easily said but they are the only two ways in which competitiveness can be turned around. In that regard and in terms of innovation, as I mentioned to Deputy Costello, we are expending more money now in support of innovation and research and development than we ever did before.

With regard to productivity we established in recent months a new cost-reduction and world-class manufacturing unit within Enterprise Ireland to advise companies specifically on that. As a result of the adverse exchange rate movement between sterling and the euro, companies now find themselves under substantial pressure in that area and must increase productivity if they are to be competitive in the UK market. In many cases with companies in Ireland, that is the whole market.

Mr. Denis Molumby

I agree with my colleagues from Forfás and Enterprise Ireland in their responses to those general questions. On foreign-owned companies operating in Ireland, the issue here revolves around our relative position, from that point of view, to the areas against which we must compete. The foreign-owned sector is focused on life sciences, ICT and some globally traded businesses. With regard to where IDA Ireland is focusing its effort, something of the order of one quarter of the companies we support are new companies establishing bases here for the first time. Some 75% of our effort relates to existing companies and the agenda aimed at transforming and moving them to compete in higher value activities, whether in the areas of manufacturing or services. We are using the tools of the horizontal programme under the EU, training grant supports, the environmental aid programme and the research and development and innovation grant programmes to position companies for future activity.

With regard to the comments in respect of exports, the level of exports is holding up in those areas where companies have transformed. Relative to other European countries, where the average fall in exports has been approximately 20% — I do not believe the figure is better than that in any country — Ireland's level is in low single figures. There is some basis for feeling guardedly optimistic with regard to this matter.

In the context of the positives that might be taken from this, IDA Ireland is guardedly optimistic that we will continue to have a reasonable flow of foreign direct investment during this year. The level of capital we invested last year was approximately €2 billion. We have, therefore, been able to compete even in the difficult circumstances of our declining competitiveness. As my colleague from Forfás stated, there is some evidence to indicate that, in respect of the key inputs relating to infrastructure and personnel, costs have decreased to some degree. Some of the anecdotal evidence indicates that the reduction of wage costs in the public sector of approximately 10% is being mirrored in the private sector by cuts of the same order of magnitude.

To date in 2009 there have been some significant foreign investment announcements. For example, Merck has added €20 million to the €200 million it has already invested in a major manufacturing facility in Carlow. Reference was made to services moving to other countries. However, Hewlett-Packard made an announcement to the effect that its global services will be centred in Ireland. As a result, it will manage how services are delivered from other parts of the world and the methodology and organisation of that delivery out of this country. Hewlett-Packard will create some 500 jobs on foot of this development. In the area of research and development, companies such as Helsinn, which is involved in new products and new processes which position the companies for the future, have made investments.

IDA Ireland agrees that Ireland has lost competitiveness and that it is extremely important that this be recovered. As stated, there is some basis to be guardedly optimistic in this regard.

Ms Bríd Horan

I thank the Chairman and members for their positive comments in respect of what the ESB is doing. We appreciate not only comments of that nature but the support we have garnered over many years from politicians on all sides, not only in respect of our efforts in Ireland but with regard to our interests outside the jurisdiction.

I will begin by commenting on the issue of competitiveness, which is germane to the matters under discussion. It is a subject that must be continually addressed. As the largest electricity company in Ireland, the ESB is conscious of the increase in electricity costs in recent years. However, there are several matters related to this.

The electricity market has been opened on a gradual basis since 2000. From 2005, it was fully open to competition. Within that, there are segments where tariffs continue to be regulated, primarily the domestic tariff but also in the small and medium enterprise areas. Even in the domestic area, 2009 saw the advent of competition, even though it has been open since 2005, which the ESB welcomes. It looks forward to the time when its tariffs will no longer be regulated and it will be ready to compete freely.

Regarding the increase in energy, particularly electricity costs in recent years, the price is determined by the market. Particularly for large energy users, the market is competitively open. The ESB is no longer the major supplier in that area. For small and medium sized enterprises, the ESB is a player but not the key one. The most comparable data for EU electricity prices available indicates that in the domestic arena, Ireland is in line with the European average. For small and medium enterprise customers, Ireland is in line and in some cases below the European average. There is undoubtedly a problem for larger users. Where this problem comes from really has to do with the source of electricity generation in Ireland. Up to 90% of it is generated by fossil fuels and in the past five years, there has been a dramatic rise in the price of fossil fuels. That is not the situation in other countries. The average reliance of fossil fuels for electricity generation in other European countries is 60% with some countries having an even lower reliance. Along with climate change, the price of fossil fuels is one reason the ESB believes it must move into the renewable sources area in a more fundamental way.

The ESB is conscious of the effect of high energy costs on individual customers and the country's economic competitiveness. In 2008, when fossil fuel prices broke all previous levels, the ESB worked closely with the energy regulator to phase the price increases and ensure the dramatic rise in energy costs was tempered. By contributing €400 million of its resources across the entire market to the benefit of all electricity customers, the increases were moderated.

Unfortunately, there is still a competitive gap for large industry users in Ireland. They are faced with high energy prices but the ESB has stepped up to the plate in trying to address the issue. We will continue to do this by moving away from reliance on fossil fuels. That, however, takes investment and time. We are looking forward to competing in a much more open way on price and, I hope that will come sooner rather than later.

Other countries have advantages that Ireland does not have in the move to alternative fuel sources. The ESB's history began with hydroelectric generation and the Shannon scheme. At the time, the scheme was ground-breaking and innovative, of which we are very proud. However, the ESB over the years has exploited every site in Ireland where hydro generation is possible. Ireland is not blessed with a high mountain range such as the Alps. Other countries can avail of those geographic realities to have large scale hydro generation. We have exploited that option as far as we can.

The ESB is committed to having 600 MW of wind generated electricity by 2012. By 2020, the ESB envisages a third of its electricity generation will come from renewable sources. I will talk a little about nuclear power even though it may be the elephant in the room at times. Nuclear power is not an option by law in Ireland. However, there are much more practical reasons nuclear power is not the answer any time soon in Ireland; one is the question of the economics of nuclear power in a market the size of Ireland. We do not have the scale of France or Britain to have the expertise to develop nuclear stations in Ireland. In reality when nuclear power comes to Ireland it will initially come through the interconnection and may even come today. We have stated this openly and publicly. We should target our investments in areas where we have an advantage and where we can get good economic results for our investment.

On Ireland's competitiveness which is sometimes forgotten, the security of electricity supply in Ireland is a key advantage when Ireland is being promoted for foreign direct investment and this has not always been so. In the 1990s there would have been much more concern about security of supply from the point of view of foreign investors in Ireland, whereas as we have invested in the networks and made them much more robust, this has become less of an issue. We believe we now have one of the most robust networks for electricity in the world, thanks to that investment and this should not be lost sight of with regard to our competitiveness.

Several committee members have asked about skills and this is a very important area for the ESB. Our business is quite a highly skilled operation employing 700 engineers and thousands of technicians. Similar to Microsoft Ireland, we also have a high demand for IT and telecoms skills so a skills base is very important and it is very important that Ireland addresses the skills deficit which could hold us back. In this respect, the ESB has taken initiatives, one related to the economic situation being the taking on of 400 electrical apprentices who unfortunately due to the economic downturn, had lost their jobs in the construction industry. A total of 800 electrical apprentices who had partly completed their training had lost their jobs and could not complete their apprenticeships and the ESB is taking on 400 of these apprentices on a planned basis——

Deputy Mary O’Rourke

Well done.

Ms Bríd Horan

I thank the Deputy. This is very important for those people. We will not employ them following their apprenticeships but they will have their papers and will be able to work.

With regard to our ongoing apprenticeship programme we have decided that for the next four years we will take a higher number of apprentices than is our normal practice. We have a specific objective in doing so. We will take 100 school-leavers into our apprenticeship programme and during the first two years they will be assessed to identify about 50 of them who will be able to progress on to study engineering and this will add to the supply of engineers. This is a practical intervention at ground level and we believe this will pay dividends to the company as well as to the Irish skills base. We will also continue to recruit engineers and other professionals and over the next five years we expect this will amount to about 250 engineers and 50 other professionals.

That said, it is not easy to recruit engineers in Ireland and we are also working with other institutions to increase the intake of students into engineering. We are working with Engineers Ireland and with the universities by supporting research and postgraduate positions. We are trying to be innovative. I am not an engineer but we have an ongoing programme which is working with girls' schools to target more girls to come into engineering because we see this as a means of increasing the stock of engineers. It is somewhat outside the work of our day job but we regard it as important to support the skills base.

ESBI International is a key area in which we develop our engineering skills. Our international work gives us the opportunity to develop our young engineers. I find it inspiring to meet young engineers who take part in our overseas programmes and to see how their skills develop and how these skills are put to use in Ireland. Of course, now that we are no longer the monopoly electricity company in Ireland, we see ESB International as our growth driver, so it is even more important for us commercially. Again, linking back to that interconnected market, ESB International is obviously a key commercial piece for us in terms of taking part in that interconnected market. As members know, there is now a single electricity market for Ireland, North and South; the next stage will be Britain and, following that, France and the broader areas of Europe.

In terms of new technologies, we in ESB like to believe we are innovative. We are very good at day-to-day delivery but we like to think we can look to the future as well. In the past few years, we have really opened up that side of the company and we are looking at a broader range of areas than perhaps we were five years ago. I wish to refer to some of these.

The electric vehicle is an area I mentioned in terms of infrastructure but we are working actively with the Government to consider what is the right solution, not just in terms of being an infrastructure provider, but also in terms of what is the right transport answer for Ireland, which is very important from a climate change perspective. With regard to generation technology, we are investing directly in supporting the development of ocean technology, which we believe has real potential in Ireland, and we hope we will see that as a significant development by 2020. We have actively considered alternative approaches such as hydro, which we do not see as being economically or environmentally sustainable, and we are actively considering compressed air.

Many different technologies are being considered and, in that regard, we have taken what for us is a new step by setting up a fund. We have stated we have €200 million available to invest through other parties in the area of new technology, and we are targeting this at clean energy and energy efficiency. This money will be invested in Irish companies as well as companies overseas, and this is already happening on the ground, driving jobs here in Ireland. Our objective is to learn what will come of the new technologies, as well as, I hope, making some money on our investments — it is a combination of both.

We absolutely support the development of microgeneration because we believe it is a move away from reliance on fossil fuels. There needs to be a whole portfolio of sources of generation, including microgeneration. This year, the ESB put forward a tariff of 9 cent, which was partly from the regulated supply side, supported by a 10 cent contribution from ESB Networks, to make that viable for small generators. I agree with the view that those who are buying into these technologies need to have certainty, which is similar to my point in regard to general investment in energy. People need certainty around this but we are committed to it.

The investment in smart networks and smart metering will support the evolution and development of microgeneration. As noted by a number of speakers, access to funding will be very important in this regard, not just for large-scale developments but also for those who want to do this on a small scale. We have a history of delivery but also a history of innovation, and we believe there is a real opportunity in this regard.

In terms of issues not raised in the Commission document, which is an interesting question, one comment that could be made is that the document naturally reflects progress in a multi-annual programme and, to some degree, is a holding document given that a new Commission is imminent. As I have said a number of times, we need more clarity and more rapid action in certain areas, and we must not fall into a position where this is just a holding document. Like several speakers today, we believe climate change is a huge influence in terms of the EU industrial base going forward and we certainly want to be a part of that. A key example of this is transport. The delivery of the infrastructure is one side but the delivery of the vehicles is equally important, and we foresee an opportunity in this area.

That covers the main points I want to make. I again thank the committee for the opportunity to make an input into its deliberations.

Deputy Timmy Dooley

Will Ms Horan comment on a particular issue? There has been much media comment about a group that has come together called Spirit of Ireland which has taken out advertising. I was interested in the point she made about hydro electricity and my understanding is that what this group proposes is based in part on hydro electricity. I may be putting Ms Horan on the spot and it is all right if she does not wish to comment. However, I would appreciate it were she to comment generally on the validity or otherwise of these proposals.

Deputy Mary O’Rourke

Ms Horan knows of this group. When its representatives came to see some members last week, we asked whether the ESB knew of them.

Senator Terry Leyden

Why can Bord Gáis Éireann under price the ESB? I am seriously considering changing from the ESB to Bord Gáis.

Deputy Mary O’Rourke

The big switch.

Senator Terry Leyden

I cannot understand how Bord Gáis is able to price it at a cheaper rate. This will put jobs in jeopardy in Bord na Móna and indigenous Irish industries because Bord Gáis is importing gas to produce energy more cheaply, while the ESB buys peat from Bord na Móna, which creates many jobs in the midlands. What should I do? Should I change?

Deputy Mary O’Rourke

The Senator should stay with what he knows.

Chairman

In a previous incarnation, I had occasion to criticise what appeared to be a policy of artificially keeping energy prices high to encourage new entrants to the market and to create competition. It appears the situation now has changed dramatically. The economy cannot really afford high energy prices any more and the emphasis must be on competitiveness and on the use of modern technology to achieve and improve competitiveness. It has been suggested that Ireland's energy prices effectively still are approximately 65% to 70% of what they were when oil prices were at their highest, which is causing a problem. This is a point of concern for many industrialists who are heavily dependent on energy prices and ultimately this also will affect their competitiveness.

Ms Bríd Horan

Members have asked a number of interesting questions and obviously have kept the best wine until last in this regard. Spirit of Ireland certainly has an interesting website at which I had a long look. When I was talking about girls in engineering, I mentioned that I am not an engineer and I should enter that caveat before commenting on this proposal. It contains some interesting ideas. Through ESB International, the ESB has considered this idea. As members may be aware, essentially this proposal involves using wind generation to pump sea water into a valley that has been dammed and holding the sea water there until it is economic to——

Deputy Mary O’Rourke

As a reservoir.

Ms Bríd Horan

Yes. One then lets down the water to generate electricity at a time when it suits the system to so do. It makes sense and in essence this is what the ESB does at Turlough Hill. As for the use of sea water, this is only being done in one location in the world. That location is in Japan, where they were obliged to construct a reservoir, which obviously would make this very expensive. However, as I understand the proposal — I do not wish to comment on behalf of Spirit of Ireland — it is to flood a number of valleys on the west coast of Ireland. We considered such an idea through ESB International, albeit not the Spirit of Ireland proposal, and decided the cost and the environmental issues were prohibitive and that it was not a runner. We are concentrating on other options, particularly on those pertaining to compressed air, which as I understand it comprises quite a viable alternative to such an approach. That said, it would be interesting to see what emerges from the work done by Spirit of Ireland.

Deputy Mary O’Rourke

The group claims it will save the world.

Ms Bríd Horan

It should be noted there are many challenges in this respect. However, we will focus on what we need to do in respect of building a network that can sustain all such developments and that really is critical. As for the environmental issues pertaining to building a network, Ireland must grapple with the issues in respect of needing the infrastructure for a modern economy and it must make decisions in this regard.

Turning now to competition in the residential sector, members will notice I am executive director for customer supply and group services. Customer supply is the business that has been selling electricity to the members until now. We sincerely hope to continue to provide electricity in the future. We are looking forward to being able to do so at a competitive price.

Why can Bord Gáis or Airtricity do it at a discount? Without a flip chart and several PowerPoint presentations, it would be difficult to show how the electricity price is determined. As a regulated entity, we supply electricity on a fixed tariff approved by the CER. That process takes place once a year, although it can be revised during the year. The objective is to give the customer a fixed tariff for administrative reasons and because the customer wants to have a fixed tariff. In order to do that, it is necessary for the supply company to purchase the wholesale electricity in the single electricity market from the energy pool. That pool is traded on a half hourly basis, not on a daily or weekly basis. There is great variability in that price. In order to offer a fixed tariff, we must enter into contracts with generators to fix the price for a period over the year.

For the ESB and other suppliers trying to fix tariffs, this takes place during an auction period of May, June and July. That happened in 2008. This model has been in place since 2007, when the single electricity market was set up. The last trading window was in the middle of 2008 when fuel prices were at their highest. Recognising this, the ESB proposed and got agreement from the regulator on a two phase pricing of electricity this year so that we would not price it entirely at that high level. Nevertheless, we had to secure electricity in that market at a high price. Some 75% of our supply was secured at that time. As the year went on and fuel prices fell, we could buy electricity from the pool at a cheaper rate and have passed the benefit on, hence the reduction in January. The combination of falling fuel prices and €400 million from the ESB allowed us to moderate prices in January. Other competitors who are offering electricity to residential customers did not buy electricity at that time because they did not have customers. They can now purchase it at current fuel prices in the open market and these are clearly much lower. We are entering a new trading period for the next tariff period but, so far as this tariff period is concerned, we had to purchase the bulk of our electricity at that time. I apologise if that is convoluted.

Deputy Mary O’Rourke

It is quite understandable as Ms Horan has outlined it.

Chairman

It is a bit like the football transfer window.

Ms Bríd Horan

It is very like that but I do not know much about it.

Chairman

It is based on the same system but it does not always work.

Senator Terry Leyden

Will I hold on? Will I stay or go?

Deputy Mary O’Rourke

We will tell Senator Leyden to remain with what he knows best.

Ms Bríd Horan

Over 150,000 customers have switched to other providers and so be it. We welcome competition. It must happen and we cannot continue to be dominant in the residential sector. We appreciate that and we look forward to competing on an open playing field with others.

Mr. Paul Rellis

I support what Ms Horan said about the cost of energy in Ireland, which is the second biggest cost for multinational business. It is too expensive but is starting to get cheaper. We encourage this. Ms Horan referred to a point that is as important, namely, security of supply. That is crucial to running an enterprise and the data centre we will have in Citywest, which is twice the size of Croke Park and full of computers.

There is another aspect of Ireland that we should push hard. In the data centre we will build, we will have the air conditioning on eight days a year because of the climate here. This is normally a massive cost for data centres.

Senator Terry Leyden

That is very interesting.

Mr. Paul Rellis

It is an extremely interesting point. When we think about the scale of enterprise-ready electrical or energy infrastructure needed and the competition in the market, we clearly have scale and enterprise-ready infrastructure. It is about marketing that and working very closely with the ESB and others to make that happen. I wanted to make those points to underscore the importance of the security of supply.

Senator Terry Leyden

The first thing mentioned was air conditioning, strangely enough. It is a factor.

Chairman

We should also refer to the collapse of the grid in central Europe, Italy and Spain three years ago during the height of a drought which we did not experience. It passed us by.

There is an element relevant to some producers of alternative energy, such as biodiesel, as excise exemption has correctly been granted to a number of companies. Some of these do not produce anything at all, which is extremely irritating to those who do and who have failed to get recognition. I have raised the matter with the Minister on numerous occasions and for some unknown commercially-sensitive reasons, the information has not become available. I hope it will.

I thank all the witnesses for their substantial and progressive presentations and the members of the committee for their indulgence. This meeting has been somewhat longer than normal, as is congruent with the importance of the submissions made. We look forward to meeting the representatives on an ongoing basis.

The joint committee went into private session at 4.35 p.m. and adjourned at 4.55 p.m. sine die.