I thank the Chairman. I was in the transport union in the 1980s when we made submissions seeking increased subsidies from the Government for various companies, such as the Tuam sugar factory and so on. That day has passed and the environment now is fairly competitive. Most economists conclude their reports by calling for more competition, to the point that it has almost become a cliché.
Some semi-State companies, however, have trouble obtaining access to capital. Various Governments have been unwilling to invest in the companies for different reasons, whether based on ideology, as a result of nervousness, on foot of the argument that money is better spent on hospital beds than airplanes or whatever. I will not go into that argument.
We were challenged to find a way to circumvent this that would retain State ownership. Fortuitously, we found that the OECD had produced two major reports on corporate governance — one dealing with private companies and the other with their semi-State counterparts. The OECD is a fairly conservative body but it says that every State will need to retain some commercial bodies, because they are monopolies, and provide critical infrastructure such as ports, airports, roads and water. Some countries do not regard water as a critical service but that will be the big issue at the end of this century. They also cover strategic areas and governments, for political reasons, may choose to retain a proportion of a State company, as in this case.
We need a more robust way of obtaining quick decision-making from the public service. The system for dealing with the governing Departments, particularly the Department of Finance is appalling. If I was an executive of a State company, it would drive me demented. The current system involves prudence, caution and risk aversion from the governing Department, guided by its political masters. As it is incapable of engaging in rapid decision-making, a new structure is needed. We have proposed a State holding company as a way by which the State could decide to hold on to companies because they are natural monopolies and provide them with access to money. That would also allow the private sector to put money in, without control, yet having influence, which should also help commercial viability. The committee might worry that there might be a further effect, namely, the depoliticising of companies. The proposal would take them away from the political realm and mean the trade unions would have less influence. That is important for the companies involved. It would not depoliticise the Oireachtas committee, however. We are suggesting more funding would be received from what would be a very wealthy organisation, namely, the State holding company. The Oireachtas committee — not necessarily this one; we are not being totally prescriptive — and the Oireachtas would ultimately have control. The relevant Minister and the Department of Finance would have less influence.
The OECD has stated, with regard to state-owned enterprises, that a clear separation between ownership and other state roles is required, while any other obligations of what it calls public service provision or special responsibilities such as helping the west or developing the regions should be clearly identified and provision made to cover the cost in a transparent manner. Some years ago that was opaque but the committee understands what is meant by it.
The OECD report is timely and we use it for guidance. Commercial State companies should not be put into this vehicle because if they cannot show themselves to be commercial, they should be treated differently. A company such as Iarnród Éireann which receives a lot of public money should not be included. All the shares in commercial State companies should be transferred from the Department of Finance which currently holds them, although it might not be keen on or supportive of this proposal for the good reason that its officials are naturally averse to risk taking. The shares would be transferred to a State holding company to be held by a new body called the State holding investment board. The private sector would invest its pension funds through that body. A diagram has been provided in the presentation, showing the State holding company in the middle. Either this or another committee would annually review its operations. It would receive some funding from the National Treasury Management Agency which has four boards. The private sector could also invest in the State holding company.
We got one of the country's leading accountants and a corporate finance expert to advise us on this issue. We also took advice internationally from individuals who have worked in similar areas to ensure this proposal was robust and would stand up. As I said, it is not prescriptive but needs discussion and tweaking. We think it is a very good proposal and would overnight solve many of the problems encountered by the companies involved, particularly in seeking access to capital. Incidentally, Mr. David Begg met the chief executives of the companies who have warmly received the proposal, although one of the big companies involved was a little nervous that the proposal might mean that its treble-A rating would be lessened. That would definitely not happen because the companies would continue to borrow as they do individually. The only change would be that their shareholdings would be owned and held by the State body. The key aspect would be that where such companies made a proposal to seek access to capital, it would be vetted by a small staff of experts in a very short period and either turned down — in most cases the companies would probably not make a proposal unless they were fairly sure that it would be accepted — or agreed to.
Another point the Department of Finance does not like is that the dividends paid by the companies involved would go into the pool of the State holding company. Currently, the Department gets the money and does what it wishes with it. The dividends currently amount to between €100 million and €200 million. They are closer to the former figure, however. We expect that with further commercialisation of the companies and profit capitalisation, they will begin to show hefty rates of return which can be recycled within the State holding company. In years to come the Government could decide to take from this money if big surpluses were building.
ESOTs which are important to workers will continue to hold their shareholdings in the individual companies. If, for instance, workers have a 5% or 15% stake, it would be held in the State holding company, with the balance owned by the State. The Department of Finance would have no shareholding in the NTMA. It is not the plan of the trade unions to privatise the companies through stealth by means of employee ownership.
The State holding company would help fund the Oireachtas committee to ensure it had real expertise in terms of the economists and accountants needed to probe the companies involved in a deeper way. Meanwhile, the pension funds which would invest through the State holding company would operate their own grey market. For example, a pension fund might invest and after five years decide to move into other areas. It would sell its investments to other pension funds within a grey market, in the manner of NTR, for example, which is not listed on the Stock Exchange but into which big pension funds could buy through their stockbrokers. Pension funds would get a return by way of capital growth in the companies involved but might have a mix of bonds or preference shares. We are not prescriptive.
As for private funds, we are suggesting they would be limited to 25% of the total — already the companies involved are worth a fortune — and help in a passive way. This would overcome state aid concerns, whereby any new State investment creates controversy or is subject to objections or delays. The fact that the private sector would be involved means it would help to drive the commercial mandate and perhaps develop new ideas for joint ventures.
Under this proposal, the State companies would continue to operate on a daily basis. The relevant Department would continue to set policy but it would no longer be a shareholder. It would be freed of that burden. Neither would the Department of Finance operate as a shareholder; it would be freed to pursue other interests. The regulators would continue to act as they do. The State holding company would act as a supportive shareholder, not as happens currently, where the Department of Finance is not supportive. Private pension funds would bring in money and ensure a commercial focus. There would be access to capital for companies which want to expand, although only a small number will want to expand at any one time. They would strengthen the commercial ethos of companies in the current competitive environment.
A new system of governance would be provided for, a matter of great concern to the 46,000 who work in what we define as the commercial State sector. The number is roughly half what it was some years ago. That is the essence of the proposal, which is robust and new. In some respects, the companies are not being properly developed commercially due to a lack of expertise and support on the part of shareholders.