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Seanad Éireann díospóireacht -
Thursday, 12 Apr 2001

Vol. 166 No. 6

Electricity (Supply) (Amendment) Bill, 2001: Second Stage.

Question proposed: "That the Bill be now read a Second Time."

I am pleased to be here in the Seanad to introduce this small but important Bill. It gives expression to an agreement reached between the unions, management and Government on the ESB during the time of the CCR in 1996, that is the giving of 5% of the ESB's holding in shares to the workers.

Two amendments to the Bill were accepted during the Dáil debate. One provided for relaxing the 18 month rule to give that shareholding to any worker employed in the ESB in 1996, when the CCR was signed. That has met with great approval. The other amendment relates to combined heat and power, CHP, allowing for it in a slightly greater measure than was provided in the original Bill.

The main purpose of this Bill is to give effect to a 5% employee shareholding scheme in the ESB without waiting for the passage of legislation to change the status of the company from a statutory corporation to a plc under the Companies Acts. As that would take some time, we wanted to proceed with the Bill.

The concept of an employee shareholding scheme for staff of the ESB was one of the main provisions of the Cost and Competitiveness Review between the Department, ESB management and unions. This Bill will provide the necessary legal basis to allow this to happen.

The CCR agreement provided that a 5% shareholding in the ESB will be made available for an employee shareholding scheme; the employee shareholding would be earned out of profit at 5% per annum; and the detailed mechanisms of the scheme would be agreed between management, unions and the relevant Government Departments.

The tripartite CCR agreement was designed to prepare the ESB for competition. The agreement was submitted to and approved by the previous Government on 3 April 1996. Over the following three years 2,000 voluntary staff exits provided for in the agreement were achieved as well as the targeted cost savings.

Since then the ESB has been setting aside 5% of the company's annual profits for 1997, 1998, 1999 and 2000 for the purpose of the employee shareholding scheme. A total of £46.8 million currently stands in a special reserve in the company's balance sheet to be passed to the trustees of the employee shareholding scheme when it is established shortly.

The establishment of the employee shareholding scheme and allocation of shares to staff will be an important element in promoting a further round of change in the ESB. At present, ESB management and unions are finalising negotiations on a further major change programme for the company before the electricity market opens fully to competition in 2005. The new round of change derives from the February 2000 tripartite agreement between my Department, ESB management and unions. That agreement sets out a framework for the future electricity industry in a competitive environment.

The implementation of an employee share ownership scheme is not straightforward. The ESB is a statutory corporation without a share structure. For some time the ESB and my Department have been working on a proposal to create virtual shares under existing ESB legislation. The Attorney General recently deemed that proposal to be ultra vires the provisions of section 4 of the 1954 Act, as that Act empowers the ESB to issue debentures or stock to the public but only for the purpose of raising borrowings. The Attorney General has advised, therefore, that the ESB proposal requires amending legislation to render it intra vires existing ESB legislation. The Bill before us will authorise the board to create and issue capital stock representing its net assets and permit the allocation of not more than 5% to the staff, the balance going to the Minister for Finance. The allocation to staff would thus fulfil the commitment made in the CCR agreement. The Bill provides that the capital stock created shall carry the right of conversion into ordinary share capital once the ESB is established as a plc.

The holders of such stock will enjoy dividend, voting rights and board representation. Those rights and obligations will be set out in regulations to be made by the board with ministerial consent, such regulations to be laid before each House of the Oireachtas for the customary 21 days.

I draw the attention of the House to section 10. This provides for the repeal of section 21 of the 1927 Act and the effective termination of the break-even mandate under which ESB has operated since its establishment. It is an important and historic change.

The virtual shares provided for in this Bill will carry the normal entitlement to dividends for staff and the State. This, in turn, requires that legal provisions be made for profits, out of which dividends would flow, and legal recognition of profit-making by the ESB inevitably requires the repeal of the break-even mandate. The continuation of that break-even mandate is no longer tenable in a liberalised market where the ESB becomes a player just like any other in the market and must be allowed the same level playing field as other commercial players, including the legal right to make a profit. The repeal of the break-even mandate will effectively bring the ESB into the 21st century from a commercial operating perspective.

Section 21 specifies that electricity prices are to be set at a level consistent with the achievement of a break-even mandate taking one year with another. The repeal of this provision will not give carte blanche to the ESB on electricity prices. Regulations made by me last year give the independent commission the power to examine electricity charges to franchise customers, in effect, domestic consumers, the costs underlying such charges and the right to issue directions to the ESB regarding the nature or amount of any charge or proposed charge.

The foregoing provisions aim to achieve, through the vehicle of an independent regulator, a proper balance between electricity consumers and the rights of the ESB as a commercial player. They afford protection to electricity customers against the possibility of excessively high electricity prices. At the same time, they allow the ESB to argue its case before an independent regulator for a reasonable level of charges including, in particular, a rate of return sufficient to service its borrowings and remunerate its investment programme.

I draw the attention of the House to another significant feature of the Bill in section 9. The aim of that section is to provide for the full liberalisation of electricity generated by combined heat and power plants, otherwise known as CHP plants.

The distinguishing feature of such plants is the requirement for a major heat input. That, in turn, can allow the simultaneous generation of electricity, a considerable portion of which is usually surplus to the plant's own requirements and, thus, available for sale.

Under existing legislative provisions, independent CHP plants may only supply electricity to the single premises of the main heat customer of the CHP plant and to eligible customers under an ordinary supply licence. CHP electricity may not be supplied to any other final customers. Those provisions are now seen as unduly restrictive. The amendment proposed would allow any final customer to buy electricity from CHP plants. Electricity generated from CHP would, thus, be put on the same footing as green electricity, the market for which is already fully liberalised.

I received strong representations from the IDA, Forfás, IBEC and other interests urging the liberalisation of CHP as proposed in the Bill. There are clear advantages to be derived from encouraging the development of CHP. They include high operating efficiencies and knock-on environmental benefits in terms of greenhouse gas emissions and the potential of CHP plants around the country to strengthen the electricity network and power supply. EU policy is strongly supportive of CHP on grounds of security of supply and environmental protection arising from its efficiency. The generation and sale of electricity from CHP plants will be subject to licensing by the electricity regulator.

The Bill provides me with the opportunity to present a short overview of the electricity sector and the ESB's role within it. The last four years have been a period of intense activity in the energy area. Some of the key milestones have included the CCR process in 1996; the extensive public consultation process in 1997 on the EU electricity directive; publication of the Electricity Regulation Bill in 1998; enactment of that legislation in 1999; establishment of the Commission for Electricity Regulation in 1999; the tripartite agreement of February 2000 on a future framework for the electricity sector; the 30% opening of the market to competition in 2000; the establishment last year of the national grid part of the ESB as a separate independent company, now known as Eirgrid; the joint decision to upgrade the main North-South electricity interconnector, currently in progress; the commissioning last year of the IVO peat plant in Edenderry – the first major independent generating plant in the country, and the announcement last year that the electricity market will open fully to competition in 2005.

The foregoing represents the most sustained series of decisions and activity since the days of rural electrification. The ESB has signed up over 200,000 additional customers in the past five years, while the number of units purchased has increased by over 30% in the same period. These are the highest rates of growth in the western OECD countries. To cope with these record levels of growth and the need for upgrading and extension of the networks, the ESB and Eirgrid are undertaking a five year investment programme, totalling over £2 billion, to provide the country with an ongoing electricity infrastructure up to international standards.

In the tripartite agreement of last year, the State committed itself to continuing shareholder support for the ESB. In return, the management and trade unions committed themselves to a further major round of change and transformation, the ongoing provision of a modern electricity infrastructure and, for the latter purpose, agreement on the use of outside contractors. The rejection earlier this year by ESB network technicians of new work practices and outsourcing was a severe setback. Management and trade unions in the ESB are, however, working intensively to achieve a turnaround and their efforts deserve support.

In the establishment of EirGrid last year the ESB asked and were allowed to retain ownership of the transmission assets. The company is also the owner of the country's distribution network. Under the tripartite agreement responsibility for the physical upgrading, maintenance and extension of these networks falls squarely on the ESB and the onus for delivery of the new investment programme also rests with the company. The outsourcing arrangement poses no threat whatsoever to ESB workers. The investment programme is of a scale sufficient to keep all of the ESB network staff, as well as outside contractors, fully employed for many years to come and such investment will be ongoing.

The ESB has been returning record levels of turnover and surplus in recent years. The out-turn for the year 2000, in terms of surplus, is likely to be significantly lower in cash terms than in 1999 in view of increasing fuel costs, etc. The company's headline financial performance of recent years should be seen against a situation of under-investment in the electricity network for nearly 15 years. The company is now facing into a period of sustained investment which is necessary to underpin the national development plan and it will be a matter for the electricity regulator to decide how this investment should be financed and remunerated.

I hope I have given a reasonable summary outline of the electricity sector and the current position of the ESB. I commend the Bill to the House and will be happy to participate in the debate on it. I thank the House for facilitating me by taking the Bill on the last day of business before the Easter recess, following its completion in Dáil Éireann last week. I appreciate the co-operation of Senators in that regard.

I welcome the Minister. I also welcome this short, but very necessary Bill. The ESB is more than a company, it is a national institution and everything that affects it is of national importance. Accordingly, any matters relating to it will be closely scrutinised. It has been a monopoly for many years and, like all monopolies, had its shortcomings. It could be described, however, as the powerhouse of the economy, both figuratively and literally.

The Bill will possibly take the company half way or perhaps only one third of the way towards full privatisation and liberalisation. One of the downsides of the company was the fact that it was not subject to the cold winds of the free market economy and, consequently, was not affected in the same way as other companies by a downturn in the economy. To a degree, the ESB was featherbedded. The abolition of the break even mandate is very welcome because, in the current economic climate, no company could continue in that type of economic straitjacket. Accordingly, I welcome the liberalising measures of the Bill in that regard.

There seems to be a certain reluctance, however, on the part of the board of the company and, perhaps, management, staff and even the Government to open the door fully to liberalis ation. In that context, we must take note of the companies which have come in in recent years and "tested the waters" in free market liberalisation, but been frozen out. Some have gone while others are ready to go. That is not a good omen for liberalisation. I have spoken to some directors of such companies who have been disappointed with the official response which they have received in that regard. I ask the Minister to deal with that matter in her reply.

Since its establishment the ESB has employed many workers. It kept thousands of our workforce from emigrating during the lean times of the 1960s, 1970s and 1980s. Many families owe their economic existence to the ESB. As a nation, we owe the company a great deal. One could equally say that the company owes the nation greatly. If we are moving towards a free market economy – this measure is, possibly, laying the foundation for that process – I am not entirely convinced that the Government is fully committed as yet to the privatisation of the ESB. There has been movement and this Bill is a step forward. Nevertheless, there is resistance from many quarters and that will continue.

The west has serious infrastructural deficiencies in terms of electricity supply. Insufficiency of supply in parts of County Mayo means that it would not be possible to cater for the power needs of major new industries. The possibility of constructing a major transmission line from Galway to Castlebar is being investigated as part of the planning process.

The planning process for ongoing ESB developments is becoming more and more cumbersome. Objectors are jumping on the bandwagon at every turn and have become a serious delaying factor. Requests for planning permission for pylons have become a major issue. We at local authority level have raised the issue of underground transmission lines, which is not a very enticing option in economic terms. However, I ask the ESB to consider underground transmission lines as a means of overcoming the many planning objections.

The basic problem in Mayo and other parts of the west is insufficient and poor quality power supply. Major IT companies are looking for high quality supply. That can only be delivered by transmission lines, which we do not have. Their absence is a major disincentive for industry considering locating in the region. Moves are afoot to rectify the situation but they are very slow coming on stream. I ask the Minister to examine ways of expediting the planning process. The Government has compulsory purchase powers but there still seem to be inordinate delays in getting transmission lines up and running and rectifying the inadequacies in power supply.

The ESB has enjoyed a monopoly since its inception in 1927, but that monopoly, like those of many other companies, is being removed. The transition to the free market requires a lean and hungry company. One criticism levelled at the ESB in the past was that it was overstaffed. The fact that any company can lay off 2,000 people in one fell swoop and still maintain growth alongside a high degree of profitability and an increasing number of new connections and services is significant in itself. The ESB is taking the necessary measures to become lean and hungry and compete in the free market. I commend that and the Minister's longstanding interest in this area.

There is a degree of ambivalence in certain quarters about opening the doors to competition. To many companies, however, it looks like one hand is opening the door, while the other is closing it. Given the culture that has existed in the ESB, resistance of this kind was to be expected.

I welcome the provisions of the Bill, limited as they are. The abolition of the break-even mandate will ensure that the company moves into the competitive market with a new sense of urgency and competitiveness. This House looks forward to further measures to streamline this great national institution.

I also welcome the 5% shareholding for workers and hope that it will have the desired effect. The company is offering the workforce a carrot in the form of a significant portion of company stock. As the major shareholder, the Exchequer will also expect a financial return. This Bill is welcome for all those reasons and I support its general thrust and philosophy. Despite the problems with supply in the west that I mentioned, we will have to move ahead.

It would be remiss of me not to mention the Corrib gas find off the north-west coast and the possibility of building a gas-fired generating station in the west, probably in Mayo. The Minister will be aware that the old peat-fired generating station at Bellacorrick is being decommissioned and will probably cease production in two to three years' time. That places an onus on the Government to put in place an alternative generating capacity in the west. The landfall for the Corrib gas field will be around 30 miles to the north of the generating station in Bellacorrick and its coming on stream offers a great opportunity for power generation in that area.

Under the Bill, the ESB will not enjoy a monopoly in tendering for or promoting the project. That initiative should come from the Government. The Minister is well aware of the problems, having received many deputations relating to the Corrib gas find and the possibility of a generating station in Mayo.

I join Senator Caffrey in welcoming the Minister to the House with a very short and simple Bill, which will have far-reaching consequences for the operation of electricity supplies and the ESB in the future.

The Minister has been particularly adept, during the past few years, at changing the structure of Irish semi-State companies and equipping them to deal with the commercial reality of the open economy. She deserves applause for that. Senator Caffrey has paid eloquent and just tribute to the ESB for the contribution it has made over the past 74 years to the development of the economy. It is interesting to note that in 1927, as noted in the Minister's speech, the mandate for the company was to break even. Nobody setting up a company today would dream of putting such restrictions on the development of a company.

It was a different Ireland then and it was necessary that the consumers and their rights be looked after in legislation to ensure that an individual's economic state would not be damaged. Some of us are old enough to remember rural electrification and it made a huge transformation in the quality of life of people in rural areas, as did piped water. I remember discussing water charges with someone and arguing as to which of the two utilities they would opt to do without if necessary. It would be a very difficult choice to make and one only realises that when there is a breakdown in the service.

The company itself has developed well over the period of its operations and has a good culture of meeting the capacity requirements of the economy. When I first entered politics in the late 1970s there was a huge debate at Government level about the provision of a nuclear power plant to meet future demand. Thankfully we did not opt for such a retrograde step. Over the period of our economic development there were challenges to be met in the power supply situation and the ESB has delivered well on those.

I have always admired the operation of ESBI which has been a tremendous ambassador on the commercial front for this country. It has undertaken developments across the globe and has raised the flag of Irish commercialism at a time when very few were in a position to do so. Things are different today now that our economy is a role model. All over the world people talk of our phenomenal growth and the huge transformation of our economy, particularly since our accession to the EU. We should not forget that this company charted a new vision and extended the boundaries of operation for Irish companies.

The Minister has addressed the issue of the rejection by the ESB of outsourcing. Industrial relations in the ESB have not always been good but it must be acknowledged that in recent years they seem to be managed well. Good industrial relations are essential to any economy and recently we saw an example of how essential they are in another semi-State company. Companies that enjoyed the protection of the State because they were essential services at a time of no competition should recognise that they were in a privileged position. Any such privilege should not be abused. I acknowledge that the ESB has been good in this regard but if people in this age of commercialism set themselves against issues like outsourcing, we are heading back to the dark ages of restrictive practices. There is no future for that kind of mentality.

Competition has proved to be the engine that keeps companies efficient and effective. It is in everybody's interest to apply that type of requirement. It will be a difficult transition for the ESB and it has gone some way towards preparing itself for competition. We wish the company well. A successful transition will only be achieved if directors, management, employees and the legislative framework have the ingredients to make it happen and partnership is one element of that.

The Aer Lingus situation merits comment as a comparison. It would appear as if the issue in Aer Lingus has as much to do with inter-union rivalry as it has to do with the welfare of employees. Many overseas companies have come into our economy and operate without a union structure with in-house employee arrangements. I do not necessarily advocate that but the option should be there. Unions are there to protect the interests of their members and to look after and promote their welfare. There should be no criticism, however, where that is done outside the structure of a union. The union should not be driven by the desire to increase membership or to increase the well-being of the union as a corporate entity. If that is our focus, as it appears to be between IMPACT and SIPTU at Aer Lingus, we are on the road to disaster. The days are gone when such activities can and should be protected.

Everybody with a stakeholding in the company – employees, shareholders, directors and management – has responsibility to deliver a commercial service. Ultimately the strength and survival of a company will depend on in-house co-operation and the quality of product and service delivered to its customers. That should be the overriding consideration. One would hope that the ESB, which as Senator Caffrey said was historically one of the biggest employers in the country, equips itself to meet the challenges of competition. I appreciate the need for an independent regulator in the current set up but I look forward to the day when price increases will not be sanctioned by the regulator because we will have sufficient competition within the sector to determine them. Ultimately market forces are the best regulator of prices and commercial operations.

I compliment the Minister on the Bill. The idea of giving employees a financial stake in the company is good. This Bill achieves this but there will be more to be done when the IPO takes place. Michael Smurfit once said that equity was like lifeblood flowing through one's veins. He rated it at that level and he should know.

He has the money now.

That is right. He has the fruits to illustrate that it is a fact. In Ireland because of the nature of the development of our economy that was not a feature. In the American economy and elsewhere, giving people an equity stake is a progressive driver and motivator in harnessing everybody to achieve success for the commercial entity. It recognises that employees are major stakeholders, with an equity stake or not. The Minister drew up the blueprint with Eircom. The culture of ownership should be developed and encouraged. While the Eircom shares have fallen, the principle and structure established by the Minister will stand the test of time.

The value, trading in a hundred million shares, the 5% discussed, will be about £10,000 or £11,000 per employee. The ESB has, like other mature industries, employees who gave a life's service to it. It is fair and equitable that they benefit from their involvement and have an active interest in the company's economic and financial success. This is a progressive measure and the 5% in an IPO will follow the Minister's model.

Our economy requires uninterrupted supply. Questions were raised about capacity, some of which were the result of the shortages in the United States west coast creating problems for businesses. The ESB and the other companies using other methods, such as CHP, which was mentioned by the Minister, will compete before full liberalisation in 2005. The CHP provision might allow waste thermal treatment plants to generate electricity. In this House in the past, I was against incineration. However, this Bill is not about that, although it will facilitate such activity.

It is a tribute to the ESB that it increased significantly its customers over the past five years. It reflects the rate of our economic growth. The rate is slowing because of international factors and the foot and mouth disease outbreak, but it will still create demands on the infrastructure. As a public utility, the ESB is part of that and it must have the legislative framework, the management, and the modus operandi, including industrial relations, to meet the challenge.

For 74 years it was part of our development. While the company's remit and practices have to change and there is apprehension about competition, those involved will recognise that this is good if positively embraced and pursued dynamically. The ESB can do that and, in future, these changes will be viewed as far-sighted and positive for the economy and the company. I welcome the Bill and compliment the Minister for the manner in which she is dealing with this and other matters within her remit in the commercial semi-State sector.

I thank Senators Caffrey, for Fine Gael, and Walsh for Fianna Fáil. Both contributions were reflective and interesting because they were made in a less frenzied atmosphere than is normally prevalent. Senator Caffrey acknowledged that a great employer like the ESB recognised the need to shed 2,000 jobs, with 2,000 more to come. Acknowledgement is due to the workforce which also recognised this and availed of a good severance package.

The Senator mentioned the transmission line from Galway to Castlebar, which is in the planning stage and was also discussed in the Dáil. The Senators appreciate that I have no role in planning, which is a local issue, dealt with by local councillors and the local community. The Cabinet committee on infrastructure, of which I am a member, is examining delays in electricity supply, roads, bridges, water and sewerage works, which hold up the economy. I cannot say what the result will be because it is the remit of the Department of the Environment and Local Government.

People have a right to object. In Kildare a rare snail delayed the bypass for months. I am fond of wildlife, if a snail qualifies as such, but I have doubts about attention being given to such a small detail. Local authority members, as I was myself for some years, have responsibility for planning. As a local authority member, I often found a conflict between getting something necessary for the area and keeping faith with my constituents who, collectively or individually, objected to the development. It is a difficult balance for local authorities.

Such issues are raised by the building of a plant to deal with the gas find off the west coast. My colleague, Deputy Jacob, Minister of State at the Department of the Marine and Natural Resources, co-ordinates with Bord Gáis Éireann over it. I hope that an independent company builds the plant, which will help that part of Mayo. The new plant will be welcomed because the Bellacorick plant will close in 2004.

I appreciate Senator Caffrey's openness but I am not sure about what he said on the ambiguity on deregulation. We might return to it on Committee Stage, but there is no ambiguity. We are ahead of France and other countries which are quibbling with the 2005 liberalisation programme which has been set for us by Europe and which we have fulfilled. The figure is 40% for this year and a continuance down that road until 2005. At the last summit France and other countries said this was too swift. For once, therefore, instead of waiting to be clobbered on the head by Europe we are at one with it.

Regarding new companies, we have welcomed them and while I meet them on a courtesy level I have no dealings with them as they are subject to the regulator, not to me, in terms of applications. They have justifiable and recognised cause to seek things from the ESB, but that is a matter for the independent regulator established under the law, namely, Tom Reeves, who is doing a very good job. I cannot deal with the new companies on an operational level – there is no ambiguity in this regard. I understand they get on well with Tom Reeves and I am sure he is extremely courteous and very progressive in dealing with them.

Nobody wants the situation which developed in California to be mirrored here. We were all very excited by the example in California, where liberalisation and deregulation was too speedy. They went over board and brought in dozens of companies. It is a clear example of how one can lose the run of oneself. As a result California found itself with a distinct lack of supply. There must be a balance and here the ESB, the regulator, the Government and the Opposition have got the balance right.

There is no ambiguity in terms of liberalisation as we are in tune exactly with the timetable set out for Europe and are ahead of some countries which do not agree with the process. Under law we have appointed a regulator who is dealing with independent companies.

Senator Walsh is correct in what he said about the contribution of the ESB over 74 years. The Senator is from Wexford and spoke about nuclear power. It is amazing how that was a raging issue at the time and how we almost fell for it. There were heroes and villains at the time, as there are in every scenario, and we know who some of the villains were, God rest them. The heroes are still with us. People were willing to chase after something new and to be in at the beginning of what they thought would be a wonderful adventure. Rather it would have been a horrid disaster.

The Senator referred to ESBI which gives great international standing to the ESB. He also extolled competition, and I could not agree more. Senator Caffrey also referred to competition. Where there are monopolies there is no security. A monopoly in terms of buses, power, airlines etc. may give wonderful service and a fine product, but in the end one is at its mercy. If they decide not to provide the service, perhaps for legitimate reasons, we would be in a very serious situation and that is why I fully agree with competition. The market is the best regulator. Etain Doyle, the telecommunications regulator who will soon have responsibility also for postal services, was appointed by the previous Government and is doing a very fine job. The current Government appointed Tom Reeves, the regulator for electricity and gas, and an airports regulator. We must now get a balance between policy formation and the execution of that policy by the various regulators. The Senator is correct in saying that market forces are the best regulator.

Senator Caffery raised the issue of privatisation, which he clearly understands perfectly. Regulation through the appointment of regulators is one issue while liberalisation opens the market to competition and privatisation is the ultimate step. I wrote to the board of the ESB about a year and a half ago and asked it to give me its ideas on where it saw its future. It had input from management and unions and wrote to me some months ago saying at this point it did not wish to engage in a debate on privatisation before regulation, liberalisation and the £2 billion funding for service enhancement had been undertaken. While I am very open in terms of privatisation, there is a need for the network to be built up. What happened regarding the rail lines in the UK is salutary. I do not intend selling the rail lines. In the UK the lines were sold without investing in the infrastructure and there have been a series of disastrous rail crashes, which is very sad. By law the inspector of railways must inform me as soon as there is an accident. Often I get calls very late at night about a rail mishap. So far while some of them have been serious they have not resulted in loss of life. However, if I get a call late at night I immediately think it might be related to the rail network. I make that point apropos of the £2 billion which is necessary in terms of infrastructure.

I thank Senators and the Cathaoirleach for their attention to Second Stage.

Question put and agreed to.

When is it proposed to take Committee Stage?

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