The House will be aware the Government agreed a programme of State asset disposals in February which is designed to reduce the State's debt burden and to help fund employment generating initiatives in the economy. This programme has been debated on more than one occasion in the Dáil and I am pleased to explain today the position to Senators and to update the House on the progress made since my announcement in February.
In brief, the asset disposal programme agreed by Government in February consists of the sale of the Bord Gáis energy business, but not including its gas transmission or distribution systems or the two gas interconnectors which will remain in State ownership, and the sale of some of ESB's non-strategic power generation capacity. Consideration is also being given to the sale of some assets of Coillte, but not Coillte's land holdings; and the sale of the State's remaining shareholding in Aer Lingus, when market conditions are favourable and at an acceptable price to the Government. I wish to emphasise from the outset that these options are being considered in a manner that protects the economy and our key strategic assets and ensures that value is secured for the taxpayer for any assets that are to be sold.
This week's announcement of the establishment of the new Irish water utility under the umbrella of Bord Gáis Energy, BGE, demonstrates the Government's continued confidence in the semi-State sector as a vehicle for large-scale infrastructural investment and a driver of innovative change. This utility will be the largest new semi-State established in a generation. BGE is an excellent example of a strong, vibrant and dynamic State company which has demonstrated its capacity to invest and develop new, efficient and competitive businesses for the benefit of Irish consumers. I am confident that Bord Gáis will continue to contribute to achieving key Government and national objectives in its ongoing management of the strategic gas infrastructure as well as the sale of its energy business and the establishment of the new Irish water utility. In this context it is important to note the key synergies between the gas and the water utilities lie in core network functions, such as operating in a regulated environment, network management, metering and utility operation systems, all of which are strengths of BGE. These core functions will not be impacted by the sale of Bord Gáis Energy.
I have to admit that since I announced the details of the disposals programme, I have been struck by the number of contributions to the general debate that fail to take full account of the very serious position in which the State finds itself and which gives rise to the need for asset disposals at this time. It is almost as though people speak about the debate as if it were peacetime as opposed to a Government and people facing an unprecedented economic challenge. Although the economic situation has stabilised in the past year — thanks in large part to the concerted actions of the Government — we are still faced with a very difficult economic situation. Our outgoings continue to greatly exceed our income and we depend on financial assistance provided under the EU-IMF funding programme for the continued day-to-day operation of the State. Our obligations under this programme, as well as under the Stability and Growth Pact, require us to make measurable progress in reducing the budget deficit to a target of 3% by 2015. We have to balance the books and stabilise our debt and there are no soft or easy options in achieving this objective. If acceptable valuations can be achieved, the realisation of value from some State companies, although comparatively modest in the context of the overall fiscal gap, will go some measurable way towards lightening the State's daunting burden of debt and reducing the requirement for additional borrowing.
In addition to dealing decisively with the public finances, the Government's primary concern must be and is to promote employment and economic recovery. We need to grow the economy and create jobs. In order to achieve this, some form of stimulus is required. In the programme for Government, we set out concrete proposals to leverage revenue from the sale of State assets in order to invest in the productive potential of the economy.
From the outset of our engagement with the EU-IMF troika on this matter, the Government also made it clear that we were not prepared to agree to an asset disposal programme over and above the one already set out in the programme for Government if it did not release a sizable amount for investment in job creation initiatives in the economy. In this context, I am pleased to report to the House that the agreement reached with the troika, in advance of our final decision on the disposal programme, represents a remarkable advance. When we first encountered it, the troika's position had been that the entire proceeds of asset sales — every cent — should be used to retire our national debt. However, in return for committing to a disposal programme of up to €3 billion, a more ambitious target than we had provided for in the programme for Government, they have agreed to the retention by us of one third of the proceeds for reinvestment in the economy. This offers the potential of up to €1 billion worth of investment in the economy from the sale of State assets to provide economic stimulus and support job creation. We intend to combine these proceeds with other sources of funding. I agree with those Senators who stated in their contributions that austerity or balancing the books are not of themselves a strategy. We need stimulus. However, the recklessness of the previous Administration has deprived us of the normal sources of stimulus. We are now trying to find resources to invest in job creation. As indicated, one third of the proceeds of the sale of State assets is one such source. I have also indicated another source will be pension funds. Only 2% of the €70 billion in Irish pension funds is invested in this economy, with the rest being invested throughout the world. We need to bring some of that home. I believe that is what Irish workers would want. We are also looking to other sources including the European Investment Bank and so on for stimulus. We intend to combine these proceeds with other sources of funding, such as those which I have just indicated, including our residual reserve, which is the National Pensions Reserve Fund and third party investment to finance much-needed stimulus. We are carefully considering how this money can be used to maximise job creation within the economy.
In the debates that followed my announcement in February, the claim was made on many occasions that the Government intends to sell off key strategic infrastructural assets and that we will end up selling them off in a fire sale. To back this up, the previous Government's sale of Eircom has been regularly cited as a cautionary tale. I assure the House that this Government is very conscious of the Eircom experience. The programme of disposals which I have announced has been carefully thought through to ensure that mistakes that were made in relation to previous privatisations, most notably Eircom, are not repeated. For example, in contrast to the sale of Eircom, the Government has made it clear that it has no intention of selling off strategic infrastructural assets as part of the programme now agreed. It is instructive that when Eircom was sold off it was a communications infrastructure at the front edge of modernity. We have no intention of selling off our infrastructure. We are retaining ownership of the gas pipelines, gas interconnectors and the electricity grids.
We have agreed to sell BGE's energy business but its gas transmission and distribution systems, including the two gas interconnectors, are not for sale. We have agreed to sell some of the ESB's non-strategic power generation capacity to reduce the ESB's market dominance, as required under EU competition rules. However, the ESB and all of its strategic assets, including its transmission and distribution network, will be retained in public ownership. We have agreed to give consideration to the sale of some of Coillte's assets, which is likely to focus primarily on the harvesting rights of Coillte's forests. There has been much debate in the other House on Coillte. What we are selling is trees. We are not growing the trees for decoration. We expect them to be harvested and sold. What we are selling off is a crop. The land on which the forests are situated is not for sale. We are only agreeable to dispose of the State's remaining stake in Aer Lingus because the remaining 25% shareholding is no longer a strategic asset as it does not enable the Government to determine Aer Lingus policy in relation to commercial decisions such as the use of the company's Heathrow slots.
The position on Coillte, and its assets, is different from that in relation to Bord Gáis and the ESB. Whereas specific decisions have been taken and announced in relation to the assets that are to be disposed of in the case of the energy companies, no such definitive decisions have yet been taken in relation to Coillte. The Government has agreed that Coillte is to be included in the asset disposal programme but my announcement in February indicated that further consideration had to be given to how this was to be done. I have already signalled that any disposal in the case of Coillte is likely to focus primarily on the harvesting rights of its forests, but that is primarily because I wanted to make it clear that there is no question of the Government disposing of Coillte lands. However, a final decision on how best to release value from Coillte remains to be taken by the Government. Since my announcement, we have received a number of interesting approaches in regard to Coillte. We are open to all such discussions.
I accept that some legitimate concerns remain regarding some of the wider implications of the proposed asset disposals, in particular in the context of Coillte and its forests. Among these are the following: a potential lack of public access to the forests for walkers and for general recreational purposes; whether the forests, if sold, will be replanted after the trees have been harvested; the impact of any disposal of Coillte's forests in terms of the climate change agenda and, in particular, the position in relation to carbon credits; and more generally, whether the Government has engaged with the staff interests in the companies involved in relation to the planned disposals. These are all genuine concerns but I can assure the House that all of these issues were already identified in the preliminary analysis that was undertaken by the interdepartmental working group which reported to Ministers in December 2011. The group considered a range of State assets identified by Government as potential candidates for disposal, including Coillte. I can confirm that the Government is conscious of all of these issues and that these will all be taken into account before final decisions are taken by the Government in relation to what Coillte assets are to be sold and how.
I am happy to report that significant progress has been made in advancing the disposal programme since I announced its content in February. Interdepartmental working groups have been established to examine each of the assets referenced in the Government's decision and NewERA, the new holding company under the auspices of the NTMA, has prepared two very thorough financial reports on BGE and Coillte which have now been submitted to and considered by the respective interdepartmental groups. The Government is committed under the EU-IMF funding programme to outline in detail for the troika by the end of June 2012 the specific reforms that need to be taken, ensuring consistency with relevant EU legislation where necessary to allow for the asset sale programme to proceed and a calendar with indicative timelines for sales.
Work is continuing in the relevant Departments and agencies on considering how the issues already identified as requiring resolution should be addressed. In the case of Coillte and the ESB, these issues will be dependent on the final decisions taken on the particular assets of these companies that are to be sold. I can assure the House that the Government will ensure that all of the implications of each asset disposal will be carefully considered with a view to mitigating any potential negative impacts associated with the disposals. This will include ensuring the continuity of access to the forests as a public amenity.
I emphasise again that the Government is committed to securing value for the Exchequer from asset disposals and will not be rushed into any fire sales. As I have indicated in the other House, any asset which does not obtain best and full value will not be sold. All of the disposals will be transacted via an open, transparent and competitive process and they will only occur when market conditions are right and when adequate regulatory structures have been put in place to protect consumer interests. As well as making a modest but real contribution towards reducing the State's mountain of debt, the funds released from asset disposals will be combined with funding from the NPRF and used to leverage private finance sources to fund much-needed additional investment in job creating initiatives in the economy. On this basis, I commend the Government's asset disposal programme to the House. I look forward to answering any questions which Senators may have.
