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Seanad Éireann díospóireacht -
Wednesday, 16 Apr 2014

Vol. 231 No. 2

Adjournment Matters

Diplomatic Representation

I welcome the Minister of State, Deputy Brian Hayes. This matter relates to the appointment of an ambassador from the United States to Ireland. Since coming into office for his second term, the US President, Mr. Obama, has not yet appointed an ambassador to this country. This has been the longest gap since 1927. There are only 14 countries to which the US has not appointed an ambassador, the Arctic Council, Belarus, Bolivia, Costa Rica, Egypt, Eritrea, France, Guatemala, Romania, Russia, Sudan, Syria and Venezuela. Some of those, one could say, are not the most glamorous of locations and possibly quite dangerous. With others, there are political issues between them and the United States which might explain why no ambassador has been appointed.

When it comes to Ireland, however, it is somewhat disappointing for us that we are drifting into the third year with no ambassador from a country which we hold in high esteem, in which we have so many citizens and which has so many people with Irish heritage. Previous ambassadors have played significant roles in the Northern Ireland peace process, particularly Jean Kennedy Smith. Now, in the North the Haass talks have broken down and the engagement of the United States is critically important. Having an ambassador on this side of the Border would be critical in ensuring the success of future talks. What has been raised by the Department to ensure there will be a US ambassador appointed before the next St. Patrick’s Day?

On behalf of the Tánaiste and Minister for Foreign Affairs and Trade, I welcome the opportunity to update the House on the issue of the appointment of a US ambassador to Ireland. The former ambassador, Mr. Dan Rooney, completed his mission to Ireland on 14 December 2012. Pending the nomination of his successor, the deputy head of mission at the US Embassy is acting in the capacity of chargé d'affaires, ad interim. He and his colleagues at the embassy are in frequent contact with the Department of Foreign Affairs and Trade on a broad range of issues of mutual concern.

While the appointment of a new ambassador is a matter for the sending state to initiate, and we are conscious that the process for ambassadorial nomination and appointment is rigorous and lengthy, the Tánaiste is keen to see that process concluded as soon as possible and to welcoming and working with the new US ambassador to Ireland at the earliest opportunity. It is a matter to which the Government attaches considerable importance. The Taoiseach raised the issue with the US President, Mr. Obama, in their discussions during his St. Patrick's Day visit to Washington DC last month.

Members will agree with me that it is only fitting that there be a resident US ambassador to Ireland to reflect the extraordinary strength and depth of the relationship between our two countries. That relationship is evident in so many ways. For example, the US is home to our largest and most powerful diaspora of approximately 36 million people. It is our most important source of foreign direct investment, as well as one of our top sources of investment, trade and tourists. It remains an indispensable partner in the Northern Ireland peace process. We will continue to work on the further development of all these aspects of our bilateral relationship with the United States.

The Government is in continuing contact with the US authorities on the appointment of a new US ambassador. We expect that a nomination will be forthcoming in the near future.

I am encouraged by the fact the Government expects a nomination to be forthcoming in the near future. We hope that it will be a matter of weeks or months and not to be back here next St. Patrick’s Day asking the same question.

Forestry Sector

I have been contacted by many private forest owners whose plantations were destroyed in the storms earlier in the year and who are not in a position to replant them. It is unfortunate that the Minister of State with responsibility for this area, Deputy Tom Hayes, cannot attend the House this evening. I am aware he had a prior engagement in Tipperary. If grants were made available for replanting these private forests, it would work out to be cost-neutral. Approximately 50,000 ha of forestry have been destroyed. A replanting grant at €800 per hectare would come to €4 million. The benefits of such a grant would create jobs and more carbon credits, both of which would offset any cost of the grants. I hope my suggestion is looked upon favourably. If the Government took a lead on this, it would be a positive news story, cost-neutral and bring benefits to rural communities through employment while increasing the State's carbon credits.

I thank the Senator for raising this matter. The Minister of State, Deputy Tom Hayes, is, unfortunately, unable to attend for which he send his apologies.

It is important to clarify what services are available to those affected and to set out what actions have been taken to date by the Department of Agriculture, Food and the Marine with regard to the damage caused by the February storm. Wind blow is not a new phenomenon to forestry and is one of the biggest problems facing plantations in this country. The risk of wind blow is influenced by soil type, height of the trees and altitude. Thinning, however, greatly increases the likelihood of wind blow. On certain more vulnerable soil types, such as those which are located in exposed high altitude sites, thinning will increase the risk of wind blow by up to 80%. It is accepted practice in some locations not to thin forests at all. Plantations are at risk of becoming unstable after thinning, as removing some of the crop removes the wind firm edge of the forest, making the plantation more vulnerable to being blown over.

The scale of the wind blow in the February storms was certainly unexpected. However, if we cast our minds back to the high winds and heavy rain we all experienced over the Christmas and into the new year, it would seem the winds of 12 February were the last straw for many forests. While the extent of the damage is estimated to be less than 1% nationally, the damage is extensive at local level. The south and parts of the midlands in particular have experienced significant damage where substantial quantities of timber have been blown over and entire forests in some cases have been completely levelled.

It is important that forest owners realise, however, that although their forests have suffered wind blow damage, there may well be significant value still to be realised from the plantation. Also owners must take care to make the right decision in keeping those trees that remain standing or to clearfell the entire site. This is not the time, therefore, to rush into making decisions on what to do next. Instead, private forest owners should consult with forestry professionals either in Teagasc or with their local professional forester who can help them take the right course of action.

A qualified forestry professional will meet owners on the ground and most importantly advise on health and safety issues when it comes to accessing the plantation and recovering the timber. It is also important for owners to look into the possibility of co-operating with adjacent forest owners. Lower recovery costs can be achieved and higher prices offered where forest owners achieve economies of scale by working together.

Events have also been organised by Teagasc and the Irish Timber Growers Association in conjunction with Coillte on wind-blow plantations. I believe the first of these happened in Kilkenny last week on 8 April attended by 200 people. Other events were organised in Castleisland in County Kerry and I know there was a significant amount of damage in north County Kerry and west County Limerick.

The Department of Agriculture, Food and Marine is facilitating those wishing to apply for felling licences to deal with the situation in the most appropriate manner. In this regard the Department has asked forest owners to make their applications at the time of storm damage to allow it to be prioritised by the Department. While direct funding is not being provided at present to those whose forests were destroyed in the storm, a task force chaired by the Minister of State, Deputy Tom Hayes, has been established to assess the damage nationally and to quickly identify the various issues arising as a result of this serious wind-blow event and to agree on a course of action to deal with these issues. The assessment of the damage will be carried out by Coillte staff. The forest industry, Coillte, the IFA and the Department of Agriculture, Food and Marine have all committed to jointly fund this assessment using high-resolution satellite imagery. The result of this assessment will give accurate maps of damaged areas and allow the Department to review all policies on wind blow.

The task force has issued a guidance note for forest owners laying down the steps to consider in safely harvesting and selling the fallen trees and giving advice on a range of other associated issues. The guidance note is also published on the Department's website. The Department also has set up a dedicated e-mail address, wind-blow@agriculture.gov.ie, for any queries on the issue. Any forestry premium payments that have not yet been paid for 2014 will be paid even if these forests have been affected by this wind-blow event.

I thank the Minister of State for providing this substantial reply. I am glad that forestry payments will not be affected for those whose plantations have been destroyed and that there will be no trimming of that. As much of this forestry is 15 or 20 years into a 30-year lifespan, the value is minimal. The cost of the harvesting will probably be as much as will be achieved in selling the product because it is only half way there. The Minister of State made a valid point. People in the industry have told me that our forests lack good drainage, which may be one reason for the extent of the wind damage. I thank the Minister of State for the reply and I hope that another day - beidh lá eile - funding may be made available for this.

As I said in my reply, a task force chaired by the Minister of State, Deputy Tom Hayes, has been established to review all these issues. Teagasc, IDA Ireland and all industry representatives are involved. If there has to be movement on this as set out by the Senator, it would have to come from that task force. I will ensure that the Senator's contribution to this debate will be sent to the task force and it might reply directly to him as to whether it would consider direct compensation. There may be cases where people have insurance. At the very least a full assessment of the damage needs to be concluded as speedily as possible and the satellite images might help in that regard. The task force should look at the issue and I will ensure that the Minister of State, Deputy Tom Hayes, is made aware of the Senator's comments.

Credit Unions

I welcome the Minister of State. I wish to outline the rationale for a credit union bond and to ask the Minister for Finance to initiate negotiations towards introducing one. I know this is also an area of interest for the Minister of State.

I have visited many credit unions in Galway city and county, and in doing so have learned a considerable amount. I have come to the conclusion that the Government needs to look again at credit unions and open its mind to the potential for a win-win by working differently with credit unions. It should initiate negotiations with the Irish League of Credit Unions to produce a credit union bond.

I will outline the realities as I have learned them. Credit union loan books are shrinking and their main income is charging interest on money they lend. The opposite is happening with loan books shrinking and the investment pot is getting bigger. They then have to invest that money somewhere and are getting incredibly poor interest rates. Funds not loaned out are invested in bank deposits, Government bonds or other financial products at very low rates of between 0.5% and 1%.

Credit union funds were attractive to banks at one point because the banks did not need to hold them liquid. They were treated like fixed deposits until Basel III changed the status of credit union deposits so as to require banks to hold them liquid, therefore attracting less interest. A report published in May 2013 showed that because of Basel III, credit unions lost €58 million in deposit interest.

Credit unions are now transferring their funds out of Ireland into European banks. For example, Athenry Credit Union, a very successful credit union, now has funds invested in KBC in Belgium. Credit unions have lots of funds in Ireland at the moment but these could potentially leave the country. It is estimated that they have about €8 billion in deposits, of which about €2 billion is now invested outside Ireland. Investments are getting larger and loans are getting smaller. The loan-investment ratio is about 2:1 - in other words only half their pot of money is lent out in loans.

Credit unions would like to see a bond, guaranteed by the Government which complies with Central Bank regulations and offers an element of liquidity with a return better than we are receiving on the market. I ask the Minister of State to explain why this is happening. At the moment the Government borrows money, probably at about 3%, and the credit unions have €8 billion they could lend to the Government if they got a rate better than 0.5% to 1%. It seems like a no-brainer to me. I know liquidity needs to be built into that and that there need to be terms and conditions, but why is the Government not prepared to do business with the credit unions? In setting up a bond the Government could borrow money. While €8 billion will not meet its needs, it is not bad. We have narrowed our deficit greatly. If the Government offered credit unions 2% rather than the 1% they are getting, it could save itself 1.4% in interest rates.

I will give a specific example. In January 2014 the Government offered a ten-year bond at a rate of 3.4% and Athenry Credit Union bought €8 million worth of that bond. Therefore, there is a discrepancy. This came to mind when I was visiting the credit unions at the time the flooding was taking place - an issue close to the Minister of State's heart. We know the bill for repairing the damage created by the flooding could be €300 million or even more. St. Anthony's and Claddagh Credit Union in Galway city was willing to lend this money to the Government. It trusts the Government which is great to hear. It would prefer to keep its money local and in Ireland if it was just able to get a slightly higher interest rate than it is getting.

I have since learned that credit unions are looking to the international banks. Why has the Government not entered into negotiations with the Irish League of Credit Unions which is open to do this? Will it do it?

I thank the Senator for raising this issue. She is aware that the Government established the Commission on Credit Unions in May 2011. The Government also published an agreed final report in March 2012 and has accepted fully the commission's recommendations. Over 60 of its recommendations are being rolled out under the Credit Union and Co-operation with Overseas Regulators Act. The legislation contains measures which will reform and strengthen credit unions and deals with four broad areas, namely: prudential regulation; governance; restructuring, including the establishment of the credit union restructuring board called ReBo; and of course stabilisation.

During the passage of the Bill through the Houses of the Oireachtas there was extensive engagement and debate on the subject of credit union investments. Partly in response to the debate in this House, an amendment was made to the Bill to include a specific reference to credit unions investing in projects of a public nature. I recall, although I did not take it here, that I took Report Stage for the Minister for Finance in the other House and remember bringing forward the amendment myself, following the debate that occurred in this House.

The Commission on Credit Unions Implementation Group was set up to monitor progress on implementation of the recommendations. Membership of the group includes the credit union representative bodies and the Registrar of Credit Unions and it is chaired by the Department of Finance. The group reports to the Minister for Finance directly and quarterly on its progress.

As part of the implementation of the commission's report, investments in State projects for credit unions, which was raised by the Senator, was added to the agenda of the Commission on Credit Unions implementation group in the second half of 2013. That was due to the fact that when the commission was initiated this was not an issue. It was not raised as a result of the recommendations and only came about as a result of the debate in both Houses of the Oireachtas, and correctly as a result of that debate.

The Department of Finance invited credit union representative bodies to bring forward proposals for credit union investments in State projects. Proposals were received from the Irish League of Credit Unions and the Credit Union Development Association. The Department of Finance facilitated engagement between the Irish League of Credit Unions, the Credit Union Development Association, the Central Bank and the NTMA to see if the suggestion of a specific credit union bond could be progressed.

A number of issues were raised regarding the possibility of a credit union bond. They were as follows: that a bond would not be liquid, as credit unions would only be able to sell to other credit unions and, therefore, there would be a very limited market for disposals; it would not be optimal for the NTMA to structure bonds for separate areas of Government policy, for example housing and schools, rather than funding more generally because when we go to the market we go for a specific amount of money which we then use for specific purposes as against for purposes by themselves; and any proposal for a bond which would be callable before maturity date and would affect the total return on the bond with the yield reducing accordingly. A number of alternative approaches were explored as follows: investing in sovereign bonds for a long-term investments of say ten years; and using short-term products, for example, Exchequer notes or similar, for short-term investment. These may have a very low rate of return but are callable at any time.

On foot of the NTMA engagement, credit union representative bodies were asked to reflect on the issues raised regarding a credit union bond. They have been invited to consider the next steps, including an alternative proposal under which credit unions could invest in State projects. Any such proposals would need to be approved by the Registrar of Credit Unions. In 2006 the Registrar of Credit Unions issued a guidance note on investment limits for credit unions investing in Irish and EMU State Securities as follows: maturity date shall not exceed ten years; not be more than 30% of holding shall be held in bonds maturing after seven years; and holding shall not exceed 70% of the total value of the credit union's investment portfolio. Most of the proposals would meet the criteria in these cases. Any proposal, therefore, will have to be in line with this guidance and considered in the context of the tiered regulatory approach.

The Commission on Credit Unions made recommendations for a tiered regulatory approach which could see some credit unions take on a more sophisticated business model with increased regulatory requirements. The Central Bank is proposing a two category approach to the introduction of a tiered regulatory approach for the credit union sector.

Under the proposals currently being considered category 1 credit unions would be limited to basic investments and Government bonds within specified limits. Credit unions that are capable of, and wish to undertake a wider range of activities and services, could apply to become a category 2 credit union. This category would allow for a wider range of investments with longer maturities and in Government bonds, along with the ability to offer certain additional services. Category 2 credit unions will be subject to additional regulatory requirements, as one would expect, given the fact that the risk would be higher.

The Central Bank held an informal consultation process with all credit union stakeholders on their proposal for a tiered regulatory approach. Consultation Paper CP76 was published on the Central Bank's website on 23 December 2013 and closing date for receipt of submissions was the end of March 2014. A further consultation and regulatory impact assessment is to follow later this year.

I assure the Senator that both the Minister and his officials in the Department of Finance will continue to work with the representative bodies to explore and find alternative ways for credit unions to invest in State projects. I look forward to hearing from them in respect of alternative proposals that they may have on the matter.

I thank the House for giving me an opportunity to discuss this important issue and allowing me to outline the work that has taken place behind the scenes with credit unions. This issue has not been left in abeyance. On the contrary, a lot of work has already occurred, as I think Senators will see from my remarks. We now have a broad proposal to make about two tiers of credit unions which could pitch for investments. What is required now is a wider engagement to see if we can tease out those issues through the various bodies.

Senator Fidelma Healy Eames can ask a brief question.

From what I have heard the Minister of State and the Department have an open mind on the issue. He has heard my story that the local credit unions are very keen to work with the Government on this matter but between the two views there is a hole or gap. What is not happening to make this happen?

Lots of things have happened. The legislation has only gone through a while ago. As I said, we have already had two very substantial consultations and we have now reached broad agreement about the tiered approach required. There is absolute support in Government to make this a reality. The proof is the very lengthy and good discussions that we have had on the matter at all Stages in both Houses. It takes time to get a product into the field. There is absolute commitment to it from the Minister for Finance and his departmental officials because they report to him on a quarterly basis on the progress that has been made following the enactment of the legislation and the commission itself to see if we can make this happen.

I am confident that over the course of the next few months that we will get a more sophisticated and exacting proposal from the credit union sector. It could deal with the regulatory issues that have been set out by the NTMA and the Central Bank and the potential risk issue which is one of the reasons the commission first reported. I do not see this issue as something that will be left in abeyance and not followed up and reported. I think we are going to make progress but it will take a little more time before the issue is brought to fruition.

Can I conclude that the credit unions are pushing an open door with the Government on this matter?

I thank the Minister of State. I also thank the Cathaoirleach because I have received a good response.

The Seanad adjourned at 8.40 p.m. until 10.30 a.m. on Thursday, 17 April 2014.
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