The purpose of today's meeting is to consider the Supplementary Estimate for 2009, Vote 30 — Department of Communications, Energy and Natural Resources which has been referred to the select committee by order of the Dáil, dated 25 November 2009. On behalf of the committee I welcome the Minister and his officials to the meeting. I invite the Minister to make his opening remarks.
Vote 30 — Department of Communications, Energy and Natural Resources (Supplementary).
I take this opportunity to thank the committee for giving me this opportunity to address it in regard to the proposed Supplementary Estimates required by my Department this year. I should emphasise that both proposed Supplementary Estimates are technical in nature and other than seeking a token amount of €1,000, no additional funding is sought.
The first Supplementary Estimate for Vote 30 — Communications, Energy and Natural Resources, proposes the payment of television licence fee receipts of €2,379,946 owing to RTÉ — grant to RTE for broadcasting licence fees, grant-in-aid, subhead C1. A token Supplementary Estimate only is required because there are sufficient savings on my Department's overall Vote to fund the payment owing to RTÉ in 2009.
Currently, all television licence fee moneys collected by An Post and the moneys paid by the Department of Social and Family Affairs in respect of free television licences are lodged into the account of the Department of Communications, Energy and Natural Resources. All television licence fee moneys lodged are then paid over to RTÉ and the Broadcasting Fund, net of expenses incurred. Expenses relate to collection costs, that is, payments to An Post for collection of television licence fees. Payments to RTÉ, An Post and the Broadcasting Fund are Vote neutral, that is, all moneys received in respect of television licences are paid out directly.
As a result of a comprehensive reconciliation exercise, carried out in conjunction with RTÉ and the Department of Social and Family Affairs, which was concluded this year, an additional amount of €2,379,946 was found to be due to RTÉ as at 31 December 2008. A token Supplementary Estimate is therefore required to allow for the payment of this outstanding amount to RTÉ from savings within the Department of Communications, Energy and Natural Resources Vote.
It is proposed to meet the payment to RTÉ from savings within the Communications, Energy and Natural Resources Vote as follows: €1,238,000 from my Department's administrative budget. Savings arise on the administrative budget due to the Department's efforts to reduce overall administrative expenditure and the introduction of cost saving measures; €52,000 from subhead B2 — multimedia developments. Savings arise on this subhead due to the 8% reduction in profession fees introduced by the Government from 1 March 2009; €25,000 from subhead C3 — Broadcasting Commission of Ireland. Savings arise on this subhead due to the 8% reduction in professional fees introduced by the Government from 1 March 2009; €49,000 from subhead C6 — grants for digital terrestrial television. Savings arise on this subhead due to the delay in the launch of digital terrestrial television services, which are now anticipated to be launched in 2010; €168,000 from subhead D1 — Sustainable Energy Ireland — administration and general expenses. Savings arise on this subhead due to income generated by SEI in 2009 being used to fund overhead costs, thus reducing the Exchequer amount required; €669,000 from subhead E2 — mining services. Savings arise on this subhead due to eligibility for compensation not yet been fully determined for some private mineral owners and work undertaken at Allihies not yet being completed; €100,000 from subhead E3 — GSI services. Savings arise on this subhead due to delays in the commencement of some of the projects funded from this subhead; €38,000 from subhead E6 — Ordnance Survey Ireland. Savings arise on this subhead due to the 8% reduction in professional fees introduced by the Government from 1 March 2009; and €40,000 from subhead G4 — other services. A sum of €40,000 was allocated to reimburse the National Oil Reserves Agency, NORA, for pension payments made during 2009. As the board of NORA has not agreed to the transfer of NORA's pension fund to the Exchequer no payments are required in 2009.
The second Supplementary Estimate is required to allow for the receipt of an additional €500,000 into the Department's Vote and the subsequent transfer of this receipt into the Petroleum Infrastructure Programme Fund. This Supplementary Estimate is technical in nature and is required under public financial procedures
In September 2008, Eni Ireland B.V., the operator in frontier exploration licence, FEL, 1/99, proposed that its obligation to drill a well under this licence be transferred to licence FEL 3/04 in which ExxonMobil is the operator. ExxonMobil had until the end of this year to either commit to drilling a well or relinquish licence FEL 3/04 which includes the large Dunquin prospect in the Porcupine Basin. ExxonMobil had made clear to the Department that it could not enter into a well commitment unless it found a partner to share the well cost. Despite extensive efforts by Exxon, Eni emerged as the only company willing to farm-in, but would do so only if it did not have to drill a well under licence 1/99. In November 2008, Eni confirmed that due to the difficult economic environment it could no longer commit to drilling a well under licence 1/99. The Department initially explored the option of seeking compensation, but Eni would not agree to this.
In February 2009, after detailed discussions with the company, Eni agreed that in return for the transfer of the well commitment to FEL 3/04 and the extension of FEL 1/99, it would fund substantial petroleum research and projects including data acquisition to be agreed with the Department under the PIP/PEPPS research programme to a total value of €7.5 million over a four-year period from 2009 to 2012 as follows: 2009 — €0.5 million; 2010 — €5 million; 2011 — €1 million; and 2012 — €1 million. The Department considered that this contribution is significantly more than might otherwise have been realised and in agreeing to Eni's proposals, ensured that a well will be drilled on the Dunquin prospect in 2010-11, a potentially major hydrocarbon resource.
The funding which is under the Department's control will cover the following research areas: acquisition of two dimensional seismic research data — €3 million; shallow drilling — €2 million; contribution to integrated ocean drilling programme type strategic drilling — €1 million; acoustic surveying for cetaceans — €0.5 million; and analysis and interpretation of data — €1 million. The research enabled by this funding will significantly increase the understanding of the petroleum potential of the Atlantic margin and greatly assist the Department in its promotional efforts to attract exploration companies to explore in the Irish offshore.
I have outlined to Deputies the detail of the Supplementary Estimates, the costs of which can be met by savings. I hope they will agree to the proposals and approve them as presented.
I accept the point that the Minister is not asking for any extra money from the Exchequer but is transferring from his Department to meet the increased costs in the two areas he outlined. Perhaps he will give a little more detail on that. I need a more detailed understanding of what the comprehensive reconciliation exercise with RTE entailed. Why have we not heard about that previously? What was being reconciled? The transfer to RTE of an additional €2.37 million as a result of a reconciliation exercise at a time when we are likely to be cutting funds for basic services next week, including social welfare, requires detailed explanation. Many would make the case that the portion of social welfare moneys that is transferred directly to RTE under the free licence fee scheme should be questioned in the current context. Rather than give a standard response I hope the Minister will give an explanation.
I presume he was involved in the reconciliation exercise with RTE and knows how it worked. Where is the €2.37 million payment justified? Has RTE been underpaid in the past and are we making up for that or are there savings that are not clear in the briefing document? It is a substantial amount of money. I see where the Minister found the money and do not have great difficulty with that, although I might have one or two questions about it. There must be a more detailed justification for transferring such a substantial amount of money to RTE at the end of the year. I had not heard of any ongoing comprehensive reconciliation process in terms of this amount of money.
I welcome the fact that savings have been made in administration. That is an indication that the Department is serious about making savings where possible and doing things in a more streamlined way. There are smaller amounts in other subheads too. Opposition spokespeople are very concerned about the DTT issue. If money is being taken from a grant aid programme for DTT, is the Minister sure we will be able to provide that money next year when DTT materialises? I am concerned about that. We are making savings on the basis of delays, knowing that there will be significant budgetary problems next year. I presume there was an opportunity to roll over grant aid for DTT from this year into next year, assuming we will proceed with the DTT programme in some form or other. Perhaps the Minister will clarify that.
With regard to the €669,000 from mining services, what was that compensation about? That is the only other substantial amount of money that requires a more detailed explanation. The Minister spoke about eligibility for compensation not yet being fully determined. That suggests that it will be fully determined in time. Will we be able to find €700,000 for that next year when, presumably, we are not budgeting for it because it was budgeted for this year? I am anxious to ensure we are not stacking up problems for next year. In finding money to give to RTE, are we creating problems for next year in terms of having to find money for a compensation fund that will have to be paid at some stage when the eligibility issues are resolved?
On the second issue, perhaps I am slow on the uptake but I need to understand what is happening with that. My understanding, on the basis of the briefing note, is that a company had an obligation to drill on foot of licence FEL 1/99. That licence was transferred to a new licence, FEL 3/04, in which ExxonMobil was the operator. Frontier exploration licence had presumably done a deal with ExxonMobil to drill and then pulled out of that. Is that correct? The Minister was anxious that the work would still proceed because the deal had been done with ExxonMobil, so he is providing money to allow that work to proceed. Is my reading of the situation correct? In layman's terms, are we essentially providing taxpayers' money to allow work that was the basis of an agreement between two companies to continue to avoid compensation? I require a more detailed explanation of the €500,000. To whom is that going? On what basis are we committing that money?
The research programme is a separate issue but it appears to be linked to the payment of €500,000. If there is a PIP/PEPPS research programme of a total value of €7.5 million to be done over four years, that is something that must be justified in its own right. Is that not a separate issue from the issues that have developed with regard to the licensing that involves work to be done by ExxonMobil? I am clearly misreading the second part and need a more detailed explanation.
Questions must be asked and answers must be given about what has happened here. This looks like an absolute cock-up. The Minister outlined a simple arrangement in place in terms of collecting moneys for RTE. We all pay our television licence. It is revenue neutral in the sense that it is passed on to RTE. Money also comes from the Department of Social and Family Affairs. Interestingly, my understanding is that when the Department of Social and Family Affairs pays for the waiver, it is done on the basis of the number of pensioners rather than the number of television sets, but that is for another day's discussion.
We have what looks to any reasonable person to be a simple procedure and questions must be asked. First, how can one lose over €2.3 million within that process? What happened to the interest on that? This is public money. It is being paid for a long time. It is a tried and trusted process that has been carried out, presumably over an extremely long time, and now we find there is a hole in it. That is not acceptable.
I am particularly concerned about it when one looks at the list of sources from which the Department is making up this black hole or shoring up the leaky ship of state. They will find money here in order to sort out a problem that they have created out of their own negligence. When one looks at the areas from where the money is coming, it is coming from Sustainable Energy Ireland, multimedia services, mining services which are simply postponing the day when compensation must be paid, GSI and OSI. These are all postponements. It is not as if matters have changed. It is just that the very familiar feature of Government delay and prevarication is being taken advantage of in order to plug the gap.
Do we call DTT another cock-up? Maybe it is just bad luck, but it certainly is not money that will not have to be found at some stage. It was allocated this year, it will pile-up for next year and we all know that the Department will have great difficulty in terms of the Estimates in ensuring that it can cover all of the areas with which it is dealing. These are growth areas. We depend on these areas, such as energy and communications, for our future and economic growth.
It is welcome that the Department has reduced its costs on administration. Of course it is welcome that the Government policy has been to reduce professional fees by 8%. That is great, but surely the purpose of such savings is to ensure that we have a better budgeting arrangement overall. The purpose is to ensure that we are spending our money more wisely. Instead, we are plugging a gap that has been created for who knows what. It is a reconciliation procedure between RTE, the Department and the Department of Social and Family Affairs. What does that mean? It is clear-cut. The money comes from payment of the television licence and from social welfare to cover the waiver, it goes to RTE, and An Post is not exactly a new body trying to find its way in this. How can this happen? One can state that €2.3 million is only a small amount, à la the Minister, Deputy Dempsey, but in terms of what it can do it is anything but small.
I am quite disappointed that we should find ourselves in this position. The impression I get about the Department, although from time-to-time I am critical, is that overall it is doing its business. It does not have a considerable budget. It is not as if it is managing enormous resources, as do the Departments of Health and Children or Education and Science. It must be clean, mean and lean in order to get on top of the major challenges and opportunities we face in the areas of energy, communications and natural resources.
Frankly, the Comptroller and Auditor General should be looking at how this can happen. In the overall scheme of things one can say it is not huge money, but it is an indication of something not working. If it is not working, it must be fixed. This is not the appropriate way to fix it, drawing in money simply because projects have been postponed, and piling up problems for next year. That seems to be what is being proposed here.
The issue of exploration is a little technical. The Minister made that point and I agree with him. I am not clear on this. The Minister has the €0.5 million under appropriations-in-aid and to be honest, it is not clear to me from where it is coming. It is not clear when the Minister speaks of the Department looking for compensation that Eni did not agree. How often do companies agree to pay compensation easily to the Department? I seek clarification on that.
My last question relates to research. Since the Government has control of the funding, I take it that any findings from that research will be held by the State. We all understand that we need more exploration and more knowledge, and that one of our deficiencies is lack of data. Working with the private sector in this regard is not a problem for me as long as what is gained is retained in the public interest.
Would the Minister give a breakdown of how he came to the sum of €1.238 million in savings in the Department?
On the SEI figure of €168,000, the Estimate states that SEI has generated the income. How did it generate the income? I am a little concerned that SEI is just passing a cost on to business or to consumers.
I do not know anything about Eni. Deputy McManus touched upon it. The company did not agree to compensation but has agreed to €7.5 million over a four-year period. How much compensation did the Department request? I assume it was a single request for a single payment.
Can I also get a breakdown of the €3 million in funding under the Department's control to purchase research data? Is that the ball-park figure? Is that good or bad value? Effectively, we are being asked to agree to the spending of €3 million on data. The Minister might as well ask me how many raindrops will fall out of the sky tomorrow. I do not know whether it is good or bad value.
Lots of raindrops.
The Minister is asking us to take a punt on this in the expectation that it might turn out to be good value. In truth, we have no idea. I do not know whether the Minister has any idea or whether he has asked whether the purchase of research data for €3 million constitutes good value.
Can we get a breakdown of the other heads of research, the contribution to the ocean drilling? Is there any value in that for the State? Could the State get better value if it went to the market to get it and pursued a single figure for compensation? I need those questions answered before this can be even looked at again.
I thank the Minister for making the presentation and congratulate him and the Department on the savings of more than €1.2 million from administration costs.
Has the Department made other savings or will that be revealed by the Minister on Wednesday next? Second, could the Minister clarify this matter of Eni? He referred to an agreement done "in return for the transfer of the well commitment to FEL 3/04 and the extension of FEL 1/99". My understanding from what he said previously was that Eni was not able to do the drilling on well under licence 1/99. What does he mean by the extension of it? Is it still in existence? Will Eni do the drilling eventually or is it abandoning the entire well at this point?
I will try and answer the various questions. This is somewhat complicated. The RTE money goes back to 1999 and 2000. Prior to 2000 the system in place was that television licence fees would come in. RTE would have a budget each year. The 1999 budget would have set out how much RTE would have been due to receive. If the amount received in licence fees exceeded that, RTE would not get it that year but it would go as an additional payment the following year. From 2000 onwards the system changed and became Vote neutral and RTE got exactly the amount in licence fees that came in and it did not vary. There had been an additional amount received in licence fees in 1999 that did not go to RTE in 2000 as it should have — it now transpires — when the system changed. It changed from one form of licence fee to another and the additional amount that accrued in 1999 should have been allocated to it in 2000 and was not. This needed to be dealt with because there was an ongoing review conducted by my Department. It evolved because a dispute had arisen between the Department of Social and Family Affairs and RTE regarding the amounts owing to so-called "free licences". That review initially considered the period from 1990 to 2004. Within that it was clear there was this outstanding amount in 2004 that was due to RTE under the proper legal process and mechanisms.
Was that in 2004 or 2000?
It should have been paid 2000 as a result of the amount paid in licence fees accrued in 1999. It became apparent in 2007, I believe it was, when this study was done. There has been a legal debate, but the analysis is that this money is due to RTE and that is what led to this supplementary budget here.
I will give some details of from where that money is coming. It comes from real savings in our Department and its related agencies.
Before the Minister moves on from the RTE figures, is that a total accumulated figure over a number of years?
No, it was because of the change in the system between 1999 and 2000.
The figure was just for one year from 1999 to 2000.
It was one-off additional income that should have gone to RTE and inadvertently did not in 2000.
It has taken nine years to correct that.
It has actually taken ten years to correct it.
It was disputed and——
Since RTE has lost the interest on that money, will it be paid interest?
No. The amount is what it is.
Does that include the interest?
No. It is as is.
That means RTE has lost that money.
On the interest in the intervening period.
How did that money disappear?
It was a change in the system from one treatment to another.
Systems are changed all the time but €2.3 million is not lost every time that happens.
It should not have been lost, but it was.
Where did it go? Surely it should be possible to trace it.
Who collected it and where was it for ten years?
The initial allocation to clear that 1999 debt was made as part of the 2000 Vote to RTE. However, at the end of 2000 all that was paid to RTE was the total amount in licence fees that accrued in that year. It was included in the 2000 budget but the payment going to RTE only included those licence fees that had been collected in 2000 and not the additional money that was due from 1999.
Is the Minister saying the budget estimate was higher than the money coming in?
The budget estimate would have included that payment due from 1999, but in the end because it went to a new system which was Vote neutral the amount would have been lower and did not include that €2.379 million.
I seek clarity. Up to 1999 a budget was allocated to RTE and the money collected from licence fees might have been different from the budget allocated. The budget allocated that year was higher than the money coming in from the television licence fees by €2.3 million. Is that what the Minister is saying?
Yes and it had gone to a Vote neutral system and so only got the actual licence fee revenue at that time.
It is clear the Department made a commitment to provide a certain amount and did not live up to it.
That is why we are coming back now.
It took ten years to figure that out.
Yes.
Why was the Department fighting that case?
The Department was part of the review process of the issue between RTE and the Department of Social and Family Affairs which, as I understand it, was resolved earlier this year. There was a detailed lengthy process to reconcile that issue. That having been resolved, we were then able to propose this Supplementary Estimate to pay the moneys, which is under the proper public financial procedures.
Does the Minister think that is how things should be done?
I thank the Minister.
How long have RTE and the Department of Social and Family Affairs been in dispute over this amount? When did it first come to attention that the money had not been paid? How long has the matter been under consideration?
I understand the dispute between RTE and the Department of Social and Family Affairs was not over this amount. This was something that was uncovered or realised as part of the investigation that was going on.
Was it an accounting error?
Yes, effectively.
What was the dispute about?
I am told the dispute evolved from a change implemented in the way the amounts owing to RTE for these licences were calculated when average monthly numbers for those eligible for those licences started to be used instead of actual numbers of licences used. It was basically because the system was changed half way through 2004, which meant that RTE suffered a shortfall in revenue in that year. The question of this shortfall was finally resolved with the payment from the Department of Social and Family Affairs to RTE of a €1.99 million settlement in 2008, which is separate from what we are discussing. That was paid as part of RTE's overall licence fees from the Department of Social and Family Affairs to RTE.
Was that how the Department of Social and Family Affairs assessed how much it would give for the waivers?
Exactly.
So RTE got €1.99 million in 2004.
In 2008 it got €1.99 million and in this Supplementary Estimate it is getting €2.379 million as a result of resolution——
So we are talking about more than €4 million.
——of a dispute over the proper payment mechanisms.
Is RTE not seeking interest on that €4 million?
No, not as I understand.
Is it not very tolerant?
From the time it first came to light, how long did it take to resolve the matter between RTE and the Department of Social and Family Affairs?
It effectively took two years to do it. The issue with which we are dealing today came to light in the reconciliation of the issue between RTE and the Department of Social and Family Affairs.
Why is this coming from the Department of Communications, Energy and Natural Resources rather than from the Department of Social and Family Affairs? The dispute was between RTE and the Department of Social and Family Affairs.
No it is not.
The resolution of dispute over the payment of licence fees in regard to social welfare recipients involved a payment from the Department of Social and Family Affairs to RTE.
Was that in 2004 or 2008?
It was in 2008. This payment relates back to an earlier issue that does not relate to the Department of Social and Family Affairs. It relates to the change in the allocation of licence fee revenue that occurred between 1999 and 2000. It comes from the main vote of the Department of Communications, Energy and Natural Resources rather than from the Department of Social and Family Affairs.
Has this figure been factored into RTE's accounts each year since 2000? Will it now appear as extra revenue for RTE? I find it difficult to justify in the context of the other savings we are trying to make.
It is mentioned in RTE's accounts as a debt which will now be cleared.
Has RTE always been conscious that it is owed this money?
Yes.
As there is a vote in the Dáil, I suggest we suspend for 15 minutes.
Sitting suspended at 11.30 a.m. and resumed at 11.45 a.m.
I ask all those present to be mindful that another committee meeting will take place in this room at 12.15 p.m.
Deputies asked where savings would be achieved. They are correct to commend the Department on the level of administrative savings achieved. To give some details, this year to date €122,000 savings have been secured from budget under the subhead travel and subsistence. Approximately €250,000 has been saved in general expenses, including training, while post and telegraph costs have been reduced by €150,000. Savings in IT expenditure amount to €250,000 and savings in consultancy projects commissioned amount to €475,000. A reduction of approximately 15% was achieved in the Department's energy use in the past year. This is reflected in the energy bill for departmental buildings. These figures show that the difficult budgetary conditions are reflected in departmental expenditure on administration. This area provides the greater amount of funding for the liability which has been cleared.
I will provide further detail on the Eni issue. The licence to which Deputies referred was issued in 1999. Under the licence, the company gives a commitment to drill within a certain time period. Eni informed the Department it would not meet this commitment, which could have resulted in difficult legal wrangling. One of the options considered was an alternative agreement whereby the company would drill according to the licensing arrangement that applied to Exxon Mobil in 2004 and that it would subsequently review its licence in terms of the 1999 licence. If it does not commit further, the licence will fall and it will lose it.
It is a difficult balancing act. The Deputy's instinct and mine is to say that if a company is not going to honour its licensing commitments, it should lose the licence and go through the relevant legal process to pursue compensation or costs. However, another approach is to recognise that we do not have many wells being drilled. There was but one this summer. The benefits to having wells drilled are economic activity in the State – drilling is a quite expensive activity – and the provision of further information on our prospecting potential. A higher level of activity enhances the prospect of our finding resources and achieving a return for the State.
In this instance it was agreed to allow Eni to drill not in the original licence block but in the adjoining one. To account for the flexibility shown, it was agreed that a fund totalling €7.5 million would be made available to the State. It is a case of Eni giving money to the State to allow it to carry out this work.
There is a long-standing practice in our energy exploration division of using industry funding. It is made available regularly to fund basic research, but not usually in large amounts, as in this case. Usually the funding is a condition of ongoing licensing or exploration activity and it comprises a small amount each year. The research results are made available to the public. They are not industry-owned but State-owned. The seismic and environmental data one receives are made available publicly through the Department's website. They add to our knowledge of our exploration prospects.
There was one case in the past when there was a lump sum provided by a particular company in exchange for an agreement. It is not State money but comes from the company to be used by the State as part of a research programme on exploration.
For what amount did the Department pursue Eni originally?
It is a negotiation process. In any negotiation process, one starts beyond what one expects to achieve, subject to what one believes is the best attainable deal. This was what the Department arrived at.
The Minister stated, "The Department initially explored the option of seeking compensation, but Eni would not agree to this". How much did the Department request in compensation?
I said that on foot of the failure to meet a licensing agreement, we could have taken a legal challenge to seek compensation.
I am asking how much the Department was seeking. If the Department was negotiating, it must have been seeking a certain sum from the company. How much did it amount to?
The negotiations were not on the amount but on how the matter should be approached. It was agreed to allow for the drilling in an alternative block rather than the one encompassed by licence 1/99 and that there would be compensation subsequently. This was agreed.
The company and the Department accepted the principle of compensation in the form of research worth €7.5 million.
Yes.
In addition, the company was allowed to drill in another area. However, the Department did not pursue the company for a given amount as a result of its not having met the conditions of the licence.
I understand the Department pursued the company for the actual work to be carried out, and for the seismic research and the subsequent payment therefore. I refer to the cost of commissioning the work, worth €7.5 million.
There are two other aspects. The 1/99 licence has been transferred to the 3/04 licence.
No, the 1/99 licence exists but the commitment to having a well drilled was waived.
I am referring to the conditions. The perception was that the State was not getting an amount per cubic meter of gas or hydrocarbon in whatever form it exists. Have the conditions of the 1/99 licence fallen in favour of those of the 2004 licence?
No, the variation is that licences sometimes stipulate that one must drill within a certain timeframe. It is this condition that has fallen in this instance, subject to an alternative drilling programme being completed on an alternative licence block.
I am a little concerned. Some individuals were bothered or worried that the State was not getting a slice of the hydrocarbon to come in. Has this been addressed in respect of current and future licensing agreements?
When I entered office, a study was completed by Indecon consultants on the licensing terms. The recommendation was that we should amend our terms and have them stipulate a percentage up to a maximum of 40%, rather than 25%, which figure obtains at present. The strong recommendation was that it should not or would not apply in terms of the tax return to licences issues prior to the date in question because the State does not want to be seen to be amending tax systems, including in respect of corporation tax, that it has already agreed.
The Government can do it for people in the public sector but cannot do it in respect of companies.
In respect of the pension levy.
The terms for any licence issued since the summer of 2007 are covered by the new licensing and tax regime. Licences issued before this were subject to the regime that had been in existence for 13 to 15 years theretofore.
I wish to pursue this point. Is Eni to drill in the new area under the conditions that applied before 2007?
The area it will be drilling in was covered by a 2004 licence. Therefore, the same tax regime applies as applied to the 1/99 licence. It is a similar system.
I am a little concerned about that because Eni has effectively not met the requirements of its 1/99 licence. If there were a great find, as might occur in an ideal world, Eni would benefit from the pre-2007 conditions, although it might only drill in 2010 or 2011.
I said in my contribution that it is always a hard call in that one must balance licensing with trying to attract drilling activity and have people working.
I appreciate that. The State must encourage it rather than kick it but Eni has got a hell of a good deal. If there is a find in 2011 or thereafter, it will benefit from the terms and conditions that applied before 2007 and which were established in 2004. That is a sweetheart deal.
There is no intention to give a sweetheart deal to any oil or exploration company. The reality is that there was but one well drilled this year. One must balance trying to attract drilling activity with trying to achieve a return for the State. I said regularly that if one compares Ireland to other regions with similar exploration environments, including Newfoundland, the Faroe Islands, Greenland, Spain, Portugal and France, one will note they have a similar lack of success in striking oil or gas. We may succeed, however. The Deputy is correct that if there were a major discovery of oil, one of the first things we would review would be the licensing and tax regime that applies to exploration so we would get a fair share of it.
It should be backdated because Eni is being given——
The State has taken a decision not to revise contractual tax arrangements to which it has already agreed.
Did the Department pursue Eni on the basis that it accepts the post-2007 arrangements for the conditions?
The Department took legal advice and could not pursue such a course to change the terms which would have been similar to the advice given in 2007 when the licensing tax terms were being changed.
That does not stack up. Deputy D'Arcy has raised an important point. If that legal advice was to stand up, essentially Eni can break its contract but the Department must stick with its rules no matter what.
I have raised this issue before in general terms through parliamentary questions. The information that comes back to me is self-evident. There is no longer any legal or constitutional reason why the tax regime cannot be changed, even retrospectively. At a time when the country is in such bad economic shape and everyone is being asked to pay their way and give more, there seems to me to be no reason the Minister cannot adopt such a move. The Eni case is a perfect example of where the regime should be reviewed because the company has opened it up again.
The Minister made the point that it would damage Ireland's reputation. That seems to be the only reason he is not making this type of a tax regime retrospective.
There is no constitutional or legal reason but one would have to change Irish tax laws. The position of the Department of Finance is that changing tax law is not what we want to do because our reputation in income tax, foreign direct investment and so on is based——
No, we are not talking about corporation tax. That is disingenuous.
In general, beyond corporation tax, the State's position of doing business is that if we make a deal on the tax side, we tend to stick to it.
I would not overestimate what the Minister has done. We all welcome the fact that he has improved the tax regime somewhat but it is not exactly revolutionary. In these economic times when people are being asked to make extraordinary sacrifices because of Government mismanagement, it is hard to justify not examining other areas where revenue is possible. Even in the argument about a level playing pitch, companies that have come in later are under the new tax regime. It is very hard to justify politically companies who have messed around and told the Department to take the deal or else so as to benefit from the old regime. I do not expect the Minister to change his mind but he has made that decision. It does not make it right, however.
It is amazing how being in government changes people. I was smiling to myself when thinking of what the Minister might have said on this issue if he were on this side of the House. He would have been questioning why the Department did not use the opportunity to renegotiate a licence to ensure the new preferable tax regime for exploration finds would apply.
This is not an easy issue, particularly getting the balance right between attracting investment and earning revenue. It costs $60 million a pop every time an exploration company drills and in the majority of cases nothing is found. There need to be attractive conditions for investment in this area. Otherwise, one might have to follow other countries in subsidising the cost of failed exploration drills, like Norway does.
The Minister put a new regime in place which was welcomed by most commentators and accepted by the industry. In this case, Eni signed up to a licence which had a requirement to drill a well but then could not do it. Luckily, Exxon Mobil was on the other side looking for a partner. That was good business by the Department's officials but it is a missed opportunity not to apply the new tax regime.
Was it considered when the Department was seeking compensation from Eni? I understand the Department does not have a legal entitlement, that was not part of the licence for compensation, and this was part of normal practice. I find it extraordinary that this is normal practice in this industry because of the amounts of money involved.
Regarding the figure involved, who will be paid €5 million next year, €1 million in 2011 and €1 million in 2012 for the research programmes? This money which will come from a company will be spent on a research programme that is independent of it. Has there been a tendering process for this research work?
Has Eni got an extension on the licence to return to FEL 1/99? If so, for how long? Is the research programme going to open tender or back to Eni?
Is it possible for both legal opinions – pre and post 2007 — received by the Department to be made available to the committee? On too many occasions the committee is told a decision was made because of a legal opinion but it never gets to see it.
As I understand it was not a written but a verbal legal opinion.
Can the committee get an outline of the verbal legal opinion?
I will come back to the Deputy with that. A new licence would have to be issued and the tax law would have to be amended for that one licence. The fund is overseen by the Department and it procures the research projects on an ongoing basis. It is not spent immediately and the schedule is set out for the fund to cover the next three to four years. This is an additional allocation and there will then be tendering for the work which has to be carried out. At all times it will be managed and controlled by the State, rather than by the company.
Regarding Deputy Devins's question about the 1/99 licence, as I understand it, there is a requirement for them to drill in 2011 so it is a deferral rather than the complete removal of the drilling requirement. In the absence of that, I suppose the licence would fall or at least not continue. It is a deferral process rather than a complete renewal of the obligation.
Deputy Coveney is right in this regard and I was glad, going into Government, to be able to change the tax law and to convince my Cabinet colleagues that our terms were not too favourable. Within that process, I was unable to retrospectively change licences issued prior to that date. It is a fine balancing act and my instinct is to get as much revenue for the State as possible. If there was no exploration we would not get anything, and we have not proven to be enormously prospective, although that could change. We could be fortunate or unfortunate — I do not know.
The job of the Department is to continue working with the industry to provide seismic data and as much information as possible, to find out what is out there and to recover it with the greatest possible return to the State.
I have a final question for the Minister. Is he saying that we have not even started the tendering process on who will undertake research, yet we have assigned €0.5 million this year to it and €5 million next year, which is only in six weeks' time?
This is the first payment in a four-year tranche and it allows them to start their work in terms of getting the tendering done.
Where does the money go, since it is not being paid to anyone until the tendering process is complete?
It is held in a fund by the Department.
Would the Minister accept that we must learn from our past mistakes? Accepting what Deputy Coveney has said about the cost of exploration, does the Minister agree that we got a very bad deal from the company developing the gas fields off the Mayo coast, which can write off all expenditure against the cost of bringing the gas ashore? Does he agree that the taxpayer got a very bad deal, as he often articulated while in Opposition?
I believe that is the case. From the perspective of Government as well, our tax terms were too generous.
What can the Minister or the Government do to redress the situation?
The first thing we did was to amend the tax on any new licensing. In doing that, the Government decided the tax should not apply retrospectively because to do so would portray Ireland as changing tracks where we had entered into agreements.
The buck stops here, however.
We are moving away from the Supplementary Estimate.
That concludes the select committee's consideration of the Supplementary Estimate for the Public Service for the year ended 31 December 2009, Vote 30 — Department of Communications, Energy and Natural Resources. I thank the Minister and his officials for attending.