Dáil Éireann Debate, Tuesday - 24 July 2018
296. Deputy Barry Cowen asked the Minister for Finance the location in which the €400 million Bord Gáis proceeds reside; if it is held by ISIF and-or the NTMA; the annual rate of return earned on the €400 million since the proceeds were received from the sale; the intended use for the €200 million left after the pilot social housing project (details supplied); and if he will make a statement on the matter. [34175/18]
Amharc ar fhreagraThe €400 million referred to by the Deputy in his question is a subset of the approximately €940 million purchase price paid for Bord Gáis Energy. It was agreed that, in total, approximately €1 billion (broadly equivalent to the purchase price) of special dividends would be paid by Ervia to the Exchequer arising from the sale of Bord Gáis Energy, on a phased basis over time.
The special dividends of approximately €1 billion can be divided into two categories:
(i) Distribution of the net sale proceeds of €648 million by way of special dividends from Ervia to the Exchequer, based on a payment schedule agreed with Government in order to maximise the potential to use the funds in a GGB efficient manner. A total of €450 million of this amount has been paid to date - an initial special dividend of €150 million in 2014, followed by further annual payments of €100 million in 2015, 2016 and 2017. A further €90 million is expected to be paid in 2018 with the balance to be remitted over 2019/2020.
(ii) Payment of additional special dividends by Ervia to the Exchequer of €330 million, as the debt originally associated with the Bord Gáis Energy business that was repaid from the sale proceeds is effectively replaced over time, in a prudent manner that continues to protect Ervia/GNI's investment grade credit rating (which is important in ensuring a low cost of debt and access to funding in its strategically important gas network infrastructure). These payments, which commenced in 2017, are expected to continue for around 20 years and are being utilised by Government to support additional activity in its housing programmes, which are a matter for the Minister for Housing, Planning and Local Government.
The annual rate of return on the amounts that have been transferred to the Exchequer to date would be equivalent to the cost of issuing debt instead of utilising these funds for expenditure on public services. This cost has been approximately 1% per annum for recent debt issuances. The annual rate of return for the funds that remain to be paid by Ervia would be the return earned by Ervia.
It should be noted that a key consideration in the structuring of these dividend payments is that under Eurostat rules, the beneficial impact of dividend payments by State companies (including proceeds from asset disposals) for General Government Balance (GGB) purposes is limited by reference to the entrepreneurial income of the company in the previous year (effectively its profits before tax). Any dividend paid in excess of the company’s entrepreneurial income is regarded as a withdrawal of capital, rather than as income, and as such has no impact on the GGB.
In order to comply with the fiscal rules of the Stability and Growth Pact, the scope for the Government to use such dividends for additional expenditure on a general government neutral basis was (and is) therefore limited to the amount by which the dividends paid actually improved the GGB. This meant that in order to take maximum advantage of the asset disposal proceeds, the Government cannot avail of the full proceeds all at once, but rather the proceeds must be remitted to the Exchequer over a number of years as has been set out above.
