ESB sale plan 'wrong-headed and short termist'
On Tuesday (20 September) Sinn Féin TD Pearse Doherty tabled a motion in the Dáil which called for TDs to reject the Government’s decision to sell off a minority stake in the ESB. The Government’s position is that “the sale of State assets, as provided for in the Programme for Government, provides a potential source of funding for both debt reduction and for sustainable investment notably in the areas referred to under the NewERA heading of the Programme for Government; and the ESB will remain an integrated commercial energy company with strong majority State shareholding.” A group has been established to report to Government by the end of November next on the best way to approach the sale, including the size of the stake for sale, the timing of the sale and the implications for wider energy policy.
In the course of a fractious debate on the motion on Wednesday (21 September), Sinn Féin TD Mary Lou McDonald reminded the chamber of then Labour spokesperson on finance Joan Burton’s assertion in 2010 that “It seems to me an extraordinary proposition at a time when Ireland is doing so badly in terms of bond spreads that we would seriously want to sell into a depressed market State assets which themselves have a fund-raising capacity in terms of their own needs,” and accused the Government of being “wrong-headed and short termist” in its plans. An edited transcript of McDonald’s speech is below.
"It was interesting to note the contributions of the Ministers, Deputies Rabbitte and Howlin, in which they claimed this motion in support of retaining the ESB in its totality in State ownership was made on a false premise. They tell us repeatedly that there is a new paymaster in town and apparently what the troika wants, the troika gets with no questions asked. As expected, the Minister, Deputy Rabbitte, placed the blame for his Government’s decision on Fianna Fáil, the European Union, the European Central Bank, the International Monetary Fund and the tooth fairy. It seems everyone is to blame for the Government’s decisions bar the Government itself.
My colleague, Deputy Doherty, was accused of making mischief for highlighting the Labour Party’s turnaround on its position on commercial semi-State ownership. The Deputy was simply making statements of fact. In the case of the Labour Party, the lesson is that politics is not simply about talking the talk but also walking the walk.
It is not a surprise that the Fine Gael Party is happy to kowtow to the troika. It shares the IMF’s view of the world and is ideologically committed to small government and every man and woman for himself or herself. Prior to the election, the Labour party committed itself to State enterprises and stated categorically it would use commercial semi-State companies as a key part of the recovery. It was, we were told, opposed to the privatisation of these companies. To use the well-worn phrase coined by the former Taoiseach, Mr. Brian Cowen, the Labour Party now tells us “we are where we are”. That is not good enough. The Minister has bleated far and wide of his regret at having to make the decision in respect of the ESB while the Minister for Public Expenditure and Reform, Deputy Howlin, informed the House last night that we simply do not have a choice. Surely politics and good governance are about choices.
The ESB is self-financing, has paid €4.3 billion to the State in taxes and dividends over the past ten years and is an international leader in the energy sector. That it can borrow substantial amounts on the markets to fund re-investment in the company makes it more difficult to understand the reason any Government would sell off in part or whole a stake in one of the State’s success stories, particularly in light of its own failure to re-enter the money markets.
Another Labour Party Minister, Deputy Joan Burton, acknowledged as much last year in an interview with Business and Finance in which she stated: “It seems to me an extraordinary proposition at a time when Ireland is doing so badly in terms of bond spreads that we would seriously want to sell into a depressed market State assets which themselves have a fund-raising capacity in terms of their own needs.” The Minister singled out the ESB and Bord Gáis for particular mention as having independent funding capacities through the bond markets and noted: “Given the difficulties that we are in at the moment with our bond spreads, it seems to me to be unwise to remove this strategic capacity.” Such a move was unwise then and is unwise now.
Major questions need to be asked about this quick buck approach to selling a stake in the ESB. Despite reporting a pre-tax loss of €89 million, the company committed to paying a dividend of €77 million to the Exchequer for 2010. Its pre-tax figures were impacted by the resolution of its pension deficit and higher interest rates on its debt. However, despite the loss, the ESB still paid out its dividend to the State. Does the Government believe that such dividends will be paid out without question in the event of a part privatisation? Does the Labour party believe the raison d’être of a private third party will be to ensure the public purse receives its fair share? Does it believe a private company beholden to shareholders will buy a sizeable chunk in a successful company to sustain fair wages, keep jobs in Ireland and lower consumer prices and choose to re-invest moneys in improved strategic infrastructure over paying out dividends to shareholders? The Minister does not believe any of those propositions, nor do I.
There is also the issue of the levels of debt the ESB is currently carrying and the impact this will have on the State’s dividend and future bargaining power in deciding on the strategic needs of the State. Following the ESB’s purchase of Northern Ireland Electricity, its debt levels were pushed to €3.9 billion. On receipt of proceeds from a third party investor, the State will have to withdraw the sale proceeds from the company and its creditors. Creditors will have a strong case under company law to put up their hands and say “Stop” to the Government. In other words, it would be in their gift to say “Hang on a minute. Rather than paying out the proceeds of the sale to the State to satisfy the EU and IMF, why not pay us off first?” They would be fully within their rights to do so.
Extolling the virtues of the ESB and its achievements within the current ownership arrangements, as the Minister has done, is all fine and dandy, but all of that will change, and change absolutely, if the Government sells off a stake in the company.
I would like to address the defence by the Minister of the Government’s policy with regard to the privatisation of Telecom Éireann and the impact it has had on the State’s telecommunications infrastructure and the future of next-generation broadband. Forfás, Ireland’s policy advisory board for enterprise, trade, science, technology and innovation, stated in a report last year: “Ireland is lagging at least 3 to 5 years behind competitor countries in terms of rolling out infrastructure capable of high speed next generation broadband.”
Serious questions have been raised across Europe about the effectiveness of policies based on liberalisation or privatisation measures with regard to investment. The EU has recognised this by changing its state aid rules to facilitate joint public-private investment in broadband infrastructure. Such is the problem that, for example, academics Palcic and Reeves, in their recent book entitled Privatisation in Ireland: Lessons from a European Economy, have proposed the setting up of a new public next-generation network company which could finance any investment through its own borrowings and remain off-balance-sheet. Many European countries, such as France, Germany and Belgium, still retain sizable shareholdings in their national telecommunications companies for this very reason.
Eircom’s promise of increased investment in the next-generation network is of course welcome, as will be the work of the Government’s next-generation broadband task force, but we get no sense from the Minister that he appreciates the urgency of this challenge. It is all well and good to talk the talk of next generation broadband delivery, but if the Government does not walk the walk, real growth across a number of sectors will simply not happen.
The Minister also praised the saturation of mobile broadband services last night. I am sure if the Minister ventures outside the Pale he will realise that for hundreds of thousands of rural service users, mobile broadband is not a real option. Unfortunately, if they live beside a hill higher than their knees, access is limited, slow or just non-existent. Ironically, it is the ESB that could best address the State’s broadband deficit through its existing infrastructure.
The Minister for Public Expenditure and Reform, Deputy Brendan Howlin, spoke last night of the harsh realities facing the State. His view seems to be that it is time to knuckle down and accept our fate. The McCarthy review of State assets was widely praised for its contribution to the debate on which assets to cash in, and Sinn Féin has this evening been given a rap on the knuckles for not appreciating the Government’s solemn commitment to protect faceless Anglo Irish Bank bondholders.
Of course, we believe the Government should honour commitments to its people. It should use the people’s money to support job creation, get young people off welfare and into education, provide enough special needs assistants and hospital beds, and support and foster successful, innovative commercial semi-states that benefit all of the people and not holders of bad bank debt.
To tell the people that the proceeds of the sale will be used for investment in job creation is to sell the people a pup.
Even if Government secured the agreement of the troika to do so, it would be a fraction of the sale value. Real growth through job creation and a significant write-down of bad debt is the only way forward. The EU is getting it wrong and the Government is getting it wrong. It is now time for a different path.
Even at this eleventh hour, I ask the Minister to return to the commitment he made to the people when he went before them and was duly elected. He and his colleagues promised they would oppose privatisation and that they would use semi-state companies in a way that would serve the long-term strategic needs of this State and its people.
Now he and his colleagues are on the brink of making a colossal U-turn.
Their decision to privatise part of the ESB is wrong-headed and short termist, and I think they know that. What they know above all, I am sure, is that the decision they have taken flies in the face of promises made."
Image top: Cian Ginty.