merrion street

I would like to thank Eolas for the opportunity to speak today on this very important issue and to hopefully give an insight into the Government’s current thinking on the future of State assets.

I am sure all of you will have heard of the Chinese proverb - “may you live in interesting times”. The times we are now living through are certainly interesting. Perhaps too much so. The banking, financial and debt crisis which began in the United States in the spring of 2007 continues to unfold.

All the international evidence suggests that a banking/financial crisis of the kind we are now facing may well take a decade to resolve. So what should we do? Some have advocated a fortress Ireland approach, what I call the North Korean School of Economics. The chicken licken approach also has a certain appeal – the sky is going to fall in, we are all doomed – if not today, certainly tomorrow. Better that we concentrate on what we can do domestically. Better that we focus on the things that are needed to adapt our public sector and ready ourselves for recovery. Doing what we can do and navigating our way through this crisis is the only course of action.

That is the approach being taken by this Government. We are in the business of finding practical solutions to real problems. Objective observers at home and abroad agree that we have made substantial progress during the last six months.

Only last week the Wall St. Journal spoke favourably about Ireland. International sentiment towards Ireland has changed. We now have a path out of the very real difficulties that were created at home. Of course we have to be fully aware of the international situation and alert to the risks and the opportunities that now exist. So far I think Government ministers have done a very good job on the international stage. At the same time we must continue to make the necessary changes in those areas within our own control.

The Government’s policies on privatisation must be seen in the wider economic and political situation. In one respect it is deeply ironic what has happened in Ireland and in other capitalist countries during the last four years. During the summer of 2007 if you told the most ardent socialist that our banking system, would be almost totally owned by the State within a couple of years would he have believed you? In that same year if you said to the ideologues of the free market that financial institutions at the heart of the capitalist system would have to be rescued by governments they would have been equally incredulous. But it has happened. Now is not the time for dodgy ideology. It is the time to do what we can where are options are limited by the situation we face.

Nationalisation on a massive scale has been one of the consequences of the banking/financial crisis that has engulfed this country. And we just don’t own 80% of the banking system. The Irish State now has the largest property portfolio in the world. Interesting times indeed.

The sale of State assets is not about ideology. It's about winning the future. It's an intelligent use of resources during a time of severe financial constraints. Using assets, which we own, allows us to raise new capital to invest in new infrastructure to improve the economy and create new jobs. The top priority of the Government will continue to be job creation. While capital spending from the exchequer remains low we need to look at new ways of funding key infrastructure. This is about our determination to help ourselves recover and rebuild. There is an economic imperative about getting on with the job.

At the outset, I wish to acknowledge the importance that the Government attaches to the companies in the semi-state sector:

- Many of these companies have been, and will continue to be, a core part of our economy;

- They have delivered strategic infrastructure over many years;

- They have innovated and developed significant pools of expertise and technical skills;

- They have been and remain large employers throughout the country; and

- They have, by and large, been reasonably well managed and moderately profitable.

Those working in the sector have been in the main well paid and have not seen the dramatic reduction in net pay that is evident across the public sector. Being very honest, it is hard to explain why one group within the public sector has seen average net pay cuts to the tune of 15%, while the commercial semi-state sector has been cosseted from this. Equally hard to explain is the extraordinary pay and conditions for those at the top of the semi-state sector, at a time of such hardship for everyone else. Our Government is determined to address this in the new contracts that will be negotiated.

It is also fair to say that the dividends that the State has obtained from the sector can best be described as patchy over the years, despite the dominant position that many of these companies enjoy and the uncompetitive pricing regimes that have been in place. The recent McCarthy Report on State Assets and Liabilities highlighted the latest dividend figures from 2009 from the energy utilities which showed only a 2% equivalent return of year end shareholders funds compared to a European average of above 5%. Then contrast this to a situation of the State having to most likely borrow at around 6% rates when we return to the markets. The question has to be asked if the State is getting best value for investment by holding onto State assets rather than selling and realising a large price.

We do need to examine the on-going case for State ownership and seek to reach an informed view as to what is strategic and essential to the national interest. For example, although it can certainly be argued that the ownership and control of electricity, gas and other utility transmission networks, such as water, is strategic, it is not clear that this requires outright 100% State ownership in all cases. The same can be said for other areas of their businesses such as generation and supply.

These considerations arise with urgency today because, notwithstanding that our public finances appear to have stabilised, the country remains in a very difficult fiscal position. We depend on the financial assistance provided under the EU/IMF programme for the continued day-to-day operation of the State. There is an overwhelming need now to bring sustainability to the public finances and to foster economic growth. This must include reviewing the contribution that the State companies can make in order to assist us in achieving these objectives.

The Government is conscious, however, that we need to do more than merely look for assets to sell to reduce our debt. We also need to invest and restore competitiveness. The Programme for Government contains a commitment to release value from the State’s portfolio of assets, with the intention of using these proceeds to fund investment in the productive capacity of the economy. A target of up to €2 billion in asset sales has been set, drawing from the recommendations of the Review Group on State Assets and Liabilities (the McCarthy Group), but with the assets only to be sold when market conditions are right and when adequate regulatory structures have been established to protect consumer interests. This objective is modest and entirely achievable.

The Government’s intention is not only to engage in a selling process but to also introduce a new approach to managing the State’s shareholding in semi-state companies. This is where the Government’s NewEra plan comes into play. My colleague Fergus O’Dowd is in charge of the New ERA programme and a new unit within the NTMA has been established to drive the programme forward. It is built upon three strands. Firstly, NewERA will put in place a commercially-financed investment programme in key networks of the economy to support demand and jobs in the short-term and to provide the basis for sustainable, export-led growth for the next generation. In the Programme for Government we have set out a number of key areas of investment such as water, energy and telecommunication. We need new investment and we need to find the money to pay for the investment. Selling State assets is a practical way of finding the money.

Secondly, NewERA will have a role in corporate governance from a shareholder perspective of ESB, Bord Gáis, EirGrid, Bord na Mona, and Coillte. It will have a role in reviewing capital investment plans of these commercial semi-state companies from a shareholder perspective and will indentify possible synergies between investment programmes of different State companies.

Finally, where requested by Government NewERA will advise on and support the work of the Minister for Public Expenditure and Reform in the disposal of State assets following Government decisions. As such the Cabinet has recently requested NewERA, in consultation with line Departments, to begin the process of valuing State companies.

Of course, any decisions on asset sales will take account of the agreement that we have made with our funding partners. We are involved in intense negotiations with the troika on this aspect of the Memorandum of Understanding. And the troika are not some bogeymen. They are as keen as we are that Ireland should be successful and that we should return to a sustainable growth path. That is why we were given interest rate reductions and extended terms on our borrowings. Much bigger changes than anyone had anticipated. And of course at the end of the day when we borrow money what matters are the terms and conditions attached, not the source of the money.

The Government is determined to use revenues raised from the sale of State assets for further investment. The troika may well have a somewhat different view. They may want some of the revenue raised used to reduce the debt burden. Our discussions with them continue.

The troika did respond positively to the Government’s jobs initiative and I expect that they will also be responsive to our arguments on the need for investment and a credible growth strategy. The final decision on what State assets to sell rests with the Government and not with external agencies. These assets belong to the Irish people and ultimately are a matter for the Government and the Oireachtas to determine their future.

The Review Group on State Assets and Liabilities was established by the previous government to examine the potential for assets disposals to relieve the State’s growing debt burden and to see how the assets in State ownership could be best used to help growth and investment in the economy. The assets set that the Group focused on included: ESB, Bord Gais, Coillte, Bord na Mona, Dublin Airport, Ports, RTE, CIE and An Post.

In its report, issued in April 2011, the Review Group stressed how economic recovery must be the central concern of economic policy, including, in particular, the generation of sufficient economic growth to expand employment and to generate Government revenue to ease debt service burdens. It recommended that a planned programme of asset sales should be undertaken.

However, the Group did not recommend that all assets be disposed of. In the case of land-based assets in particular, it proposed that the State sell the rights to reap the produce of the land but not the land itself. Similarly, the Group also recommended against a sale of core transmission assets in the gas and electricity sectors to private interests in the immediate future. Although such assets have been successfully privatised in some countries, disposal in Ireland’s current circumstances involves risks and the report recommended that consideration of this option should be deferred.

The Group also cautioned against a rushed sale process, as this would inhibit attainment of value and would not allow sufficient time to deal with all the complex issues involved.

Following the publication of the Group’s report, the Minister for Public Expenditure and Reform, Brendan Howlin TD, consulted his colleagues on the Group’s findings and recommendations. In their responses, Ministers and Departments were generally supportive of the sale of State assets in principle, but pointed to difficulties in practice in individual cases on strategic and other grounds. Since its publication in April Government has closely studied the Group’s recommendations under the guidance of my colleague Minister Brendan Howlin. As next step the Government has asked NewERA in the NTMA to begin work on valuing State assets.

It was against all of this background that the Government recently came to examine the various options open to it in terms of generating revenue from the sale of State assets - including the recommendations of the McCarthy report but not only those recommendations. Having considered all the options, the Government decided that, as an initial demonstration of its intent, it would be prepared to sell a minority stake in the ESB as an integrated utility. After careful consideration the government also decided that the balance of benefit lay with keeping the ESB as a single unit.

A Group chaired by the Department of Public Expenditure and Reform with the Department of Communications Energy and Natural Resources has been established to consider the best approach in achieving such a sale, including energy policy, regulatory, legal, financial and economic considerations. This Group will have access to advice and expertise from NewERA and from the Department of Finance. It will report back to Government by end-November with a recommendation in relation to the best option for a minority sale, and also the timescale over which the sale could be completed.

Targets for receipts from the ESB minority sale and the structure of the sale itself - the percentage to be sold and the type of sale - will be determined by the outcome of that process. The final decision will take account of the need to strike a balance between achieving the highest return possible and maintaining appropriate policy goals. Speculation on what a sale would achieve is just that – speculation.

No decision has yet been taken yet beyond this initial agreement to sell a minority stake in the ESB. However, the Government has agreed that it is prepared, in principle, to undertake further asset sales, and a separate process will be initiated to consider a number of potential assets in this context.

In conclusion, I believe that the Government’s policy of releasing value from State assets for productive investment in the economy makes sense. This policy will contribute to bringing about sustainability to the public finances and will foster economic growth. Of course lessons have been learned from previous privatisations and our decisions will be informed by best practice in other countries. The implementation of the Government’s policy approach to privatisation is not set in stone. We welcome robust debate and rigorous analysis.

Finally, as I have said before the mandate given to this Government is two fold. Firstly we have been told by the Irish people to fix their broken economy as soon as we can and in the fairest way possible. The second part of that mandate is also clear. To introduce the most radical reform of our public and political administration as never before. Part of that agenda must be about using our assets for recovery and better use of our portfolio of State assets for the national good. While austerity is a given, allied to that we need a strategy for growth and economic recovery.

Darwin said that is wasn’t the strongest or the cleverest that survived. Rather it was those who can adapt to changed circumstance who really prosper. In our new circumstance, with all its challenges and hardships, we must adapt and think a fresh about how we organise ourselves and plan for the future.

Your deliberations here today are very timely and have the potential to contribute to the important debate on how we can maximise the value of the State’s assets. I look forward to seeing the outcome of these deliberations.