New Era, the body established under the National Treasury Management Agency to handle the sale of state assets, has three objectives, according to Brian Hayes, Minister for Public Sector Reform and the Office of Public Works.
As well as managing the state’s shareholdings in semi-state companies, New Era will:
• advise the Minister for Public Expenditure and Reform on the disposal of state assets;
• establish a commercially-financed investment programme to support job creation in the short term and sustainable, export-led growth in the long term; and
• oversee corporate governance in ESB, Bord Gáis, Bord na Mona and Coillte by reviewing capital investment plans from a shareholder perspective and identifying the possibilities for state companies to work together on investment programmes.
The Programme for Government commits to raising up to €2 billion from the state’s assets to fund investment in the economy. New Era has begun valuing all the state owned companies. Speaking at an eolas ‘Future of State Assets’ seminar, Brian Hayes said that the assets would only be sold “when market conditions are right and when adequate regulatory structures have been established to protect consumer interests.”
The Government has decided to sell a minority stake in ESB. A group chaired by the Department of Public Expenditure and Reform, working with the Department of Communications, Energy and Natural Resources is currently examining the best approach. It is looking at energy policy, regulatory, legal, financial and economic considerations and will report at the end of November as to how and when the sale will go ahead.
In relation to decisions on the other state bodies, Hayes told eolas: “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.”
He added: “We haven’t set a timeframe for all of the other public utility companies if a decision is taken to sell them, either majority or minority.”
Privatisation will be considered “on a case by case basis”, he insisted, adding: “Where it makes sense we’ll do it. Where it doesn’t make sense we won’t.”
Any decisions must be run past the EU-ECB-IMF. While the troika expect the Government to sell the assets to pay up to €2 billion towards its deficit, ministers claim they want the proceeds of any sale to go towards job creation.
Hayes admits that one option might be “the proceeds of these sales part realised towards debt repayment and part realised towards a growth strategy.”
He says: “That’s one outcome, but the idea that the total proceeds of these sales, in the case of Greece for instance, would go to the write-down of debt, would not be acceptable to the Government.”
The Minister points out that, at the time of the election, the Government was told that there would be no renegotiation of the deal, “the Memorandum of Understanding was in place and wouldn’t be changed.”
However, the Government has renegotiated the deal on NAMA, on a reduction of the interest rate and on the job’s initiative. “This is another part of the deal we want renegotiated.”
He added: “These are our assets and we are not going to involve ourselves in some lunatic sale for the purposes of paying down debt.”
Delegates were told that the Government’s policies on privatisation “must be seen in the wider economic and political situation.”
Nationalisation “on a massive scale” was the main consequence of the banking crisis and, as well as owning 80 per cent of the banks, the Irish Government now has “the largest property portfolio in the world.”
“It is time to use what we have in the limited situation we face to plan our way out of this crisis,” Hayes said.
“The sale of state assets is not about ideology. It’s about winning the future,” he continued.
The possible sale of more assets is “an intelligent use of resources.”
The importance of these state assets has not gone unnoticed, the Minister noted. Many have been, “and will continue to be” a core part of the economy. They provide employment, have delivered infrastructure, have developed “pools of expertise” and were, “by and large”, reasonably well managed.
However, workers in state-owned companies have largely been sheltered from the pay cuts that other public sector workers were have experienced.
“It is hard to explain why one group within the public sector has seen average net pay cuts to the tune of 15 per cent, 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,” Hayes stated.
New contracts are in the process of being negotiated, he confirmed.
In relation to dividends, the Minister described them as “patchy”. This is “despite the dominant position that many enjoy and the uncompetitive pricing regimes that have been in place,” according to Hayes.
He referred to the McCarthy report which highlighted a 2 per cent equivalent return of year end shareholder funds in 2009, compared to the European average of 5 per cent. It is likely that the state will have to borrow at 6 per cent rates when it returns to the markets, therefore it is asking “whether it is getting best value for investment by holding onto its assets rather than selling and realising a large price,” Hayes reported.
There is a need to establish “what is strategic and essential to the national interest,” he continued.
While it can 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 per cent state ownership in all cases,” the Minister claimed. “The same can be said for areas of the business such as generation and supply,” he added.
At a time when “the domestic economy is as flat as a pancake”, the Government’s privatisation policy “will contribute to brining about sustainability to the public finances and will foster economic growth and competitiveness,” according to the Minister.