Review Group on State Assets and Liabilities

It was a high-scoring match.

Economic Sense – 3: Policy & Regulatory Failures, Political Cowardice & Compromise and EU Stupidity – 10

If some sort of sale is totally necessary why on earth sell the Freehold as it were. Why not just sell the income generating area holding the infrastructure. For instance, why sell the land that the state forest sits on when it’s the current timber that is giving it the value.

Was there a reason for excluding RTE Commercial Enterprises from the review? I see RTE Network Limited gets a mention. The Enterprises section is there to commercially exploit RTE programmes, is it not. Surely its catalogues and relationship with RTE is worth a few €10s of million.

Some investors are going to make an absolute killing by buying and turning around these assets –
– historical returns on capital employed of 5/7% at the ESB/Bord Gais against 13% for European peers on Bloomberg
– average pay including pension at the ESB of €94k
– mind-boggling levels of capital expenditure yielding very poor returns (how on earth was the DAA allowed to spend €1.6bn on capex during 2002-2009???)

There must be a pile of private equity and infrastructure funds in London salivating over this document. tonight It’s just a shame that the government won’t have the will to cut costs in these businesses ahead of their sale so we could get a decent price.

… savvy enough on control & regulation of the intangible strategic spaces …. we also need better deals on the continental shelf …

@ Rich

‘Look lets sell it all, these ‘assets’ are really making money at the expense of the economy eg ESB, Bord Gais – their profits are a manifestation of an economic monopoly – you would be doing the country a favour and paying off a few of its debts. Of course the employees wont like but then there is a certain justice in that too’

I’m not familiar with your politics but I think (and hope) you’d have to go pretty far right to find someone to agree with you on this. Maybe a sadist, interested in punishing ESB staff would agree, but on any objective measure what you suggest sir is horsesh*t.

While I’m on the topic, it says alot about our society when the state run banks have a capped salary of €500,000 while our state run companies, companies that build substations, maintain the grid, make sure we can turn on our lights, gas and internet.

The heads of these companies will be capped at half that, still a fine slary, but the point is, bankers are still, after all they’ve put the country through considered twice the worth of comapnies that produce and do things.

Everyone believes in the infintie growth philosophy so strongly they think people that do things are worth less, according to them, it’s people that exploit people that do and create things that have the real value.

The state should initiate the disposal of Coillte’s forest and non-forest assets (but not its forest land), possibly using the New Zealand Crown Forest Licence template modified to make it suitable to Irish conditions.

Now that make sense! As we approach the end of oil, it will interesting to see Ireland’s maturing forests being cut down and exported for insulation and fuel while the penniless Irish look on freezing.

Unforested land surplus to Coillte’s requirements should be sold and the proceeds remitted to the Exchequer by way of special dividend.

This presumably will apply to many former demense’s, like Curraghchase House in Limerick with it’s arboreatum. Real prizes to be used a private estates for the wealthy. Well done.

The replanting obligation attached to Coillte and grant-aided forestry should be discontinued.

The new owners won’ t even have to replant. Now that makes it real easy. No problem in leaving a denuded landscape and wilderness behind.

In order to minimise the national cost of climate policy, activities that sequester carbon should be treated equally to those that emit carbon.

Ah!. The new owners are going to get benefit of the carbon credits which are just becoming valuable. Excellent. Just ask CRH all about the value of these credits. Worth a real pretty penny, even now.

As Oscar Wilde said, there are people who know the cost of everything but the value of nothing.

This is not economics. It is suited up thuggery.

i was surprised to see that the nation’s biggest and most congested infrastructural asset, the road network is not mentioned at all. This is in spite of the fact that allocation of this asset is about to be revolutionised through the introduction of road charging. This has been flagged in the GDA transport strategy that was recently published. To meet the deadline set for introducing road charging, work will have to begin next year. This seems like a big oversight.

A small poin to add is that the Group has reported an incorrect figure for the subsidy to Dublin Bus PSO services. The figure is around €95m, not €75m.

No mention is made of the State’s recently acquired public house at O’Connell Bridge, or indeed the taxpayers’ chain of sports shops or for that matter the National Radiator Company or the half share in a department store. I suppose these were beyond the remit, in fairness. But eventually it has to be dealt with.

Great points, Antoin.

I think the cunning plan is to not let the ECB/EU know that these things exist……sssshhhhhhh

BTW – would you sell them before or after restructuring?

I would restructure An Post first, if possible. The alternative is to find the right owner or strategic partner. You can’t just sell these things to the first goon with q bag of cash who comes along. (I would buy it myself but the price I would be able to pay would be slightly less than the book value.) Restructuring could mean privatising or subcontracting some parts of the network. Post in Ireland used to work like this until the eighties. John Waters’ father used to do a run for P&T up through the midlands for instance.

For the roads in Dublin and the GDA I would restructure the stewardship of main roads into the hands of the NTA or a reformed/merged NRA. This would in line with the successful model adopted in London and Vancouver. I would then subcontract responsibility for road quality in each area to around 10 contractors. These contracts would be for all aspects of care/maintenance, not just project work.

@Rich

Don’t be silly, as in far right politics usually involving supremacism.

Whether it’s beneficial to the state depends on your view of what the proceeds will be, what the proceeds will be used for and finally how the state will be affected by the disposal of them.

Personally, any time I hear of sale of state assets, I think of a Sopranos episode called ‘Bust Out’. You should watch it.

Where is the reference for this sense of entitlement that makes you so ill? Did you have Red C establish it, what were the confidence intervals.

Let me guess, you know a couple of ESB employees that really annoy you in your local pub?

Rich, you seem to have it in for the ESB workers. And that seems a very Irish thing. When ever we are in a hole in this country, we look around for some group to blame – to scapegoat. And that is not to say there aren’t people to blame, but we go for the easy target. It’s like the witch finder general comes to the village and asks if there are any witches, all the old jealousies and slights come out and we sell our neighbours to the executioner.
Except we never either condemn (to the executioner) the powerful, nor do we look at what really might have caused our crops to fail. Instead we condemn the hag.
I don’t think I know another country that faced with such a situation as we face, and so many forces trying to nail our feet to the floor, would spend its energy in such petty vendettas.
I’m sure there is a lot wrong in ESB, but that is not the cause of our grief just now. Can’t we ever focus on the real problems?
It seems a deep malaise. The Frontline spent a tedious hour or so attacking teachers – even Moore McDowell acknowledged what a popular sport it was. What could you conclude from it? I can only imagine that Pat Kenny had some traumatic experience at school and hasn’t come to terms with it. Will attacking teachers help education? They tried it in England and have yet to recover. When the profession is truly vilified good people will not want to enter it – even if the pay is good.
Teh problem with education is not teachers, of course. It’s the ludicrous points system.
But that is the way we approach every problem. Look for the easy “solution” blame someone.
Except when it comes to a financial crisis, in which case it was everybody’s fault – the ordinary folk buying a house to live in as much as anyone, and therefore it was noones fault, just bad luck. So no need to do anything about that then. Lets hit the teachers or whoever.
Sometimes I feel maybe this country does just get what we deserve.

Credit to Colm McCarthy, Alan Matthews and Donal Nally, for producing a focused report that should be very useful for policymakers.

@ Joseph Ryan

On Coillte, don’t worry about finding material for the auld victims’ cross.

We will hardly end up singing: “Cad a dhéanfaimid feasta gan adhmad?/Tá deireadh na gcoillte ar lár”

We could even use chipboard!

On the basis of what has been written in the report, I’m not sure that the right lessons have been learned from Eircom.

1) The report says assets should be “sold to the highest bidder”. If Eircom were being privatised today it should be sold to a company like BT or TeliaSonera (an independent fixed-line telecom company in a market the size of Ireland makes absolutely no business sense) i.e. it should be sold to a company with a proven track record of delivering up-to-date telecom services (e.g. high-speed access, IPTV etc). A higher bid from a leveraged private equity company with no expertise, for example, should be rejected, not accepted. Long-term value should be the goal, not the amount of cash up front.

2) Poor broadband infrastructure is a failure of regulation. Where’s the “Nyberg” report for Comreg? The report says “In any case, the regulatory problems in respect of broadband appear to have now been overtaken in part by technological advances”. Not so – telecom regulation is becoming more complex as technology advances (e.g. how/whether to do “LLU” over fibre; how to handle IPTV and OTT streaming – witness the net neutrality debates in the USA). There seems to be a failure to understand how important technically competent telecom regulation is just to try and keep up with other countries, let alone to try and be a “leader” in some manner.

I am sure each industry listed in the report has its own version of these issues. What steps can be taken up front to ensure that we won’t be looking at a “Nyberg” report for each of them in 5 years time? How can the adequacy of the regulatory regime in place for an industry be verified beforean asset sale takes place?

In the hypothetical case of an Eircom sale today, I would say that an industry leading regulator (e.g. UK’s Ofcom) should audit and evaluate the Irish version, and that any asset disposal should only take place after the recommended changes were made. Even better to get some South Koreans or Japanese regulators over as well to get a broader view. The end result would likely be one based on an existing proven model adapted for local circumstances. Anyone with a vested interest in the privatisation (e.g. works for the asset being sold or any of its potential acquirers) should be excluded from this exercise on the basis of conflict of interest. Regulatory capture is a huge problem.

@ Shaun

an electrical engineer earning 100k a year (on the face of it), with a great pension, seems ridiculously overpaid, no? And a lot of them aren’t pole-climbers, a lot of them work in a fixed role in a power plant, for instance. And weren’t a load of them being paid in that Rhodes plant in Offaly, despite the plant not producing any electricity (it was being closed), for years after? The pay scales in the semi-states seem genuinely off the wall in most people’s eyes.

@Bond
When they are privatised the wages will drop , capital spend will decrease and the profits will rise.
This surplus will transfer to the square mile and elsewhere.
The wealth will be extracted from this jurisdiction.
Simple
The amount of useless verbiage about this sickening.

Who needs armies when you can have academics whispering sweet nothings into rednecks ears.
The most cost effective invasion since the days of Cortes.

@Mr. Bond,

The seven features (a – g) that I outline above add, and will add, a huge amount more to the unnecessary cost burden being imposed on Irish consumers and citizens that any perceived over-payment of ESB or BGE staff. I agree that there is a public perception (incessantly fuelled by some of the media) that if the pay of these so-called ‘fat-cats’ were reduced electricity and gas prices would fall signifcantly. It also feeds envy and resentment. ‘Why should they be paid so well in their cushy jobs, while the rest of us are experiencing pay cuts and job losses?’

The reality is that a 10% across the board cut in pay in the ESB and BGE would have a negligible impact on final electricity and gas prices. So people expect them to take a hit and be happy and smiley-faced – particularly when their co-operation will be required to implement significant structural changes in these industries? I’m not accusing you of falling for it, but this strikes me as confirming the wisdom of JK Galbraith’s observation, many moons ago: ‘To make them work harder and longer, it seems one needs to pay the rich more and the poor less.’

This appears to be just more displacement activity to avoid tackling key governance and structural issues.

@ Joseph Ryan

It appears that during the boom Coillte was part of the property development business and now it’s focusing on wind power while forestry coverage is far below target.

The report says forestry land should not be sold but leased.

Maybe Colm or Alan may clarify the benefit of removing the reafforestration rule as it apprears that the land use would be restricted by the owner, the State.

The British government recently withdrew forestry privatisation plans.

@ Shaun,
In every job there are times of greater demands. I think it is safe to say that the situation you describe is the exception rather than the norm and many ESB workers (not all of whom are electrical engineers) will never work outdoors at all, let alone on the mountaintop you describe.

Even if they did, the same can be said for farmers, fishermen, soldiers, Gards and many other professions who are highly trained, and may be called upon to perform very difficult acts outdoors. A 94k euro average is not reflected in any training or job requirements for any ESB workers.

I’m not part of the public service bashing brigade, but I do think that is excessive. Considering the stick that our poorly paid teachers and nurses get, (IMO dealing with much more difficult and specialised work than the ESB), there’s no way to exempt the ESB from criticism about bloated wages.

@ shaun byrne

A large portion of ESB workers have thrird level qualifications or equivalents, many are electrical engineers.

The CSO used to publish separately detailed industrial earnings by category until 2008.

June 2007:

Electricity, gas and water supply avg hourly wage: €29.38

Avg hourly ind wage €14.58 (diff in hours worked not material)

Clerical (non-mgt)

Electricity, gas and water supply avg weekly wage: €947

Optical and electrical equip (including firms like Intel) €803

Avg all industries €772

(Pension benefits tend to be taken for granted; the majority of weekly ind earners do not have an occupational pension).

@ Dork of Cork

a rather blinkered view of how the economy works. You could argue that keeping the vast majority of our banking and property assets in domestic ownership was “protecting domestic wealth”, but i think we’d all agree that a bit of foreign ownership would have done wonders for our current position.

“Whatever the justice of who gets to eat the cake” – hilarious, you don’t even try to suggest that we could look at restructuring the semi-states into more efficient entities, with lower wages, and retain ownership of them (as the report actually suggests as an alternative) – so long as the people pillaging us aren’t foreign you don’t care…

@ Paul Hunt et al

you’ll love this. World Bank “Worldwide Governance Indicators (WGI)” has rankings for every country on a number of governance comparisons for the last 14 years. Anyone want to guess, out of 100, what Ireland scored for Regulatory Quality in 2008? (its the RQ column on the RANKS page)

http://info.worldbank.org/governance/wgi/pdf/wgidataset.xls

@ Dork of Cork

What has happened Cork people since I left?

We used to brag onetime that we were running the country because we had so many in the civil service – it’s now a case of don’t mention the war.

The rot set in when the rest of country laughed up their sleeves after the Pope gave us a miss in 1979!

Blame the trade surplus on the likes of Intel.

As for ‘real goods’ being the measurement of success, that view seems a bit dated.

Have a look at computer code.

On ESB salaries:
This is a reply to Ordinary Man on the next thread over, but Michael Hennigan could have a read of it.

First off, your 100K DOES include all pension contributions.
If we exclude the pensions the figure is 74k. Still a fine average basic pay…but wait…it’s not the average basic pay.

2) It is the ‘entire wage bill’ divided by the staff. However a large chunk of this wage bill, in the region of 30-40% (I haven’t the exact figure to hand) is expenses. Which on the face of it makes sense, the electricity network doesn’t exactly do 9 to 5, nor is it in one place. Someone has to drive to that fault, at 3 in the morning on Christmas day, so you can eat your turkey.

3) Also there is somewhat of a 2 tier employment system within ESB. You have a kind of old school element, essentially civil servants, who have similar conditions to civil servants (big pensions etc). However, over the last 10 years all new staff are on private sector contracts with the ‘get what you pay in’ (if your lucky) style pension. So it could be argued there’s a top heaviness to this figure that will naturally decrease over time.

4)
My understanding is a considerable amount of the ESBs staff have Degrees/Masters/PHDs. Over the last couple of decades all the, time and work intensive jobs appear to have been contracted out, cabling up of cabinets in substations for instance.

5) Electricity generation is extremely capital intensive, for instance in 2009 depreciation on assets was nearly twice the salary bill (including expenses)

Finally the average starting salary for a graduate engineer (most would agree a reasonably difficult and time consuming degree) is €35,000.

So as I said, more heat than light.
…………………….

Anyway aside from all this, at least these guys actually do work. I would have thought the excesses paid to those in the financial services sector ( busy trying to cook up ways to enslave the next generation to debt) and it’s corresponding brain drain affect would be far worthier of scathing.

……………………………………………………………………….

@ All

By the by, I’d like to ask a question. It seems to me the meat in the sell off sandwich is ‘The distribution’ network, i.e. the wire and poles at the end of the street (not to be confused with the transmission network). I say meat because it’s worth nearly 5 billion euro! The question is, am I right in my reading of the report, is he suggesting we sell this!? Someone please contradict me.

@Paul Hunt

Nyberg’s report relates to the failure of the state to involve itself sufficiently in banking, quite the opposite of the situation in the power generation market. Why stop at electricity? Why not apply the report to modern dance, ironmongery, astrophysics or norse mythology?

Look the ESB mini state employees can be paid well as their capital spend has been reduced significantly over time.
The situation is analogous to the FF populism pact with the lower and middle classes.
Extra Bread now, go hungry later.

The truth lies in the reduction of real capital expenditure over time – not the tempory surplus.
This Gaff has been slowly hollowed out since at least 1987.
Now is just time to accelerate the entropy.

@ Celtic Phoenix

The CSO industrial earnings data does not include non-taxable expenses.

Peopel are paid extar for unsocial hours but shift work applies in teh private sector as it does in the ESB.

Do the ESB clerical staff do shift work?

No need for anyone to reach for the victimhood mantra, as it always better to deal with facts.

Apologies for my loose language, my use of expenses means overtime, double time, shift staff. However as I said I’m not sure of the figure, so lets park that, and I’ll try to dig it out.

@ JudgeJohnDeedes

What semi-state? As far as I’m aware any new engineering graduate going in to ESBT, ESBi, ESBx today, go in on a 2/3 year fixed term contract on about 30 something grand a year. They do not have defined benefit pension pensions. In fact, not only is the scheme closed now to new members, the employees have agreed to implemented career averaging for the remaining years. No doubt they’ll still get a great pension out of it but most people would dance a jig if we could do the same thing in the civil service.

@ Eoin Bond, Eoin

Yes it is a good salary, but these guys did a serious degree and do a serious job. Thinks like designing a sub-station doesn’t strike me as being as easy as say making a trade, but maybe that’s open to debate.

On your ‘The private sector will sort them out’ comment… Holy shit, are you serious, I don’t know about you but I’d rather have competent well paid engineers running our electricity network. If this report is recommending the sale of the distribution network (I’m yet to be contradicted) then I have lost all respect for Colm McCarthy. The private sector will sort it out alright, they will sweat that puppy, turn it over and sweat it some more.

My general point being this is an organization that employees highly skilled people, to develop and manage a network that runs on a 24/7/365 basis. I would say that those there longest are over-paid, just like most civil servants are over-paid. However unlike the civil service it would appear to me that this is a company that sees problems and tries to deal with them. Again reflected in how they’ve dealt with the pensions issue.

Also the average wage bill has come down from last year and I will bet you a fiver it’ll keep coming down for the next few years in-spite of inflation or whether sold or not. As the guys that had it good leave and the younger, better educated, longer working, more productive and worse paid employees come in at the bottom.

@ Michael Hennigan

I’m not giving you a victim hood mantra. we’re in agreement, lets deal with the facts. I’m not familiar with the CSO figures, can you provide a reference so I can have a look at them?

Finally, this concept of ‘let the private sector sort them out’. Where does it come from? The ‘competition’ brought to the energy market so far has hardly been a rip-roaring success. We used to have the cheapest electricity in europe!!!!!

@Ger,

Hear, hear. The biggest problem is unpicking this huge edifice of regulation that sits squarely across the path to any sensible development of restructuring of the major semi-states. The Report makes some important recommendations, but doesn’t go into detail. It seems pretty clear that it was encouraged (directed?) to steer clear of any assessment of the economic regulation of these sectors. (This has happened previously with major sectoral reports, such as Deloitte’s electricity sector report prior to the Energy White Paper – anyone remember that splurge of colour printing?, where there were explicit prohibitions on reviewing the performance of the relevant sectoral regulator.)

Reviewing the performance of the semi-states without an assessment of the performance of the relevant sector regulators is like watching a performance of ‘Hamlet’ without the Prince.

There have been reviews previously that never led anywhere. The problem is that any objective, geuinely independent review of the regulators would open a can of worms whose lid any government (regardless of complexion or Dail numbers) would prefer to keep firmly sealed.

@Paul Hunt

“The biggest problem is unpicking this huge edifice of regulation that sits squarely across the path to any sensible development of restructuring of the major semi-states.”

Paul…i could be very naive here. But i see the salaries (and benefits, and guaranteed jobs, and lack of employee performance measurement) as being the direct consequence of the regulation of which you speak. Inextricably linked in fact.

Does the presence of regulation (dreamed up by external consultants, accountants, statisticians, and other experts) not provide a breeding ground for the distribution of tax payers money (energy prices) into the pockets of a certain section of society. Isn’t that what this is all about ??. All this regulation, all this “work” is just another way of spreading money around the economy. It really has nothing do do with providing energy which will be provided with or without the regulation.

Is it possible that no agenda that results in the reduction of semi state “bulletproofness” will succeed no matter how worthy.

For that reason, i think that the pay and conditions in these companies are the crux of why the status quo will be maintained until a point comes when Ireland actually is forced to spend only what it earns.

@ cp

“No doubt they’ll still get a great pension out of it but most people would dance a jig if we could do the same thing in the civil service.”

Isnt that the point though. you could argue that that great pension is not being earned fairly. Its being earned via the statutory leverage that these companies have to generate revenue ?

Ultimately these pensions are being provided by the taxpayer via the most efficient tax collection system we have in this country (your gas and elec bill).

I dunno. maybe you are just trying to highlight the fact that there is a sector out there that is actually better off than the civil service.

Well there is….Unbelievable but true!!!

@ Paul Hunt

“the cost burdens these semi-states are imposing on consumers and citizens are down to policy and regulatory failures and associated deficiencies in structure and financing.”

My point is that these regulatory failures and deficiencies exist because the semi state management want to empire build by growing their staff and their associated helpers to create even more regulation and rules. This creates a sense of importance and worth and is very important in any state influenced business due to the absence of profit motivations or performance measurement.

For this reason, my view is that these cost burdens will increase or at least stay the same. The only thing that will reduce this attribute is a general reduction in the money being spent by bill payers and therefore the money washing around these companies.

@ Bond Eoin Bond

‘..if they privatise ESB, you’ll find very few of us will still be complaining, because the private sector can figure out how much someone should get paid far better than the government can’

As Paul Quigley was too polite to say – that’s crazy talk Mr Bond.

The recent trend in the English speaking world is that remuneration at the higher management levels has risen far more than the median wage in the same enterprises and that this seems unrelated to performance. This is not just unfair, it is a poor allocation of scarce resources – the supposed trump card of market liberalism and laisez faire.

The FIRE sectors were obviously the most egregious examples of people being rewarded for failure but I seem to remember that when Daimler foolishly bought Chrysler in 1998 they were faced with a problem integrating the management teams. The executives in the smaller, less profitable US company were paid considerably more than their German counterparts of equivalent seniority – the US CEO in particular earned a multiple of Daimler’s chief executive wages. Germany also had much higher levels of tax making the differential even more absurd.

Needless to say that since 1998 the trends in ballooning executive wages have become worse, and we have enjoyed a stock market bubble, growing income inequality and a global financial crash.

Now state companies may well have some or many staff that are excessively paid but its hard to make the case that the situation in the private corporate sector is not much worse, particularly right now.

We still seem to be stuck in the mire on this semi-state pay issue. Nothing said here will resolve the issue one way or another. It’ll come out in the wash eventually. I would still argue, though, that it should be the least of our concerns.

The CER is kicking off its so-called ‘public consultation’ process on setting the tariffs and revenues for the gas transmission and distribution networks for the 5 years beginning Oct. 2012:
http://www.cer.ie/en/gas-transmission-network-current-consultations.aspx?article=732799b3-528b-402d-84af-5acbc38caf7a

(We need to remember (a) that the electricity and gas transmission and distribution networks comprise a huge chunk of the €8 bn or so net asset value of the semi-states identified by the Review Group, (b) that the tariffs charged for these networks comprise a goodly share of final electricity and gas prices, (c) that the CER has unfettered control when setting these tariffs and revenues and (d) that any over-charging will have a big impact on the costs of households and businesses and on the economy.)

Section 2.6, p16, contains: “The [Regulatory Asset Base] RAB should … be such that it is capable of providing sufficient revenue when applying the cost of capital to it in order to ensure that the business is able to fund appropriate new investments.”

Despite denying this for years, the CER has finally conceded that it back-calculates the net asset value to ensure that, when it applies the cost of capital (CoC) to it, it will generate sufficient return to fund new investments. The Review Group has highlighted the scale of investment that the ESB and BGE have been able to maintain under regulation by the CER – in particular in the last few years with the economy in recession, demand slumping and investment collapsing in every other sector of the economy. The Quadrumvirate (the Dept., the CER, the ESB abd BGE will, of course, assert that all these investments are vitally necessary or else the lights won’t stay on or the gas will fail to flow.

The game goes like this. Before the 5-year network revenues are determined by the CER, the ESB or BGE (depending on whose turn it is) will present its 5-year investment programme. Usually it will be well in excess of what it will require. This provides the CER with an opportunity to cut it back to a level in line with what the ESB of BGE might feel it would be able to defend. This gives the CER the opportunity to boast about the huge savings it has made on behalf of consumers.

Both sides will have a pretty clear idea of how much cash-flow (in terms of return and depreciation) that the already over-valued asset base will be able to generate. Since no new equity will be provided by the shareholder (mainly the State, as surely one couldn’t expect the ESOT to invest!) – and there will be a requirement to pay a dividend to the State (again mainly generated by the networks), the ESB or BGE will need some mix of debt and retained earnings to finance the investment, tax payments and dividends. However, since there is one big corporate treasury pot in each semi-state, the semi-states will also have an eye on thier non-network investments and, given both statutory and financial constraints on the amount of debt they can carry, they will seek to extract as much cash from the CER as they can. (For example, the ESB has had a big recent cash-call to finance the acquisition of the NI network and BGE is rapidly buidling its portfolio of powergen assets.)

So it will be back to tweaking the asset value, the CoC and the level of investment to give the ESB and BGE whatever cash they require – all squeezed, ultimately, out of final consumers in excessive network tariffs.

The Review Group in its report was able to only hint at these shenanigans, but it appears the CER has finally left the cat out of the bag. But it’s unlikely to foment the outrage it should among consumers, as the dozy, lazy media won’t have the wit to understand it and will keep going on about semi-state pay levels.

@ DfC: Knew you would come up trumps. 🙂

I have never forgotten the comment of the mother of one of the Lockerbie victims. When asked about her ‘spiteful’ comments about the perps (should we not forgive, and move on?). She savaged the commentator. “Rage” she said, “Makes me strong”. There’s the cue.

Where did all this ‘act rational’, ‘keep your cool’, garbage come from? I know from experience that ‘throwing the head’ is very embarrasing for onlookers, but it sure as hell frightens, and deters, the evildoers! They do think twice.

BpW

In relation to ESB, it seems to me that what they meant was the supply business, which is distinct from the distribution business, could be sold. This would be the part of ESB now called Electricity Ireland.

In terms of salaries, the problem really requires international comparisons of some sort. This is always going to be difficult, because it depends on the skill levels and employability of the people involved and it can be difficult to compare meaningfully between different commercial setups and different job markets. This is not always the case however. In the case of the CIE group, comparisons are reasonably easy. See page 30 of the Mazars report on the books of Dublin Bus and Bus Eireann. http://www.cttc.ie/uploads/MazarsReport31-03-11.pdf

@Brian Woods
The purpose of these studies is to frame the agenda.
Once we engage in these studies we are boxed in – we either submit or defect.
I suggest that we reject these artificial straight jackets.

We have no go areas and thats it – a line in the bog if you will.

Obviously they can raise their threat levels and create another game but at least punt the ball back into their court.
Unfortunetly the situation is complicated by the number of cuckoos in the nest but such is life.

@Antoin O Lachtnain,

Re recommended ESB sale, please see my comment of 5:18pm yesterday.

I still can’t get this focus on semi-state pay. Suppose we were to whack €100K off the salaries of the ESB and BGE CEOs (and a proportionate amount off the next layer down), how much would that reduce electricity and gas price?

However, no attention is being paid to the fact that the CER authorises the ESB and BGE to skim €300-400 million each year off consumers via excessive and unjustified network charges (as per my comment of 8:50am).

We need to get some proportion here. I find it hard to believe that people would place more value on cutting pay in the semi-states (which would have a negligible impact on final prices) than on a 10-15% reduction in the electricity and gas bills.

I repeat this link:
http://www.youtube.com/watch?v=ZdREFJnNa2M
this is what caused the bubble – not the postmen, not the gardai, not the teachers but the big thick greedy as hell bond-traders.
They are the ones who need to be made pay.
All this picking on the public sector is just a blood thirsty rampage by a pseudo-intellectual mob armed with false dichotomies and non-sequiturs itching to bludgeon some convenient, defenceless scape-goats.
Shame on the pseudo-intellectual mob I say!

@Brian Woods

Walnut does not grow well in Ireland. It tends to split in the trunk – too fast. Irish weather being moist produces longer pinnate leaves than, for example, in Italy where the leaves are pinnate but shorter. Incidentally, walnut is known a noce nazionale in Italian – the national nut. In Ireland, many of the establishment could compete for the same title. Beech is best in deciduous followed by chestnut in the south and ash everywhere.

@Kevin Walsh,

“Is there any reason that different regulatory policies would require privatisation?”

When it comes to economic regulation there aren’t different policies; there is either efficient and effective regulation or inefficient and ineffective regulation. Privatisation is an entirely separate matter. But when one officer of the state, a Minister, and his/her department, acting as a ‘corporate sole’, exercises the ownership function for a regulated business and another statutory body acts as the regulator, the outcome is very likely to be far from efficient and effective.

@All,

I would like to make a general comment regarding:

Dysfunctional Energy Policy and Regulation

Part of the Review Group’s brief required it to review the regulatory requirements as to the use and possible disposal of these assets. But, while there are some very strong and pointed recommendations on economic regulation, there has really been no review of the performance of regulation to date and its impact on the economic use of these assets.

This is not a criticism of the Review Group; it simply reflects an implicit understanding (shared by all who exercise power, authority and influence) that opening up the can of worms that is economic regulation in Ireland is something that should be avoided at all costs – or, at least, avoided until some process is developed to contain the worms. Bank supervision and financial regulation have been horribly exposed in the banking fiasco and it has damaged Ireland’s reputation enormously. With the appointment of Prof. Honohan and Mr. Elderfield (and some re-organisation of functions) these process have been put on a sounder footing.

Every effort has been made by government to convey the impression that the rot was confined to the policy, regulatory, governance and commercial practices around the banking fiasco; and that everything is rosy in the garden wrt policy, regulatory, governance and commercial practices in every other areas where economic regulation is applied. We’ve had Regling, Honohan, Wright and, now, Nyberg reporting on various aspects, but no recognition of wider dysfunction. To paraphrase Oscar Wilde, to lose the grip on policy and regulation in banking and financial matters might be seen as unfortunate; to lose the grip on policy and regulation in other areas would be seen as careless.

The government lives in dread of opening the can of worms that is economic regulation in other areas – in particular, energy – and of the further immense damage it would do to Ireland’s international reputation.

However, it is a nettle that will have to be grasped as the excessive costs these dysfunctional policy and regulatory arrangements are imposing on consumers, businesses, all citizens and the economy may be sustained no longer. It appears that people didn’t seem to care how much they paid for basic utility services during the bubble era; it;s a very different matter now.

I very much hope that the government will act on the review of economic regulation in general – and the detailed review of energy regulation in particular – recommended by the Review Group, but I’m not holding my breath. It will be difficult to effect a managed retreat from the extent of denial that has been sustained by successive governments, officials, regulators, the regulated businesses, the media, academics, consultants and policy research bodies – despite the existence of convincing evidence.

@Edgar

The DoF has done its usual trick of moving the report on its website and its address is now (sometimes a good idea to save reports on the blog and link to that address rather than DoF’s)

http://www.finance.gov.ie/documents/publications/reports/2011/stateassetts.pdf

In context, it’s interesting that the total proceeds of privatisation in the last 20 years was about 8 billion (6.3 of which was eircom) and that the valuation of the state companies is another 8 billion or so.

Darn…sell every company in the state and you’d make a little small dent in the banking debts.

so anyone got copy of this or know where it is now, finance link is broke http://www.finance.gov.ie/documents/publications/reports/2011/stateassetts.pdf