Portuguese Energy Privatisations.

@ Colm

If you’ll allow me, I’d like to ask a question that has been bothering me. Regarding the ‘Recommendation 24’, in the ‘Report of the Review Group on State Assets and Liabilities’ i.e.the sale of ESB minus the transmission network. Why would you recommend sale of the distribution network? It seems to me such a network is a natural state monopoly, if it was ‘eircomed’ we’d be in real trouble in 10 years or so.

How on earth it will make a ha’p’orth of difference to the customer when the chunk the exchequer takes is huge.
This selling off is just ludicrous, overall. Why on earth sell off something that renders a profit. This makes NO sense beyond idiotic ideology unless that is you have an investment that will give you better return with the same controls.

A delicious and provocative Xmas offering from Mr. McCarthy. Thank you.

The biggest challenge facing all electricity and gas companies and utilities throughout the EU is to secure efficient financing of a huge volume of investment. This volume of investment includes replacement of existing, but getting close to being clapped out, generation plant but it also includes electricity and gas network interconnections to secure an efficient EU internal market. In addition it comprises new gas investments to diversify the source and mode of supply. And, to top it off, it includes a huge cliff face of investment to meet the EU’s gloriously expensive carbon change agenda.

In terms of generation replacement investment and prospective diversity of gas supply Ireland is better positioned than most. But it has been secured at excessive cost to consumers and the economy. What the State Asset Review Group did not – for, I suspect, various reasons – highlight was the fact that, in the absence of direct state financing, consumers were required to pay up-front to financing a goodly portion of investment and then to pay for the full return on, and return of, all this investment.

Consumers and the economy have been hosed – and continue to be hosed – to keep the ESB and BGE in the style to which they have become accustomed. They will be hosed even more to pay for this gloriously expensive renewables programme.

Successive governments did not provide direct financing, apart from some limited forgoing of dividends, when they had access to very cheap money and it would have been a hugely profitable public investment and reduced the burden on consumers. Now it doesn’t have any.

The primary issue is securing low cost-of-capital, efficient financing of investment; privatisation is a secondary issue.

The privatisation of natural utilities and the subsequent reduction of capital spend is at the heart of European Industrial collapse.

Any Austerity is now just transformed into consumption for other people – as there is no longer any vector towards core capital investment….. this entire absurd game is pointless when looked at in a holistic manner.
Utilities that make profits are only in the extraction business – they always subtract wealth over time.

http://www.iea.org/stats/pdf_graphs/PTTPES.pdf

Happy Christmas Proles.

“Why on earth sell off something that renders a profit?” Simple arithmetic based on the cost of finance and nothing to do with ideology. I very much doubt any of these semi-states are returning 10% dividends.

On a general point about privatisations, I suppose there is some consistency in the fact that the best termed employees in the commercial sector also can get icing on their cakes with up to 5% of state companies free plus the option of another 9.9%, usually at a knockdown price, sanctioned by people who’ve nothing directly at risk.

Usually there is some trade off on work practices where aspirations count more than reality.

This isn’t remotely comparable with stock options in a startup in lieu of lower than market pay, while working long hours.

The illusion of access to power offered by clientism is no substitute for collective power in the Irish system.

@ seafóid

The New York Times did accept my suggestion two years ago that Seán Dunne should be their poster-boy of the Irish bubble.

It’s interesting that the ‘exclusive’ Unicorn, bust and reborn, is still popular with the remnants of the nouveau riche gannets.

The Irish Independent reported last March that “suppliers owed €2m by the company behind the fashionable Unicorn Restaurant were stunned to learn…that it is no longer run by that company.”

http://www.independent.ie/national-news/euro2m-creditors-left-stunned-as-top-restaurant-has-new-owner-2565534.html

I recall a waiter in the Unicorn who had what Americans would term ‘an attitude problem.’

Serving the assumed rich can make some arrogant too.

I do have a lot of respect for waiting staff as I regard a job as a waiter at The Broadmoor hotel in Colorado Springs, as one of the highest pressure jobs that I’ve had — it’s not that I’ve lived in monastic serenity since.

The key point in Colm’s post is that Portugal implemented the restructuring/unbundling of the networks from generation and supply in line with EU primary legislation and as recommended for Ireland by the State Asset Review Group. Successive Irish governments – and this one is no different – have implemented a cunning operational unbundling while rataining the state-owned electricity and gas businesses as integrated entities in ownership and financial terms.

They have been very careful to comply with the letter of EU primary legislation but they have employed every trick in the book to contravene its spirit so as to preserve the market power and inflience of the semi-states.

And this Government has been forced down this road of a part privatisation of the ESB, which will do nothing to reduce the burden its activities impose on consumers and the economy (and may well worsen it), simply because this is all the ESB namagement and staff will countenance – and the staff may strike in any event.

So we have a government that is able to extract €3.8 billion from the economy with almost negligible protest, but is powerless to restructure a business it almost fully owns on behalf of the people. And effective restructuring of the electricity and gas semi-states, while they remain in piblic ownership, would significantly reduce the burden they impose on consumers and the economy and could release equity invested in excess of the projected privatisation proceeds. And where do people think these wonderful profits come from? They do not come from any miraculous efficiency (even if the efficiency of BGE’s basic operations compares well with their peers). They come from the streams of revenues, the gouging of which from business and household consumers the CER either sanctions or approves. What revenues the ESB wabts, the ESB gets – let the consumer go hang.

The simple fact is that the Government is unable to pursue the restructuring that the State Asset Review Group recommened, which would be in line with both the letter and spirit of EU primary legislation – and which would generate significant benefits to consumers and the economy – because it lives in dread of ESB staff going on strike and bringing the country to a standstill. Its carefully cultivated – and much-trumpetted internationally – competence to implement reforms without provoking serious popular discontent would be in tatters.

When a group or sectional interest is able to prevent a government acting in the public interest (and prevents a parliament – insofar as we have one that deserves that name – legislating in the public interest) that group or sectional interest becomes the government in that area. It is a measure of the extent to which Ireland’s democratic institutions have become so corrupted that a sectional interest (representing the narrow interests of, say, 10,000 management and staff) can bend a government – even a government with an overwhelming Dail majority – to its will.

@ Paul

‘The simple fact is that the Government is unable to pursue the restructuring that the State Asset Review Group recommened, which would be in line with both the letter and spirit of EU primary legislation – and which would generate significant benefits to consumers and the economy’

Do you have any references/papers/material backing up this statement? I’m quit sceptical that the ‘State Asset Review Group’ provides a panacea to our energy industries woes. In particular I consider the idea of selling the Distribution network as very foolish and something that would be ultimately extremely costly to the state, i’d see it as akin to doing an Eircom, but I’m open to reading evidence to the contrary.

Perhaps, some of the much vaunted reform promised under Croke Park might be in order first? Very busy shopping day to day yet Most Dublin intercity services finished up before six o’clock likewise for mainy commuter trains.

The lack of decent investment in broadband, is that a legacy of the ‘successful’ Eircom privatisation? I am not convinced that a small population country can successfully mount competitive privatisations without doing the reform bit first.

Again michael h a hard to understand semi structured rant. So…where donuounsee the jobs comig from? You constantly critique gov investing in r&d but never tell us an alternative. Are you still in Kuala Lumpur?

@ Philip II

In the linked article I suggested €1bn of the science budget should be used elsewhere to promote the formation of startups across all sectors as they are crucial for sustainable job creation.

I’ve covered this issue more indepthly in other articles including a bigger allocation of the €15bn public procurement budget to startups e.g water meter installation; repair and maintenance and website work that than be competently done at a fraction of the cost of contracts that are given to big firms; big contracts should include designated subcontracting.

A recent 2,000 word article on jobs strategy argues that the prospect of high Irish long-term unemployment will not be seriously impacted by new incentives and schemes.

A change of mindset at policy level is urgently needed including replacing the spin that dominates enterprise policy with an unvarnished assessment of the challenges facing Ireland in a changing global economy… Minister for Finance Michael Noonan announced in the Budget support for exporters targeting BRIC countries (Brazil, Russia. India and China from the original classification plus South Africa).

It will help a number of firms but exports to these five countries only accounted for 2.3% of total exports in 2010 with China accounting for the lion’s share. Exports to India were at a decimal point. Besides most of the existing exports are made by foreign firms.

Foreign language competence remains poor and is an impediment to developing markets in Europe. According to Eurostat, the EU’s statistics agency, nearly 80% of children in the EU were studying a foreign language at primary school in 2008; in Ireland the level was 3%!

I suggested that focus for indigenous firms should be mainly in the undeveloped single currency area not difficult emerging markets far from home.

http://www.finfacts-premium.com/2011/1254
/Ireland_jobs_government_crisis_plan

The international market is much bigger than it was in the early 1990s and while improved competitiveness helps, developing new export markets is a hard and long slog.

My son opened a trading startup in Dublin in the past year and is doing OK.

Have you any experience of startups, selling domestically or developing export sales?

“… reality of 315,000 officially unemployed and 448,000 on the Live Register.”

This is an awfully lot of folk to ‘find’ jobs for. Can’t happen:math is firmly against this. This looks very like a Rock-and-a-Hard Place scenario. The usual emigration channels have been throttled back and there are ??? thou new entrants to workforce each year, less those who have to retire (age and infirmity) and maybe get a pension. Nett MUST be less, or else!

My advice would be to do a trawl of the 1930s archives and see what Ireland was like then (demographics and all). Because this is where we are headed. OK, we will have better housing, communications and equipment, but incomes (and energy access) will be severely constrained. Dork and I are somewhat at variance about the need to move folk out of urban areas and to re-populate the rural parts (I favour this – with strong conditionalities). The inevitable outcome of this policy would be a significant decline in population of this island. If this does occur, then the economic consequenses are also severe. As I said above, Rock v Hard place.

Xx% of folk are not paying energy utility bills. This nasty number appears to be trending up. That’s trouble, big time.

Brian.

@Michael H
Last week I caught on piece on RTE radio where a university president bemoaned a brain-drain. He followed up by saying that several of his academic staff were now sending their offspring abroad for an education. The first thing that struck me was the very fact that they could afford this luxury with free fees on their doorsteps. The second thing was yet again how the collision between reality and citation indices seems to pass otherwise very bright people by. The entire Smart economy effort is simply not working.Clanking chains in the attic to frighten the political children won’t save it but might keep the cabinet on message. It could never have worked but when the cash was being shelled out once again those best placed to lift the veil kept their heads down. It is not alone in its Olympian vanity. Look at FAS. A ridiculously large budget at a time of full employment and no one shouted stop.

On the matter of privatization, the likelihood is that the vested interests will use the endless debate surrounding it to deflect attention from seriously overdue reforms in the Public Service. There was a piece on RTE radio today concerning the ending of milk quotas in 2015. Surprising none of the assembled, and for once it was mainly those outside the usual wedding guest list that RTE pundits keep ready, delved into whether the relevant areas of the public service were fit or would be for the changes. A curious omission given that Dept of Ag in its many guises employs more people to police the farming sector than the gardai have available to them.

@Brian
Much of this energy crisis is a result of a multiple decade malinvestment nightmare which accelerated in the 80s , not just simple depletion.
The use of very high quality fuel such as NG for electricity generation is a criminal waste of a precious resourse and is the primary mechanism used to create artifical profits for the new privatised or semi privatised electrical utilties.
A utility with a national strategic objective rather then a narrow profit agenda would seek to free up this gas for its best uses (direct combustion) & reduce the opportunity costs dramatically.

http://www.iea.org/stats/pdf_graphs/FRTPESPI.pdf

http://www.iea.org/stats/pdf_graphs/GBTPESPI.pdf

But Utilities cannot make much profit when seeking national goals – hence a destruction of the commons & general wealth.

Question : how many reactors did EDF construct since semi privatisation ?
Not many me thinks as companies cannot make much money out of this highly capital intensive operation – however it dramatically increases the wealth of the commons as it frees up fossil fuels for their optimum uses.

How can privatised utilties persue these deep national strategic policies ?
Answer : They cannot.
Me thinks something is very wrong with European energy policey & deregulation dogma.

@ EWI

private sector pillaging of the former Telecom Éireann on the public sector.

It was the Government that privatised the telco with few conditions.

The main union and workers avidly drank the soup because they perceived that they had got a good share of the spoils.

It was the first manifestation of Celtic Tiger public hysteria and Shane Ross recommended public purchase of shares and later led a campaign against Eircom.

What followed later was in the same shambolic vein.

John Foody:

You could spend a month reading the technical literature on utility regulation and the experiences of different countries with privatisation. Here’s somewhere to start, and good luck!

http://www.regulationbodyofknowledge.org/

No new EDF Nuclear stations have acheived criticality since it has become a limited liability corporation some 6 / 7 years ago now.
With the now much fewer new stations planned behind schedule for the first time in decades.
Could it be about CAPITAL cost cutting to achieve a tempory artificial Profit ……..NEVER

You see , utility companies may need to pay top money for people with actual skills in the real world of making stuff.
What exactly is this profit stuff if it needs to subtract from a countries core capital base ?
Me thinks the dynamics withen the electrical utility industry are almost identical to bank utilties profits before the bust.

THE PROFITS WERE ARTIFICAL.

Has Europe’s energy import dependency increased since the liberlisation experiment of the 80s ?
You Betcha.
And its not just about North Sea depletion – it goes much deeper then that , to who formulates Europe’s Energy Policy and the most important question of all.
Who benefits ?

It’s unfortunate that the focus is on energy (electricity and gas) industry privatisation rather than on the structure and organisation required to ensure efficient operation, production, investment and consumption irrespective of ownership.

It’s not only stupid, but potentially very damaging, to focus on the former without conducting a comprehensive assessment of the latter. But for Ireland, and probably to an extent or Portugal and Greece, this focus on privatisation was always likely to dominate, given the Troika’s insistence on realising at least some of the state’s equity investment in these and other industries to supplement the diminished fiscal coffers.

And, given the ToR of the State Asset Review Group in July 2014, it was likely to dominate even more in Ireland – despite the best efforts of the Review Group to balance the emphasis by addressing other aspects in relation to efficient operation and regulation that were also in its ToR. Indeed the initial version of the EU/IMF technical MOU demanded a detailed assessment of the electricity and gas sectors, drawing on the work of the Review Group, that would take place from 1 July 2011 to 31 March 2012.

It’s quite clear that the energy semi-states, most likely aided and abetted by the Department and the CER – not to mention the unions, have been very successful in exerting pressure behind the scenes to water down this requirement to almost nothingness. At each quarterly review by the Troika, the actions demanded for the energy sector have been altered and whittled down, so that this 9-month detailed assessment of the electricity and gas industries has disappeared and it has been folded in to the requirement to present an outline proposal on the possible disposal of some or all state assets to the European Commission by the end of this year. And, not only does it appear to have been folded into this proposal, but this proposal is likely to focus on the outline implementation of the Government decision on 14 Sep. to part-privatise the ESB as an intgerated entity. It appears that consideration of all other semi-states and state assets is being conducted by this NewERA beast that has been established as a non-statutory body and well-hidden behind the walls of the NTMA.

This is precisely the type of misgovernance, bluster, lack of transparency, cunning, deception and evasion that got Ireland in to its current economic and financial mess. It is a perfect example that nothing, absolutely nothing, has been learned during the last 3 years.

The last, and almost totally forlorn, hope of stopping this nonsense in its tracks, or, at the very least, compelling the Government to think again and to be a little bit more transparent (rather than issuing decisions as fait accomplis), is for one or more members of the Oireachtas to pose a few key questions to the Minister when the ‘debate’ on the expected enavling legislation is being conducted.

For example, the Minister should be asked:
1. What was the net book value of the ESB as an integrated business (a) as at 31 Dec 1999 and (b) as at 31 Dec 2010?
2. Between those dates, what was the ESB’s total investment (i.e., gross capital expenditure net of disposals and impairments) in (a) the 26 counties and (b) outside of the 26 counties?
3. What contribution in total during this period did (a) (i) the State and the (ii) the ESOT make directly, (b) the EU make and (c) final customers make (in capital contributions) during this period to finance total investment in the 26 counties?
4. What is the ESB’s total annual net borrowings for this period and what is the allocation between the financing of investment within and outside the 26 counties?
5. What amount in total during this period did (i) the State and (ii) the ESOT extract from the ESB (a) in dividends (or other direct payments to the State under the relevant legislation) and (b) in corporate taxation and what is the allocation between profits generated within and outside the 26 counties?

The same questions could be asked for Bord Gais for the period between 31 Dec 2002 and 31 Dec 2010.

If voters (and their public representatives) are happy (1) that the State and the ESOT made a net negative contribution to financing the level of investment that allowed the ESB (and BGE) to grow by (1.(b)/1.(a)-1) per cent over this period, (2) that final consumers contributed the lion’s share to finance this investment and (3) that consumers will continue to contribute the lion’s share to finance the huge volume of invested projected out to 2020 and beyond, then there is no reason why the legislation enabling the Government’s current proposals should not be enacted.

If, on the other hand, voters and their public representatives become aware of the current and likely future reality and are less than best pleased, then the Government should be forced to think again.

The State Asset Review Group, presumably, has access to these data, but chose, for whatever reasons, not to reveal them. It is time, however, that these data were revealed and voters and their public representatives allowed to decide.

But the chances of this happening? Snowball’s chance in hell’s territory, I reckon.

@Paul
Why make everything so complicated on such a small island ? – the adminstrative duplication costs must be huge.
With the whole Island holding only 2 Greater Manchester’s it makes this insane Russian Doll Syndrome beyond absurd.

When you have no clear chain of command rentier activities are almost certain to fill the vacuum.
The Faith of EDF which was thee most successful of all national utilties both before but alas not after it became a limited liability corporation fills me with dread.

European energy policey much like its previous fishery policey is a epic disaster for the commons as the deals are done in the Halls of Brussels as far away from local governance as is possible to be.
Whatever about its limitations ESB did its job effectivally in the 70s & 80s with big capital intensive investments which limited the effects of future oil shocks to a certain extent.
However the recent spreading of jet engines around our coast is not a capital intensive operation no matter what the bean counters say.
Is it true that the ESB only has 40 % of the energy generating capacity of the Island now.
How can a goverment implement national policey when you have so many Indian chiefs & cowboys to talk to ?

What is the point of this HSEitis ? and this management gobbledygook …. no let me guess – extraction.

@The Alchemist
The commons could equal to communist in some people eyes – with EDFs nuclear policey not really democratically sanctioned but it is a strange world with many internal contradictions.
As a Dork I have completely given up on so called private utilties – they are a natural contradiction that make direct governance either democratic or not a contradiction & indeed a impossibility.
Once people realise the local guberment has no levers of powers to pull what happens next. ?
Do we consult to infinity and beyond ?
Direct republics did not operate as such , at least in theory.

Anyway I tire of these strange governance fashions – physics points to certain areas of efficiency wether pursued or not.

@Paul
Never say never.
As for the Nuclear , well the Japanese experience even before the earthquake points to direct political control via the post war EDF model rather then the Private fiefdoms that developed on that Island.

Anyhow I don’t get this private fetish for achieving deep strategic goals – Gold standard Britain was putting 25% of her tax revenue into the RN before the Great war because without a navy the empire was a nothing.

Without energy the west is a nothing.
If the west can send armies into the Gulf albeit mainly dog soldiers during the last unsuccessful by some measures colonial operation then it can have a state controlled electrical utility.
The market state experiment is dying anyhow – so why not ?

Are people really that scientific ? – willing to repeat the experiment again & again.
The results will be catostrophic.

Energy dynamics changes politics – the Carter Persian Gulf policey is dying, he was the first modern President to deregulate because cheap oil politics (- the Iranian Blip) & deregulation appears to mix – his deregulation of the trucking Industry created the Walmart dynamic but walmart cannot survive without very cheap trans continental supply chains.

The multiple losses always caused by deregulation simply cannot be sustained in a expensive oil world as the externality torpedoes sink too many ships.

Yes , what people seem comfortable with now is Royal Navy elite type outfits such as EDF going back to their privateer roots.
What I mean is they consider themselves a elite – but it is now once again detached from the Imperium.
But the fully professional post Napoleonic navy was set up in that fashion for a reason – technological development.
Dreadnoughts were complex thingies.
Reactors are complex thingies.
You should not seek Bounty on the bow of a reactor vessel.

Looking at Romania’s CANDU program and no less then 6 utility conglomerates were operating through a joint stock company + the state utility.

From wiki if you care to believe it :
“20th of January 2011, GDF Suez, Iberdrola and RWE pulled out of the project, following ČEZ which already left last September, citing “Economic and market-related uncertainties surrounding this project, related for the most part to the present financial crisis, are not reconcilable now with the capital requirements of a new nuclear power project”

Something is very wrong with the chain of command.
To make money companies are destroying wealth and paying a meagre tax towards their base of operations.

European energy policey is in disarray – anybody can see this.

REN has bye-laws in place which mean that no one shareholder can own more than a certain percentage of the company. The ownership threshold is even lower if you are an energy company.