Category: Uncategorized

Waste policy

One of the themes in the discussion about the Poolbeg incinerator is that it is perfectly in line with the official waste policy of the Department of the Environment while being firmly opposed by the Minister of the Environment. The Minister has now submitted a new Statement of Waste Policy for consultation.

The Statement is rather short, 26 pages (with only 13 pages devoted to policy measures), and not very specific in most places and often ambiguous if not muddled. Presumably, this means that the new waste policy is still some years into the future, and may not be ready during the term of the 30th Dail Eireann.

The Statement is firmly based on the Eunomia report, and does not even acknowledge the existence of the Gorecki report.

The first four policy measures aim to strengthen the role of the state, the counties, and the private sector (at whose expense, one wonders); to decrease costs and increase quality (always a great plan); and to achieve cost-efficacy by imposing additional constraints (a mathematical nonsense).

There is a proposal for the separate collection of six, perhaps seven streams of household waste: clothes and perhaps glass would collected at the kerbside (in lieu of the current bring banks); paper, aluminum, and plastic would be separated at sources (instead of mixed); and brown bins (for food waste) would be rolled out nationwide.

There is to be an arbitrary cap on residual waste (black bins), with financial penalties for counties that do not meet these targets (on average). County councils may respond by tacitly encouraging people to stuff their waste in green, brown, yellow, red, blue and purple bins instead. (There will be a tax credit cq supplemental benefit for the colourblind.)

The Statement reiterates the plan to raise landfill levies by 150% between now and 2012. As there is an EU-imposed cap on landfill, a system of tradeable permits would have been a better choice of instrument.

The Statement invokes the polluter pays principle and calls for an (unspecified) incineration levy that is unrelated to its emissions. There will be another attempt to declare incineration ash to be hazardous waste (it is not). In a separate proposal, there will be an arbitrary cap on incineration.

There will be arbitrary targets for recycling, but no policies to ensure that these are met.

Producers will carry a greater share of the cost of waste management. Newspapers and magazines are mentioned as an example.

There will be an awareness campaign to convince people to waste less.

And plenty of jobs will be created, innovation stimulated, and we will all become terribly rich.

On the one hand, the proposal is an improvement as the Minister now follows the proper procedures of a parliamentary democracy, and some of the hare-brained ideas in the international review have been dropped. On the other hand, the Statement itself is weak. Little thought has gone into costs, incentives and practicalities. The Statement strictly follows the green dogma of the waste hierarchy, a lexicographic ordering of options for waste disposal.

There is also an opportunity missed. The current Irish waste policy is sound (at least on paper). The main exception is household waste collection, with duplication of services and private operators competing with public operators-cum-regulators. The International Review recommended that this be replaced with a system of auctioned concessions, one of the few recommendations that it shared with the Gorecki report. The Statement did not adopt this recommendation, offering only vague language.

Post-Guarantee Events at Anglo

Karl Whelan has posted on this question, querying the non-removal of Anglo management after the guarantee at end-September 2008. One rather strange manouevre has been commented on by Cliff Taylor in the Sunday Business Post (I can’t locate the piece: Cliff writes a lot, for an editor).

What appears to have happened is this. In May 2008, Anglo borrowed in Yen to finance an asset position in £ Sterling, and ran the position uncovered. There was some tax angle. Yen interest rates were well below sterling rates. By end-September, the Yen/Sterling exchange rate had moved adversely but not disastrously. But the movement accelerated and the deal was unwound at substantial cost a few months later. The following is from Anglo’s 2009 accounts, page 62.

Included within foreign exchange contracts is the impact of a non-trading Japanese Yen financing arrangement, which was first

entered into in May 2008 and ended during December 2008 and January 2009. The financing arrangement was intended to

reduce the Group’s overall net cost of funding and was structured in a manner which was anticipated to result in no net after

tax loss for the Group arising from currency fluctuations. In the six months to 31 March 2009 the arrangement resulted in a pretax

loss of €181m but an after tax benefit of €17m. However, due to the significant operating losses incurred by the Group in

the nine months to 31 December 2009, €97m of taxation benefit has not been recognised resulting in a pre-tax loss for the

fifteen month period to 31 December 2009 of €181m (30 September 2008: €31m) and an after tax cost of €80m

(30 September 2008: gain of €6m). The potential benefit of these losses carried forward is a component of unrecognised

deferred tax assets in note 35.

 

 

 

Not being an accountant, I am unable to translate this into English, but it looks like an uncovered foreign exchange carry-trade punt that went wrong. Of the €181m hit, €150m occurred after end-September 2008, at which point there could have been no plausible expectation of profits to shelter, assuming that the tax angle is, or was, serious. Thus Anglo would appear to have run a naked forex position post the guarantee, and dropped €150 m in the process. No doubt there is a more detailed explanation to be given, but it sure looks like gambling for redemption. On October 5th. 2008, I wrote the following in a piece in the SBP:

  ‘All six of the domestic banks have been given an identical vote of confidence and none has been allowed to fail. This is both unjust and potentially costly, since any bank close to insolvency now has an incentive to throw more dice, without capital at risk’.

The Commission of Inquiry will have a long agenda, but this costly Anglo forex manouevre deserves a slot somewhere.

Why Larger Losses on NAMA are Likely

Day 2 of the new NAMA business plan and I’m sure people are already a little tired of it as tolerance for all things NAMA has dwindled for most of us. For those still interested, Constantin Gurdgiev has a number of useful calculations in this post.

I’ll conclude on this issue for now by making a few simple points as to why I think the outcome for the taxpayer is likely to be worse than indicated by the plan’s “worst-case scenario’’ of an €800 million loss to be recouped via a levy.

Continue reading “Why Larger Losses on NAMA are Likely”

Are One Third of NAMA’s Loans Producing Cash? No.

You might remember that a few months ago, NAMA CEO Brendan McDonagh appeared before the Oireachtas Finance Committee and told them that one third of NAMA’s assets are cashflow producing. I noted at the time (based on the information in bank annual reports) that this didn’t seem to me to be correct, with the likely figure being a good bit lower. Now, the media are leaking details of NAMA’s new and improved business plan and we are being told that “only about 20 per cent of the loans are generating any income, that is repayments or interest payments.”

This raises an interesting question: Was Mister McDonagh misinformed in April when he said that one-third of the loans were cashflow producing or have 13 percent of the loans stopped producing income between April and July? Neither answer is particularly palatable.

As for “In a worst-case scenario, Nama could end up losing several hundred million euro” one really has to wonder do the people who put this plan together know what a worst-case scenario means.  However, coming from the folks who brought us the 80% full recovery scenario, I suppose we shouldn’t be surprised.

Paul Volcker on Ireland

Towards the end of a recent essay in The New York Review of Books (‘The Time We Have Is Growing Short’) Paul Volcker has some interesting remarks to make about the Irish economic situation.