The government has announced that it will sell a minority share of the ESB. This is welcome news. Privatization of non-core activities is a matter of principle. The ESB has paid poor dividends. It has frequently been used to bankroll projects of dubious commercial (yet clear electoral) value. Selling a minority share is a low risk strategy for price discovery and much better than a fire sale.
So far so good. However, the government also announced that it would keep the ESB “as an integrated utility”. The ESB is a conglomerate. It generates power, it owns the transmission network, it sells electricity, and it provides consultancy services.
The network is a natural monopoly, and should probably not be sold. The rest of the ESB can be safely left to the market (if properly regulated).
As an integrated utility with a natural monopoly, The ESB enjoys considerably market power. The nominally independent transmission system operator, EirGrid, gets electrons from ESB, transmits them over lines owned by the ESB, and delivers them to the ESB (who then retails them). The ESB’s dominant position is the main reason why few companies have entered the Irish electricity market.
Today’s announcement suggests that the government plans to continue the current situation. It would make more sense to sell the network to EirGrid. The price of such a sale matters because the ESB is part-owned by an ESOP; and because the ESB is using the network as collateral for cheap loans.
The future ESB will therefore face three demands, compared to two now. The workers will want well-paid jobs, as they had in the past. The political masters will want their pet projects, as they had in the past. And the private owners will want dividends. The consumer will have to pay for all of this.