Dear Mr. Chopra,
I am writing to you about the Irish Government's intention to present a draft programme of asset disposals to the IMF, the ECB and the European Commission. Specifically, I am writing to you about the regulatory steps required for the sale of the ESB (the publicly owned electricity provider).
At present, the electricity grid in Ireland belongs to the ESB, however its operation is contracted to another publicly owned company -Eirgrid.
The Government's intention is to sell a stake in the ESB without first seperating the grid from it. I believe this is a serious mistake for 2 reasons: it will undermine the good governance of an already competitive electricity market; and it will undermine any chance of the State receiving fair value for the asset.
The arguments for decoupling grids from electricity providers are well rehearsed across many jurisdictions and I will not go into them needlessly here. Sufficeth to say, it gives the largest player in the market power over their competitors.
However, in Ireland's case, selling a bundled asset could be uniquely harmful, as the right to operate the grid is not vested with the same company that owns it. Therefore, I believe by selling a stake in the ESB, we are expecting investors to pay full price for their share in the grid, without allowing them the chance to operate it (as Eirgrid has the mandate to operate it). Clearly this is pie-in-the-sky, as no investor will want to pay full value for an asset they will not be allowed to operate. We are dooming the Irish State to accept a vlaue below the true value of the asset if we sell the grid in this manner.
If the sale of the grid is indeed crucial, then I suggest ownership of it be transferred to Eirgrid and a stake in this company be sold as well. At least in this way, a sensible, attractive package can be presented to potential investors and they will be buying both the asset and the right to operate it. This seems to be the only way to safeguard the value of the asset in any sale.
Finally, I want to bring your attention to some surprising correspondence I have had from some politicians in Ireland in regard to this matter. After writing to many politicians to alert them to what I believe is a dramatic mistake that will undermine the functioning of the electricity market in this country, one responded to me to say that the objective of selling the ESB bundled with the grid is specifically to create a dysfunctional system. I will not name him, but he explained that by leaving the grid bundled, this will make it impracticable for future governments to sell the remainder of the ESB and will instead create a regulatory incentive to renationalise the asset. He expressed satisfaction that this approach would achieve our programme targets, but encourage a policy reversal at a future time.
Personally, I have no distinct preference for public or private ownership, but it seems clear to me that if we are to part-privatise the ESB we should make an honest attempt to create a functioning post-privatisation electricity market. Instead, it seems the intention is to sabotage the privatisation process to bind the hands of future governments -for crude ideological reasons. Instead of being the transformational event envisaged under the programme, the intention is to technically comply, but in a manner that ensures a reversal at a later date.
I urge you to examine this proposal extremely carefully when it is presented to you. I recommend you seek the seperation of the Grid from the ESB, to either remain in State ownership, or else to be transferred to Eirgrid and that company be part-privatised also. The current proposal is ham-fisted, seemingly intentionally.
Showing posts with label utilities. Show all posts
Showing posts with label utilities. Show all posts
Wednesday, November 23, 2011
Wednesday, October 12, 2011
Letter to sundry TDs
Dear Deputy,
I am writing to you about proposals to dispose of ESB, and also Aer Lingus. In particular, I would like to argue that any sale of these assets should not include the electricity grid or foreign landing slots in the ownership of these companies.
Firstly, the electricity grid: the current proposal is for the grid to be sold along with ESB, with Eirgrid retaining the contract to run the grid. For 2 reasons this seems a bad idea to me. Firstly, the ownership of the grid should not be in the hands of a private company. The problems this creates in regard to long term investment decisions and the maintenance of competition seem insurmountable. Secondly, and perhaps more importantly, if the grid is sold in this manner, with Eirgrid operating it, we will almost certainly fail to achieve the true value of the grid. What investor, when buying the ESB, will be prepared to pay full price for an electricity grid they cannot even operate? Clearly, to sell the grid bundled with the ESB is to doom us to accept a price below real value. If we are absolutely determined to sell a share of the grid (which I hope is not the case), then we should at least transfer it to Eirgrid first and then sell a minority stake in Eirgrid along with the grid. Noone will be interested in buying the asset without the right to operate it. This is a daft plan.
Secondly, the landing slots owned by Aer Lingus really are the envy of many nations. These slots have been accumulated because the State identified early on the importance of air travel to an island nation with a tourist industry. These considerations remain valid today, and we must safeguard our connections provided by these slots. To me, the slots should never have been sold along with the airline. Rather they should have been retained in a holding company under state control and made available to airlines flying routes into Ireland. I do not have faith in the contractual burdens that the Minister proposes to put on the slots as a reliable safeguard of our flight connections. Rather, before the sell-off of the remainder of Aer Lingus, I would like to see the State embark on a "sale-and-leaseback" arrangement with Aer Lingus to resecure these slots into State ownership. This will be expensive, but the subsequent sale will pay for it and our enviable flight connections will be truly secured. Otherwise, I guarantee you, in a few years some cleverclogs will find a way to sell these slots to the Oil Sheikhs or the Chinese -or some other country with lots of new money and poor flight connections. I know we will regret any sale of these slots. We are relatively overserved with flight connections in comparison to other similar sized countries, and perhaps take this advantage for granted.
Finally, I'd also add that while the private sector does well at managing staff, using fixed assets and addressing costs -it is not good at everything. For instance, the State is far superior to the private sector at capital investment, largely because in normal times it has concessionary lending rates (and presumably we will do sometime again) and also because it has the luxury of looking at long term benefit rather than simple, immediate cashflow problems. Therefore in all state asset disposals, we should aim to dispose as much as possible with those bodies which deal with large numbers of staff, are responsible for delivering services etc., and avoid disposing of assets which are perfectly well run in State ownership and can be used to serve strategic national aims. Legal title to the Grid and ownership of the landing slots are perfect examples of critical national infrastructure which can be leveraged to national ends, can be invested in cheaply by the State and which have small staffing and management requirements. They are better run under public ownership.
sincerely
Ger
I am writing to you about proposals to dispose of ESB, and also Aer Lingus. In particular, I would like to argue that any sale of these assets should not include the electricity grid or foreign landing slots in the ownership of these companies.
Firstly, the electricity grid: the current proposal is for the grid to be sold along with ESB, with Eirgrid retaining the contract to run the grid. For 2 reasons this seems a bad idea to me. Firstly, the ownership of the grid should not be in the hands of a private company. The problems this creates in regard to long term investment decisions and the maintenance of competition seem insurmountable. Secondly, and perhaps more importantly, if the grid is sold in this manner, with Eirgrid operating it, we will almost certainly fail to achieve the true value of the grid. What investor, when buying the ESB, will be prepared to pay full price for an electricity grid they cannot even operate? Clearly, to sell the grid bundled with the ESB is to doom us to accept a price below real value. If we are absolutely determined to sell a share of the grid (which I hope is not the case), then we should at least transfer it to Eirgrid first and then sell a minority stake in Eirgrid along with the grid. Noone will be interested in buying the asset without the right to operate it. This is a daft plan.
Secondly, the landing slots owned by Aer Lingus really are the envy of many nations. These slots have been accumulated because the State identified early on the importance of air travel to an island nation with a tourist industry. These considerations remain valid today, and we must safeguard our connections provided by these slots. To me, the slots should never have been sold along with the airline. Rather they should have been retained in a holding company under state control and made available to airlines flying routes into Ireland. I do not have faith in the contractual burdens that the Minister proposes to put on the slots as a reliable safeguard of our flight connections. Rather, before the sell-off of the remainder of Aer Lingus, I would like to see the State embark on a "sale-and-leaseback" arrangement with Aer Lingus to resecure these slots into State ownership. This will be expensive, but the subsequent sale will pay for it and our enviable flight connections will be truly secured. Otherwise, I guarantee you, in a few years some cleverclogs will find a way to sell these slots to the Oil Sheikhs or the Chinese -or some other country with lots of new money and poor flight connections. I know we will regret any sale of these slots. We are relatively overserved with flight connections in comparison to other similar sized countries, and perhaps take this advantage for granted.
Finally, I'd also add that while the private sector does well at managing staff, using fixed assets and addressing costs -it is not good at everything. For instance, the State is far superior to the private sector at capital investment, largely because in normal times it has concessionary lending rates (and presumably we will do sometime again) and also because it has the luxury of looking at long term benefit rather than simple, immediate cashflow problems. Therefore in all state asset disposals, we should aim to dispose as much as possible with those bodies which deal with large numbers of staff, are responsible for delivering services etc., and avoid disposing of assets which are perfectly well run in State ownership and can be used to serve strategic national aims. Legal title to the Grid and ownership of the landing slots are perfect examples of critical national infrastructure which can be leveraged to national ends, can be invested in cheaply by the State and which have small staffing and management requirements. They are better run under public ownership.
sincerely
Ger
Thursday, September 15, 2011
Letter to the Minister for Energy Re: Sale of ESB
Dear Pat,
I am writing to you about the ownership of the electricity grid and the sale of ESB. In particular I am urging decoupling of the grid from the ESB prior to any sale of the state utility.
Firstly, the creation of a competitive electricity market in Ireland is incomplete. ESB remains a dominant player, and its ownership of the grid allows it to influence investment decisions that effect the whole market. Our principle aim must be to create a competitive industry where other smaller companies get a fair crack of the whip. A large dominant player is neither economically sensible nor fair to the smaller competitors. Consumers, including employers, suffer from the resultant high electricity prices.
Secondly, I am extremely concerned that we will not gain the full value of the transmission grid in any sale if it is bundled with the ESB. Because the grid is operated by Eirgrid, it is therefore not an attractive investment for private investors. No sensible investor wants to pay full price for an asset they will not be allowed to operate. By selling the grid with ESB, I believe we are doomed to accept a price that is substantially below the true value of the grid. It can only be sold for full price if Eirgrid is sold along with the grid (although I definitely do no advocate this).
Therefore, both to improve competition and to safeguard the value of State assets, I urge you to decouple the grid from the ESB prior to any sale of the ESB.
I am writing to you about the ownership of the electricity grid and the sale of ESB. In particular I am urging decoupling of the grid from the ESB prior to any sale of the state utility.
Firstly, the creation of a competitive electricity market in Ireland is incomplete. ESB remains a dominant player, and its ownership of the grid allows it to influence investment decisions that effect the whole market. Our principle aim must be to create a competitive industry where other smaller companies get a fair crack of the whip. A large dominant player is neither economically sensible nor fair to the smaller competitors. Consumers, including employers, suffer from the resultant high electricity prices.
Secondly, I am extremely concerned that we will not gain the full value of the transmission grid in any sale if it is bundled with the ESB. Because the grid is operated by Eirgrid, it is therefore not an attractive investment for private investors. No sensible investor wants to pay full price for an asset they will not be allowed to operate. By selling the grid with ESB, I believe we are doomed to accept a price that is substantially below the true value of the grid. It can only be sold for full price if Eirgrid is sold along with the grid (although I definitely do no advocate this).
Therefore, both to improve competition and to safeguard the value of State assets, I urge you to decouple the grid from the ESB prior to any sale of the ESB.
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