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Name: ID Number: Project Title: Internal Supervisor: Degree Title: Date: Word Count: Adam Burke 10112545 Privatisation in Ireland: The Divestiture of Bord Gis Energy Dr. Donal Palcic Bachelor of Arts in Economics and Sociology 20 February 2014 12,983

Abstract
A new round of divestiture in the Irish public enterprise portfolio appears imminent. Government is pursuing privatisation as a means of raising revenue to service the countrys debt and part-finance its NewERA economic stimulus package in the wake of Irelands financial crisis. This paper contends that this privatisation policy is a manifestation of lead coalition government member Fine Gaels neo-liberal economic agenda that seeks to reduce the role of the state in the provision of goods and services previously provided by state owned enterprises (SOEs). The theoretical and empirical case for privatisation as a means of improving enterprise performance is demonstrated to be ambiguous. A case study of the ongoing divestiture of Bord Gis Energy (BGE) is undertaken which finds that BGE is being solid amidst significant regulatory and governance shortcomings and via a method of sale widely criticised in the failed divestiture of Telecom ireann. In conclusion, a recommendation is made that calls for the immediate postponement of any future privatisation of Irelands SOEs.

Contents
Acknowledgements Declaration List of Abbreviations List of Figures and Tables Introduction Chapter 1 Literature Review 1.0 Introduction 1.1 Defining Economic Efficiency 1.2 Theoretical Literature Review 1.3 Methodological Issues 1.4 Empirical Literature Review 1.5 Conclusion Chapter 2 Public Enterprise and Privatisation in Ireland 2.0 The History of Irelands Public Enterprise Formation 2.0.1 Introduction 2.0.2 Public Enterprise Formation in Ireland: 1927-1957 2.0.3 Public Enterprise Formation in Ireland: 19572.1 Privatisation in Ireland 2.1.1 Introduction 2.1.2 Privatisation in Ireland: 1991-1996 2.1.3 The Privatisation of Telecom ireann 2.1.4 Privatisation in Ireland: 2001-2006 Chapter 3 A New Round of Divestitures 3.0 Introduction 3.1 The Economic Crisis in Ireland 3.2 Fine Gaels New Economy Recovery Authority 3.3 Memoranda of Understandings 3.4 Report of the Review Group on State Assets and Liabilities Chapter 4 The Privatisation of Bord Gis Energy 4.0 Introduction 1989 5 6 7 8 9 11 11 11 11 13 13 16 17 17 17 17 19 19 19 20 21 22 24 24 24 26 28 29 31 31

4.1 The Economics of Natural Gas 4.2 The European Gas Market 4.3 Bord Gis ireann 4.3.1 The Development of Bord Gis ireann 4.3.2 The Structure of Bord Gis ireann 4.4 Bord Gis Energy 4.4.1 Introduction 4.4.2 Market Share: Electricity 4.4.3 Market Share: Natural Gas 4.4.4 Price Regulation in the Residential Supply Sector 4.4.5 Business Performance 4.5 The Sale Process to Date Chapter 5 Future of Privatisation Policy in Ireland 5.0 Introduction 5.1 A Critique of the Imminent Privatisation of Bord Gis Energy 5.2 Recommendations in Conclusion Bibliography

32 33 34 34 35 36 36 37 37 38 40 42 45 45 45 47 48

Acknowledgements
Firstly, I would like to thank my supervisor Dr. Donal Palcic whose guidance and expertise were invaluable throughout the development of this project.

I would also would like to thank Shelby, for being a beautiful distraction and infinitely patient throughout.

Finally, I would like to thank my parents Ger and David. Your sacrifice, love and encouragement have enabled me to thrive during my four years at the University of Limerick. One day I will be able to repay the debt I owe you.

Declaration
I hereby declare that this project is entirely my own work, in my own words, and that all sources used in researching it are fully acknowledged and all quotations properly identified. It has not been submitted, in whole or in part, by me or another person, for the purpose of obtaining any other credit / grade. I understand the ethical implications of my research, and this work meets the requirements of the Faculty of Arts, Humanities and Social Sciences Research Ethics Committee.

_____________________

Adam Burke 20/02/2014

List of Abbreviations
UK SOE BGE NewERA Ltd. EC EU IMF ECB TFP ROCE VA DEA ACC ICC TSB ESOP MoU GDP GJ US VAT USSR NAM OPEC KM CER NDM IC FVT RTF TD RBC OECD ICTU United Kingdom State Owned Enterprise Bord Gis Energy New Economy Recovery Authority Limited European Council European Union International Monetary Fund European Central Banl Total Factor Productivity Return on Capital Employed Value Added Data Envelopment Analysis Agricultural Credit Corporation Industrial Credit Corporation Trustee Savings Bank Employee Share Ownership Plan Memoranda of Understanding Gross Domestic Product Gigajoule United States Value Added Tax Union of Soviet Socialist Republics Nederlandse Aardolie Maatschappij Organisation of the Petroleum Exporting Countries Kilometre Commission for Energy Regulation Non-daily metered Industrial and Commercial Fuel Variation Tariff Regulated Tariff Formula Teachta Dla Royal Bank of Canada Organisation for Economic Co-Operation and Development Irish Congress of Trade Unions

List of Figures and Tables

Table 1 Commercial State-Owned Enterprises in Ireland by the 1980s Table 2 Privatised SOEs in Ireland and Exchequer Proceeds Fig. 1 The Structure of Bord Gis ireann and its Subsidiaries Table 3 Table 3: Market Share of Electricity Suppliers as a Percentage of Customer Numbers Across Market Segments Table 4: Market Share of Natural Gas Suppliers as a Percentage of Customer Numbers across Market Segments Market Share of Residential Natural Gas Supply Irish Residential Gas Prices to Residential Consumers at Purchasing Power Parity (all taxes included) (1st Semester 2013) EU Comparison Fig. 3 BGE Operating Profit before Depreciation and Amortisation (EBITDA) 2009-2012 37 35 20 18

Table 4

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Fig. 2 Table 5

39 40

Fig. 3

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Introduction
Since being brought into vogue by Margaret Thatchers UK conservative government in the late 1970s, privatisation has prevailed as the most popular means of improving public sector performance. This prevalence is largely due to a global swing towards a hegemonic neoliberal economic ideology which seeks to minimise government control of the economy by establishing a liberal and competitive private sector market economy. Privatisation has thus become a divisive issue in a wider ideological debate about the role of government in the economy. It is often presented by proponents as the common sense approach to modern economics, while those in opposition tout it as a malicious method of undermining public welfare in the pursuit of maximised profits (Palcic and Reeves 2011). The term privatisation has been used loosely to describe a variety of public sector reforms including liberalisation, deregulation and contraction out of public sector activities. Thus, Starr (1988) defines privatisation as any transfer in the production of goods and services from the public to the private sector. Starr (1988: 16-17) refines this definition in the following sub-categorisation: Governments responsibilities. The sale or lease of public assets (public land, infrastructure or state owned enterprises) by the state to transfer ownership to the private sector. Government withdrawal from the production of services while remaining financier. For example, this can occur by contracting out or through some forms of public private partnerships. The deregulation of entry into former state monopolistic markets. ending public programmes and disengaging from specific

For the purpose of this study, privatisation will hereafter refer exclusively to the transfer of state owned enterprises (SOEs) to the private sector by sale. SOEs are to be understood as per Palcic and Reeves (2011) explanation as commercial enterprises owned by the state, who earn the majority of their income in selling goods and services.

As the pioneers of privatisation policies in Europe, empirical research of the European privatisation experience has typically focused on the experience of the UK. There exists a small but growing trend of country specific studies which seek to illuminate the motivations, rationale, methods and outcomes of the privatisation of state owned companies (Palcic and Reeves 2011). This study seeks to contribute to the existing literature on the Irish privatisation experience by providing an analysis of the ongoing divestiture of Bord Gis Energy (BGE), the retail arm of Irelands state-owned utilities company Bord Gis ireann. This study is structured as follows; a review of the theoretical and empirical literature of privatisation to date is undertaken. This theory is then applied to an analysis of Irish SOE formation and privatisation activity to date. Irelands current economic crisis is then identified and explained as a driving force and rationale for a renewed interest in privatisation in the context of a structured bailout programme. A number of documents are then analysed; the governments NewERA economic stimulus plan, the various Memoranda of Understanding agreed in return for Irelands bailout between the Irish government and the EC/IMF/ECB and a Report of the Review Group on State Assets and Liabilities. This analysis will identify the trajectory of recent privatisation policy formation and demonstrate the key role played by the Troika in the decision making process. A case study of the ongoing divestiture of Bord Gis Energy follows.

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Chapter 1: Literature Review

1.0 Introduction
A thorough review of the theoretical and empirical literature of privatisation policy is essential in moving beyond a discourse all too often hijacked by vested interests. This literature largely developed in parallel with the implementation of privatisation policies in the UK in the early 1980s and has advanced substantially since. A period of stagflation with sustained unemployment, decreasing growth and rising inflation in the 1970s undermined Keynsian economic theory and paved the way for neo-liberal reforms in the British economy. Deregulation, liberalisation and privatisation were the order of the day as the British government sought to emerge from economic crisis (Palcic and Reeves 2011).

1.1 Defining Economic Efficiency

The economic argument for the sale of SOEs to the private sector is generally premised on the supposition that enterprises under private ownership will achieve superior efficiency. It is imperative to distinguish between different concepts of efficiency. Parker (2000: xv) offers this distinction; Technical efficiency, a supply side concept, occurs when firms minimise costs by maximising output at a given level of resources. Allocative efficiency, on the other hand, is conceptualised from the demand side. Firms are allocatively efficient when they when they set prices equal to the marginal economic cost of supply. In doing so, societal economic well being is maximised through an optimal distribution of resources.

1.2 Theoretical Literature Review

The initial theoretical rationale for employing privatisation as a means of improving economic efficiency came from theories of government failure; public choice perspectives and property rights. Principal-agent theory was subsequently developed as a contractual approach to the theoretical analysis of privatisation, and has influenced much of the theoretical developments in the area thereafter (Palcic and Reeves 2011). Public choice theory as developed by Buchanan and Tullock (1962) focuses on the motives of elected representatives and bureaucrats as a source of inefficiency. Chicagoan public choice theory asserts that decision making will always be based on individuals financial selfinterest. Thus, public sector workers and politicians will always forsake maximised profits
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and efficiency in pursuit of personal financial gain. It is argued that privatisation can put in place an incentive structure that allows for the alignment of financial self-interests and corporate goals. Virginian public choice theory on the other hand, identifies non-economic, political motivations for privatisation such as a reduction in state power. This leads Boycko et al (1996) to claim that democratic elections, rather than ownership per se, are the primary source of inefficiencies in state owned enterprises. Parker and Willner (2007) have developed a considerable rebuttal to public choice theory in which they question the very assumption on which the literature is built, that of the individual as homo economicus. They assert that the concept of an economically rational, financially driven individual is not useful in all situations, pointing to the examples of non-commercial activity and social institutions. Furthermore, they argue there to be a bias in the preposition that public sector managers are inherently more disposed to being self-serving and wasteful. They go on to question whether state owned enterprises operate more efficiently in a dictatorship as implied by Boyckos (1996) rationale and find the opposite to be empirically true. De Alesi (1987) concedes that state intervention in the provision of goods and services is useful in so far as it allows for the correction of allocative and distributive market failures. However, he employs a property rights argument to justify privatisation. He sees public servants as pursuing their own self-interest and those of lobbying groups. They do not maximise profit or efficiency, nor do the y operate in the publics best interest. Thus public ownership is easily corrupted, bent to political will and unaccountable. However, it can be argued that the incentive to maximise efficiency for governments is large, as state owned enterprises directly influence government finances and that the democratic process is such that the pressure of future elections makes governments accountable for the performance of those enterprises under their control (TASC 2012). Principal-agent theory examines the relationship between a principal who delegates work to an agent. Objective and information asymmetries characterise this relationship under public ownership; the principal and agents objectives can become misaligned, and the principal strains to see what the agent is doing through a thick layer of organizational bureaucracy. Bs (1991: 92) argues that privatisation alters the context of this relationship. The layer of bureaucracy is reduced, and ownership is diversified amongst a multitude of parties, such as financial organizations, individual shareholders and employees. It is argued that these
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organizational and ownership changes induce an environment where incentives can be realigned, monitoring increased and information can flow more freely. The struggle to design appropriate incentive structures and contracts is overcome, thereby leading to greater efficiency.

1.3 Methodological Issues

Prior to a review of empirical studies of privatisation, it is important to highlight the key methodological issues that inevitably compromise any comparative study of public versus private enterprises. As mentioned previously, state owned enterprises often operate with motives beyond profit. These enterprises can become vehicles of government policy. Thus, standard performance indicators used to measure performance in the private sector such as financial, productivity and cost measures may not be appropriate for publicly owned companies thereby undermining comparative studies. Furthermore, price as a basis of most indicators may not be appropriate as many state owned enterprises operate in non-competitive markets (Palcic and Reeves 2011). The effect of ownership change is but one of a host of factors such as the regulatory environment, size, market and incentive structures that affect performance. This is further complicated when looking at performance over time, where one must also control for technological variation and sector trends. The task of controlling for such a vast set of interdependent and non-mutually exclusive variables so as to isolate the effect of ownership on performance is a daunting one, and something that a lot of studies fail to achieve. The following will review the empirical literature of privatisation in light of these methodological challenges (Palcic and Reeves 2011).

1.4 Empirical Literature Review

A nominal division of the numerous empirical studies of the effect of privatisation on financial and operating performance can be made along the lines of broad based international studies and in-depth country specific studies. The methods, limitations and conclusions of a selection of prominent studies from both categories are discussed and their collective results demonstrated to be ambiguous. Much of the early empirical research on privatisation was conducted in the UK, as academics clamored to understand the effects of its governments pioneering public sector reforms.
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Yarrow (1986) used financial performance indicators to study productive efficiency. It was found that private ownership was preferential over public ownership in competitive markets. However, where there existed a market failure, no evidence of improved performance could be observed following divestiture Bishop and Kay (1989) used similar performance indicators to assess the productive efficiency of a sample of UK public and privately owned enterprises in a comparative study. A total factor productivity analysis was also undertaken. This study found that growth and profitability can cause privatisation, and that the very threat of privatisation can improve performance through increasing commercialisation. Bishop and Thompson (1992) studied the performance of British utilities between 1970-1980 and 1980-90. Labour productivity gains were found, as privatisations took hold at the end of the 1970s. Productivity gains measured with a total factor productivity analysis were identified to be higher in the 1980s than the 1970s but the researchers suggest that changes in the regulatory environment were more influential than ownership changes in bringing about these gains. These studies are not without methodological problems. Both studies by Yarrow (1986) and Bishop and Thompson (1992) were undertaken immediately after privatisation thus precluding the longer term effects of these divestitures from their a nalysis. Bishop and Kays 1989 study failed to control for national productivity which may have had a significant bearing on their findings. Furthermore, the time periods analysed in Bishop and Thomsons 1992 study did not coincide with the times of privatisations occurring thereby rendering it very difficult to identify the effect of privatisation on the observed productivity gains. In general, such studies fail to account for the effect of organisational and management changes that tend to arise with an ownership change. If the effect of these changes has a significant bearing on performance gains, a case might be made for corporate restructuring over privatisation as a means of achieving economic efficiency (Palcic and Reeves 2011). Three broad based empirical studies conducted by Meggison et al (1994), Boubakri and Cosset (1998) and DSouza and Meggison (1999) collectively analysed the effect of privatisation on the performance of 211 firms, across 42 countries and 56 industries. Using largely the same methodology, the studies tested whether privatisation led to increased profitability, operating efficiency, capital investment spending output, dividend payments, decreased employment and leverage. These performance indicators were measured for the three years prior to and following divestiture.
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Meggison et al (1994) found performance to be superior following privatisation. Profitability, dividend payments and capital investment increased while employment remained constant. These performance indicators were not market adjusted; however they concluded that their results were not influenced by the macroeconomic environment by computing the average Gross National Product growth rate, inflation rate and change in countries industrial production index. Boubakri and Cosset (1998) found similar gains in performance while exclusively studying privatisation in developing countries. They sought to isolate the effect of privatisation from economy wide factors by calculating performance indicators with both raw and market adjusted data. DSouza and Meggison (1999) made no such allowance for the business cycle. However, their findings correspond with those of the two aforementioned studies, as well as measuring an increase in post-divestiture employment. These studies do not overcome the methodological issues as outlined previous. The performance measures employed cannot accommodate the non-profit motive of state owned enterprises, nor can the effect of divestiture be isolated from the wide array of determinants of performance. Further problems arise when one analyses the composition of the companies studied in these broad based studies. Boubakri and Cosset (1998) dealt exclusively with divestitures in developing countries. The relevance of their experience could be questioned for a study of a small open economy such as Irelands. Furthermore, DSouza and Meggison (1999) used a sample with a high proportion of electricity and telecom companies. Such companies experiences have been unique, with a global policy preference towards privatisation as a means of funding the capital investment needed for a rapid technological advancement in the sector. Thus, their findings are limited in their application to other sectors at different stages of development (Palcic and reeves 2011). While the methodological difficulties in studying privatisation are such that the academic literature is unavoidably imperfect, Martin and Parkers (1997) study of 11 privatised companies in the UK represents one of the most comprehensive to date. Throughout, national productivity trends were accounted for and averages figures used for periods before and after divestiture. The researchers employed several methods to establish the impact of privatisation on performance: Martin and Parker (1997) began by studying the effect of the change from public to private ownership had on labour productivity, finding it increased in most cases. However, a Total Factor Productivity (TFP) analysis saw TFP increase in only 2 cases. The researchers
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concluded that overstaffing occurred in public enterprises through managerial slackness and inefficiencies arising from political intervention. Repeating the study using the accountancy ratios Return on Capital Employed (ROCE) and Value-Added (VA), the researchers could not support the hypothesis that private enterprises performed better than their public counterparts on efficiency grounds. In looking at the affect of privatization on technical efficiency, Martin and Parker (1997) employed a Data Envelopment Analysis (DEA). This linear programming method derives the relative efficiencies of decision making units. Using 3 different models, no systemic evidence of technical efficiency gains following divestiture were found, despite 3 of the 11 privatised companies demonstrating technical efficiency gains. Finally, the effect of business restructuring on performance was analysed in the context of privatisaion and a change in the competitive environment. This highlighted the importance of internal factors on performance, as privatisation and a more competitive market were found to bring about several positive changes internally, such as an increased focus on profits and consumer needs, flexible working practices, a flattening of organisational structures and an increase in disposals and acquisitions.

1.5 Conclusion
The theoretical literature of privatisation is inconclusive. Even if we agree that in theory, privatisation can lead to improved efficiency and profitability, the effect of privatisation on wider society must be considered. One must acknowledge that economic efficiency is not always the primary motive of a state owned enterprise. The deliverance of a good quality product or service at an affordable price, with universal access may not be a technically efficient strategy, but is equitable and beneficial to the wider society. Nobel Prize laureate Joseph Stiglitz (1994) describes privatisation as a trade off between Technical and Allocative efficiency, the result of which is ambiguous at best: We cannot, in general, be assured that private production is necessarily "better" than public production. Privatization involves costs and benefits, which, as always, must be weighed against each other. (Stiglitz 1994: 194)

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Chapter 2: Public Enterprise and Privatisation in Ireland

2.0 The History of Irelands Public Enterprise Formation
2.0.1 Introduction An analysis of the rationale for the formation of SOEs in Ireland is necessary to contextualise subsequent privatisation policies, and understand the key role SOEs continue to play in important sectors of the Irish economy. The following explores the history of Irelands public enterprise formation up until the 1980s, as underpinned by factors both common to SOE formation in Europe and unique to Irelands experience. Parris et al (1987: 14-21) explains why Post-World War Two European governments sought the establishments of a strong public enterprise sector. A socialist political ideology prevailed, which advocated for public ownership. Countries saw SOEs as necessary to developing national wealth in the absence of private sector initiative. Such SOEs could be used as a vehicle for regional development. Sectors characterised by duplication were being rationalised with the establishment of state mandated monopolies. Although many of these factors which underpinned European SOE formation are relevant to Ireland at particular points in time, the chronology of Irelands SOE formation is somewhat different. Having gained independence in 1922 and exercised neutrality throughout World War One and Two, Ireland did not develop its SOEs in accordance with wide European trends (see Table 1 for chronology). 2.0.2 Public Enterprise Formation in Ireland: 1927-1957 Protectionist policies were pursued in Ireland following independence from British rule in 1922. The state sought to break neo-colonial ties with Britain by vying for self-sufficiency with an extensive import-substitution program. The successful establishment of the Electricity Supply Board in 1927 set a precedent for public enterprise as a means of achieving economic development (Palcic and Reeves 2011). Sweeney (1990) explains that SOEs were subsequently established to meet the extraordinary needs of the fledging state. The Agricultural Credit Corporation was also established in 1927, and the Industrial Credit Corporation in 1933, to provide much needed funding to Irelands agricultural and industrial sectors respectively. The Irish Sugar company was established in 1933 as a prototype of a commercial SOE. As government continued to strive towards self-sufficiency, Ceimici Teo
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was established in 1939, initially as a producer of industrial alcohol, but then extending to produce a multitude of chemicals. In 1936 Ireland established Aer Lingus as the state airline, while Aer Rianta took control of Dublin Airport.
Table 1: Commercial State-Owned Enterprises in Ireland by the 1980s Company Agricultural Credit Corporation Electricity Supply Board Industrial Credit Corporation Irish Sugar Aer LIngus Aer Rianta Ceimici Teo Irish Life Irish Shipping Cras Iompair ireann Established 1927 1927 1933 1933 1936 1937 1939 1939 1941 1944 Sector Banking & Finance Electricity Banking & Finance Sugar Production Air Transport Airports Chemicals Insurance Sea Transport Rail & Road Transport Peat Production Steel Production Seaweed Processing Health Insurance Broadcasting Fertiliser Production Sea Transport Banking Gas Distribution Oil Refining & Supply Telecommunications Postal Services Forestry

Bord na Mna 1946 Irish Steel 1946 Arramara Teo 1949 Voluntary Health Insurance 1957 Raidi Teilifs ireann 1960 Ntrigin ireann Teo- IFI 1961 B&I Line 1965 Foir Teo 1972 Bord Gis ireann 1976 Irish National Petroleum Corporation 1979 Telecom ireann 1984 An Post 1984 Coillte Teo 1989 Source: Palcic and Reeves 2011

The outbreak of World War Two in 1939 provided an additional impetus for Ireland to operate self-sufficiently. Irish Shipping was founded in 1941 to secure service between Ireland and Britain during the war. The transport company Cras Iompair ireann, Irish Steel and a seaweed processing company Arramara Teo were established throughout the 1940s following nationalisations and mergers (see Table 1). The state established itself in the financial services sector with the formation of Irish Life Assurance Company in 1939 following the nationalisation of 5 British companies the state had invested in, and formed the Voluntary Health Insurance company in 1957 to insure those not covered by the Health Acts (Palcic and Reeves 2011).

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2.0.3 Public Enterprise Formation in Ireland: 1957-1989 SOEs now existed across many sectors, and were essential in implementing broad government policies as Ireland began to embark upon an era of outward looking economic planning from 1958. Governments emphasis shifted from self sufficiency to establishing an export orientated economy which was attractive to foreign direct investment. Agencies such as Cras Trchtl and the Irish Export Board were formed to service the needs of this private capital by offering advice and information (OMalley 1989:86). Other agencies were established such as Gaeltarra ireann in 1959 to develop Irish speaking areas and Bord Iascaigh Mhara in 1952 to develop Irelands fishing industry. Commercial SOEs continued to be established; the state broadcasting agency Raidi Teilifs ireann in 1960, the fertiliser company Ntrigin ireann Teo in 1961 and B&I Line, a ferry company formed in 1965 following the nationalisation of a failing British company (Palcic and Reeves 2011). SOE formation continued into the 1970s, with the establishment of the state rescue bank Foir Teo in 1972. Of particular interest to this study is the establishment of Bord Gis ireann in 1976 as the monopoly distributor of natural gas in Ireland. Telecom ireann and An Post (1984) and the state forestrys company Coillte Teo in 1989 were corporatized from the civil service to become commercial SOEs. At the beginning of the 1980s, 23 SOEs were categorized as commercial entities engaging in the production of goods and services (Palcic and Reeves 2011). In sum, the rationale for establishing SOEs in Ireland was largely due to the need for the creation of national wealth in a newly independent state without basic industries or the means of attracting private enterprise. The formation of SOEs provided state autonomy and the means to pursue state goals (Palcic and Reeves 2011).

2.1 Privatisation in Ireland

2.1.1 Introduction The Irish state has to date raised 8.36 billion in privatisation revenues, significantly changing the structure and composition in several key sectors of the Irish economy (Palcic and Reeves 2011). This section explores these divestitures by applying the aforementioned theoretical rationales of principal agent and public choice theories. Furthermore, it is explained that European integration influenced government to privatise SOEs; the Single Common Market necessitating liberalisation incompatible with certain public monopolies, the
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Maastricht Treaty asserting a pressure to quickly reduce government debt and deficits to meet its criteria and the issuing of EU directives banning state aid to failing SOEs (Palcic and Reeves 2011). In conclusion, it will be demonstrated that decisions to privatise in the Irish case have been made pragmatically, and not based on any single rationale.

Table 2: Privatised SOEs in Ireland and Exchequer Proceeds Company Year of sale Exchequer proceeds (000s) 210,650.8 601,930.8 10,792.8 0 6,399,907.9 322,274.8 408,350.3 20,000.0 154,603.0 240,902.3 8,369,412.7

Irish Sugar Apr. 1991 Irish Life Jul. 1991 B&I Line Jan. 1992 Irish Steel Apr. 1996 Telecom ireann Jul. 1999 Industrial Credit Corporation Feb. 2001 Trustee Savings Bank Apr. 2001 Irish National Petroleum Corporation Jul. 2001 Agricultural Credit Corporation Feb. 2002 Aer Lingus Oct. 2006 Total Source: Palcic and Reeves 2011

2.1.2 Privatisation in Ireland: 1991-1996 Throughout the 1980s, Ireland opted to commercialise its SOEs rather than follow a growing trend of privatisation in the UK and Europe, despite facing a severe financial crisis. Government promises to trade unionists to avoid privatisations were eventually broken however, as the pro-privatisation Progressive Democrats came into power as a minority coalition member in 1989. The dual divestiture of Irish Sugar Company and Irish Life Assurance in 1991 set a precedent for further divestitures in Ireland. These privatisations can largely be explained with Chicagoan public choice theory, which demonstrates internal actors ability to lobby relevant government ministries and officials. The privatisation of Irish Sugar Company and Irish Life Assurance was driven by decision makers within the companies, who pushed their privatisation agendas through to IPOs in 1991 (Palcic and Reeves 2011). Government continued to proceed cautiously and pragmatically following these divestitures. Increasing the commercial performance of SOEs took priority over changing ownership. Government took a hard line on loss makers, as evidenced by the liquidation of Irish Shipping and Ceimici Teo in 1984 and 1986 respectively. It can be noted that the hard line
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taken at this time was partly due to increasing European integration, with the conditions of the Maastricht Treaty necessitating stricter fiscal discipline. By 1991, shipping company B&I Line had accumulated losses of 170.71 million, relying on exchequer funding to service its debt. Irish steels performance was similarly weak. Between 1980 and 1993, the steel company received 234.9 million funding from government, but remained unprofitable, with a net loss of 16.48 million in 1993. Rather than opt for liquidation, govern ment choose to sell the companies as going concerns. B&I Line was sold in 1992 to Irish Continental Group for 10.79 million, with government agreeing to pay 44.4 million of its debt. Irish Steel was sold in 1996 to ISPAT International (Palcic and Reeves 2011). 2.1.3 The Privatisation of Telecom ireann By far the most significant divestiture in the history of the Irish state is that of Telecom ireann (T); the national telecommunications operator. From its establishment in 1984, T operated as a monopoly in the Irish telecommunications market. EU legislation saw T facing full market liberalisation in 1998. To adapt to this impending competitive market, internal management sought large capital investment. It was argued that such an investment could only come from private sources thus management instigated a partial strategic privatisation, eventually leading to full privatisation. In 1996 Comsource consortium purchased a 20% stake in T, with an option to increase this holding to 35%. The Communications Workers Union, the final hurdle in the full divestiture, agreed on the basis of a generous 5% employee share ownership plan, with a further 9.9% stake bought at a fair price (Palcic and Reeves 2011: 155-177). T, rebranded as Eircom, was fully privatised in 1999 with the remaining 50.1% stock flotation generating sales revenue of approximately 6.4 Billion. To put this in the context, this represents 76.47% of total exchequer proceeds from privatised SOEs in Ireland. Government promoted Ts flotation as a means promoting popular capitalism. Its goal of widening share ownership seemed successful initially, with 575,000 people purchasing stock. However as stock prices deteriorated, many thousands of these small shareholders were burned, curbing the publics appetite for future privatisations (Palcic and Reeves 2011: 155177). The privatisation of T has become known to be an example of failure in privatisation. The lessons learned from this should be applied in future privatisations. Central to this failure was governments decision to sell T as a vertically integrated business, not keeping the network
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element of the business in state control. Also, selling T in one go as opposed to gradually reducing ownership and keeping a golden share, which would have allowed the state to prevent undesirable changes in ownership has been a source of much criticism (Palcic and Reeves 2011: 155-177). Eircom, was split up, with its fixed line business sold to private equity consortium Valentia. In 2006, Australian investment firm Babcock and Brown bought Eircom in a leveraged buyout and subsequently sold it to Singapore Technologies Telemedia in 2010. Eircom now holds over 4 billion in debt, which has hampered its ability to invest in capital infrastructure and contributed significantly to the slow roll out of broadband services in Ireland. This infrastructural deficit persists in Ireland today, and has necessitated government intervention (Palcic and Reeves 2011: 155-177). 2.1.4 Privatisation in Ireland: 2001-2006 Between 2001 and 2002, the 3 state owned commercial banks were privatised; the Agricultural Credit Corporation (ACC), Industrial Credit Corporation (ICC) and Trustee Savings Bank (TSB). Government policy sought to foster competition in Irelands banking sector and considered a number of options for the 3 publicly owned banks including a merger of the three or the sale of TSB to recapitalise a merged ACC and ICC. With privatisations initially mooted in 1992, it was 2001 before the ICC was sold to Bank of Scotland (Ireland) for 349 million. TSB was sold later that year to Irish Life and Permanent for 430 million to form Permanent TSB. In 2002, the ACC was sold to Rabobank for 165 million. In all three cases, ESOPs of 14.9 % were agreed which ensured worker cooperation. Successive governments were in agreement that government should exit the banking sector, selling 3 small players to aid competition. This rationale guided the privatisations through a protracted period of practical difficulties in finding an appropriate buyer for each (Palcic and Reeves 2011). In July 2001, the Irish National Petroleum Company was sold to Tosco Corporation for 116 million. The cost of capital investment necessary to upgrade its refinery facilities was deemed too high to be paid from the exchequer and the sale proceeded with a number of conditions; Tosco agreed to commercially operate the refinery and terminal operations for 15 years while maintaining existing jobs and employment conditions. Also, they agreed to undertake any capital investment necessary to adhere to future EU regulations (Palcic and Reeves 2011).

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The state-owned airline Aer Lingus had struggled to remain commercially viable through a volatile 25 year period which included the Gulf War of 1990-91, the outbreak of foot and mouth disease in 2000 and the terrorist attacks on New York and Washington in September 2001. 2 rationalisation plans saw injections of state capital, sale of non-core assets, a pay freeze, redundancies and a granting of a 14.9% ESOP. As the state made it clear it would not provide any further capital injections, management sought to mobilise private capital to meet the cost of funding necessary fleet renewal. Government opted to retain a 25% stake in the company, and floated the remainder on the stock exchange in 2006. The decision to privatise was initially made in 1999; however a lack of political impetus for privatisation following the failed privatisation of T among other political considerations protracted the process (Palcic and Reeves 2011).

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Chapter 3: A New Round of Divestitures

3.0 Introduction
A new round of divestitures in the Irish public enterprise portfolio is imminent. The historical context of Irelands public enterprise development has been explained. This chapter will go on to locate Irelands return to privatisation in its economic and political context. The Irish government is making privatisation decisions in a situation unprecedented in an Irish context; public finances have been decimated and economic sovereignty surrendered. The potential for an economically ill-advised fire sale of state assets is large. Bord Gis Energy, the retail arm of the state owned utilities company and network operator Bord Gis ireann, has been identified by government as a non-strategic asset and a suitable candidate for privatisation. To evaluate the economic case for this planned privatisation, this chapter analyses the evolution of this policy through a number of influential documents; Fine Gaels New Economy Recovery Authority (NewERA) plan, Memoranda of Understandings (MoUs) between the Irish government and the Troika of global institutions over seeing their bailout program and a Fianna Fil requested Report of the Review Group on State Assets and Liabilities published in 2011. These documents have shaped recent Irish privatisation policy.

3.1 The Economic Crisis in Ireland

It can be noted that since 2002, there had been a general lack of appetite for privatisation. The state had withdrawn from several key sectors of the economy, and those commercial SOEs that remained were large utility companies or companies not appropriate for private ownership because they held considerable market power (Palcic and Reeves 2011). The following section explains the national economic crisis that has emerged since 2008 which has seen the state re-enter the banking sector and return to privatisation as a means of raising revenue for the exchequer. Between 1994 and 2007, the Irish economy experienced an unprecedented period of sustained real economic growth. During the period, the Irish economy expanded at an average rate of 9%, had average unemployment of just 3.6%, and experienced low inflation at 1.4%. Commentators dubbed it The Celtic Tiger economy. Donovan and Murphy (2013) argue that up until 2002 this growth was sustainable. Ireland was established as a springboard to Europe for investors. Boasting favourable corporate tax rates of 12% and as the only English speaking country in the Euro currency zone, Ireland was well positioned to take
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advantage of a global technological boom. Good macro-economic policies underpinned this growth, as evidenced by an ability to reduce its debt to GDP ratio to 25% (Central Statistics Office 2012). Donovan and Murphy (2013) note the global economy began to contract in 2002. Equity markets in the US and Europe fell due to unrealistic profit expectations largely in the technology sector. Terrorist attacks in the US on September 11th 2001, and the foot and mouth crisis of the same year saw a downturn in the US and European economies. They suggest that Ireland resisted this contraction by pursuing policies to grow its construction sector. Where in the 1990s increasing property prices were arguably justifiable by real economic growth, an artificial property bubble was created. This second phase of economic activity was fuelled by cheap access to European wholesale credit from an Irish financial sector under light regulation from government, the financial regulator and the central bank. The Irish government received windfall revenue through stamp duty, capital gains tax and construction sector related VAT. Government pursued pro-cyclical policies by increasing budget expenditure and balancing it against unsustainable property related tax revenue. By 2007, the property bubble had developed to the extent that residential property prices had quadrupled since 1996 (Palcic and Reeves 2013). This property bubble inevitably burst after 2007. Prices of residential properties in Ireland in September 2013 have fallen 62.2% from their peak in August 2007 (Central Statistics Office 2014a). This collapse in construction activity saw a sharp rise in unemployment, from 4.5% in 2007 to 12% in 2009 (Central Statistics Office 2014b) which squeezed public finances already reeling from the loss of property related revenue such as stamp duty, on which the exchequer had become overly reliant on. As the economy contracted, it became apparent that the Irish banking sector was overly exposed to the property sector. At the end of 2007, bank loans and advances to customers were over twice the s ize of the countrys GDP, at almost 400 billion (Nyberg 2011). By late September 2009, the Irish banking sector was on the brink of collapse. The Irish government took the decision to guarantee the deposits and most liabilities of all Irish banks, a gross liability guarantee of 375 billion, 33% of which was senior unsecured debt. Government decided that it would prevent any Irish bank from defaulting on its maturing obligations, thereby avoiding a crisis of confidence in the Irish banking sector and preventing a run on Irish banks. This decision has proven to be an extremely costly one. Government did
25

not foresee the extent of Irish banks bad debts, largely arising from property related loans. To date, the recapitalisation of Irish banks has cost the state 64 billion (Nyberg 2011). Ireland faced a dual dilemma; the true cost of recapitalising its banks was becoming apparent and a massive structural deficit was developing. International financial markets were in a liquidity crisis, and the global economy had begun to slip into recession. International money markets became increasingly reluctant to lend to Ireland. By late 2010, Ireland was unable to access credit and government was forced to enter into an EC/IMF/ECB bailout program on 29 November 2010. Ireland secured 85 billion in funding composed of 45 b illion in bilateral loans and funding from the European Stability Fund, 22.5 billion from the International Monetary Fund and 17.5 Billion from Irish contributions via the National Pension Reserve Fund (Donovan and Murphy 2013). The effects of Irelands economic collapse are made stark by key indicators; Unemployment rose from a low of 3.7% in the first 5 months of 2011, and peaked at 15.1% in February 2012. This figure has improved somewhat to 12.3% in January 2014, although economic emigration accounts for some of this reduction (Central Statistics 2014b). Real GDP for the second quarter of 2013 was 9.8% lower than its peak in the fourth quarter of 2007. Irelands Debt to GDP ratio averaged 71.3% between 1980 and 2012, and fell to a low of 24.8% in December 2006 (Central Statistics Office 2014c). At year end 2013, Irelands Debt to GDP was 124.1% (Irish Fiscal Advisory Council 2013). Government policy in response to this crisis, and the stipulations of the bailout program with the EC/IMF/ECB has significantly altered the composition and function of Irelands public sector; with a raft of nationalisations, new SOE formations and planned privatisations occurring (Palcic and Reeves 2011). Although Ireland left this structured bailout program in December 2013, the decision making process around public enterprise appears to have been altered indefinitely.

3.2 Fine Gaels New Economy Recovery Authority

In November 2009, Fine Gael was the opposition political party in the Irish government when they released the New Economy Recovery Authority (NewERA) plan; an economic stimulus plan that sought to create 105,000 new jobs with a 18.2 Billion investment in Irish infrastructure over a four year period. Fine Gaels NewERA plan aimed to increase long term competitiveness, increase energy security, eliminate the digital divide that has developed

26

between Ireland and Europe and create a new governance structure for the public sector (Fine Gael 2009). This stimulus was to be financed from a number of sources; The European Investment Bank, The National Pension Reserve Fund, commercial borrowings of SOEs, a NewERA recovery bond to be offered to the Irish people and, of primary interest to this study, from revenues accruing from the sale of non-strategic state assets. The non-network elements of both major state utilities companies, Bord Gis ireann and the Electricity Supply Board, were earmarked for sale (Fine Gael 2009). The governance of the state sector would be restructured with the establishment of NewERA Ltd. as the states holding company. 100 professionals would be employed at NewERA to commercially manage 5 new SOEs in a consolidated public portfolio. Smart Grid and Gaslink would become owners and operators of Irelands electricity and gas networks respectively. Furthermore, a National Recovery Wholesale Bank would be established to facilitate commercial borrowings of SOEs (Fine Gael 2009). Fine Gael came into power as the majority party in a coalition government with Labour in September 2011 on the back of an economic mandate largely represented by NewERA. It must be noted that Fine Gaels neo-liberal economic policies, which seek to minimise the states role in the provision of services, is at odds with Labours policies. In their pre-election manifesto in 2011, Labour stated its commitment to public enterprise: Labour is committed to the concept of public enterprise, and is determined to ensure that semi-state companies play a full role in the recovery of the Irish economy. Labour is opposed to short-termist privatisation of key state assets, such as Coillte or the energy networks. (Labour 2011) As Taft (2012) observes, Labour failed to protect this commitment in negotiations for the program for government, which when published contained Fine Gaels commitment to raising 2 Billion in revenue from the sale of state assets (Fine Gael and Labour 2011). At the time of writing, much of this program has not been implemented. The NewERA Ltd. holding company to manage public enterprise has not been established. NewERA has instead developed as a non-statutory body within the National Treasury Management Agency tasked with overseeing the financial performance, corporate strategy, capital and investment plans of the five commercial semi-state companies within its remit; ESB, Bord Gis ireann, EirGrid, Bord na Mna and Coillte (NTMA 2013). Planned divestitures of ESB and Coillte have been
27

rowed back on due to union resistance and popular protest respectively. To date, the establishment of Irish Water as a subsidiary of Bord Gis ireann, a new SOE to take over the operation of the Irish water infrastructure, has been the only full implementation of the plan.

3.3 Memoranda of Understandings

Upon receiving bailout funding from the Troika of global institutions, Ireland signed a bailout agreement renouncing its economic sovereignty. Both the political decision making process and economic landscape were altered from that in which NewERA was developed. Government now had to operate within the parameters of a Troika specified program for government which was to be communicated in a series of Memoranda of Understandings (MoUs) between the government and the Troika. Of interest to this paper is the conditionality for the sale of sale assets prescribed (Palcic and Reeves 2013). Privatisation as a condition of financial support has been a staple of IMF/World Bank bailouts since the 1980s (Bennell 1997, Martin 1993). Where NewERA sought revenue from the sale of non-strategic assets for investment in a stimulus plan aimed to restore growth and finance national investment programs, Troika bailout agreements have prioritised the paying down of national debt. However, Ireland has received somewhat favourable terms in comparison to bailouts in Greece and Portugal (Palcic and Reeves 2013). Indeed, the first MoU signed in November 2010 contained no specifics regarding privatisation. Updated six times since, targets for revenue from divestments have emerged. Although there is significant pressure being exerted from the Troika outside of these MoUs, the Irish government has been afforded independence in deciding which SOEs are to be privatised and some flexibility in the spending of revenues accrued as a result (Palcic and Reeves 2013). Fine Fil ordered a report from the Review Group on St ate Assets and Liabilities. 5 billion in revenues from recommended divestitures were identified in this report which was endorsed in an IMF country report in September 2011 (IMF 2011a). However, upon coming into power as the majority party in a coalition government with Labour in September 2011, Fine Gael indicated it would seek only 2 billion in privatisation revenues. By January 2012, the Troikas Quarterly Review sought specifics from government who scaled this target up to 3 billion (IMF 2011b). This revenue would come from a sale of a minority stake in ESB, a full divestment of the state forestry company Coillte, sale of the states majority stake in the semi-state owned
28

airline Aerlingus and the privatisation of the non-network elements of Bord Gis ireann. However, mass public protests saw a reversal of the planned divestment of Coillte. Furthermore, government reversed its decision to sell a minority stake in ESB. The sale of Aerlingus will be delayed until market conditions become favourable. Thus, the only planned privatisation to date is that of Bord Gis Energy, the retail arm of Bord Gis ireann. The use of the proceeds of any privatisation is much debated, and again the Troika have been flexible in this regard. The latest indication resulting from negotiations in March 2011 is that 50% of revenues will be used to pay down government debt with the remainder available for state investment as per NewEra (IMF 2012).

3.4 Report of the Review Group on State Assets and Liabilities

A report by The Review Group on State Assets and Liabilities as requested by Fine Gael exists as the principle document directing privatisation policy in Ireland. In it, McCarthy et al (2011) recommend 5 billion of revenues to be garnered from the sale of non-strategic state assets. Unfortunately, this report does not contextualise its recommendations in Irelands bailout program and the subsequent changes to the decision making landscape that resulted. It was undertaken amidst a dynamic situation of bargaining between the Irish government and the Troika, who had not yet set specific revenue targets. However, the flexibility afforded to the Irish government as discussed previously means that this does not completely undermine its recommendations. The Review Group recommends sales revenues from privatisation be used to pay down government debt and decrease the burden of necessary spending cuts. They do not advocate for the reinvestment of revenues in infrastructure development as per NewERA (McCarthy et al 2011). As a prelude, the Review Group stresses that there should not be an accelerated sale process, and that sales should only be undertaken after state companies have been restructured and the regulatory environment strengthened. Recommendation 4 calls for a comprehensive review of legislation governing economic regulatory agencies, and necessary legislative amendments made prior to any disposals (McCarthy et al 2011). However, in light of Irelands bailout program, the time needed to undertake this may not be available and the sale process could be inevitably accelerated. The report warns that without significant regulation, there may be a subsequent under investment in infrastructure as occurred in Irish telecoms networks following the sale of T to a private equity fund with little interest in investment (Palcic and Reeves 2011: 155-177).
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As revenues are recommended to be diverted from infrastructural investment to offset spending cuts, such a situation could undo any short term gains to the exchequer made through revenue realisation. Bord Gis Energy is dominant across all market sectors in the supply of natural gas, especially in the residential sector. Thus, regulation must be stringent to protect competition and avoid a situation whereby a privately owned BGE could influence market price. Acknowledging this, McCarthy calls for a full review of the system of energy regulation in Ireland prior to any divestiture; which has not been done. The Review Group does ultimately recommend the privatisation of all Bord Gis ireanns operations except its transmission and interconnector assets (McCarthy et al 2011). Government has acted on this recommendation, but this paper contends they have done so while ignoring concerns and recommendations regarding the adequacy of Irelands energy regulatory regime.

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Chapter 4: The Privatisation of Bord Gis Energy

4.0 Introduction
Despite a near blanket failure to implement their public enterprise policy, Fine Gael-Labour government has persisted with the planned divestiture of the non-network elements of Bord Gis ireann. In July 2013, the government brought before the Dil the Gas Regulation Bill, which creates the legal basis for the divestiture of Bord Gis ireann (Gas Regulation Bill 2013). This followed a press release by BGEs Financial Director, Michael G OSullivan in May 2013 which stated that the sale process had commenced and that the sale was expected to be concluded by the end of that year (Bord Gis ireann 2012a). This bill faced significant legal challenges for government as they worked to comply with the full ownership unbundling requirements of the EU Gas Directive 2009 (Council Directive 2009/73/EC). In consequence, both the Minister for Communications, Energy and Natural Resources and the Minister for Public Expenditure may not retain any decision making role in the new Bord Gis Network business as they are shareholders in other state energy companies. Despite regulatory reform being a staple prerequisite of divestiture in the NewEra document, The Report of The Review Group on State Assets and Liabilities and Fine Gaels program for government, none such reform has been delivered. Despite this, the sale of BGE has commenced. Fine Gaels 2011 election manifesto offered the only clear indication from government of the potential composition of this reform. In it, it committed to establishing the Competition, Consumer, Utilities Commission as one supra-regulator of the Irish economy. This commission has not been established. The Commission for Energy Regulation regulates the Irish electricity and natural gas sectors largely unchanged from its establishment in 1999 (Fine Gael 2011). Thus, BGE is being sold amid significant regulatory shortcomings that this paper contends could lead to an economically harmful situation post-divestiture. This chapter undertakes a case study of the ongoing divestiture of Bord Gis Energy. The study begins by outlining the economic theory of natural gas supply, both as a network and a natural resource industry. The development of Bord Gis ireann in the context of the European gas market is then described. An overview of Bord Gis ireann follows, which distinguishes the network and non-network elements of the business. An overview of Bord Gis Energy is then provided, describing BGEs place in the Irish retail gas market. A summary of the sale process will explain that a consortium led by a British multinational utility company, Centrica, is poised to purchase BGE. In conclusion, recommendations are
31

made that call for reform of Irelands system of energy regulation and SOE governance structure prior to any future privatisations, and that these privatisations are undertaken in a series of tranches.

4.1 The Economics of Natural Gas

The market for natural gas combines a network industry and a natural resource industry. With network industries, economies of scale are essesntial. The domestic transport and distribution system services of natural gas in Ireland are made up of a high pressure long distance pipeline, with a low pressure distribution grid connecting it and end-consumers. There is a high fixed cost associated with the construction of such a network, with a relatively low marginal cost of extending it. In Ireland, it is not feasible or efficient for different natural gas suppliers to operate via duplicated parallel pipelines thus the countrys gas network is a natural monopoly (CPB 2006). In Monopoly and the Rate of Extraction of Exhaustible Resources (1976), Stiglitz explains that in exhaustible resource markets such as that of natural gas, the total stock of resource is fixed. Total production for a monopolist or a firm in a competitive market cannot change. However, a monopolist does have the power to change the pattern of production over time to influence price. Assuming constant elasticity of demand and zero extraction costs, Stiglitz demonstrates that the rate of extraction for a monopolist and a firm in competition will be the same. However, in reality price and elasticity of demand are positively linked, thus monopolists tend to produce less than a competitive firm and welfare is not optimized. Resource rents occur when there is a difference between market price and marginal cost of extraction. Both characteristics have regulatory implications. The Irish government has seemingly learned from the failure arising from the privatisation of Ts network, and has committed to keeping the network element of Bord Gis ireann in state control. Government can thereby guard against rent seeking and ensure the integrity and safety of the system if regulation is adequate. Of strategic importance to the state is security of supply. By controlling the gas network and the interconnectors to the UK, from which Ireland imports 93% of its natural gas, government can effectively manage our energy security, an issue particularly important to Ireland as a small island country with a high reliance on imported gas (TASC 2012). The EU mandated that European gas markets be liberalised in 2003 and forced ownership unbundling in 2009 (Council Directive 2003/55/EC, Council Directive 2009/73/EC). These
32

policies are an endorsement of neo-classical economic theory which advocates for the welfare optimality of competitive equilibrium, however as will be demonstrated, such perfect competition does not exist acro ss all sectors of Irelands natural gas supply market which remains price regulated in one sector.

4.2 The European Gas Market

The strategic importance of SOEs in post -war Europe, as explained, is particularly relevant to the utilities sectors. Governments undertook extensive reconstruction efforts and faced very real threats to energy supply (Palcic and Reeves 2011). The oil and gas sector was therefore tightly controlled. In 1959 the European natural gas business was mainly confined to Northern Italy and South West France, with additional imports from parts of the USSR. At the time, energy multinational ExxonMobil had acquired a 50% share in NAM as a balancing item in a global asset swap. NAM, operated by Royal Dutch Shell, was the exploration company working at Groningen, in the northeast of the Netherlands. This exploration established the European gas business proper. The joint venture uncovered a giant natural gas field, 2.8 trillion cubic meters in size with 2,800 BCM of recoverable gas. NV Nederlandse Gasunie was established as the monopoly producer and transmitter of Groningen gas for 30 years, 50% owned by the Dutch government and a 25% stake owned by Shell and Exxon respectively (Heren 1999). Exxon insisted on the controlled supply of this gas, pegging its value to that of other fuels, and guarding against an over-supply of cheap natural gas. Further discoveries followed; onshore in Germany, offshore in the UK and Norway, with supply further supplemented with imports from Algeria and Russia. ). Ireland was no exception. In 1971, natural gas was discovered off the coast of Kinsale, in southern Ireland. Deemed commercially viable, Bord Gis ireann was established by the Gas Act 1976 as the state gas development agency (Bord Gis ireann 2013a). OPEC had traditionally been the primary supplier of oil to Europe. However, having suffered an OPEC induced oil price shock in the 1970s that rattled the European economy, governments sought to move away from an over-reliance on OPEC oil. Suppliers pushed out by OPEC began to find an outlet in these new reservoirs (Heren 1999). Governments generally opted for a hands on approach in managing their nations new found natural wealth. With the exception of a liberalised British market in the late 1980s, the European gas market is traditionally characterised by an absence of rights to transmission and
33

distribution pipes, the prevalence of state monopolies, and prices pegged to those of competing fuels (Heren 1999). EU directives have sought to correct this by creating a single internal market for natural gas. In doing so, they liberalised European gas markets in 2003 and forced ownership unbundling in 2009. The EUs objectives are to increase service quality, achieve universal service, increase consumer protection and achieve security of supply with a competitive internal market with appropriate regulation. It seeks to achieve this by removing government from the European gas market and relying on competition between profit maximising private enterprises to achieve their objectives (Council Directive 2009/73/EC, Council Directive 2003/55/EC). However as we have seen, privatisation literature does not definitively support this approach.

4.3 Bord Gis ireann

4.3.1 The Development of Bord Gis ireann In 1971, natural gas discovered off the coast of Kinsale, Co. Cork was confirmed as commercially viable. With the approval of the Gas Act by the Oireachtas in 1976, Bord Gis ireann was established as the State Gas Development Agency. The beginning of natural gas production in Ireland was marked by the first delivery of natural gas, received on-shore by then Taoiseach Jack Lynch, in 1978. Throughout the 1980s pipelines were built, first in the Cork area, then to Dublin with a series of spurs ever broadening the availability of natural gas in Ireland. By 1995, 35% of Irelands dwellings were connected to the network. In 1985 Bord Gis ireann was ordered to acquire Cork Gas, who found themselves in a perilous financial position. In 1987 Bord Gis ireann took over the assets of Dublin Gas Company, whom government had placed in receivership (Bord Gis ireann 2012). In 1994 an inter-connector came into operation, completed with 35% funding from the EU, which connected Irelands gas network with the UK and the European Gas ne tworks, securing a supply of gas beyond the exhaustion of gas in the Kinsale field. 1999 saw the beginning of the opening up of 80% Irelands natural gas market. By 2002, any consumer consuming 500,000 standard cubic meters of natural gas was free to choose from any supplier. In 2001, Bord Gis ireann began to diversify its portfolio by entering the Irish electricity supply market. This diversification has proven successful, evidenced by BGEs ability to construct a gas-fired power plant at White-Gate, Co. Cork which became operational in 2008 and acquire a 30 megawatt wind farm development in the West of Ireland in the same year. BGE now operates as an all-island natural gas supplier with its subsidiary
34

Firmus in Northern Ireland, having entered the Northern Irish market in 2003 via network connections from Belfast to Dublin and Carrickfergus (Co. Antrim) to Derry city (Bord Gis ireann 2012). 4.3.2 The Structure of Bord Gis ireann Today, Bord Gis ireann operates as a commercial enterprise owned by the Irish state. Bord Gis ireann has evolved from a gas transmission company to become a major energy provider. Recently, government has created a subsidiary, Irish Water, which is being established as Irelands new public water utility (Bord Gis ireann 2013b). The firms business structure is illustrated in Fig. 1. This study focuses solely on the divestiture of Bord Gis ireanns retail arm, Bord Gis Energy. As such, an understanding of the parent companys structure is essential.

Fig 1. The Structure of Bord Gis ireann and its Subsidiaries

Bord Gis ireann

Bord Gis Networks Bord Gis Energy

Irish Water

Gaslink

Firmus
Source: Bord Gis irean Annual Report and Financial Statements 2012

Gaslink is the independent gas system operator, created as per the unbundling requirements of the EU. Gaslink is responsible for the maintenance and operation of the gas distribution and transmission networks. Bord Gis ireann owns the networks, and in practice Gaslink uses Bord Gis Networks as a service provider to carry out the majority of this work. It is thought in the future much of Bord Gis Networks work will be transferred to Gaslink (Bord Gis ireann 2013b).

35

Bord Gis Networks work on behalf of Gaslink to develop and maintain Irelands natural gas transmission and distribution network, as well as providing gas transportation services to suppliers and shippers. This network now consists of over 14,000 km of pipes and 2 sub-sea interconnectors to the UK (Bord Gis ireann 2013b). Irish Water has been established as per NewERA to take over the public water services from 34 local authorities. Irish Water will deliver services to public water uses and are responsible for the installation and of water meters and subsequent billing of water users. As a subsidiary of Bord Gis ireann it is thought they will better be able to raise finance on international markets to fund capital investment projects necessary to maintain and upgrade Irelands public water infrastructure, and will benefit from the groups experience in network operations (Bord Gis ireann 2013b). Firmus is Bord Gis Energys subsidiary in Northern Ireland, where it is licensed to supply natural gas and electricity in 10 towns and cities including the greater Belfast area, Derry, Newry and Ballymena. It is also responsible for developing and connecting the gas network in licensed areas to that of the Republic of Ireland. As Bord Gis Energys subsidiary, Firmus will also be privatised (Bord Gis ireann 2013b).

4.4 Bord Gis Energy

4.4.1 Introduction Bord Gis Energy is the retail arm of Bord Gis ireann. It is a dual-fuel, all island supplier of electricity and natural gas to residential, commercial and industrial customers in the Republic of Ireland and Northern Ireland (via Firmus). BGEs trading arm procures natural gas, electricity and carbon on international wholesale markets and works to optimise its portfolio with hedging and trading strategies, risk management and market modelling. Its assets arm manages BGEs existing assets, develops new assets to meet the companys needs and invests in emerging energy technologies. In 2012, the latest year for which full market data is available, BGE supplied electricity to 327,000 residential customers and 21,000 businesses. BGE supplied natural gas to 416,000 residential customers and 11,096 businesses. Residential natural gas supply persists as the only market in which BGE is price regulated by the Commission for Energy Regulation (CER), Irelands independent energy regulator (Bord Gis ireann 2013b).

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At the end of 2012, BGE employed 453 people in the Republic of Ireland. The following outlines BGEs position across all market segments in the electricity and natural gas supply markets as per the data of the Commission for Energy Regulations annual report 2012 (CER 2013). An overview of BGEs financial performance is then given. 4.4.2 Market Share: Electricity All market segments in Irelands electricity supply market have been deregulated, however Irelands state owned electricity company the Electrical Supply Boards retail arm Electric Ireland remains dominant across all market segments. In 2012, BGE saw a decline in its market share in electricity supply. Table 3 details BGEs market share across the 4 market segments as per year end 2012. Total customer numbers for all suppliers for the year were 2,237,203. BGE supplied 328,617 of these in the domestic market, and 19,030 in the business and large energy users segments (CER 2013).

Table 3: Market Share of Electricity Suppliers as a Percentage of Customer Numbers across Market Segments

Domestic Electric Ireland Airtricity Bord Gis Energy Vayu Energia Others Total 64.55% 18.06% 16.26% 1.14% 100%

Small Business 45.88% 21.29% 9.33% 23.41% 0.09% 100%

Medium Business 55.97% 15.98% 4.85% 22.49% 0.72% 100%

Large Energy User 42.13% 26.20% 9.38% 4.51% 15.63% 2.16% 100%

Source: CER Electricity and Gas Retail Markets Annual Report 2012

4.4.3 Market Share: Natural Gas BGE remains dominant across all market segments in the supply of natural gas, however competition is driving their market share down year on year. The CER (2013) divides the natural gas market into segments as per the following: Domestic: non-daily metered (NDM) residential customers. Industrial and Commercial (IC): businesses with a supply point capacity of below 3,750kWh and consumption level below 73,000kWh.

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Fuel Variation Tariff (FVT) : NDM gas customers with a supply point capacity of above 3,750kWh and consumption level above 73,000kWh. Regulated tariff formula (RTF): annual consumption of between 5.5GWhs and 264 GWhs.

8 suppliers compete across 4 market segments in the supply of natural gas in Ireland. In the domestic market in 2012, BGE had a very large market share. This share is falling in line with CER targets however, and was significantly lower at year end 2013 as discussed in detail below. In the IC market of 22,949 customers, BGE supplied 10,677. In the FVT market BGE supplied 589 of 1,750. Although Vayu and Energia hold a larger market share in the RTF market as a percentage of the 246 customers, BGE supplied the largest volume of natural gas (1,194 GWhs or 21.09% of total volume). Across all deregulated market segments BGE faces ever increasing competition and declining market share however it remains dominant as the markets largest supplier (CER 2013).

Table 4: Market Share of Natural Gas Suppliers as a Percentage of Customer Numbers across Market Segments

Domestic Bord Gis Energy Airtricity Electric Ireland Flogas Energia Vayu Phoenix Gazprom Others Total 65.65% 17.14% 12.38% 4.83% 100%

IC 46.52% 5.29% 2.92% 25.65% 17.14% 2.46% 0.01% 100%

FVT 33.66% 2.63% 22.34% 19.77% 21.20% 0.40% 100%

RTF 19.51% 9.76% 4.07% 21.54% 31.71% 7.72% 5.69% 100%

Source: CER Electricity and Gas Retail Markets Annual Report 2012

4.4.4 Price Regulation in the Residential Supply Sector Policies which have liberalised and deregulated areas of Irelands market for natural gas aim to maximise social welfare through competition. These policies are premised on the assumption that the firms operate within a perfectly competitive market. The following section analyses the residential market for the supply of natural gas in Ireland, detailing the suppliers in operation, their market share as of December 2013 and the switching rate
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between them to assess if there exists an appropriate level of competition for the successful divestiture of Bord Gis Energy into a deregulated market (CER 2014). The Irish natural gas market was fully liberalised in 2007, however new entrants had existed since 2004. All areas of the market are now deregulated except residential supply. The Commission for Energy Regulation (2014) has outlined three criteria that must be met before it ceases to regulate prices set by BGE in this market: BGE must hold less than 55% of the market share of residential gas supply. There must be 3 (2 non-BGE) suppliers in the market with more than 10% of the market share of residential gas supply. Consumer switching rates between natural gas suppliers should be greater than 10% per year.
Fig. 2 Market Share of Residential Natural Gas Supply
5.12%

17.33%

BGE Electric Ireland

57.23%

Airtricty Flogas

20.32%

Source: CER Review of the Regulatory Framework for the Domestic NDM Retail Gas Market Competition Review December 2013

As illustrated in Fig. 2, 2 of the CERs criteria for full deregulation of the natural gas sector in Ireland have been met. There are 3 suppliers, BGE, Electric Ireland and Airtricity, with a market share in excess of 10%. Furthermore, the consumer switching rate for the year 2013 was 17.33%. However, BGE hold a market share of 57.23% at year end 2013, in excess of the 55% threshold for deregulation. As such, BGE s decisions of supply and price setting are

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non-negligible. It holds market power in an imperfectly competitive market for residential supply.
Table 5: Irish Residential Gas Prices to Residential Consumers at Purchasing Power Parity (all taxes included) (1st Semester 2013) EU Comparison

Residential Consumption Bands Consumption < 20 GJ 20 GJ < Consumption < 200 GJ Consumption > 200 GJ

Price 6.58 6.04 5.77

/kWh

Relative to EU average 2013 Semester 1 75% 93% 93%

Source: Eurostat 2014

Currently, BGEs residential gas prices are competitive relative to the EU average as evidenced in Table 5. Privatising BGE in such a scenario will require stringent regulation to guard against BGE abusing this market power (CER 2014) and increasing prices across the market. However, the effectiveness of Irelands current regulatory agencies has been questioned, notably in the Report of the Review Group on State Assets and Liabilities; The Review Group recommends that a comprehensive review of the legislation governing economic regulatory agencies be undertaken and that necessary legislative amendments be enacted prior to any state disposals. (McCarthy et al 2011) 4.4.5 Business Performance Bord Gis Energy is a profitable, commercially viable SOE. Fig. 3 graphs BGEs EBITDA growth from 2009-2012. BGE have performed strongly throughout Irelands economic downturn, despite facing volatile markets for wholesale gas and electricity and decreasing consumer demand. BGE successfully entered the electricity supply market in 2009 (Bord Gis ireann 2010), pioneering the dual-fuel supply model in Ireland. Although they have faced significant competition in both markets, BGE has consolidated its market share in electricity supply and remain dominant in the supply of gas as discussed previously. BGE experienced a large increase in EBITDA in 2012, up to 79.4 million from 44.3 million in 2011. This increase is largely attributed to increased retail performance as a result of a reduction in costs, a lowering of discounts having established themselves in the electricity supply market and an increase in residential gas tariffs of 8.5%. BGEs strong financial performance has made a significant contribution to Bord Gis ireanns ability to pay a dividend of 23.8 million to the exchequer in 2012, bringing the total dividends paid since its

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inception in 1976 to 854 million. BGE employed 453 individuals in 2012 (Bord Gis ireann 2013b).
Fig. 3 BGE Operating Profit before Depreciation and Amortisation (EBITDA) 2009-2012 90 80

EBITDA 'million

70 60 50 40 30

20 2009

2010

2011

2012

Year
Source: Bord Gis ireann Annual Reports (2009-2012)

Beyond being a source of dividend and employment for the exchequer and economy respectively, BGE fulfils wider social aims. Throughout the economic downturn, BGE has worked closely with government agencies and non-profits such as Saint Vincent de Paul, ALONE and MABS to ensure energy is supplied to vulnerable customers who struggle to meet their payments. It has facilitated flexible payment plans and deems cessation of supply a very last resort, only to be undertaken when all other avenues have been exhausted (Bord Gis ireann 2010, 2011). Also, BGE plays an important role in the development of new energy technologies. It has committed capital and resources to the Irish Energy Research Centre and the Irish Maritime and Energy Resource Centre, contributing 1.5 million to the latter for the construction of new premises (Bord Gis ireann 2013b). In the absence of a full cost-benefit analysis of the divestiture, this paper can only observe that BGE will cease to contribute to Bord Gis ireanns dividend to the state and that no commitment has been made to retain BGEs staff. These employees however, will benefit in the short-run from the sale of their employee share ownership plan which sees them hold a stake of 3.27% of the company (Bord Gis ireann 2013b). Uncertainty prevails over a

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privately owned BGEs policy regarding universal access, consumer debts and BGEs commitment to the research and development of new technologies.

4.5 The Sale Process to Date

Labours pre-election opposition to privatization has waned, and two Labour Party TDs now preside over the sale; Minster for Public Expenditure and Reform Brendan Howlin and Minister for Communications, Energy and Natural Resources Pat Rabitte. Management of Bord Gis ireann have co-operated with the sale of BGE, as acknowledged in Chairperson Rose Hynes statements in Bord Gis ireanns annual reports in 2011 and 2012 Bord Gis ireann 2012b, 2013b). However, it does not appear that the sale was advocated for by management as it was, for example, in the case of T and Aer Lingus. The timeline of the sale process to date is as follows: 22 Febraury 2012: Government initially announces its plans to sell BGE, indicating that the sale would only take place when market conditions became favorable (Bord Gis ireann 2012c). 3 May 2013: BGE Finance Director Michael OSullivan announces the commencement of the sale process, and names RBC Capital as BGEs financial advisers. OSullivan expects the sale process to conclude in 2013 (Bord Gis ireann 2013a). June 2013: Media reports Teanga Nasional Bhd, Malaysias state owned energy group, are the front runner in the bidding process. SSE, Centrica and Virdian Group are also reported to have made bids, with BGEs value estimated to be between 1 billion and 1.5 billion (RT 2013a). 31 October 2013: Teanga Nasional Bhd drop their bid for BGE, as they focus on domestic projects following a sharp fall in their quarterly profits (Bloomberg 2013). 27 November 2013: Minister Rabbitte announces that BGEs sale process is to be postponed, as bids received were not at an acceptable value. Rabbitte praises the amount of interest in BGE, but says that conditions in the power and commodities markets were not favorable. The announcement is welcomed by BGE employees unions (RT 2013b).

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3 December 2013: Having originally come before the Dil in July 2013, the Gas Regulation Bill 2013 is enacted which legislates for the disposal of BGE (Gas Regulation Bill 2013).

13 December 2013: Having returned with an improved bid of 1.12 billion, a Centrica lead consortium including Brookfield Renewable Power and iCON Infrastructure are named as preferred bidders for BGE and Rabbitte says the sale process will conclude early in 2014 (Department of Communications, Energy and Natural Resources 2013).

Throughout the sale process government communications constantly referred to achieving value in the sale of BGE, with a fair price. However, no indication of what sum this fair price might constitute was offered, thus we are left speculating if the aforementioned value has been achieved. Media reports valued BGE widely at between 1 billion and 1.5billion. Just 16 days before a preferred bidder was selected, Minister Rabbitte postponed the sale process, stating that conditions in the power and commodities markets were not favourable (RT 2013b). It is beyond the scope of this study to assess if the subsequently agreed sum of 1.12 billion maximizes value for the state; however the lack of transparency throughout the process is regrettable. If the government had learned from the failing in the privatisation of Telecom ireann it would have sold an initial tract of shares in BGE thereby establishing a market price for the company and proceeded accordingly. By failing to retain a golden share in BGE, government will be unable to prevent any future undesirable changes in ownership. Media reports have suggested that the Centrica led consortium plans to break up BGE, with Brookfield taking BGEs portfolio of wind farms, iCON taking BGEs subsidiary in Northern Ireland Firmus and Centrica taking the gas and electricity supply business as well as the power generation plant at White-Gate (OHalloran 2013). Brookfield Renewable Power Inc. is a subsidiary of Canadian based Brookfield Asset Management, for which it holds all its renewable energy assets. Brookfield Asset Management specialises in hydroelectric power generation (Brookfield Renewable Energy Partners 2013). iCON Infrastructure is an independent investment firm, currently managing over 1 billion in infrastructure assets in Europe and North America. Among its portfolio is
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Mountaineer Gas, West Virginias market leading natural gas distribution company which supplies natural gas to over 220,000 residential and industrial customers (iCON Infrastructure 2013). Centrica plc. is a British multinational utility company, trading under the names British Gas and Scottish Gas in the UK, and Direct Energy in North America. It is currently the largest supplier of natural gas in the UK, and has a large share of the residential and business electricity supply sector. Centrica was formed from the demerger of British Gas plc. in 1997, the company that was founded following the privatisation of state owned British Gas Corporation in 1986 by Margaret Thatchers UK Conservative government. Today, Centrica operates in all stages of the energy chain, engaging in gas and oil production, power generation and energy trading through Centrica Energy and operating a gas storage facility in the Southern North Sea via Centrica Storage. The company is listed on the London Stock Exchange and is a constituent of the FTSE 100 Index (Centrica 2013).

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Chapter 5: The Future of Privatisation Policy in Ireland

5.0 Introduction
A turn towards a neo-liberal market ideology in many countries over the last 30 years has changed the nature, role and composition of public enterprise globally. Governments have sought to reduce their role in the provision of services previously provided by SOEs, particularly infrastructure-based services such as transport and the distribution of water, electricity and gas. A liberal and competitive private sector market for the provision of these essential services has been endorsed as the optimal policy by individual governments and global institutions such as the World Bank, IMF and the European Union. Governments have engaged in large-scale privatisations to this end. Ireland is no exception in this regard. Since 1991, successive governments have privatised Irelands commercial SOEs raising 8.36 billion in privatisation revenues (Palcic and Reeves 2011). From 2006, Irelands appetite for divestiture had diminished, largely due to the failed privatisation of Telecom ireann in 1999 as described in Chapter 2. SOEs continue to play an important presence in many sectors of the Irish economy, both on a commercial basis and in the pursuit of wider social aims (Palcic and Reeves 2011). However, the on-set of the global financial crisis saw Fine Gael propose privatisation as a means of raising revenue to part-fund its NewERA economic stimulus package (Fine Gael 2009). The Troika subsequently imposed the conditionality for the sale of state assets as a requirement of its structured bailout program following Irelands economic collapse as detailed in C hapter 3. Although much of this plan has not been implemented, a Fine Gael lead coalition government with Labour is persisting with the divestiture of Bord Gis Energy, the retail arm of the state utilities company Bord Gis ireann.

5.1 A Critique of the Imminent Privatisation of Bord Gis Energy

As Chapter 1 explained, the theoretical and empirical case for privatisation as a means of improving enterprise efficiency and performance is contested. This case is especially weak where an enterprise holds significant market power (Palcic and Reeves 2011). Such is the case with BGE, who dominate across all segments of the Irish natural gas supply market as evidenced in Chapter 4. Thus, stringent regulation would be needed to avoid an abuse of this power by BGE as a private entity. Sweeney (2004) advocates for the creation of a single
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regulatory commission, separate from the Competition Authority to regulate energy, transport and communications in Ireland. Fine Gaels pre-election manifesto committed to the establishment of a supra-regulator of the Irish economy similar to that described by Sweeney, but also regulating competition (Fine Gael 2011). Furthermore, The Report of the Review Group on State Assets and Liabilities ordered a full review of the system of energy regulation in Ireland prior to any divestiture taking place (McCarthy et al 2011). At the time of writing, as the sale of BGE appears imminent, no such regulatory reform has been undertaken. The sale of BGE is not taking place as part of a comprehensive government policy on the future of SOEs in Ireland as recommended by Palcic and Reeves (2011). The governance of Irelands public sector remains in question. Fine Gaels NewERA plan (2009) commits to moving towards a centralised model of governance as recommended by the OECD (2005) in which the government vests all its responsibility in a single agency or department. To this end, Sweeney (2004) and ICTU (2005) propose the establishment of a holding company with statutory responsibility for the management o f Irelands SOEs. Fine Gael endorsed this in its NewERA plan, proposing the establishment of NewERA Ltd. as a holding company with 100 skilled professionals to oversee the management of public enterprise in Ireland (Fine Gael 2009). However, to date, NewERA Ltd. exists only as a non-statutory body within the NTMA wherein it operates an advisory role (NTMA 2013). Government appears to have learned some lessons from the failed privatisation of Telecom ireann. As per the Review Groups recommendation (McCarthy et al 2011), it plans to retain control of the network elements of Bord Gis ireann, a natural monopoly of vital importance to the welfare of the country. In doing so, it can actively manage Irelands energy security and preside over necessary infrastructural investments into the future. However, government is poised to repeat a fundamental mistake in the T divestiture. The states full stake of BGE is being divested in a single sale. This method of sale has attracted wide-spread criticism in the T case, with Palcic and Reeves (2011) strongly advocating for any sale to take place in a series of tranches, from which an accurate market price can be established. Also, government does not plan to retain any golden share in the company and will therefore have no control over future unwanted changes in ownership.

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5.2 Recommendations in Conclusion

This paper contends that BGE is being sold amidst significant regulatory and governance shortcomings via a method of sale widely criticised in the case of T and contrary to international best practice. The rationale for sale is principally for the purpose of revenue generation, albeit in the context of exceptional economic circumstances. The theoretical and empirical case for privatisation as a means of improving enterprise performance is ambiguous and should not be used to justify privatisations. In conclusion, this study makes the following recommendations:

1) The privatisation of Bord Gis Energy and any future disposals of state assets should be postponed indefinitely until necessary regulatory and governance reforms have been implemented.

2) NewERA Ltd. or a similar agency should be fully established as a holding company with statutory powers to manage Irelands SOEs. This should occur prior to any future privatisations of state owned enterprises.

3) Fine Gael should act on its pre-election commitment to establishing the Competition, Consumer, Utilities Commission as one supra-regulator of the Irish economy. This commission should be afforded the statutory powers necessary to tackle the regulatory challenges that arise in balancing the maximisation of companies interes ts with those of the public.

4) Any future privatisation of Bord Gis Energy should be undertaken on the basis of international best practice and convention, in a series of tranches of shares so which allow for the establishment of an accurate market price. Government should give strong consideration to maintaining a partial stake in the company so as to allow for the veto of decisions it deems damaging to the Irish economy.

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