Cantillon

Inside the world of business

State likely to devote some of its energy to raise millions

IT ALMOST slipped under the radar but the Budget includes a provision for raising €660 million from “other measures”, including a once-off €300 million gain from the sale of State assets, which could include anything from property to State companies.

At the same time, UCD economist Colm McCarthy is chairing a review of State companies. It has been almost universally accepted that a sale of at least one of the three taxpayer-owned energy companies, the ESB, Bord Gáis and Bord na Móna, would be sold.

That review is due to go to the Government shortly. It comes as the EU/International Monetary Fund bailout agreement includes specific terms for a review of State energy companies, with a view to privatising them.

The favourite for a sale of State energy companies is Bord Gáis. Attempting to privatise the ESB could be politically difficult and lead to a potentially damaging clash with its unions.

While there is no saying that Bord Gáis workers would necessarily embrace privatisation, it’s accepted that it would be politically easier to sell that company. The view is that the State will want to keep the network element of Bord Gáis, or the ESB should it decide to go ahead and sell the bigger company.

This would mean that Bord Gáis’s gas and electricity supply and generating businesses would be on the block, but not the pipes that move natural gas around the country, as they are considered to be a strategic asset.

No decision has been made yet, so industry sources are basically making a well-educated guess that Bord Gáis is the most likely candidate for some form of sale, rather than arguing that it is definitely going to happen.

Either way, it looks like the State’s days owning three energy companies are numbered.

Why did Budget spare the old reliables?

Still with the Budget, Minister for Finance Brian Lenihan made great play of the dire state of affairs as he laid out plans for draconian cuts in spending and tax increases in on Tuesday.

Most attention on the taxation side has been on the well-flagged decision to excuse people in receipt of State pensions from the 4 per cent across-the-board cut in social welfare entitlements. The Government seems to have bowed to pressure across the house not to alienate the grey vote, which tends to exercise its franchise and on which the hopes of several marginal Fianna Fáil TDs in particular rests.

However, it is not the only area where questions about fairness and vested interests raises its head. The Minister did announce increases in excise duty on petrol and diesel. But, he made no mention of those other “old reliables” – alcohol and tobacco.

Not for nothing did these products get their moniker and both have been among the first to be hit when the exchequer needs to raise funds.

There are sound health reasons for increasing tax on cigarettes and, in economic terms, the nature of the product means they are relatively inelastic – ie price increases do not have a disproportionate affect on demand.

While the Government could point to the significant growth in smuggling, if the scale of this practice is as recently reported, a moderate excise duty increase is unlikely to fundamentally worsen the situation.

In relation to alcohol, ironically, there was less lobby noise than usual from the sector in advance of the Budget. Indeed, there was an air of resignation that, amid the bar-room chatter of recession and bailouts, some increase in excise was inevitable. It never came.

Instead the Minister chose to hit fuel costs – with two cent a litre on diesel and four cent a litre on petrol. Cigarettes and alcohol could be classed as discretionary purchases. Fuel, on the other hand, is less so and increasing its cost will serve only to adversely affect both business costs and the household budgets, particularly for young families and elderly people.

The failure to seek money from either source raises the question of just how desperate our economic plight can be if we can afford to pass over such choice targets for increased revenue.

NTR could yet enjoy sunnier times

Utility NTR’s €210 million loss for the 12 months ended March 31st, 2010, which was reported a few weeks ago, looked big by any standards. Much of it was attributed to a write down in the value of its waste management businesses, which have suffered during the recession, and its solar energy development projects, which saw their value cut by €94 million.

NTR values its assets according to their ultimate ability to generate revenues and the decision to hold off on the solar projects in the US until the economic climate improves obviously hits its potential to do this.

The solar projects, in California, are ambitious. The company is planning to build facilities with the capacity to generate a total of 1,300 mega watts. They will need a €2 billion investment, and the markets currently have no great appetite for projects on this scale.

But the delay could turn out to be judicious. NTR is looking at floating part of its business at some point over the next few years. If it were to make progress with the solar power projects ahead of that, or around the same time, it would help boost the utility company’s overal value at just the right time.

Today

The CSO will shed light on the jobs market and on inflation, as it releases the Quarterly National Household Survey for the third quarter and the Consumer Price Index for November.

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