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Inside the world of business

Forecasted rise in energy prices to affect Irish recovery prospects

A YEAR ago the Arab spring movement was in full swing. Its most immediate impact outside the region was to drive up oil prices, not surprisingly given that key producers such as Libya were at the centre of the drive for democracy.

Around the same time, Bank of America Merrill Lynch Global Research produced an analysis of how rising oil prices would affect the prospects of recovery in various European countries.

In the Republic’s case, it estimated that once crude went past the $115 a-barrel mark, this would act as an extra drag on its prospects of pulling out of recession.

Oil prices have raced past that particular benchmark. Yesterday, John Heffernan, a power trader at Bord Gáis Energy, pointed out that Brent crude was hovering around the $120 mark.

Obviously, Heffernan points out that the dominant factor in the commodity’s recent rise is the threat to close the Straits of Hormuz. That is backed by signs that the global economy is on the way to recovery, which can only mean more demand for oil.

“Although the Straits could be reopened quickly, it is unclear how the US could ensure the safety of tankers to insurers’ satisfaction,” Heffernan points out in a note issued yesterday that raises a few interesting issues.

“It may only take one incident for insurance to become prohibitively expensive and there are no other routes to get the oil and gas in the quantities required out from that region to external markets.”

In short, the risks are such that prices are likely to remain high, for the foreseeable future at any rate. Expensive oil is going to continue to add to the cost of doing business in the Republic. But it doesn’t stop at the obvious impact. Heffernan also points out that higher oil prices mean higher gas prices.

Gas is responsible for 60 per cent of the electricity consumed in the Republic, which imports over 90 per cent of its overall natural gas needs. So higher oil prices mean higher energy prices for businesses, making it even harder for those already under pressure to stay afloat. Whether or not the Bank of America Merrill Lynch Global Research calculation from last year stands, it’s clear that events in the Straits of Hormuz will have a big say in Irish growth – or the lack of it – and the economy’s capacity to create much-needed jobs.

Treasury challenge to Nama receivers begins today

AT 11AM, the High Court will begin hearing arguments from Treasury Holdings as to why the National Asset Management Agency should not be allowed to appoint receivers to about 36 properties that it controlled in Ireland.

It’s the biggest enforcement case by Nama against one of the big 10 lenders it inherited from the Irish banks.

The receivers are already in place, but Treasury’s legal action has put a question mark over their appointments.

In essence, Treasury argues that Nama has acted unreasonably in its actions. Treasury will argue that it had two investors lined up to buy its loans from Nama on reasonable terms, with a clause that the State agency could benefit from any upside should the buyers make a killing on the properties in the future.

The downside for Nama was that it would have had to provide some vendor financing for the projects.

Treasury will also argue that it co-operated with Nama throughout and that the agency’s action took it completely by surprise.

The developer, owned by Richard Barrett and Johnny Ronan, has lined up an expert witness – Dr Michael Cragg, an economics professor and chief operating officer of consultants The Battle Group in Massachusetts – to bat for them.

Cragg’s assessment is that Nama’s behaviour was “opportunistic” and risks the “destruction of value” of the assets involved when potentially “viable acquirers exist”.

Nama is likely to argue that Treasury is insolvent and beyond rescue and that it had lost patience with the developer.

The hearing is expected to last for four days and will provide a rare insight into Nama’s dealings with its clients and, indeed, Treasury’s inner workings.

For very different reasons, it’s a case that neither side can afford to lose.

Enterprise Ireland's not so enterprising move

AT FIRST glance Enterprise Ireland’s failure to respond to a proposal from Belgium-based Intelligent Technology Limited reflects badly on it.

According to a letter from one of the Irish backers of the project, published in this newspaper today, Ireland will lose out on an initial 80 jobs and possibly a further 220

with Luxembourg the beneficiary.

Enterprise Ireland has told this paper “there was an uncharacteristic delay in responding” to the initial query and it has offered to meet the promoters to

“see what opportunities for Ireland exist”. The Intelligent Technology proposal is a complex

one and will require a €25 million investment according to its backers.

Enterprise Ireland is not a private equity or venture capital firm which can make speculative investments. In some cases caution is a better strategy.

But with politicians travelling the world to proclaim Ireland is open for business, failures to respond to proposals looks sloppy.


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