Inside the world of business
Many questions unanswered on Shannon's split from DAA
THE GOVERNMENT’S proposals for Shannon Airport and Shannon Development threw up more questions than they answered.
Who will be appointed to the steering group to put structure on the proposals? When will the changes take effect? Will there be redundancies at the airport or at Shannon Development? Who has responsibility for the airport in the interim? Is it now free to design its own route incentive schemes? Will the DAA be required to provide working capital to Shannon before the split?
On face value, the Government’s moves seem sensible. Having Shannon Development operate as a midwest version of the IDA and Enterprise Ireland represented unnecessary duplication in the current economic climate. It is also surely better to have just one State agency selling the country to foreign investors.
Shannon Airport is probably better off ploughing its own furrow, free from the DAA. Assuming the substantial rent roll from Shannon Development’s landbank and freeing itself from annual interest payments of €4-5 million on its debts should help it move to at least a breakeven situation.
However significant cost-cutting, probably including redundancies, will be required to reflect its new status as a standalone regional airport.
The jury remains out on its potential to become both a hub for cargo and for hi-tech aviation-related activities but these are worthy aspirations. Sourcing new air routes, to bring tourists to the region, will ultimately be the key to its growth potential. Ryanair is the obvious candidate to achieve this goal.
Perhaps predictably, it gave a lukewarm response to yesterday’s announcement and would prefer Shannon to be privatised.
Still, it seems likely that Michael O’Leary will support the venture, at least initially, if only to illustrate how Shannon can flourish when the “dead hand of the DAA” is removed.
Quote of the day
Germany could in the future have an inflation rate somewhat above the average within the European monetary union, although monetary policy will have to ensure inflation overall in the EMU is consistent with the goal of price stability – Bundesbank evidence to the German parliament yesterday
40% resources tax take proposed
AN OIREACHTAS Committee on Agriculture, Communications and Natural Resources report on offshore oil and gas exploration argues that the State should get a minimum 40 per cent tax take from the proceeds of any oil or gas finds off the Republic’s coast.
The document, the result of a series of hearings held by the committee over the last year, says that profit resource rent tax, levied on such finds when they are exploited, should be charged on a sliding scale, beginning at 15 per cent and running up to 55 per cent.
Progressive charges like this are not out of line with what is practised elsewhere and are designed to ensure that the State gets a fair share of the profits generated from a resource that ultimately belongs to it and its citizens.
The charges apply after all the normal deductions have been made for corporate tax purposes, so they are ultimately applied to pure profit. However, before the State can get a share of any profits, it needs commercial oil and gas finds. The report shows that over the last 40 years, 182 wells have been drilled off the Republic’s coast, 129 of them exploration wells.
That activity threw up just four commercial finds – Kinsale, Seven Heads, Ballycotton and Corrib – and one, Barryroe, that looks like it could soon be commercial.
That is not a terribly good strike rate. It partly explains why, in the last licensing round, none of the majors, the big players in the world oil and gas industry, bid for rights to explore off the State’s coast.
None of this means that the Republic’s waters are completely barren of oil and gas prospects. High prices and new technology could mean that some previously unviable wells could now be commercial.
Providence, which holds a majority stake in Barryroe, is basing part of its strategy on that, and it could well pay off. However, the fact remains that the State is a long way from sharing the proceeds of any hydrocarbon find.
Nama attempts to think outside the negative equity box
BRENDAN McDONAGH, chief executive of the National Asset Management Agency, said it best when describing the intention of its anti-negative equity mortgages: “Eighty per cent of something is better than 100 per cent of nothing.”
The banks aren’t really lending, buyers aren’t really buying, house prices are down anywhere between 50 and 80 per cent and it’s not clear where or when the market is going to hit bottom.
Given the zombie state of the banks and the property market, Nama, the biggest player in the market, had to think a little more creatively to stimulate purchases.
By offering to defer 20 per cent of the purchase price for five years – and indefinitely if prices have declined after that period – Nama is trying to break the stalemate between house buyers and sellers.
Nobody, particularly after the chaos of the boom, likes a Government- backed entity interfering in the property market but there are few alternatives if there is no prospect of a return to a functioning market without some incentive.
Nama was at pains to point out that, unlike bubble-era policies, the initiative, which protects buyers against house price falls of up to 20 per cent, is designed to reduce, not increase prices.
It is aimed at pushing mortgage-approved customers into a sale where, until now, they didn’t want to be appear foolish if they bought now only for a neighbour to buy at a lower price in a year’s time.
This is a reversal of the bubble days when approved borrowers rushed to buy fearing that prices would rise further.
Given that Nama has 10,000 habitable Irish properties (mostly apartments for which there are even fewer buyers) and 4,000 unfinished properties, opening the scheme eventually to 750 properties is hardly flooding the market.
Rather than going the Allsops auction route, the 115 houses in Nama’s pilot scheme are set at what it calls “fair value” prices rather than firesale prices to guarantee sales. In Nama’s scheme, the guarantee is against lower prices.
That will hurt the new neighbours of these buyers who bought their houses at substantially higher levels without a guarantee from a State agency protecting them from further price falls.
Today
Agm season continues for Irish-quoted companies, with Kingspan, Fyffes and Grafton all holding shareholder meetings.
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