Breaking up is hard to do for Government and power giant

ANALYSIS:SPLITTING THE ESB into power plants on the one hand and the national grid on the other was never going to be an easy task.

The company’s powerful unions greeted the plan with outright opposition. At the same time, managing the actual nuts and bolts raised problems, including how to distribute the group’s debts.

But, in 2007, the Government announced that it intended to transfer ownership of the national grid, which transmits electricity from power plants to the network that brings it to customers, from the ESB to Eirgrid, the company that already manages it.

The decision was made in the context of the requirement by the EU that all member states split large power companies in this way to guarantee fair competition in electricity markets.

It has now emerged that the Government may not have to take this path. A report, the result of a consultation begun last year, says the State would have a strong case if it asked the EU for a derogation from the regulation, effectively to be excused.

The report is the result of more than a year’s work by former Irish National Petroleum Corporation chief Fergus Cahill. It examines various ways of managing the break-up and their implications.

In one scenario, the State would have to make a substantial investment in Eirgrid. A second option would damage the financial position of both Eirgrid and the newly downsized ESB, and leave them with increased interest costs. Other scenarios examined could result in extra costs of one form or another.

So the derogation would seem to be the best path at this stage, but that has implications for another process. A Government-appointed group, headed by Colm McCarthy, is looking at the possibility of selling State companies, including the ESB. While that body has not finished its work, the Government is anxious not to repeat the mistake it made with Eircom and sell the strategically important grid to the private sector.

As a result, it is widely believed that if a sale of the ESB were to happen, the State would keep the grid and sell the electricity-generating and supply business. However, it has been suggested that the company could be sold as a unit – namely by its rival Scottish and Southern Energy, which recently said it had discussed buying either the ESB or Bord Gáis with the Government.

Assuming such a sale were on the cards, it would not just raise political problems in the Republic, but also in the North. The ESB recently bought the electricity grid north of the Border, and a number of unionist politicians raised concerns about the move with Taoiseach Brian Cowen. These would presumably resurface in the event of a sale.