ESB expected to pay up to 33% of its post-tax profit to State

Up to 33 per cent of the ESB's post-tax profit is believed likely to be paid to the Government as part of a new dividend policy that is currently under discussion.

While neither the Department of Finance nor the ESB would discuss the process of formalising a policy yesterday, it is believed that the two parties may be near agreement on a policy that would see 25-33 per cent of the ESB's post-tax profit handed over to the State.

It is understood that the Department of Finance wanted to be paid 50 per cent of post-tax profit but the company strongly resisted that on the basis that it needed to invest profits in its own business.

Certain individuals regarded the 50 per cent figure as an opening gambit by the Department of Finance. However, the Department would have been acutely aware of the worsening public finances during discussions last year.

Other profitable State companies such as Bord Gáis pay dividends to the State.

The gas company's cumulative dividend at the end of 2001 was €633 million. However, the Government's dividend policy in respect of that company is not clear. It received €23 million from Bord Gáis in 2001, 26 per cent of its post-tax profit. In 2000 it received €28 million, 40 per cent of the profit.

The ESB is thought to be pushing for a gradual introduction of the policy, with payments increasing on a sliding scale to an agreed maximum. In addition, sources suggest that the ESB had resisted a push by the Department of Finance for the dividend to be paid on a percentage basis.

Indications that a agreement might be reached on a policy of 25-33 per cent suggests the Department has won that battle.

There were suggestions last year that the company wanted the dividend confined to 25 per cent. Based on the financial result in 2001, that would imply payment of a €41 million dividend.

However, the requirement to pay a dividend only kicked in last year when a workers' trust took a 5 per cent shareholding in the company. The ESB paid an interim dividend of €19 million to the State last year and the workers' trust received €1 million.

The interim dividend was paid in respect of last year's performance. While the company's annual results are not expected for some time yet, a final dividend will not be paid until agreement is reached on the dividend policy.

Agreement on the policy will have a crucial bearing on the ESB's funding situation as it proceeds with a €4 billion capital investment programme.

The company intends to seek a credit rating this year in advance of issuing a €1.5 billion bond. It has also mooted raising a €500 million loan from the European Investment Bank.

Initiating both those processes would require clarity on the matter of the dividend policy because it will have an impact on the company's ability to repay debt.

While State ownership of the company means it has no difficulty raising bank finance, senior sources believe that the issuance of a bond would put it in a far stronger position.