They're making a list, but are they checking it twice?

Donal Palcic17/01/2012

Donal Palcic: The Irish Times reports that the Government has drawn up a shortlist of state assets to be sold that includes its remaining stake in Aer Lingus, Dublin Port and parts of Bord Gáis and Coillte.

Eoin Reeves and I have previously commented on the potential sale of the Government’s remaining 25% stake in Aer Lingus and little has changed since then. Encouragingly, the Minister for Transport is examining how the company’s Heathrow landing slots could be protected in the event of a sale. However, shares in the airline are currently trading at about €0.64, valuing the Government’s stake at approximately €85 million, a paltry return for the Exchequer were it to sell now (to put this in perspective, the State spent an average of almost €104 million per week in 2011 just to service the national debt).

Although there is no detail as to which parts of Bord Gáis and Coillte the Government is considering the sale of, one must question how the sale of any element of either company fits in with the Government’s NewERA plan. The original NewERA plan proposes merging Coillte and Bord na Móna together to form ‘Bioenergy and Forestry Ireland’ which “will invest €900 million to become a global leader in the commercialisation of next generation bio-energy technologies for transport, home and district heating and power generation”. The plan also proposes merging Bord Gáis Networks with the existing operator of the national gas network, Gaslink. Eoin and I have previously commented on the inconsistency between the Government’s NewERA plan and its announcements in relation to potential asset sales here and here. The Government must provide more clarity on its plans for NewERA and how its existing portfolio of State assets fits within that plan.

The inclusion of Dublin Port as a candidate for privatisation is a worrying development. As the biggest and most important port in a small open economy heavily dependent on external trade, any decision on its sale must take account of the long term strategic needs of the economy. Port infrastructure is expensive to build and a long term perspective must be taken when making decisions to invest in such long-lived assets. In its submission to the Review Group on State Assets and Liabilities in 2010, Dublin Port indicated that, in order to be able to deal with projected future port volumes, €500 million in capital expenditure is necessary over the next 10-15 years, with half of that to be undertaken in the next five years. Were Dublin Port to be sold, the objectives of the new private owner may not necessarily be aligned with those of the State and there would be no certainty that the required investment would take place when needed.

Dublin Port’s submission to the Review Group sums things up best:

“In simple terms, we believe that if Dublin Port were in private ownership there would most likely be a market failure to provide essential port infrastructure. Our simple proposition in relation to a possible privatisation is as follows.

If it is accepted that Dublin Port is of national strategic importance, then some protections would need to be built in to a sale transaction to protect those national interests. However, experience has shown that even when the best minds apply themselves to structure transactions to create those protections, market forces have a way of subsequently undermining the original intentions. Were this to occur in the case of Dublin Port, there would be serious negative impacts on national competitiveness. It would be far better for the State to avoid such eventualities by not selling Dublin Port Company.”

Some of the above issues are also covered in this Irish Times interview with the Chief Executive of Dublin Port, Eamonn O’Reilly, last April.

For now, all we can do is wait for more detail of the Government’s discussions on the sale of state assets with the troika to emerge, and hope that they don’t result in short termist decisions that damage the long term interests of the country.

Posted in: Fiscal policy

Tagged with: privatisation

Dr Donal Palcic

Donal Palcic

Donal Palcic is a lecturer in economics and Assistant Dean International at the Kemmy Business School, University of Limerick. His primary area of research is in public sector economics with a particular focus on infrastructure policy, public enterprises, privatisation and public-private partnerships. Donal has co-authored Privatisation in Ireland: Lessons from a European Economy (2011) and has also published a number of refereed journal articles and book chapters on the same topic. He is a member of the Privatisation and Public Private Partnerships (P4) research group based in UL. Donal has also discussed privatisation-related issues both in the press and on national radio on various occasions (see P4 media page for details). In 2016, Donal spent five months as a Visiting Research Fellow at the Cornell Program for Infrastructure Policy in the Department of Policy Analysis & Management, College of Human Ecology, Cornell University (USA).



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