Inside the world of business
An explicit commitment should be Cardinal rule
WILBUR ROSS certainly knows which buttons are worth pushing as the bidding for the “Educational Bank” enters its end game.
By holding out the prospect of some sort of debt forgiveness for EBS customers struggling with negative equity he will put the Government under pressure to justify a decision to sell the business to anyone else unless they make a similar commitment. This would be particularly true if the Government decides to merge the society with the Irish Permanent, whose ability to engage in any sort of a worthwhile debt forgiveness programme for borrowers is extremely circumscribed. Indeed, the lender has led the charge to increase margins on existing borrowers.
The apposite word here is commitment. It is one thing for Ross to hold forth on CNBC and another for the Cardinal consortium – which includes US private equity firm Carlyle – to put their money where their mouth is. Unless their bid contains some specific and workable commitments along the lines suggested by Ross the Government would be well advised to discount his comments. Likewise, if Cardinal wants to be taken seriously it should make its commitment explicit rather than engage is some sort of transatlantic megaphone diplomacy.
But one aspect of Cardinal’s bid that is harder to discount is the value to the Government of being able to point out to the international market that someone of the stature of Ross believes that Ireland is somewhere worth investing in. However, two of the other bidders, Doughty Hanson and JC Flowers, can also play this card – and its value has been greatly enhanced by the events of the last two weeks. One suspects the Government would dearly like to announce such a coup. But here again, it would be ill-advised to sell the EBS to private equity without binding commitments concerning the treatment of borrowers.
Questions blowin’ in the wind
The Government’s goal of making Ireland the Saudi Arabia of green energy is still largely aspirational by the looks of things. The plan, based on the fact that we occupy a particularly windy corner of the North Atlantic, sees us exporting excess electricity generated by wind farms at low periods of demand via power lines connecting us with Britain.
State agency Eirgrid is planning to lay such a power line between the east coast with Wales, which will allow electricity to flow in both directions. But Eirgrid’s chief executive, Dermot Byrne, told the Oireachtas Joint Committee on Climate Change and Energy Security yesterday, that, initially at least, we are likely to import more power than we will export over this interconnector.
That may change, particularly as it is likely that we will build more interconnectors, but for the time being, we will be a net importer of electricity once the the power line is up and running. Hopefully that will give us a bit more time to examine the pros and cons of the “green Saudi” idea. It assumes that the price of natural gas, the fuel now favoured for electricity generation, will rise steeply over the next decade. New discoveries and the likelihood that shale gas can be exploited to boost supplies mean there is no guarantee of that. Even assuming that gas prices rapidly head north, there is similarly no guarantee that Britain will buy wind-generated electricity from us. It it is going to be connected to the continent, it could buy cheaper wind-generated or nuclear-generated power from elsewhere.
If we do become a net exporter of electricity to Britain, it will be because demand there exceeds supply. If that is the case, then our suppliers will chase the better prices available in that market, which will in turn push up Irish energy costs. So at best, the plan looks very much like a double-edged sword; at worst, we could end up with a lot of redundant – and expensive – wind farms.
Making up the difference
The revelation in the Comptroller and Auditor General’s report that some €33.76 million was spent on consultancy fees in respect of the various measures taken stabilise the banking sector was never going to play well with the public.
The fact that the biggest recipient was a law firm – Arthur Cox got €9.66 million – that has a close relationship with one of the banks in question (Bank of Ireland) has only added fuel to the fire. And two of the big accountancy firms who are equally well-embedded in the banking industry – KPMG and PricewaterhouseCoopers – received substantial amounts of €6.53 million and €2 million respectively.
Given these firms’ roles as advisers and auditors to many of the banks and developers whose behaviour was instrumental in the crisis, it’s hard for the taxpayer to swallow. Not surprisingly the Department of Finance has been quick to point out that it is the banks themselves that are footing the bill, albeit indirectly via fees levied on the banks as part of the various recapitalisation exercises underwritten and funded by the State. This is fine in so far as it goes, but it ignores the fact that the Government was, in effect, on both sides of these deals. The bigger the fees charged to the banks, the less of the proceeds of these recapitalisation activities available to rebuild balance sheets and, thus, the larger the contribution from the taxpayer to make up the difference.
For regular commentary on business and economic issues visit our blog, Current Account, at www.irishtimes.com/blogs/business
Twitter users can receive links to the latest business news and blog posts by following us at twitter.com/IrishTimesBiz
