Business Opinion: There is a familiarity about the story. A plucky Irish entrepreneur puts together a consortium to bid for a lucrative State infrastructure contract against some of the biggest names in the business.
Nobody gives him much of a chance but to widespread amazement he actually wins the competition
He subsequently sells his interest in the project at a substantial profit. Admiration for his business acumen quickly sours into outrage that someone can make so much money by effectively flipping on an interest in a State asset, albeit one that had been awarded to them in an open competition.
If you are thinking Mr Denis O'Brien and the competition won by Esat Digifone to operate the State's second mobile phone licence you are wrong.
This time it is Mr Martin Blake and one of the biggest contracts to provide power to the ESB ever awarded by the State.
It emerged last week that Mr Blake - a former IFA official and beef processor - is thinking of selling his 30 per cent stake in the winning Tynagh Energy consortium, just two months after it scooped the €1 billion contract from under the noses of the likes of Viridian Power and Scottish and Southern Energy.
He could conceivably exit before the 400 MW station that will provide the power is built and a single volt generated.
Entertaining though it may be to draw comparisons between Tynagh and Esat, they are only superficial. But Mr Blake can look forward to the sort of negative publicity that has come Mr O'Brien's way since he cashed out of Esat to the tune of €200 million. It will be equally unjustified, although Mr O'Brien did not help himself by going to live in Portugal and avoiding Irish capital gains tax.
One suspects the Commission for Energy Regulation - which awarded the licence - would probably be happy should Mr Blake exit at this point. Mountside has no significant experience of operating a power station, although the other members of the consortium have relevant experience in spades.
Gamma Construction was involved in building the power station operated by Viridian at Huntstown, north Dublin, while Investec, the South African bank that is the third member of the consortium, has plenty of experience in funding energy projects.
In many ways Mountside's role in the consortium is over. What it brought to the Tynagh Energy party was a site - the old Tynagh mine workings in Galway - and it can be argued that it was the site that won the competition for Tynagh Energy. It is located close to both a major transmission line on the national grid and also the Bord Gáis pipeline network. Access to electricity and gas infrastructure is a prerequisite for any power station, and the bonus for Tynagh Energy is that their proximity to its site, means a much smaller risk of local objections when it seeks to connect to the infrastructure by building pylons, laying pipelines and the like.
The other attraction of the site is that it is outside Dublin and that it had planning permission by the time the contract was awarded last December.
If you accept that Mountside's job was more or less over once the contract was inked, there is little reason for it to hang on. The nature of the project is that its share of the next 10 years' profits can be pretty well crystallised at this stage.
The consortium's contract to supply the ESB is worth an estimated €1 billion over 10 years. Given that the cost of building the station - roughly €230 million - is known and the price of the gas it will burn to generate electricity can be estimated, the current value of the Mountside stake can be quantified. Arriving at the figure would involve some hard sums, but it can be done and presumably would run to double digit millions.
The main obstacle to an early exit by Mountside is if the Commission for Energy Regulation was to refuse to approve a change in the make-up of the consortium, as is its right. This is unlikely if the replacement was to bring some expertise in the running of a power station to the party.
One reason why the commission might object is the delay to the project that might arise if a new partner comes on board, particularly if it wants to review the project. But, the consortium has committed itself to paying heavy penalties if the project does not meet its deadline.
A significant problem might arise if one of the losing bidders were to object and challenge the process by which the licence was awarded. But the Commission for Energy Regulation appears sanguine enough about this possibility as the prospect of a change in the make-up of the winning consortium was anticipated in the competition.
The other reason there seems to be little prospect of a challenge is that the unsuccessful bidders, Bord Gáis Éireann/Scottish and Southern Energy; US utility AES Electric; Ireland Power Energy and Viridian Power, are the prime candidates to buy out Mountside. In fact some of them are reported to have opened talks already.
More power to Mr Blake.
jmcmanus@irish-times.ie
