Semi-states face a difficult year with increasing pressure from regulators and the postponing or abandonment of flotation plans.
The year just gone will be remembered as a period in which the largest companies in the bailiwick of the Minister for Public Enterprise, Ms O'Rourke, endured the chill winds of reality. With Aer Lingus to shed more than 2,000 staff and the ESB and Aer Rianta unable to advance core investment strategies, the sector was marked by a sense of ongoing crisis.
In addition, An Post's post office network was revealed to be on the brink of bankruptcy and CIÉ faced embarrassing disclosures about its relationship with Esat at an Oireachtas inquiry into a £36 million (€46 million) overrun on a rail signalling system.
Bord Gáis made ambitious and expensive plans to expand its networks, but the Government backed the infrastructural developments only after it received stark warnings of possible black-outs on the system. It also seems likely that many potential domestic customers along the expanded network will not be connected to the grid. All this leaves Ms O'Rourke with considerable political challenges as she faces into a general election before summer. She has supported plans by certain semi-states - the ESB and Aer Rianta in particular - which have failed to secure the backing of her Cabinet colleagues.
What is more, the losses incurred by hundreds of thousands of ordinary Eircom shareholders are likely to be recounted by Opposition campaigners. The irony is that the Eircom flotation, which was flagged as an exercise in democratic ownership of public assets, ended with the sale of the State's large telco to a US consortium of US leveraged buy-out funds, Valentia. With other flotations still likely in the long term, ordinary punters have been left with a bitter aftertaste of their first flutter on the stock exchange.
Of most immediate concern for Ms O'Rourke is the fate of Aer Lingus, which itself had floation ambitions early last year. Those plans were abandoned, however, as a series of highly damaging setbacks emerged at the State airline.
With bookings down amid the foot-and-mouth crisis early in the year, it emerged that two female staff mambers had made allegations of sexual harassment against the chief executive, Mr Michael Foley. Appointed only months previously to float the airline after leading the US operations of the brewer Heineken, Mr Foley was the highest paid executive in the semi-state sector. His annual package was worth €567,000 (£446,549).
A board subcommittee was established to investigate the complaints by a SIPTU worker-director, Ms Joan Loughnane, and by Ms Anne Lawlor, who was personal assistant to the Aer Lingus chairman, the late Mr Bernie Cahill and to Mr Foley.
Mr Foley always denied the allegations. But he was sacked after the subcommittee upheld the complaints. In High Court proceedings in which he sought to defend his positition, he accused Mr Cahill of colluding against him. Such suggestions were denied by Mr Cahill. As the process of recruiting a new chief executive advanced in August, Mr Cahill died unexpectedly at his home in Co Cork. His death deprived Aer Lingus of its most powerful management figure for a decade just as the airline faced a serious fall-off in sales after airborne attacks on September 11th.
After foot-and-mouth and the US slowdown, the company had already developed a restructuring plan to cut losses in 2002. But further action was required after the attacks on September 11th, which prompted bankruptcies and mass redundancies throughout the airline industry worldwide.
With more than 2,000 job cuts sought and the Government determined not to expand the scope of an employee share option plan beyond 14.9 per cent, attention in the coming months will focus on its ability to deliver the plan. This will be the core task facing Mr Tom Mulcahy, the former AIB chief executive who was appointed chairman of the airline in September. Crucial also will be the performance of the new Aer Lingus chief executive, Mr Willie Walsh, a former pilot.
Barred by EU regulations from subsidising the airline, the principal task for the Government will be to secure outside investment in Aer Lingus. Given the forlorn state of the industry, this will be a difficult task. Either way, flotation is off the agenda.
Neither is privatisation likely to be mooted next year by the ESB. Its chief executive, Mr Ken O'Hara, had stated publicly that that was the option favoured by management. But the proposal was spiked at a board meeting last January after the company's group of unions signalled it would block the plan. It was a significant setback for Mr O'Hara, who is understood to have faced serious criticism by certain board members.
The Government's refusal in June to sanction a €2 billion bid for a cluster of eight electricity companies in Poland was a public relations disaster for the ESB. The plan was backed by Ms O'Rourke, and, apparently, by the Taoiseach, Mr Ahern. Still, the Cabinet saw the investment as a step too far, particularly given the poor state of the domestic electricity network. Significant upgrading work is required on the network, but the way was paved for a £500 million investment only after management reached a restructuring agreement with its unions which will see 2,000 of the ESB's 8,000 staff leave the company.
In addition, the company's plans for a £200 million electricity generation station at Poolbeg, Dublin, in joint venture with Statoil, have been the subject of intense scrutiny by the European Commission. The Commission has not yet sanctioned the joint venture and certain EU officials are understood to regard the plant's connection to the national grid as a "violation of European law". The power station is all but complete, and preliminary commissioning has commenced.
Mr O'Hara said in September that he would retire next year and the process of recruiting a successor is under way. No appointment has yet been made.
There is no prospect of flotation at Aer Rianta either. Plans for an initial public offering were supported by Ms O'Rourke but they failed to advance in 2000. Developments since then have seriously weakened the State airports' company and the credibility of long-term capital plans developed by its management and board.
Long the butt of intemperate comments by Ryanair's chief executive Mr Michael O'Leary, Aer Rianta faced a damning determination on landing fees towards the end of last year by the aviation regulator, Mr Bill Prasifka. The regulator ordered lower charges at Dublin and sanctioned increases at Shannon and Cork in advance of decreases at all three sites from September 2002.
More significant, however, was his rejection of ambitious and expensive plans for the development of the Aer Rianta airports. In a paper which effectively kiboshed much of the development, he said only £236 million from an investment programme of £998 million could be justified. He accused the company of "poor consultation" with users of its airports and said there was also a lack of transparency in the quality of information the company provided. Aer Rianta rejected the report, stating that the scope of the investment sanctioned by Mr Prasifka would leave it with airports of "shanty town" quality. It has initiated High Court action against the ruling.
Of more immediate concern for the company is a forthcoming Government decision on proposals by an inter-departmental working group to boost tourism by developing "low-cost" services at Dublin airport. The firm's rejection of the plans is understood to have angered figures close to the Government, although sources say Aer Rianta's response has not yet been discussed at Cabinet.
A proposal firmly rejected by Cabinet was a submission by An Post for a subsidy to keep its network of up to 900 non-automated post offices open. The matter emerged after a report by the industrial relations consultant Mr Phil Flynn said the system faced an £80 million loss by 2005. While the problem was previously confined to rural outlets, urban offices were facing large losses too. Subsidy was the only option, Mr Flynn said. Instead, the Government gave the company a £10 million capital injection which would be used to fund a severance deal for postmasters. Negotiations are under way. If agreement is reached, a deal is likely to pave the way for the closure of loss-making offices, which will be replaced by postal agencies operated by other retailers.
The conclusion of such a deal would free An Post from heavy losses incurred on the postal network. This would be a boon to its attempts to secure a strategic partner, which have been under way for two years. Deutsche Post and the Dutch operator TNT Post Groep are understood to be waiting in the wings, though no progress is likely until An Post's uncertainty surrounding the network is resolved.
In addition, the company has taken court action against the telcoms regulator, Ms Etain Doyle, over a £2 million levy. The company applied to Ms Doyle for an increase in international and domestic mail tariffs and it is understood to be unhappy with the slow progress of its application.
Unusually for CIÉ, funding was not the problem in 2001. As a significant beneficiary of a National Development Plan investment which could amount to £2 billion by 2005, the goup has already received new rail rolling stock and buses. However, serious questions were raised about its ability to manage large-scale projects at an Oireachtas inquiry into a rail signalling plan, which may require £50 million to complete despite being costed at £14 million. The inquiry by a sub-committee of the Oireachtas Joint Committee on Public Enterprise and Transport was suspended following a High Court judgment on the Abbeylara affair, which restricted the scope of all Oireachtas inquiries.
Still, it revealed that a former Esat director, Mr Leslie Buckley, had worked simultaneously for Iarnród Éireann and Esat just weeks before he began negotiations that led to the construction of a telecoms network along the railway. The Esat programme is believed to have contributed to overruns on the signalling project. On the CIÉ side, the deal was pushed by its then director of programmes and projects, Dr Ray Byrne, and agreed by the board of the transport group after a 15-minute discussion.
Three figures who worked at senior levels in CIÉ and who left to join its signalling contractor sought to vindicate their actions at the inquiry. For Bord Gáis, the key task last year was to secure approval for a second sub-sea interconnector to run parallel to its existing link with Scotland. That project was sanctioned only after the Government received a report which warned of gas blackouts in winter 2003 if the pipeline was not built. It received the go-ahead despite alternative proposals by a US-British consortium, which wanted to build a Belfast-Dublin link but not in time to forestall projected blackouts.
The new interconnector is an expensive project, valued at almost £220 million. When combined with a £270 million Dublin-Galway-Limerick western loopline under construction and a £100 million Mayo-Galway link to channel Corrib gas into the network, it underlines the enormous scale of Bord Gáis's capital programme.The company plans to float its entire share capital on the stock exchange. The Government has been told but Bord Gáis has kept very quiet. In one scenario, the scale of its capital investment means no flotation is possible in the short term. Another is that the firm might move to advance the plan quickly after the general election. Time will tell.
