Why is the Government so keen to pay the private sector to take fundamentally sound businesses off its hands? A privatisation policy that was supposed to see the State's coffers swelled by the sale of Eircom and its like has degenerated into the fire sale of perfectly good State assets.
Last Thursday the Dβil approved the sale of ACCBank to the Dutch-owned Rabobank for €130 million (£102.4 million). The price represents 90 per cent of the bank's book value and is a bargain in most analysts' eyes. The Government is selling ACC for 10 per cent less than the assets are worth when normally banks are sold at a premium to book value.
When you consider that the Government will hand over €24.5 million of the proceeds to the staff in the form of the Employee Share Ownership Trust (ESOT) it does not look like much of a deal for the taxpayers who actually own the bank. When you take into account that the Government has also given an indemnity - reported to be for £10 million - in connection with ACC's unhappy involvement in the Four Seasons hotel development, the deal begins to look like the sale of the century; provided you are Rabobank and not the Irish taxpayer, that is.
Hopefully, the Comptroller & Auditor General - responsible for ensuring the taxpayer gets value for money - will cast a cool eye over the deal. In time, no doubt, the reasoning behind this apparent giveaway will become apparent, via the Freedom of Information Act and other routes. In the meantime, we can get some insight into the Government's thinking, or lack of it, from the recent sale of Irish National Petroleum Corporation to Tosco, the US oil company which is itself being taken over by Phillips, the US oil major.
The Department of Public Enterprise seems reluctant to shed too much light on the rationale behind the sale of this State asset. Of the 2,000 or so records created by the Department during the sale process, only about 100 were deemed suitable for release under the Freedom of Information Act. The Irish Times asked to see 29 of these records, but has only been given access to 19 following an unprecedented second vetting of the file for FOI purposes.
What little has been released makes interesting reading - in particular a briefing document for the Oireachtas Joint Committee on Public Enterprise which was released in part. In the section dealing with the impact on the Irish market, it concludes that benefits to the consumer were negligible and that the smaller oil companies were, if anything, opposed to the deal.
The main selling point of the deal, from the consumer point of view, was that it brought an end to the mandatory regime, under which petrol retailers were obliged to buy a proportion of their products from INPC. The reason for the regime was to ensure INPC's survival and on face value it was a bad thing for the consumer because it added 0.34p to the price of a litre of petrol. In reality it helped keep prices down by maintaining an element of competition in the Irish marketplace. The existence of an independent refinery afforded the small oil companies such as Tedcastles, Maxol and Estuary "a measure of choice in dealing with the majors" from whom they buy most of their oil, according to the Department. The mandatory regime "has ceased to be an issue for the Irish oil companies", which have 30 per cent of the market and tend to be price leaders in the Irish market, according to the briefing document.
The existence of INPC "also appears to offer a degree of leverage to the Irish affiliates of the majors in their dealings with their European or Global HQs", says the document. The major oil companies such as Statoil, Esso and Texaco account for the other 70 per cent of the market. It follows from the above that the sale of INPC to a major such as Tosco/Phillips has in effect removed two downward pressures on petrol and diesel prices in Ireland. Not something that you expect from a Government that puts its citizens first, or even one that is very concerned about inflation.
You would presume that the attractions of the deal - namely the price paid by Tosco/Phillips - must outweigh this significant drawback. But you would be wrong. As in the case of ACC the Government is effectively paying someone to take a decent business off its hands.
The $100 million (€117 million) being paid by Tosco/Phillips for INPC looks reasonable, until you examine the detail of the deal. The US group is only buying the assets of the company, which are the refinery in Cork, the Bantry Bay oil terminal and a Dublin head office. By structuring the deal in this fashion, Tosco/Phillips is avoiding responsibility for INPC's debt and also any as yet unseen environmental problems.
The deal takes on a very different complexion when these factors are taken into account. The $100 million purchase price is mostly wiped out by the INPC's debts of €90 million for which the State will now assume responsibility. In addition, the Minister for Public Enterprise has given a $75 million guarantee to cover environmental liabilities going forward. An insurance policy will be put in place to cover this, but it will not be cheap and it will be paid for by the State. Needless to say, the State will also foot the €10.16 million bill for the ESOT granted to the staff, along with having their jobs guaranteed for the next 15 years.
There will also be the substantial fees due to the advisers who came up with this brilliant concept.
It seems like a pretty bad deal for a company that made a profit - albeit a small one - last year but at least it makes the ACC deal seem reasonable. Like the ACC deal, the sale of INPC has one thing going for it: it gets the State out of a business in which it does not really have to be in any longer. A strong argument can be made for the Government taking a financial hit to exit the oil refining and banking sectors, and this is clearly what is happening.
It would be nice if the Government admitted this and even nicer if we had something approaching a debate on the issue and whether the sort of hits being taken are fair value for the taxpayer.
jmcmanus@irish-times.ie
