Background
Ireland has availed of a loan facility by the IMF/ECB/EFSF "Troika" in the amount of €67.5bn. A condition of the facility is that Ireland must generate €2 billion from the disposal of State-owned assets and companies.
The Irish government recently (on 22 February) announced that it had agreed the shape and scale of the asset disposal programme to be implemented in satisfaction of this condition. This announcement stated that the Irish Government has agreed with the Troika sale of state assets up to a value of €3 billion based on the guiding principles that there will be no fire sales; integral transmissions and distribution systems will be retained in State ownership and full value will be derived for the State. The additional €1 billion intended to be raised is to be reinvested in growth and employment-creating measures within Ireland. In terms of valuation of the relevant assets, it has been confirmed that Barclays Capital has been appointed to advise on commercialisation possibilities and valuation will be key to that advice.
The Irish Government had commissioned a report to evaluate commercialisation opportunities in relation to State-owned assets and companies. This report, entitled the Report of Review Group on State Assets and Liabilities (or more commonly known as "the McCarthy Report"), was published in April 2011. This report now requires to be considered in the light of the 22 February announcement and the subsequent establishment of NewEra.
The recent announcement
The 22 February 2012 announcement confirmed that the Government has decided not to proceed with a sale of a minority stake in the Electricity Supply Board (ESB)(the incumbent vertically integrated power utility) as previously indicated – this is in line with MH&C's predictions. Instead, the Government decided that alternative asset disposal options will now be pursued, to include the sale of:
- the energy business of Bord Gáis Éireann (the incumbent gas utility) but not including BGE's gas transmission or distribution systems or the two gas interconnectors, which will remain in State ownership; and
- some of the ESB's non-strategic power generation capacity.
Consideration will be given to the sale of some assets of Coillte (the Irish State forestry authority) excluding the sale of land and the sale of the State's remaining shareholding in Aer Lingus (the previously privatised State-owned airline, notable for its ownership of landing slots at Heathrow airport) when market conditions permit.
In relation to the ESB, the Irish Government reaffirms its commitment to the retention of ESB as a vertically integrated utility in State ownership.
NewERA
A new State body known as NewERA has been established within the National Treasury Management Agency to act as an adviser and shareholder executive in relation to the State's ownership of its principal assets and companies. These are:
- ESB,
- Bord Gáis Éireann (the vertically integrated power generation and gas transportation system owner and operator),
- Eirgrid (the electricity transmission system operator),
- Bord na Móna (owner of significant lands, peat resources and electricity generation assets), and
- Coillte (owner of forestry resources).
NewERA will also have responsibility for a planned water utility.
In addition to being a traditional shareholder executive, NewERA also has responsibility for seeking investment for infrastructural projects, in conjunction with the National Pension Reserve Fund.
Transactions in the medium term
All relevant Government Departments, with the assistance of NewEra, are working towards the objective of identifying by the end of this month (March 2012) any remaining policy, regulatory, legislative and/or financial issues that may need to be addressed prior to any disposals. It is intended that any issues arising will be addressed by the end of 2012 in order to facilitate transactions commencing in 2013.
In general terms, the privatisation model as pursued, for example, in the UK, is not popular in Ireland. This is largely due to the initial piecemeal sale and ultimate IPO of eircom, the then State-owned telecoms company, and later of Aer Lingus, the State-owned flag carrier, both of which saw retail investors faring badly. For this reason, Ireland has lagged behind other European nations in privatisations.
There has already been considerable interest shown in various assets by trade players, infrastructure funds and private equity interests. We are seeing the level of that interest increasing as Ireland's Government continues to tackle the challenges facing it.
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