Gas (Amendment) Bill, 1993: Second Stage.

Wednesday, 31 March 1993

Seanad Éireann Debate
Vol. 135 No. 11

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Question proposed: “That the Bill be now read a Second Time.”

Minister of State at the Department of Transport, Energy and Communications (Mr. N. Treacy): Information on Noel Treacy  Zoom on Noel Treacy  This Bill is necessary to ensure that the interconnector pipeline being constructed by Bord Gáis Éireann to link the Irish and British gas grids is completed on schedule. I am sure by now Senators will be aware of this very important project, approved by our Government in December 1991.

The project will link the high pressure gas grids of this country and Britain by a sub-sea pipeline, from Loughshinny in north County Dublin, to Moffat in Scotland, at a cost of approximately £290 million.

The pipeline must be financed, constructed, operated and maintained in a manner that helps to sustain and develop the role of natural gas in Ireland and the provisions of this Bill will ensure this [1230] can be done. Accordingly, it provides for BGÉ's borrowing requirement and for the application of conditions to be laid down by the Minister for Transport, Energy and Communications relating to the construction and operation of the pipeline during its lifetime. As I will explain later, it is essential these provisions are put in place as soon as possible. The statutory limit on BGÉs borrowing for capital purposes was last amended in the Gas (Amendment) Act, 1987, when it was increased to £170 million. Expenditure in 1993, on the interconnector project, when added to the board's existing debt, and the cost of capital expenditure, which it must undertake, in the course of its other activities, means that the limit must be raised substantially. We propose to increase it to £350 million in this Bill.

The Gas (Amendment) Act of 1982 increased the limit on that portion of BGE's borrowings that may be covered by a state guarantee, to £80 million. At the end of 1992, £55 million of BGÉ's borrowings were guaranteed. One element of the financial package which BGÉ has developed for the project involves borrowings from the European Investment Bank. These borrowings are available to BGÉ board at comparatively favourable rates provided they have a State guarantee. In order to cater for this, we propose in this Bill to increase the limit on that part of the board's borrowings which may be guaranteed by the State to £190 million.

In addition to the borrowing requirements, the question of BGÉ's statutory power to construct pipelines is addressed in the Bill. Under Section 8 (7) of the Gas Act, 1976 (as amended), the consent of the Minister for Transport, Energy and Communications, given with the concurrence of the Minister for Finance, is required by Bord Gáis Éireann for the construction of pipelines. Conditions may be attached to any such consent. These conditions normally relate to safety standards in construction, maintenance and operation. The power to impose new conditions appropriate to the operation of major infrastructure like this [1231] pipeline is being provided for, as is the power to revoke any existing consent, if necessary. The proposed amendment to section 8 of the Gas Act, 1976, contained in this Bill at Section 2, will remove any doubt about BGÉ's powers, to operate and carry out its functions outside the State.

References to the Minister for Industry and Commerce in Section 8 of the Gas Act, 1976, are being deleted in this Bill. This is a technical amendment to tidy up the text of the Act, as the powers, which were vested in the Minister for Industry and Commerce, under the 1976 Act were, in fact, transferred to the Minister with responsibility for Energy in 1980, by means of a transfer of powers order, which was approved at the time. These functions now reside in the Minister for Transport, Energy and Communications.

The pipeline is designed to last for at least 50 years. In that time, there is the possibility that interests in all or part of the pipeline could pass to another party or parties.

Because of the vital strategic nature of this pipeline, as a main energy link to Ireland, the Government will wish to retain control over its operation. It is proposed in this Bill to amend section 8 (8) of the Gas Act, 1976 to allow the Minister for Transport, Energy and Communications to impose a condition on Bord Gáis Éireann, that any transfer of an interest in this or any other pipeline, would be subject to the consent of the Minister for Transport, Energy and Communications and that any conditions, which have been laid down for Bord Gáis Éireann, in regard to construction, operation, maintenance or the transfer of an interest in a pipeline, would also apply to the transferee and to any subsequent transferee.

As I have said, the main reason for introducing this Bill at this time, is to ensure that Bord Gáis Éireann is in a position to proceed with the Ireland-UK natural gas interconnector project. There are four main elements to the project. These are: a 30 inch pipeline, which will run from Moffat in Scotland, for 79 kilometres [1232] to Brighouse Bay, on the Scottish coast; a compressor station to be located on the Scottish coast, which will compress the gas for onward transmission to Ireland; a 24 inch subsea pipeline, 200 kilometres in length, which will run from the Scottish coast, across the Irish Sea to the landfall at Loughshinny, near Skerries in north County Dublin and a shore station to be constructed at Loughshinny, from where a 30 inch pipeline will run to Ballough on the Dublin-Dundalk pipeline, to connect with the existing Irish grid.

The project is being undertaken in the interests of the future development of the natural gas industry in Ireland. The reasons for it are twofold: first, to afford additional supply security to the main gas markets during the remaining life of the Kinsale Head and the associated Ballycotton gas fields, which to date are our only indigenous supply sources; and secondly, to provide for secure long term supplies of gas into the future when those fields have been depleted.

Construction of this pipeline is a major undertaking and I am happy to be able to say that progress to date has been excellent. The project is on target for its completion date in October next and is within budget. Up to the end of 1992, approximately £85 million had been spent on the project and while the total cost of the project, at about £290 million, may seem high, it is relatively insignificant, when one considers that, over the lifetime of the pipeline, the value of the gas shipped through it will be many times that figure.

A comprehensive feasibility study of the economic and technical aspects of this project was undertaken by our Department, taking into account cost estimates provided by internationally respected consultants. The EC Commission and their consultants, also professed themselves satisfied and agreed to grant aid the project. The Government is very pleased that the bids received from the contractors on this project have borne out the estimates used in the feasibility study, and also the crucial decision to build in 1993.

[1233] One element of the feasibility study into the project involved sea surveys of a number of possible routes. These were carried out during 1990 and 1991. The criteria adopted for route selection were technical and economic feasibility. The route from Loughshinny to Moffat proved to be the best option, on both of these criteria. In addition, it also offered a landfall north of Dublin city which will be strategically important, in as much as it will afford a supply from the northern end of the grid to the critical Dublin Market in the event of any disruption to the Cork/Dublin pipeline.

The capacity of the pipeline and compressor will mean that we can import sufficient gas for our needs after the Kindale Head and Ballycotton fields are depleted. We currently consume about 2 billion cubic metres of gas per year. Assuming market projections are realised, we expect our import requirements to rise to about 5 billion cubic metres over the next 20 years.

The design of the compressor station allows for additional capacity, to be added later to meet these projected requirements. Most of the anticipated growth will be in the electricity generation sector. We are satisfied that natural gas is an ideal fuel for electricity generation and, with new combined cycle technologies conversion efficiencies of over 50 per cent are possible. The EC also has recognised this and has recently revoked an earlier directive which restricted the use of gas for this purpose.

The construction phase of the pipeline project is underway. However, to get to this stage extensive planning and preparatory work had to be undertaken. A large amount of surveying and engineering design has been carried out. In addition, negotiations were undertaken with the local and central authorities involved on both sides of the Irish Sea and with fishermen's organisations, landowners' representatives and other interested groups. This work was co-ordinated by a small task force comprising officials of our Department together with people from Bord Gáis Éireann itself and its project management office.

[1234] Contracts have been awarded for the manufacture and coating of the pipe, for the laying of the subsea section and for the onshore Scotland section. The contract for the Irish on shore leg will be awarded shortly.

Concern has been expressed at the level of involvement of Irish firms in the project. I should mention in that regard that Bord Gáis Éireann has been careful to comply fully with European Community rules on public procurement by advertising contracts Community wide. It is not permissible to give preference to tenders from a particular country or to otherwise discriminate on the grounds of nationality. In any event Irish firms would not have been in a position to tender for the bulk of these contracts because of the highly specialised nature of the work. It is carried out world-wide by a small number of firms. A good example would be the pipelaying onshore which requires very large pipelaying vessels.

Despite this, a number of Irish firms have been successful in tendering for the less specialised areas and it is expected that in the region of £20 million will be spent in 1993 on Irish goods and services. In fact, about 180 Irish jobs have resulted from the contracts awarded to date.

The project necessitated an agreement with the United Kingdom Government on the delimitation of the continental shelf in the area through which the pipeline will pass. An agreement was concluded in 1992, which extended the previous delimitation line between the two jurisdictions agreed in 1988 further northwards. Both Governments have now approved the agreement and we expect the necessary order to be laid before the Oireachtas shortly.

A more detailed pipeline agreement with the United Kingdom Government concerning all aspects of the laying and operation of the pipeline between the two countries was initiated by Irish and British officials in 1992. I expect this to be approved by Government shortly, and when it has been signed, it will be laid before the Dáil for its approval. The agreement deals with the routing of the [1235] line through Irish and UK waters including those of the Isle of Man, construction standards, the issue of authorisations to the operators, joint inspections, safety and pollution control, emergencies, abandonment procedures and consultations between the two Governments. There will be a four man commission comprising representatives of each Government to oversee the smooth operation of the pipeline.

In the interest of North-South co-operation we have at all times considered the needs of Northern Ireland in planning for this project and, following consultation with the Northern Ireland authorities, the onshore leg of the pipeline in Scotland will be able to cater for the transmission of gas from the British high pressure system to the offtake point for the proposed Northern Ireland pipeline from Scotland to Islandmagee in County Antrim.

There have been some suggestions that a single line to Ireland would have made more sense. I would point out, however, that our project is considerably ahead of the Northern Ireland project in time and progress, and that the provision of gas, and the best means of getting it to Northern Ireland are primarily matters for the Northern Ireland authorities. As I said there is a good measure of co-operation between us. Furthermore, I look forward to the time when it may be practical and feasible to forge a link between the two systems — closing the loop, so to speak, and enhancing security of supply for both Northern Ireland and ourselves.

When natural gas was discovered in the Kinsale Head field in the early 1970s, it was a time of great volatility in the energy market. The advent of gas to our energy mix was timely and has helped to reduce our exposure to the uncertainties of that market, particularly the oil market.

Bord Gáis Éireann was set up with the responsibility to extract the maximum benefit to Ireland from this indigenous resource and I believe Senators will agree that it has fulfilled its role. We now have a safe, efficient and profitable transmission [1236] system, bringing gas to the ESB for electricity generation, to industrial and commercial customers from Cork to Cavan and, of course, to domestic consumers in many of our cities and suburbs.

In 1991 Bord Gáis Éireann returned a profit of £54.9 million on a turnover of £165.6 million and surrendered £28 million in dividends to the Exchequer. I understand that 1992 was another successful year for Bord Gáis Éireann, although its annual report and accounts for that year are not yet available and I cannot go into detail. The Exchequer did receive a dividend of £25 million in 1992 however.

The achievements of Bord Gáis Éireann since 1975 have been impressive. In that relatively short time, we have witnessed a dramatic level of development of the transmission and distribution infrastructure. A sizeable customer base has been built up with over 195,000 gas customers now connected.

Natural gas, as a late entrant into the energy scene here compared to other European countries, now accounts for about 17 per cent of our primary energy demand. It is the first choice for industry within reach of the gas network, as it is for new housing.

The domestic sector is the premium market and the most desirable primary use for gas. The volume of sales to domestic customers increased by 16 per cent in 1992 and almost 22,500 new central heating customers were connected in that year. Bord Gáis Éireann launched a major programme to connect up viable non-gas housing estates in 1991 and this programme is now well under way and has been accelerated.

We can see, therefore, that the role of natural gas has been greatly expanded over the years. Initially, the only customers were NET and the ESB and thanks to those contracts it was an economic prospect to develop the reserves in the first place. We have moved on since then, however, and the penetration into the other sectors has been rapid. Natural gas has come to be appreciated as a clean and versatile fuel, transported by pipeline, available on tap and requiring no [1237] storage arrangements. Its existence in the market place has introduced a welcome additional element of competition.

High levels of efficiency have been attained in modern gas fired plants and improvements are taking place all the time in gas turbine powered electricity generation technology. The importance of combined heat and power units in industry, in commercial units, in hospitals and other institutions was recognised in the Programme for a Partnership Government. This is a relatively new area and we are anxious that developments in this technology should be exploited also.

Questions are raised from time to time about the wisdom of selling gas to the ESB and NET. The practical situation is that Bord Gáis is contractually bound to take or pay for certain quantities of gas every year. Even if Bord Gáis does not sell that gas, it must still pay for it. That is how gas fields are developed everywhere.

Almost 70 per cent of all gas sales by BGÉ go to the ESB and NET. If Bord Gáis chose not to sell this gas, while at the same time under an obligation to pay the producer for it, it would be rightly criticised for lack of economic sense. The consequent shortfall in revenue would have to be made up by borrowings. I am sure Members can imagine the effect which this would have on the company's finances.

The kinds of combustion efficiencies I mentioned earlier mean that the use of gas for electricity generation is a very practical and cost effective use of gas. With regard to the use of gas for fertiliser manufacture, it must be borne in mind that BGÉ is bound, by commercial contracts dating from 1976 to 1987, to sell gas to NET which then sells it for fertiliser manufacture. To disrupt these contracts could result in significant cost. The signals that such action would send to prospective customers should not be underestimated either. Added to that is the negative effect on employment that could result from a decision to curtail supplies of natural gas.

The recommendations of the task force on the implementation of the Culliton [1238] report are currently under consideration. It would, however, seem to make no sense to discontinue sales into fertiliser production unless a more beneficial use for the gas in the national interest is identified.

It has been the policy of successive Governments to implement measures that will ensure we are not overly dependent on any one energy source or on any one fuel. This Government is no exception. The lessons we learned in the fuel crises of the 1970s and 1980s have shown us that we need an even balance of fuels so that we can be in a better and stronger position to respond to such eventualities. As Senators know, most countries have about five primary energy sources — oil, coal, gas, hydro and nuclear. The latter, Senators will agree, is not a suitable option for Ireland. We do, of course, have peat.

About two thirds of our energy supplies are imported. Of those imports, about two thirds are oil, either as crude or product. The introduction of natural gas into Ireland and its subsequent development has greatly reduced our dependence on oil. Oil still supplies nearly half of our energy needs, however.

Of course, we would be foolish not to use these fuels as efficiently as possible. Hence the emphasis in the Programme for a Partnership Government on energy efficiency and also, of course, on alternatives and renewables.

We produce gas and peat, our only indigenous fuels, in about equal amounts and the bulk of the output of each goes into electricity generation. A major feature of policy over the last few years has been to see that the fuels used by the ESB have as wide and diverse a range as possible.

One of the many benefits of the use of natural gas in Ireland has been the consequential savings to date of over £2 billion in our bill for imported fuels. The benefits of gas have also been shared with those who do not have access to a supply. First, there is the payment of dividends to the Exchequer by BGÉ which captures in effect the economic rent for Kinsale [1239] gas. To date BGÉ has contributed over £300 million in this way.

Senators will agree, I hope, that gas has therefore become a vital and vibrant part of our energy and industrial policy. The Government is determined to see that its role continues and expands.

Gas is also an important plank of environmental policy and its environmental benefits are, by now, well known and acknowledged. It is the cleanest of all fossil fuels and the increased use of natural gas figures as a prominent feature of our national strategy to minimise emissions of harmful gases such as sulphur dioxide and carbon dioxide. We are, of course, bound by international commitments in that regard, particularly within the European Community.

Air quality used to be a major problem in Dublin. This has improved significantly in the last few years thanks to the ban on the sale and distribution of bituminous coal and the resulting subsitution of gas in many areas of the capital. The increased gas use in other urban centres where BGÉ operates has also had a beneficial effect on those areas.

The Government hopes for all the reasons I have outlined, that natural gas will increase its share of primary energy demand to about 30 per cent over the next 20 years.

We now have a gas industry which has made great strides over the last seventeen years and which has the potential for future development. Our current native resources, however, are finite. We hope that further reserves will be identified in our offshore. Nevertheless, prudence dictates that we should take no chances. It was against this background that the decision to build the Ireland-UK gas interconnector was made.

With an interconnector in place Ireland will no longer be a stand-alone grid, dependent on a single supply pipeline and a single source. An integrated energy market is one of the goals of the European Community and while initially we will be connected only to the UK, giving us access to the North Sea and Norwegian reserves, eventually we hope [1240] to connect with the wider European grid. We will, thereby, be able to enjoy the benefits of greater competition and greater security of supply which the single energy market offers.

Bord Gáis Éireann is currently in the marketplace for long term supplies of gas and Senators may well ask why we should have a pipeline in place before such a contract has been concluded. As a matter of fact, the pipeline will earn its keep from day one by providing security against any interruption of our supply line to our indigenous reserves at Kinsale. It has long been a cause of concern that there is only one source of supply but when the pipeline is in place, we will be able to avail of a security gas agreement, the first of its kind in these islands, which was completed last year between Bord Gáis Éireann and National Power, the largest of the fossil fuel burning generating companies in the UK. Under this innovative agreement, Bord Gáis Éireann will have access to supplies at short notice if and when required. The agreement is for a five year period from November of this year. This arrangement will give Bord Gáis time to put in place a longer term supply agreement.

It is not possible to say what the cost of imported gas will be for Bord Gáis Éireann, or the ESB, but it will be related to the market price in the UK, which is, of course, higher than the price of Kinsale gas now. We can be assured that there will be no problem with supplies of gas for generations to come. For example, Norway has over 60 years of reserves at current levels of production and Russia has 40 per cent of the world's known gas reserves, most of which is untapped.

While we have decided to proceed with interconnection, we have also taken steps to encourage exploration for further commercial finds in our offshore. An exploration agreement was signed in 1991, between the previous Minister for Energy and Marathon Petroleum, the company that developed the Kinsale and Ballycotton fields. That agreement provided for seven exploration wells to be drilled over a five-year period commencing last year. While the first of those [1241] wells was disappointing, we hope for positive results from the rest of the drilling programme.

At the same time BGE completed an agreement with Marathon for the installation of additional compression on the production platforms which will enable the parties to recover and bring forward in time an additional four billion cubic metres of gas. This gas, which is equivalent to two years supply under the existing Kinsale Head contract, will be used in the period to the end of 1996. This gas might not otherwise have been recovered and as a result Bord Gáis Éireann does not now require imports of large quantities of gas before 1996.

The Finance Act 1992 included provisions for the enactment of special petroleum taxation legislation, which, for the first time, clarified the tax “take” from a field development, and set it at a level designed to attract exploration investment to Ireland, while still ensuring that Ireland would share in the benefits which would arise in the event of another find.

In addition to these measures, a review of the licensing terms for exploration and production activities, carried out last year, resulted in new modern and progressive licensing terms appropriate for the conditions of today and of the coming years. These new terms were launched recently.

All of these measures should have the effect of bringing about further activity in the Irish offshore by making this country a worthwhile location for international exploration investment. I am hopeful that an increased level of exploration activity as a result of this package, and indeed as a result of this pipeline, will lead to further commercial finds.

We must, nevertheless, be pragmatic. It would not be prudent simply to take for granted that we will have sufficient discoveries of indigenous reserves on steam in time to cater for increased demand and to replace our current supplies as they begin to taper off. We must make adequate arrangements to assure supplies long into the future and if this means imports then so be it. Even if we [1242] do find significant reserves in the near future, and if some of that gas is in excess of our own needs, the interconnector will allow us to export that surplus. That facility is in itself an incentive to exploration as prospective producers will be reassured that they will not be restricted to the relatively small Irish market.

I have explained the importance of the project to Ireland. However, it should be noted that the interconnector is also of significance to the European Community. As I have already explained, the EC is anxious to see the completion of the internal market in energy. The commission sees our pipeline as an important link in this strategy and as a consequence we have been able to secure EC funding for the project at a rate of 35 per cent of approved cost, from the Commission's REGEN initiative.

In its strategy to open up the markets for gas and electricity, the Commission has identified the following as key objectives: price transparency; rights of transit for large utility companies, and third party access. The first two of these have already been put in place by means of Council Directives.

The issue of third party access to the transmission network is sill under discussion and we will, of course, comply with whatever proposals emerge. It is our intention that the needs of the Irish gas and electricity markets will be taken into account fully in the development of such proposals. In any event, it would be our intention that, subject to considerations of security of supply, access to available capacity should be afforded to large users such as the ESB, and to producers either for their large customers or for export.

As the ESB will be, at least initially, the largest customer for gas through the pipeline, it was put to both boards that the ESB might take an equity share in the pipeline. This did not come to pass, however, as Bord Gáis and the ESB were unable to agree terms for such participation. Bord Gáis Éireann also had dicussions with other potential joint venture partners but no firm offer has emerged.

This means that Bord Gáis must now [1243] undertake the financing of the project itself. In the absence of a suitable equity partner as of now, this means borrowing. I want to stress at this juncture that there will be no Exchequer funding for this project.

In its passage through the Dáil, the Bill elicited a full and frank debate on the substance of the Bill itself and on related gas and energy issues. I would like to take this opportunity to compliment the Deputies for their contributions. Concern was expressed over a number of issues, some of which I have addressed here today.

A further concern raised was in the area of safety and security. I can give this house the same assurance I gave in the Dáil that there is no extra risk to the people of Loughshinny, or of north County Dublin arising from the existence or the interconnector in the area. The pipeline has been designed and is being constructed to the highest international standards, and cannot be operated until it has been certified as fit for the purpose for which it was intended. When the pipeline is in operation a system of regular inspections will be put in place. Adequate precautions are being taken to avoid the risk of accidents and a sophisticated system of isolation valves will be installed at both shore stations.

We are very aware of the security issues relating to the pipeline, both here and in Scotland. There will be liaison between the Garda Síochána and the police force in the UK throughout the lifeline of the pipeline.

In conclusion, I would like to restate the importance of the gas industry to Ireland and the vital nature of the interconnector project to the future of that industry. As the proposed legislation before us today is necessary for the completion of that project, I therefore, commend the Bill to the House.

I look forward to the Second Stage debate and to completing all stages so that we can proceed with this major project which is of vital national and international importance to Irish economic activity in the years ahead.

[1244]Mr. Burke: Information on Paddy Burke  Zoom on Paddy Burke  I appreciate the welcome I received when I came to this House and I look forward to a good working relationship with other Senators. As the only Senator from County Mayo I will be raising certain issues here during my term and would welcome co-operation from members.

I welcome the Minister of State and wish him well as Minister of State at the Department of Transport, Energy and Communications. As a west of Ireland man I hope he will look favourably on the west— we may even get natural gas in the west. I welcome in principle the Gas (Amendment) Bill, 1993 as it is necessary to provide for the supply of natural gas through an interconnector pipeline from Moffat in Scotland across the Irish Sea to Loughshinny in County Dublin.

The interconnector project currently under construction, extending approximately 147 miles and costing in the region of £290 million, is one of the most important engineering feats ever undertaken in this country. The project has been undertaken for a number of reasons. First, to secure the supply of gas by providing a link into the existing system north of County Dublin. Second, to secure a supply of gas following exhaustion of the Kinsale gasfield after the year 2000 and to meet additional gas needs which might arise before that year. It will also allow Ireland to benefit from the integrated European natural gas network. In the long term the interconnector will provide an opportunity for exporting any surplus supplies of gas to the UK and to mainland Europe should further reserves be discovered off the Irish coast.

I am delighted all the engineering and design work for this project has been undertaken in Ireland and that approximately 60 per cent of the design team are Irish. I understand that total employment figures during the construction phase of the project will amount to almost 800 with additional 200 to 300 employed indirectly in engineering-related work, port and docks services and in the transport and servicing of the lay barges.

Considering the number of jobs [1245] involved I am disappointed Bord Gáis Éireann awarded a major contract to a consortium to carry out the work in Scotland. The consortium, Wood Bredero, submitted two tenders to Bord Gáis Éireann for coating or wrapping of pipes. There was a possibility that work might be undertaken in County Cork but the chairman of Bord Gáis Eireann, in accepting the Scottish-based tender, stated that the decision was based on a difference of millions of pounds in expenditure. I accept that Bord Gáis Éireann are subject to EC regulations on tendering and value for money. Nevertheless, one has to ask why an Irish company could not have been grant aided to allow it carry out this work. It could have resulted in the creation of almost 300 jobs. In these crisis times of unprecedented unemployment it is unthinkable that an opportunity such as this could have been allowed to slip from our shores. It is regrettable that arising from lack of foresight and determination, a project of this size did not result in a greater number of jobs for Ireland.

The interconnector is a vital link to the European gas grid. Bord Gáis Éireann has been concerned for some years about its security of supply, especially as it has signed up many major Irish industries for guaranteed supply contracts. The Kinsale Head field will run out in the year 2000 under current depletion rates, with the smaller Ballycotton field nearby exceeding its life by just over one year. Unless there are other natural gas finds in the Celtic Sea, Bord Gáis Éireann could face a major supply problem. The obvious answer is an interconnector such as this to the British grid. The five year programme between Bord Gáis Éireann and the UK power generating company will enable the company to ensure that a secure gas supply will cater for the domestic, commercial and industrial sectors should there be any unexpected shortfalls in supply to any of these sectors from October 1993.

The decision to build this gas interconnector between the UK and Ireland is a major and irreversible decision taken by the Department of Energy. It will have [1246] a substantial influence on the direction of all future energy policies for this country. Though funded from the EC by approximately £85 million, its total estimated cost of £290 million will undoubtedly have an immense influence on energy prices in the future. It is important therefore that we should be confident that the decision to proceed with this project is the correct one.

I regret that the results of the cost benefit study on the interconnector which has been carried out have not been released for study and scrutiny. It is vital that an investment such as this is subject to serious and rigorous economic analysis by all interested parties. Can the Minister explain why this cost benefit study has not been released? The case for investing in an interconnector pipeline has to be based on the standard arguments of cost and profitability. Searching questions must be asked. Does the construction of an interconnector provide primary energy at a lower cost than any other alternative source? What are the economic consequences of building it? Does the development of the resource to serve the Irish market maximise the return on the investment? Another question which must be considered while discussing this Bill is whether it is appropriate to vest ownership of the pipeline solely in the existing State owned monopoly supplier of gas? It is interesting to hear the Minister outline that the ESB and Bord Gáis Éireann could not agree. It seems to be a common occurence in this country for these bodies to disagree. Our county councils have had experience of CIE failing to agree with the local authorities.

It is wise to ensure a continuous supply of gas after domestic sources are exhausted. It is not appropriate when the Kinsale grid is finished to replace gas by other primary energy resources such as oil, coal, or peat which is also running out. We are led to believe that there is only 20 years of peat supply left in the bogs. He must investigate the possibility that the provision of the interconnector might be a viable investment project for a major sector consortium. The Government never appeared willing to contemplate [1247] putting the pipeline out to private sector tender. Why was the market not tested?

Bord Gáis Éireann has indicated that the cost of building the interconnector will absorb most of its profits for several years to come leaving little or nothing for the Exchequer. What this really means is that it is the taxpayer who is investing in the interconnector. Surely as taxpayers it would be preferable to have Bord Gáis Éireann continue to return dividends from its profits to the Exchequer rather than have those dividends invested in a project which has not been subjected to the test of market viability so that there is no way of ensuring that the funds are used well.

Doubt and uncertainty would be eased if Bord Gáis Éireann could finance the pipeline by share issue in a subsidiary pipeline company. At least this would prove commercially viable. As it stands the taxpayer has no guarantee whatever that this investment will earn an acceptable return. Indeed the history of equity investment by the taxpayer in Irish semi-State companies has not been a happy one.

Sections of this Bill, providing for an increase in the limit of State guarantees of Bord Gáis Éireann's borrowings from an existing level of £80 million to an exorbitant £190 million does not inspire confidence in the project's profitability. However, some economists would argue that the profitability of Bord Gáis Éireann must be judged on its contribution to ESB and NET, and thereby its contribution to employment in these sectors.

It is important while debating this Bill to examine the cost to Bord Gáis Éireann of supplying NET and the ESB with gas, and the effect of these supplies on the viability of this project. At the moment the ESB uses 45 per cent of Bord Gáis Éireann's gas output and pays half the price paid by residential and commercial consumers. For example, the residential sector pays between 33p amd 70p per therm; the commercial sector pay between 21p and 38p per therm while the ESB on average pays 17p per therm. [1248] When the interconnector is built it is a certainty that the costs of gas will increase substantially but Bord Gáis Éireann will always have to keep its prices competitive with oil prices or it will lose some of its market share.

It is neither feasible nor fair to expect residential or commercial consumers to subsidise the supplies of Bord Gáis Éireann to the ESB and NET. It can now be reliably stated that when the interconnector is in place, Bord Gáis Éireann will not be able to sell at its present prices, or anywhere near them, to either the ESB or NET. What will be the outcome? The ESB can easily switch to oil but NET will have a serious problem because at present it is only kept alive by courtesy of cheap gas. If as I predict, NET will have to cease operations when Bord Gáis Éireann becomes dependent on the interconnector for bulk supply, should we be propping it up in the meantime?

NET pays less than 20 per cent of the price paid by industrial and residential consumers while the ESB pays 34 per cent. NET's allocation of gas is almost as large as the total supply sold to the residential and industrial users. This account is central to the justification for spending nearly £300 million on the gas interconnector. Gas supplied to NET costs BGÉ 400 per cent of the price it could secure in the market. In fact BGÉ is foregoing 70 per cent of the financial returns it could make by selling as it now sells to NET. In other words, NET is burning our gasfields. The same applies to gas sold to the ESB but the margin of waste is about half of that in the case of NET.

BGÉ by selling at the present rate to ESB and NET, is advancing the date at which existing reserves will run out and bringing forward the date at which we will be dependant on interconnector supplies. Without ESB and NET, the lifetime of the Kinsale and Ballycotton fields could be nearly trebled. It is estimated that we would not then need the connector until the year 2010 and the saving to the economy would be in millions of pounds. The savings can be estimated by comparing the cost of interest payments if the project [1249] starts now and the cost of interest payments if it did not start until the year 2005. We are faced with a 12 year interest payment on a borrowing of £290 million. Economists have estimated that this will cost around £170 million. One has to seriously question the decision to invest immediately in an interconnector considering that this early start could cost £170 million.

Several arguments have been advanced for the interconnector apart from the economic argument. Environmental protection requires the continuous use and supply of gas. It is clearly a more environmentally friendly fuel than others. Emissions from the production of gas based energy products are lower than when burning coal or oil. In a period of immense interest in environmental protection it is wise to encourage and ensure greater use of gas. A domestic reason also exists for the continuation of gas supply. BGE has had outstanding success in capturing the domestic heating market. Many householders have converted to natural gas involving in many cases substantial structural work the cost of which was borne by the householder. If gas became unavailable it would be impossible for domestic gas users to change to oil without incurring major expense. Consequently BGE has acquired a powerful lobby for its intention and for the building of the interconnector regardless of costs and benefits.

The interconnector will ensure energy supply diversification. Inevitably the country's energy supply is less exposed to interception if it has several rather than a few primary energy sources. The Bill envisages that BGE will finance and operate the interconnector. In other words BGE will have a monopoly on supply from the interconnector which prevents any possibility of competition. This will enable it to engage in the cross subsidisation involved in supplying NET and ESB. Third party access which is not covered in this Bill will have to be seriously considered by the Department of Transport, Energy and Communications.

[1250] When all aspects are taken into account the case for the interconnector probably weighs in its favour. However, the project should have been open to more public economic scrutiny. Will the interconnector provide primary energy at a lower cost? The answer to this question has to be in the negative. Who will bear the cost and will some users continue to receive gas at uneconomic prices? Will the price increases start in 1994 or later? What effect will dearer gas have on industry and consequently on employment? Is it good economic sense to continue subsidising NET and ESB resulting in an urgent need for this expensive interconnector? BGE must come clean on the price per unit charged to all users. A price publication system should be established, reporting average prices paid by various representative categories of industrial consumers. It is regrettable that, in market terms, BGE made no effort to look for equity to finance the project and thereby to obtain an indication of the project's economic viability.

The decision to proceed with the interconnector has clearly been made in the interest of securing a supply of natural gas in the long term given the projected exhaustion of the two fields currently operating at Kinsale and Ballycotton. Nevertheless, the fact remains that work on the interconnector is commencing quite early relative to the projected depletion of our present reserves which will have implications for the viability of the project in its crucial early years. The Culliton report recommended that the option of private participation in the financing and operation of the pipeline be fully explored and the operation of the pipeline should offer maximum economic benefit to natural gas consumers in industry and elsewhere. The report also stated — and I support the view — that some private funding could avoid and reduce the need for significant investment at a risk to the Exchequer.

I ask the Minister to make a special case for the supply of gas to the west of Ireland. The gasline should be extended from Cork to Limerick to Galway and on to Sligo and the northern gasline could [1251] be extended from a point in County Antrim to Derry and Letterkenny and on to Sligo. The west is already disadvantaged and it will be further disadvantaged in farming and industry if other parts of the country have access to cheaper energy sources than those available in the west.

Acting Chairman:  I compliment and congratulate Senator Burke on his maiden speech. It was excellent.

Mr. Cassidy: Information on Donie Cassidy  Zoom on Donie Cassidy  I congratulate Senator Burke on his maiden speech and welcome him to the House. He is following in the footsteps of former Senators Staunton and Martin J. O'Toole and of other fine people from County Mayo. I know he will be dedicated and hard working as they were and I look forward to working with him over the next four and a half years in the 19th Seanad.

I congratulate Deputy N. Treacy on his appointment as Minister of State. All Senators agree that he is a great choice for the position. His contributions, interest and commitment to Seanad Éireann have been appreciated and I was delighted to hear his contribution on this legislation.

The legislation is basically a guarantee that when the Kinsale gas runs out there will be another source of gas available given the work done in bringing a gas supply to most parts of the country. It is only reasonable to assume that the gas will not last forever and the chances of another find are highly unlikely. Some 40 per cent of the total gas resources in the world are located in Russia and much of that remains untapped. Gas resources available to us from other parts of Europe including Scotland and Russia will guarantee a supply for the next 50 years. Gas is environmentally friendly and cheap and it has become the most popular fuel used in new houses and industries. I welcome this legislation and I am pleased that the EC is playing its part by providing 35 per cent of the cash required to put this £290 million project in place.

I welcome the news that the Department [1252] of Energy is, employing Irish firms where possible while ensuring that tenders are invited from our European partners so that everyone is given an equal opportunity. We must bear in mind the specialised nature of this industry where specialised vessels are required for the placing of the pipeline. We can only supply a certain amount of the expertise required for a job of this magnitude. I am delighted 180 jobs have been created and that £20 million has been invested in this project by Irish firms.

Since the discovery of gas off the coast of Kinsale we have saved £2 billion on imported fuels. This is a considerable sum of money, especially in times of recession. Imported fuels only provide 17 per cent of the energy required in this country, however. I am delighted that it is Bord Gáis intention to increase its supply of energy in Ireland to 30 per cent in the future. Ireland's prospects are good if we can reduce our imports and increase our exports. Future economic growth depends on low interest rates, low inflation and a balance of payments surplus. The conditions now being created are favourable and enticing to exploration companies which will ensure greater interest on the part of companies in gas and oil exploration here.

I recall the mineral find at Navan in 1970 which resulted in a considerable number of jobs. Many families from areas such as Castlepollard and Delvin returned from Canada with expertise and contributed greately to the setting up of Tara Mines. Additional finds of gas would be a tremendous bonus now that construction of the pipeline has commenced and the initial cost have been covered.

I listened with interest to Senator Burke's contribution. He mentioned the price the ESB and NET are paying for gas in contrast to public consumers. The ESB are paying 17p per therm. A number of industries are suffering as a result of high fuel costs. We are seeking growth, both in employment and revenue, in the tourist industry and cheaper gas might be made available there also.

Indoor tourist attractions which include [1253] galleries, museums and so on are finding it increasingly difficult to make profits. Despite financial constraints indoor tourist activities must be further developed. However, high fuel costs are making progress difficult. Perhaps the Minister for Energy and the Minister for Finance might address this in future financial legislation. A conversion to gas would be worth considering if it would be charged at 17p per therm.

Perhaps the gas pipeline could be extended to Tullamore, Mullingar and Longford, major midland towns striving to maintain industries. Mullingar has not experienced any decentralisation because of its proximity to Dublin. The extension of the gas grid to that town would reduce energy costs there. I ask the Minister of State to examine this possibility.

There is a train service to every major town in Ireland. Is there a possibility that the gas pipeline could run alongside the train track? It would not require the permission of landowners because the line is owned by another semi-State body and with one agreement many towns could be connected to this energy supply. Many towns will be making representations to the Minister of State including those in his own constituency. These towns would welcome a natural gas supply. Perhaps some research might be carried out to see if this suggestion is feasible.

The ESB provides a great service and I do not agree with Senator Burke's view on this matter. It employs large numbers of people and takes the excess of fuel acquired by BGÉ. The ESB is doing a good job, both for Bord Gáis and NET, by keeping down fuel costs. These two great semi-State companies are working hand in hand.

Bord Gáis could become a major employer because gas is the energy supply of the future. It is environmentally friendly and this industry will expand at a greater rate than we could possibly realise. I look forward to the passage of all Stages of this Bill.

Mr. Howard: Information on Michael Howard  Zoom on Michael Howard  I welcome the opportunity to contribute to this debate. I am [1254] always impressed by the enthusiasm and confidence that the Minister of State, Deputy Treacy, brings to legislation he presents to the Seanad. This Bill is a noncontroversial measure but some points require clarification which I am sure the Minister will provide in his response on Second Stage. Senator Burke made a number of points in the course of an excellent maiden contribution. He raised the question of a return on the investment and wondered why a cost benefit study had not been made public. These are important questions as, in order to have a balanced discussion on a matter such as this, it is important that all relevant information be made available. I am sure the Minister will explain the omission.

Senator Burke expressed concern that there was no guarantee that the investment proposed would yield a profit. That is a subjective issue and can be judged from different perspectives. Nonetheless, it is a valid question and I await the Minister's response. The Senator referred to the fact that NET receives its gas at about one fifth of the price that is charged to the ordinary consumer while the ESB receives its gas for about one third of the retail price. Senator Cassidy also mentioned that matter when he asked for a similar concession for the tourism industry.

I have never been satisfied with the application of selective subsidies to particular industries. The payment of a subsidy to one type of industry and its non payment to another is unsatisfactory in the long term. Senator Cassidy said that the benefit to the economy of the Kinsale gas field has been a saving of about £2 billion on the cost imported oil, coal and other materials for the generation of electricity. It could also be argued that a substantial part of that £2 billion has been an indirect subsidy to two major state companies, NET and the ESB.

Senator Cassidy made a valid point when he suggested the use of railway lines as routes for gas pipelines to a number of our larger towns. It is a worthwhile idea and should be considered by the Minister and his Department.

There are provisions in section 3 of [1255] the Bill which empower the Minister to attach conditions to the sale or transfer of part of this structure to other bodies. If the Minister has power to attach conditions, the observation of those conditions requires that the Minister have authority to impose sanctions if conditions are not met. On Committee Stage I will question the capacity of the Minister to apply sanctions to ensure that conditions are observed should ownership of the structure pass to bodies that are outside the jurisdiction. In the absence of information to the contrary, I am of the view that it would be impossible for the Minister to attach conditions or impose sanctions should ownership pass to companies or persons outside our jurisdiction.

I support the proposal to raise the borrowing capacity available to Bord Gáis as the company has been a success story since 1975. I also welcome the establishment of the connector pipeline between the UK and the Republic. I hope, as the Minister said, that in due course a pipeline across the Border will be installed. The connector pipeline between the UK and the Republic is a further welcome step on the road to economic co-operation which we should support.

The Minister informed us that the project is on target for completion and, unusally perhaps, has remained within its budget unlike some past projects involving State and semi-State companies.

Although the connector between the UK and the Republic is a worthwhile development it also implies that the necessity to import gas will be a reality in a few years time. Whether we import it from the UK, the EC, Norway or the North Sea fields it is implicit in this measure that we are preparing for that eventuality. In the meantime should additional supplies of gas be discovered off the coast the connector will enable us to exploit that resource to the economic benefit of the nation.

I welcome the Bill but I am anxious that the questions raised by Senator Burke be addressed. I am also anxious to [1256] have a more detailed discussion on the power of the Minister to attach conditions to the disposal of parts of the development. I accept we can deal with these questions on Committee Stage.

Mr. Magner: Information on Patrick Magner  Zoom on Patrick Magner  I welcome the Minister of State, Deputy Noel Treacy, to the House and I am glad Senator Howard shares my belief that the Minister has brought a great deal of enthusiasm and energy to each portfolio he has held.

I wish to begin my contribution by paying tribute to the people who bring the gas ashore, the workers on the Alpha and Bravo platforms in the Atlantic, off our coast. It is a most difficult and dangerous task as we know from some of the disasters that have occurred in the North Sea. It is fitting before I speak about the contents of the Bill itself that this House recognise the valuable role played by the workers on these platforms in ensuring the supply of this energy source of which we are all so proud.

BGÉ is a very good example of a State company. It is also a very good example of sound policy on the part of the Department of Energy. The working relationship with BGÉ and the far-seeing policies of the Department of Energy have ensured that we benefited greatly from the discovery of gas and also that we plan for the distribution of gas throughout the country. We are now looking towards the strategic objective of ensuring gas supplies for the foreseeable future. The discovery of gas and the method by which Bord Gáis Éireann and the Department of Energy utilised it has changed the energy profile in this country.

It is probably forgotten that in 1984 the gas industry was in tremendous difficulty. The Cork gas company was essentially bankrupt and the Limerick, Waterford, Wexford and Dublin gas companies eventually wound up in receivership. There were also others of which I think Kilkenny was one. There were substantial rumours in Cork at that time that Bord Gáis Éireann's headquarters would be moved from Cork to Dublin. I was very glad that when Frank Cluskey resigned as Minister for Trade, my own [1257] party leader who was the then Tánaiste took over as Minister for Energy in the subsequent Cabinet reshuffle. Not only did he stop speculation about the transfer of Bord Gáis Éireann's headquarters to Dublin from Cork but he also appointed a most competent Cork man, Pat Dineen, as chairman of the company. I believe he played a significant part in the development of Bord Gáis Éireann.

As I said, the gas industry was in a state of chaos in 1984 which it is easy to forget now. It ran into trouble for various reasons including the oil crisis and the enormous increase in the cost of feed-stocks which made those companies completely unviable. In many cases they were quite unsafe in their transmission of gas through the streets and we had experiences of that in Cork and Dublin. When Bord Gáis Éireann took over these facilities which in the case of Dublin gas cost over £50 million it contributed a great deal of expertise and knowledge. These facilities are now run locally and are extremely successful with a very high safety record.

The work of these companies in providing consumer utilities should be recognised because prior to that the age profile of the gas customer was very high. Many customers were old people who had no other method of cooking and in some cases no other method of heating. The rescue and rehabilitation of those companies by BGÉ, in co-operation with the Department of Energy, was a model of how the State should act in certain situations and they should be congratulated.

Among the developments which occurred during the 1980s was the building of the compressor station in east Cork, which cost £20 million, and the pipeline to Dundalk. An important fact about the interconnector between this country and the UK is that the pipeline is on the Border to a large extent and can be fully utilised in the future, when security considerations allow the loop to be closed. The sooner that happens the better. I wish some of the “patriots” who persist in interfering, as they did with the ESB grid on the Border, would learn [1258] that it cost this nation many millions of pounds and that their “patriotism” stymies the growth of this country.

The pipelines were put in place and we are now taking the next logical step because the gas in the Kinsale field is a finite resource. Woe betide a country which does not have the foresight and the wisdom to look beyond that finite resource and to secure supplies from wherever they are available. As the Minister stated, gas is available in Norway and Russia and it is safe to say that the future of gas in Ireland will be secured by the building of this interconnector. This was also mooted by Pat Dineen when he was chairman of Bord Gáis Éireann and to be quite frank, I think it should have been built sooner, because of increased building costs and so on.

The Gas (Amendment) Bill 1993 has been carefully crafted. It does not give carte blanche to Bord Gáis Éireann. It is quite careful and in many cases quite conservative, in its approach. As I stated earlier, the contributions made by the workers of BGÉ the workers on the platforms, people like Pat Dineen and Michael Conlon who is the present chairman of BGÉ — he would be familiar to you, chairman, as the former county manager of Cork — and the contributions made by Cork people to the development of BGÉ and the gas industry should be recognised.

I congratulate the Minister on the Bill. I think it is a necessary one and, as Senator Howard said, it is non-controversial. We may argue about the details but we can discuss them later.

Professor Hillery: Information on Brian J. Hillery  Zoom on Brian J. Hillery  Like previous speakers, I welcome the Bill. I would like to extend a particular welcome to the Minister of State of the Department of Energy, Deputy Noel Treacy, on what, I think, is his first visit to the new Seanad and to wish him well in his new, onerous and exciting duties.

The interconnector project and the associated borrowing guarantee is fundamental to this debate. As the Minister has said, it is a major project and is crucial to the future of the gas industry. The Bill [1259] provides that borrowing guarantee for the construction and operation of the interconnector and it is welcome news that no Exchequer expenditure is required.

Although Bord Gáis Éireann is operating very successfully it is dependent on a single pipeline and the interconnector will provide security of supply and remove that dependence on the present sole pipeline. The point should be made that this pipeline will immediately provide value for money. It will secure against interruptions and with the agreements which Bord Gáis Éireann has worked out with National Power in the UK, we can have access to additional gas supplies thorough the interconnector even at short notice. The maintenance staff on the existing pipeline are doing a good job but it is true that any extended interruption of the existing pipeline could be very damaging to the company. The interconnector will secure against that situation.

Exploration is under way for additional gas finds, and some hope has been expressed in that regard. If we are in the fortunate position of having a surplus, then we can export natural gas. The Minister is actively monitoring and pursuing incentives for exploration and the technology is improving in this area. It is a measure of the additional compression of technology that an extra two years supply has now been obtained from the Kinsale field. This might not have been recovered otherwise.

I was a member of the Oireachtas Joint Committee on State-Sponsored Bodies when it reported on BGE in 1985. I wish to make a few points about the situation at the time, because it illustrates the progress of BGÉ since then. For example, one of the recommendations made by that Joint Committee was to appoint a representative to the board of Dublin Gas and they are now an integral part of a national distribution network since their assets were purchased by Bord Gáis in 1987. Another recommendation was that Bord Gáis, with its management [1260] expertise, should provide aid to weaker utilities around the country. These have also been incorporated into the national network and, therefore, have the benefit of BGÉ's organisation on an integrated national basis. Bord Gáis was transformed from a gas distributor with a small customer base to a large company with 195,000 customers and they supply 17 per cent of the primary demand for energy.

The Minister rightly highlighted in his speech that natural gas is clean. It is also versatile, competitive, has saved us £2 billion on our import energy bill and has greatly decreased our dependence on imported oil. The company is efficient and I would like to pay a tribute to the dynamic leadership of its chairman, Michael Conlon, his colleagues on the board, the management and all the staff who have contributed to its success.

Natural gas is safe, efficient, and profitable, and clean. Clean fuel is currently an environmentally sensitive subject and there is an EC directive limiting sulphur dioxide emissions to 124,000 tonnes per annum. As I understand it, we have given an undertaking to support the Helsinki Protocol, which will reduce this limit initially to 82,000 tonnes per annum and eventually to 75,000 tonnes. To achieve this objective, using natural gas for power generation will be essential. In this case it will contribute, directly and necessarily, towards meeting our international obligations in reducing these emissions of sulphur dioxide. The banning of the sale of smoke-producing fuels has helped to reduce the smog problem; so has the wider use of natural gas.

I understand that Cork is experiencing a smog problem similar to that once experienced in Dublin. Perhaps the Minister would consider extending this legislation throughout the Cork city area.

In 1991, Bord Gáis Éireann made a profit of £54.9 million and £28 million of this went to the Exchequer. Dividends to date have reached the sizeable sum of £300 million, and I want to repeat that no Exchequer funding is required. In the absence of a suitable equity partner, the funding for the interconnector must come from the company's own resources and [1261] borrowings, which are underpinned to an extent by the guarantee included in the Bill. Obviously, the design life of this interconnector is going to see many of us into the next world. Senator Howard raised the question of Ministerial approval for those who may buy into the ownership of part or all of the pipeline. I assume the Minister and his Department know that approval will be an essential requirement before a part or whole ownership could come from an outside source.

I now want to turn briefly to the role of the European Community, and to emphasise that this interconnector was seen as an important link in the completion of the Internal Market negotiations. It provided the basis for getting grant aid amounting to 35 per cent of the approved cost and that is welcome. The financial support is a tribute to the Government for the imagination shown in pursing this matter.

The Minister also said that one of the objectives of the Internal Market should be third party access, but that the directive relating to this has not concluded yet. We have a type of fluid situation at present. For a fee, third parties can use the gas transmissions and distribution system to sell gas to their customers and this could have implications for Bord Gáis Éireann's future financial situation. May I point out that this might lead to the loss of premium business the creaming off of the most profitable business to competitors which would lead to a loss of profits. In a worse case scenario, the shortfall might have to be met by the Exchequer. The company has undergone considerable growth and success but there are vulnerabilities. The price of natural gas is linked to the price of oil and oil prices are low at present. Since oil prices fluctuate, so does the price of gas. Because of the Kinsale gas field, both Bord Gáis and their consumers pay a lower price than in other countries but we may not always be in this position. If we did not have the Kinsale gas field, Bord Gáis Éireann would be a loss making company now.

Looking to the future, Bord Gáis are [1262] doing a good job and the interconnector we are talking about today will enhance its future. The company has made considerable progress in controlling costs and achieving efficiency. Since there is a sparse population outside the cities, there is an ongoing challenge to increase sales while, at the same time, controlling costs, particularly in a post-Kinsale situation, although I hope we will find other deposits off our coasts. I support the Bill and wish it a speedy passage.

Mrs. McGennis: Information on Marian McGennis  Zoom on Marian McGennis  I welcome the Minister to the House and I thank him for a most comprehensive and informative summary of the Bill. I welcome the Bill which will produce very positive benefits at no cost to the Exchequer. It is seldom that legislation can be proposed or discussed in this House or in the Dáil which does not have huge financial implications for the Exchequer and, ultimately for the taxpayer.

The interconnector will allow for additional supplies, as the Minister said in his speech, and this is highly commendable. A large amount of money has been spent on the Kinsale and the Ballycotton gasfields but it would have been extremely shortsighted to have presumed those fields would supply our energy requirements forever more.

This legislation will ensure continuity of supply, in addition to which we need to be sure we are getting value for money. The Minister stated that this project was costed beforehand and that EC consultants professed themselves satisfied to grant aid the project. Preliminary costings indicate that it is on target and will be completed within its projected budget. The measures proposed in this Bill will ensure continuity of supply, value for money and will entail no additional cost to the taxpayer.

The Minister mentioned that gas is being used increasingly for electricity generation which is welcome since as the Minister said, the nuclear power option is unacceptable to the population of this island. There are various options available to us for the generation of electricity. [1263] Gas is a particularly good one and I favour its use.

The Minister also referred to the choice of tenders for the interconnector, the laying of the pipeline and the onshore aspect of the project. The Minister must abide by EC guidelines, in relation to tenders but it is worth mentioning that while we may not get the contract, or even the onshore part of it, there is a direct benefit to Ireland in that £20 million will be spent on Irish goods and services.

We had a long debate in this House last week on Northern Ireland and on British-Irish relations in general. This project is an example of co-operation between Britain and Ireland and if difficulties can be surmounted in projects such as this then I believe peace and stability on this island may be achieved gradually by means of economic co-operation between the two countries.

The Minister in his speech mentioned that there will be a four man commission comprising representatives of each Government. I am sure the Minister meant four persons.

Mr. N. Treacy: Information on Noel Treacy  Zoom on Noel Treacy  Of course.

Mrs. McGennis: Information on Marian McGennis  Zoom on Marian McGennis  As a number of speakers have said it would be absolutely ridiculous to depend for our energy requirements on one source. It is inadvisable to be either oil or coal. Gas is a welcome addition to our energy resources.

A number of speakers stated that Bord Gáis Éireann is a success story and that is good news. The Minister highlighted the fact that in 1991 Bord Gáis Éireann returned a profit of over £54 million and surrendered £28 million in dividends to the Exchequer with a further £25 million in 1992. So far this Bill is positive and receives my full support.

The aspect of gas supply I have been most involved with in my constituency is domestic use. For the last two years I have lobbied Dublin Gas on behalf of my constituents for an extension of the gas grid to large areas of County Dublin. I am [1264] pleased to say that Dublin Gas responded magnificently and any criticism made of the former gas company cannot be levelled at the current organisation. Marketing promotions are carried out in estates and within weeks people have been signed up. I signed for domestic conversion to gas recently making the change from LPG, an extremely expensive fuel but one of the few options available until recently to those who did not want to use bituminous coal or oil. I thank the producers of LPG but I am glad to make the change over as are many of my constituents. I regularly receive calls about conversion to gas — when one estate is connected other estates immediately want to be connected. The terms offered by Bord Gáis are very competitive and they have various credit schemes also which are probably interest-free. I compliment Bord Gáis for operating successfully and efficiently in my constituency.

I cannot understand why anybody would criticise Bord Gáis for selling large amounts of gas to NET or the ESB. Perhaps the Minister will enlighten me on that. It seems eminently sensible to sell on an expensive product if there is insufficient domestic demand. It would be utterly stupid for Bord Gáis to refuse to contract this energy to NET or the ESB. Bord Gáis is behaving in a competitive and sensible way by making its excess gas available to other commercial users.

The Minister in his speech referred to fuel dependency. There are only two indigenous fuels in this country, peat and gas, and the peat market is limited. The discovery of gas has opened up the energy market in a desirable way.

Senator Hillery referred to the fact that the discovery of gas has reduced our dependency on imported fuels by £2 billion. This is a substantial saving and I would like to see it channelled into further development.

The environmental benefits of gas are evident. Several years ago I found it difficult on occasion to drive into my estate at night because west county Dublin which contains large housing estates and [1265] some areas of north county Dublin were frequently enveloped in smoke. This was due to the type of fuel then being used. The ban on the use of bituminous coal has alleviated much of the smog problem but unfortunately, alternative fossil fuels create their own problems. I have had numerous complaints from people whose fire grates literally went on fire although those problems have now been sorted out. The results of the changeover from burning bituminous fuel can be seen and felt by people who are asthmatic and have bronchial problems.

The obvious reason for this Bill is that we may have a finite source of supply. To have spent huge amounts of money laying pipes throughout the country and making the connections in various suburban estates, not to mention the ESB and NET who are users of the supply, and then to have sat back and hoped it would continue to pump out gas to meet our needs, would have been extremely bad management.

We have had other debates in this House on crises in various industries where management was called into question. The reason for this legislation it would seem to me is that management has been extremely far seeing. Management realises there is a chance this supply may not last as long as we hoped and it has looked around for alternative sources of the same fuel. To ensure continuity of supply, the Minister has put before us not an Exchequer borrowing requirement but a system whereby the Exchequer would guaranteee loans while Bord Gáis Éireann would be responsible for the cost of the work.

If we were to start building a road in, say, my own constituency in Blanchardstown, not knowing where it was going, and continued laying tar and cement in the hope of getting somewhere, we would all be accused of being extremely foolish. This illustrates the problem of finite sources. Bord Gáis Éireann knows it may run into difficulties, and rather than coming back when it is too late and saying the infrastructure has been provided at a very high cost and people's expectations cannot be [1266] realised, it is looking to the future to ensure there will be continuity of source and supply.

I am worried that cost is not guaranteed. I know the cost to domestic users is extremely competitive and is one of the factors that many domestic users are changing over to gas. I hope the Minister will watch costs closely and I would like an assurance on that. Hopefully the large reserves in Russia and Norway, mentioned by the Minister, will act as a factor in keeping costs down. I do not want my constituents coming back to me in three or four years time saying the cost of their gas has doubled or trebled.

The Minister said we are committed to future exploration which will ensure that the cost of gas is kept at an affordable level. We would be extremely negligent not to pass this Bill today allowing for continuity of supply. The fact that the Bill does not involve the State in borrowing makes it welcome in my book.

The Minister acknowledges that safety is a factor. In north County Dublin there are understandable fears about landfill sites for the disposal of domestic waste. The Minister has given a commitment to ensure the safety of people living in Loughshinny and Ballough. Large market garden areas in north County Dublin are already connected to the natural gas grid and this has contributed to economic growth. I do not know of anybody who has felt at risk because of this pipeline. I spent all my childhood in the inner city and everywhere you looked there were pipes being dug up yet we did not feel we were at risk and I am still alive to tell the tale. I welcome the Minister's assurances on safety and security in Loughshinny and other areas. I have no hesitation in welcoming this legislation and commend the Bill to the House.

Mr. Quinn: Information on Fergal Quinn  Zoom on Fergal Quinn  I welcome the Minister to the House.

I have two major problems with this Bill which raise questions of principle that go far beyond this legislation. My first problem is with timing. This Bill has come before the Oireachtas too late. The project that gives rise to it — the building [1267] of the gas interconnector to the United Kingdom — is already fully committed. The work has already begun, so that Oireachtas is not being asked to approve this decision; it is being asked to rubber stamp it. What we are being asked to approve is, in effect, retrospective legislation.

There is a pattern to this which I recognised and observed long before I was elected to this House. There seems to be a widespread acceptance of the notion that as long as the Oireachtas eventually approves it, it does not matter when that approval is given. That is not so because timing is the essence of important decisions. Such an approach shows no respect for the Legislature so I want to protect against it both in relation to this Bill and the general principle involved. If the Legislature is to be a scrutineer of the actions of Government, we have to get away from the practice of bouncing the legislators into making decisions and presenting it with one fait accompli after another. It would not be so bad if this 11th hour approach was used only on matters of relatively little importance but it happens on matters of considerable importance which involves spending very large sums of money. This Bill is a case in point.

The second problem I have in relation to this legislation involves the amount of spending. We are talking about increasing the asset base of Bord Gáis Éireann threefold, turning it from a company with assets well under £200 million to one with assets of approximately £0.5 billion. That is a fundamental turning point for any company. We are talking about more than doubling the borrowing powers of the company from £170 million at present to £350 million under this measure. I do not know how other Senators look on a sum of money like that, but to me it is not chicken feed.

I am continually surprised that very large sums of money seem to be treated with less than full respect. It is a vast sum of money both in itself and as a proportion of the total indebtedness of Bord Gáis Éireann. These are not the [1268] kind of borrowing powers to let through on the nod, even on the day of a world cup match. We are talking — and this is where I have the biggest problem — about vastly increasing State guarantees for Bord Gáis Éireann borrowing. This Bill asks the State to guarantee another £110 million borrowing, on top of the £80 million of State guarantees already in place. It represents a massive increase of the order of 140 per cent.

Let me state my position very clearly about State guarantees for the borrowings of commercial semi-State companies.

I believe there should be no guarantees at all. When the central Exchequer borrows on its own behalf then of course the State guarantee is right and proper. It is in effect a statement of what stands behind that borrowing. When a commercial State company borrows the situation is totally different. What should stand behind that borrowing is the commercial viability of the project for which the money is being borrowed. If the project is commercially viable then it should not need a State guarantee. If it is not then it should not be undertaken in the first place.

Borrowing against the viability of a proposition is an important reality check and subjects a proposal to the scrutiny of people who are very hard headed about lending money. They will only lend where they believe the project will repay by producing enough return to pay the annual interest and eventually the capital itself. A State guarantee deprives us of that safeguard; the lender does not then have to worry about the viability of the project but will get their capital back at the appointed time. However, if the project flops it is the State that will pick up the bill. That makes it easy for the lender and easy also for the State company which wants to spend the money.

This guarantee approach does not make it easy for the State and when we talk about the State we are talking about the nation's taxpayers. It makes it very easy for the State company because they know that the State is a soft touch in this area and that State scrutiny, including [1269] that of this House, is far less probing than the scrutiny they would have to undergo in the absence of a State guarantee.

The Minister, State companies and the Department of Finance will say that State guarantees allow the company to borrow money at a rate which is lower than the market rate. We have heard that before and it is a very shortsighted way of looking at cost. We pay a high price for the sake of a percentage point or two when we forego the discipline of submitting projects to independent commercial scrutiny. The State takes on, often blindly, risks which turn out to be bad. For my money — and we are dealing with taxpayers' money — I would prefer to pay a little more interest on a sound investment than pay a bargain basement price for a loan I could not get unless I took all the risks.

This lazy State guarantee approach gives us the worst of both worlds. On one hand we throw away the possibility of having the investment scrutinised by commercial criteria and on the other we scrutinise it ourselves with a touch that is lighter than a feather.

The Minister reminded us of the need for confidentiality but some points require clarification. Have we seen the details the commercial lender would demand to see? Have we seen a cost benefit analysis of the project? Have we seen revenue forecasts? Have we seen forecasts of how much it will cost to repay these loans and a timetable for repaying them? Have we seen a forecast of the impact these charges will have on Bord Gáis prices during the rest of this century and beyond it? Have we seen a forecast of the impact these prices will have on the future overall demand for gas? Have we heard the reason this project is being undertaken now rather than in three or five years time other than the obvious reason that there are European Structural Funds available for it? These are just some of the questions to which a commercial lender would demand answers before putting money on the line and the questions which this House should also be asking. I am asking them now.

[1270] Placing taxpayers' money on the line through the medium of State guarantees for commercial undertakings is thoroughly bad practice. We should force State companies to face up to the commercial realities of the marketplace and if we did, our State sector would be healthier. As it is, we are setting a series of time bombs ticking to be dealt with in the years ahead.

Mr. Farrell: Information on Willie Farrell  Zoom on Willie Farrell  Ar dtús ba mhaith liom fáilte a chur roimh an t-Aire go dtí an Teach seo.

I welcome the Bill. It is very important that we develop an alternative energy resource so that if in years to come the Kinsale supply runs out, we will have an alternative supply and the work done on the main pipeline will not have been in vain. It is also important that we do it at this time, when EC money is available, because otherwise the taxpayer might have to bear all of the cost.

In the mid-1950s I started selling bottled gas which was new at the time and I have always found gas to be a clean efficient fuel. The Minister referred to a five year project to offer a gas supply to customers in local authority and private estates which are not connected to the gas network at present. Has he any intention — as he is a west of Ireland man himself — of including the west in the project? We in the west and north west experience a handicap because for some reason no gas supply or pipeline has gone west; they are all concentrated in the eastern part of the country. This puts the west in a more disadvantaged position when competing for business and industry because we have to continue to use oil or electricity. It is important that this gas supply be extended to all of Ireland.

I would like to know whether any work has been done at EC level to ensure that we get funding to extend the pipeline right across Ireland. We have many industries in the west, and many uses for gas. It is sad that the west is being ignored in this matter. If gas were found off the west coast or anywhere else in the country it could be exported by means of this proposed interconnector. That is why it [1271] is important to link the west to the gas pipeline.

I see great opportunities and improvements for Ireland in this interconnector. The State guarantee means BGÉ is paying between 2 per cent and 3 per cent less interest. On the amount of money being borrowed, that is a significant saving. It is important that we give the State guarantees. However, while the State is only giving a guarantee we should ensure the company does it work properly and is able to meet its commitments.

I welcome this Bill and I commend it to the House. However, I would like to know if the Minister has any intention to extend the pipeline west of the Shannon because it is badly needed.

Minister of State at the Department of Transport, Energy and Communications (Mr. N. Treacy): Information on Noel Treacy  Zoom on Noel Treacy  First, let me thank all Senators for their interest in this Bill and for their contributions to his very important debate. I appreciate the support given by Members of the House to this Bill. It reflects their recognition of the importance of the Ireland/UK gas interconnector, to our security of supply and, indeed, to our overall future energy supply stategy. The interconnector project is a major and exciting project and heralds a new era in Irish energy policy. A number of points have been raised during the course of the debates in this House and Dáil Éireann which I would like to address.

With regard to the number of Irish people employed on the project, not all of the contractors on the project have been announced by BGÉ. Those contracts which have been awarded to date have resulted in about 180 Irish jobs. There may well be more Irish jobs as other contracts are awarded later.

This project is attracting substantial EC grant aid under the REGEN Initiative. It is important that BGÉ should comply with EC requirements such as those on public procurement. For example, the BGÉ board took a commercial decision on the basis of cost to place the contract for coating the sub-sea [1272] pipe in Scotland. Not to do so would almost certainly have been open to question by the EC, and it would have increased the project cost. People will have to decide whether they want free competition and strict commercial criteria to apply to this and other projects. If they do require this free competition, they cannot also ask for large subsidies to be given to Irish firms to compete for work on any project against more competitive firms from abroad, many of whom employ Irish graduates and skilled Irish workers. I assure the House a comprehensive feasibility study of the economics of this project was undertaken by our Department.

This study was based on the cost estimates provided by internationally respected consultants. This again was examined by the EC Commission and by their consultants in turn; so it was examined not once but twice at the highest levels. The European Community, their consultants and the Commission professed themselves fully satisfied and then agreed to grant aid the project. I am pleased that the bids received from the contractors on this project bore out the estimates used in the feasibility study and that it was decided to build in 1993. The quotations received have confirmed that the BGÉ budget figure of £290 million for the project was not unreasonable.

As far as the financial package is concerned, apart from the EC grant assistance, BGÉ will fund the project through borrowings. That will result in additional borrowing of up to £200 million. Details of these borrowings which are now being arranged are subject to commercial confidentiality between the Board of BGÉ and the financial institutions concerned. Senators will understand it would not be proper for me to go into such details here.

The project is currently on target and within budget. This is the ideal year to build this pipeline. Prices have never been keener. Competition for contracts has been intense. There has been a very good record in the execution of gas infrastructural projects. I can assure Senators [1273] that this project will be no exception and that costs are being tightly controlled.

I am satisfied that this is an excellent project, both from an economic and a national point of view. It is a strategic project. It will provide gas supplies during the 50-year lifetime of the pipe. From the end of this year onwards, it will give us access to supplies in the event of any interruption to the flow of our own indigenous gas.

I mentioned in my introductory speech that Bord Gáis had entered into a five year security gas agreement with National Power in the UK. It has not yet negotiated a long term gas purchase contract for the interconnector. However, BGÉ is now back in the market for gas as is the ESB. It is not possible to say what the cost of imported gas will be for BGÉ or the ESB, but it will be related to the market price in the UK which is, of course, higher than the price of Kinsale Head gas now.

Senators should note that price is but one element albeit an important one in a gas supply contract. I should explain that it is not the cost of gas alone which dictates the retail price of gas. It is sold by utilities everywhere on the basis that it must compete with oil, i.e., with heavy fuel oil or with gas oil as the case may be. BGÉ operates on the same principle, and sells its gas in competition with oil products. The profits arising from its operations are subject to the right of the Minister for Transport, Energy and communications, with the consent of the Minister for Finance, to take a dividend for the State. This dividend, which has amounted to over £300 million to date, partly reflects the relatively low input price of Kinsale gas in comparison with international gas prices.

In addition, BGÉ has been required to operate its business and to make its investment as if it paid import prices. It has striven, with the encouragement of successive Ministers for Energy, to operate so as to ensure a viable gas industry will survive in the market place beyond Kinsale, based on import costs and on the same retail pricing principles, i.e., competition with oil products. I assure [1274] this House that that principle will continue to serve as the basis of gas pricing and that domestic consumers will not face price hikes because gas is being imported via the interconnector pipeline.

It will mean, however, that certain bulk users may face some increase. Bord Gáis Éireann will still have to remain competitive with other energy sources. This will mean a tightening of the board's margins, improved efficiency and a big reduction in the amount of profit to be transferred to the Exchequer by way of dividend.

As indigenous supplies run out we will no longer be able to count on the Kinsale dividend from Bord Gáis Éireann. It would be unfair to blame the interconnector for this. BGÉ's flow must inevitably reflect the expense of building this pipeline. If future profits allow the extraction of dividends, that will remain an option.

I assure Senators gas will remain an abundant source of fuel for generations to come. I want to emphasise once again that Norway has over 60 years of reserves at current levels of production and Russia has 40 per cent of the world's known gas reserves, most of which is untapped. Some Senators rightly pointed out that there is a global trend to link networks and it is not impossible that before long we could be buying gas from as far afield as Siberia. Gas will be available through the interconnector at open market prices.

As regards private sector investment in the project, we would welcome an equity partner for Bord Gáis Éireann. I recognise, however, this is a long term infrastructural project which, while it is strategically important to us, may not give the kind of short term payback which would make it attractive to many private sector investors.

The pipeline will probably be operated by a stand alone subsidiary of Bord Gáis. It is intended that this will operate to provide a transparent and fair service for customers wishing to ship gas through the line. Large users, such as the ESB, will be able to negotiate access to the pipeline to transport gas which they have purchased themselves. Producers of gas will [1275] likewise be able to gain access for sales to large users or for exports. This represents a significant incentive for gas exploration, offshore of Ireland.

There have been suggestions that the project could be postponed until about the year 2010 and that substantial savings in interest payments could be effected if BGÉ stopped supplying gas to the ESB and NET. This is not a practical proposition under any circumstances. Bord Gáis Éireann is contractually bound to take or pay for certain quantities of gas each year. Even if it leaves the gas in the ground, it still must pay for it. That is how gasfields are developed everywhere. Almost 70 per cent of all gas sold by BGÉ goes to the ESB and NET. Quite simply, it would not make economic sense for BGÉ to keep in the ground 70 per cent of the gas for which it has to pay the producer every year. The revenue shortfall would have to be made up by borrowings. Senators can imagine what the finances of the company would look like in a few years, if this were allowed to happen.

I might also mention that every gas field has an optimal production profile which enables the producer to maximise the amount of gas which can be recovered. Leaving gas in the ground may mean that a proportion of it would be lost. We also have to bear the operating costs of the field in its later years, which might well be higher than the revenue. Maintenance costs would also be very high on the platforms at that time. In addition, a reduction in the potential market for gas here would be likely to have seriously detrimental effect on prospects for exploration in our offshore.

Finally on this point, Bord Gáis Éireann has contracts with both the ESB and NET to supply them with gas. Both companies rely on the gas supplied by BGÉ. If Bord Gáis Éireann were to be ordered to renege on those contracts it would call into question the credibility of any contract entered into by the State or by State companies.

As regards the price paid for gas by the two companies in question, the ESB has [1276] not been sheltered; it pays a market price for its gas which it puts to very good use. Irish Fertilizer Industries pay an energy related price for the gas it uses in fertiliser manufacture. It buys that gas from NET. NET itself is, of course, an entirely different matter for consideration in the context of the Culliton report.

I assume there may be some opposition to the increased use of gas but I would like to hear what are the realistic alternatives. We do not espouse the nuclear option in this country for good reasons. There are limits to the use of what are called black fossil fuels when we are concerned about both carbon-dioxide and global warming and sulphur dioxide pollution. We will, of course, continue to explore possibilities for renewable energy, but in the meantime we must cater for our immediate energy needs.

I cannot accept that gas is not suitable fuel for electricity generation.

The modern combined cycle plant is highly efficient, combustion efficiencies of around 55 per cent are possible. Gas is now recognised throughout the Community as the fuel of the future for power generation so much so that recently the EC Council saw fit to revoke an earlier directive restricting its use for that purpose.

I want to reassure Senator Burke and Senator Howard that the ESB pays a market related price for its gas. There is no subsidy, implicit or otherwise, in the use of supply of gas to the ESB. The ESB pays about the same as other electricity utilities pay for gas elsewhere.

The increased use of natural gas in the domestic sector is an important element in the improvement of air quality in our major urban areas. Bord Gáis Éireann is currently engaged in a five year project, to offer a gas supply to customers in non-gas estates, both local authority and private, where this is commercially viable.

In the gas supply area, natural gas is already the dominant fuel for industry and is the preferred fuel for most new housing estates. The major future growth opportunities in gas sales, will be in the commercial sectors and in existing housing [1277] and these are now being targeted. Domestic prices are competitive with alternative fuels.

On the question of global warming, Senators will be aware that the EC is committed to keeping CO² emissions to 1990 levels by the year 2000. However, as a peripheral nation Ireland has to ensure that its economic growth is not hindered. Gas is the most benign of the fossil fuels with lower CO² emissions than any other such fuel. It, therefore, figures prominently in our national strategy for CO² abatement to meet our EC commitment, while at the same time allowing our industrial growth to continue. Gas is also important in helping us to meet our commitments in regard to reduction of CO² emissions.

BGÉ is very conscious of its obligations in protecting the environment in north County Dublin and the archaeological heritage in the area. In the past where sensitive sites were uncovered, BGÉ has funded archaeological studies.

BGÉ will ensure that there is the very minimum possible disruption to local amenities during the construction of the landfall and onshore pipe. A full reinstatement will be carried out and the shore station will be screened and landscaped to the greatest extent possible. I can assure Senators in particular Senator McGennis that the boulder clay cliffs will be put back, as far as is technically possible, in their original configuration. I understand there is a right of way along the clifftop and the public path there will be restored.

BGÉ is taking pains to protect that land along the route of the pipeline and all topsoil, fencing, hedging, etc, will be replaced. The level of compensation to local growers will reflect the value of any crop losses. If landowners are not happy with what is an offer from BGÉ, they can, of course, have recourse to the arbitration process.

I would like to give the strongest assurance that there is no extra risk to the people of Loughshinny, or north county Dublin generally, arising from the existence of the interconector in their midst. The pipeline has been designed and is [1278] being constructed to the highest international standards and cannot be operated until it has been certified in totality as being fit for operation. When the pipeline is in operation a system of regular inspections will be put in place. Adequate precautions are being taken to avoid the risk of accidents and a sophisticated system of isolation valves will be installed at both shore stations.

We are very aware of the security issues relating to the pipeline both here and in Scotland. There will be liaison between the Garda Síochána and the police force in the UK while the pipeline is in operation.

I am pleased to inform Senators Cassidy and Howard that Bord Gáis Éireann has spent a lot of money removing gas pipes which were near sections of the Bray line for safety reasons at the request of CIE. I understand that it is not good engineering practice to build gas lines near railways without special protection.

The promotion of energy efficiency is a central plank in the Programme for a Partnership Government. It is our policy to achieve a situation where we use as little energy per unit of gross domestic product as possible. Combined heat and power is also a plank in the Programme for a Partnership Government. We are beginning work on that aspect of the programme. Bord Gáis Éireann is actively pursuing possibilities for providing combined heat and power to large commercial users. This offers favourable efficiencies and, therefore, a return on investment.

I take this opportunity to congratulate Senator Quinn on his election to the House. He raised a number of points about the project. I know Senator Wright also has an interest in this project as it is located in his constituency. This project is needed now because the Kinsale Head gas field will run out around the year 2000. Perhaps it will last for some time beyond that but only until 2003 at the latest. Demand for gas is growing. The domestic market for gas is growing rapidly and thus cannot continue to depend on only one reserve and one line.

Any failure or interruption would take [1279] six to eight weeks to fix. This would be very costly and extremely dangerous. We must have security of supply. The pipeline is the cheapest form of security, regardless of the EC grant. The alternative is to build a liquified natural gas storage facility at a cost of about £60 million. That would only give 14 days supply and would not be value for money. Since we cannot depend on finding more gas offshore, the decision to build this pipeline now minimises our losses as we would have to build it sooner or later.

Senator Quinn mentioned state guarantees, borrowings, etc. I was surprised that a man with his financial expertise and management ability appeared to be saying that there should be no guarantee of any kind. I do not believe that would be prudent because no matter what one does, there is an element of risk. If the Government sets up a semi-State company and does not show solidarity, support and confidence in it, then, when that company goes to the marketplace to borrow money for any project there will not be confidence in it as a company.

What the Government is doing is very specific, namely, increasing the borrowing capacity of Bord Gáis Éireann to take account of its operations to date and of its major investment in this project, to a maximum of £350 million. In this legislation the Government is asking Oireachtas Éireann to give that right to this successful, young semi-State company. However, despite allowing the board to operate with a maximum limit of £350 million on commercial criteria, the Government is restricting the State guarantee liability on this borrowing to £190 million. This means that the State will only be exposed to a maximum of £190 million. Therefore, it will not be exposed at any one time to the total borrowing capacity of the company which amounts to £350 million. This means the difference between the State guarantee and the borrowing capacity ensures that the company must operate on the basis of commercial criteria.

[1280] Once the State guarantee is there, the money is available from the European Investment Bank and from other major institutions, particularly the AIB, at a favourable rate. If the State guarantee was not there, the company would have to borrow money in the marketplace where it would be exposed to the volatility of interest rates at any particular time. This would increase the risks for the company and would make the cost of this project much greater. This guarantee gives the company a competitive edge, it ensures that the project is viable and cost effective and it provides a major opportunity for this country to open another energy supply line to the international world. We are opening a supply pipeline to the UK which will, in turn, be connected to the European grid. Therefore, in the future we will be able to avail of gas supplies from Siberia and other places which we could not do if we did not have this project.

This project also creates an incentive for exploration offshore. We could invest in exploration and if we are fortunate enough to discover more gas — we hope we will because of the economic opportunities it would create for this country — the interconnector pipeline could be used to export surplus gas supplies to the United Kingdom and elsewhere. There is a dual option here. It is a major investment which creates many opportunities for our country. It means we are not totally dependent on a limited energy supply.

As far as we are concerned this is one of the most significant and important projects ever brought before the Oireachtas and I hope we will have unanimous support for it. We should acknowledge the great work being done by Bord Gáis Éireann and the fact that it has been done according to strict commercial criteria with minimum State involvement.

This is an engineering project by a commercial semi-State body and it is not usually a subject for legislation. For example, Aer Lingus buys planes and the ESB builds power stations, but they do not need to tell the Government they are doing these things. They make their own [1281] decisions. Bord Gáis Éireann is asking for the legislative power to make this decision and the Government is asking for an endorsement of this legislation so that the company can proceed with the major new extension of its business. Bord Gáis Éireann is building a supply link to the United Kingdom. It is, as I have said already, providing access to an alternative supply of energy. The only reasons for this legislation are to ensure that Bord Gáis Éireann has power to build and that the company can raise its borrowing powers to a maximum of £350 million.

I hope this explains the situation in detail. I look forward to the Committee Stage debate when I will be delighted to answer any further questions.

I would like to restate the importance of this legislation and to acknowledge the valuable input in this debate by all Senators. This helps to ensure that the legislation we pass is comprehensive and fulfils all legal and commercial criteria. We will then be in a position to make a contribution to the development of our country so that it can continue to compete and provide economic opportunities for the people. We must ensure that any impediments or restrictions are eliminated or reduced so that economic and employment opportunities can be created which will allow our country to play a key role as a modern economic nation.

Mo mhíle buíochas do gach duine a ghlac páirt sa díospóireacht.

Question put and agreed to.

Agreed to take remaining Stages today.


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