Unions Outline Proposals for State Holding Company

13 Jul 2005

ICTU proposes a viable commercial alternative for semi-state companies other than privatisation

The ICTU today (Wednesday) launched its policy paper, "A New Governance Structure for State Companies", which outlines proposals for the establishment of a State Holding Company. The ICTU policy outlines the ways in which the State Holding Company could operate free of direct political influence whilst injecting capital into semi-state companies without recourse to any privatisation.

This policy document is the outcome of an extensive process. While aspects of it have been in the public domain for some months, the original concept has been refined in the light of feedback from government departments and others. This is the first public presentation of the comprehensive proposal.

Speaking at the launch, Congress' Economic Advisor, Paul Sweeney, said the State Holding Company would "allow those companies which seek to expand to have ready access to capital. It would also allow those companies to operate commercially and to fulfil non-commercial roles - where they would be explicitly and transparently compensated by the state; it would separate state ownership from policy formulation; and would largely de-politicise the commercial state sector."

This policy document sets out a framework in which the state could continue to be involved in commercial areas of Irish life through semi state companies.

The main advantages of the Congress proposal for a State Holding Company are;

  • To allow semi state companies operate within the increasingly competitive environment where rapid commercial decisions are required
  • It will allow for rapid decisions regarding access to new equity for expansion purposes, having been professionally analysed
  • It will provide for new funds to be readily available
  • Private capital, while allowed, will be controlled and will work in a passive but positive way for the companies
  • it would be a far more transparent system of governance
  • it is in line with the latest recommendations for governance of these companies from the think tank, the OECD
  • it does not cost the taxpayer one penny but will generate capital appreciation for her
  • it will generate employment, add value and assist in the development of an additional number of Irish based multinationals when the more dynamic of these companies expand overseas and into new areas in the domestic economy
  • the companies would gain greater commercial freedom while being retained in public ownership
  • It will introduce the State Holding Companies to modern ideas regarding governance which we feel is essential for the future development of the commercial semi-state sector

The new government shareholder representative, the SHC, will be far more commercially focused under this structure than the existing regime
Congress believes that the status quo at present is having an increasingly negative impact on the ability of these companies to operate. This paper puts forward proposals that would allow the state companies much easier access to capital and would allow them greater commercial independence to operate, while maintaining ownership within the state sector and more importantly, within Ireland.

Congress proposes that the shareholding of each of the commercial state companies should be transferred from the Department of Finance to a new holding company with its own board and with its role set out clearly by statute. The holding company would be legally owned by a new board of the National Treasury Management Agency (NTMA), State Holding Company Investment Board (SHCIB), with economic ownership held for the benefit of the nation. It could issue additional shares, up to a maximum level, to be sold to a group of private pension funds.

The sale of a small part of the State Holding Company to a group of private pension funds would immediately provide substantial additional equity for the state companies. This would immediately give the state companies access to capital which is one of the primary arguments put forward in favour of privatisation by a government which has competing demands for public investment. Under this proposed model, no further equity would be required for the foreseeable future directly from taxpayers, as the private pension investment would meet anticipated demands for new equity for the sector.

The State Holding Company would be accountable and report to a powerful and well resourced Joint Oireachtas Committee. It would have a board membership of eight, with two from the Department of Finance (the government nominations), three from State Holding Company Investment Board (SHCIB) and would include one representative each from the social partners.

Under this governance structure, the current governing Minister would now be free to concentrate on the development of public policy appropriate for each sector, etc. Similarly, the Minister for Finance and the Oireachtas would have no influence on day-to-day activities of the company.

Speaking about the financial viability of the Holding Company, Paul Sweeney said, "The book value of 10 of 18 or so of the SOEs in 2002 (excluding the smaller ports) was over €5.5bn (and the market value is closer to €7-8 billion) and this would be vested in the State Holding Company (SHC). In turn, the shares of the SHC would be held by the State Holding Company Investment. Contrary to some views of state companies, the value of the sector and of the ten companies privatised to date, at around €16bn, greatly exceeds the total state investment of €1.5bn in the sector."

As the market value of state companies is estimated at €7 billion, selling off 10 per cent could generate €700 million to be invested in the individual companies. This would allow the state to retain control of key companies such as natural monopolies like the ESB, key infrastructure providers such as the ports as well as strategically important firms such as Aer Lingus.

This innovative new approach gives rapid access to funding, as required. It does not require investment from taxpayers, but retains control of these important companies, especially monopolies, critical infrastructural companies and those companies deemed as strategic, in public ownership.

This structure maintains the state's ownership and control of these companies and means that privatisation of key state companies, monopolies and companies in critical areas of the economy becomes unnecessary and that the more dynamic companies can expand.

Mr Sweeney said; "The importance of access to capital for expansion and of strengthening the commercial ethos of the state companies must not be underestimated in the existing, highly competitive environment. These proposals for a new system of governance for the sector is essential and in the long term interests of the 46,000 people working in these companies, for their customers, and the tens of thousands working for their supplier companies".

 

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