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Clearly the Minister for Finance's left hand does not know what his right hand is doing. 

On the one hand, he has the National Pension Reserve Fund with €17 billion invested in about 2,900 companies worldwide in addition to €7 billion invested, on his instructions, in the two main banks. Financed mainly by Exchequer borrowings, the Fund has produced a meagre 2.6% annual return since 2001. It now proposes to tilt its portfolio towards riskier investments in the hope of doubling its annual return so as outperform the cost of government debt, currently 5%.

On the other hand, the Minister is investigating the possibility of selling prime State assets to reduce the national debt. Such sales could occur at a low point in the economic cycle and would have to be "priced to go" to deliver profits to investors.

If the Minister joins his hands together, he could direct the Fund to dispose of its overseas investments and lend the proceeds to the Exchequer to generate a risk-free return for the Fund that matches the State's cost of borrowing. Alternatively, the proceeds could be used to make arms-length purchases of suitable State assets or invested in new infrastructural projects in Ireland.

Letter published in the Sunday Business Post on 8th August 2010.

Pension Fund Strategies

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The National Pension Reserve Fund has lost about €3 billion (15% of value) over the past four quarters as a consequence of the international credit crisis.

In these circumstances, it makes no sense for the Exchequer to continue borrowing about €1.6 billion a year from abroad for the Fund to continue to making risky overseas investments while cutting back on domestic investment and turning to expensive Private-Public Partnerships and massive tax breaks to progress critical national projects.

This nonsense is compounded by the fact that the Fund must achieve a return on its investments in excess of the cost of borrowing "to wash its face". It is noteworthy that the NPRF is one of the few funds in the world not financed by oil and commodity revenue surpluses. Has the government forgotten the rules about never borrowing money to buy shares or investing what you cannot afford?

Surely it makes more sense for borrowings earmarked for the Fund to be redirected immediately to finance much-needed, major infrastructural projects now instead of being used to make overseas investments for pensions payable decades hence. This could be done simply by legislating a "contributions holiday", say, for three-years to free up about €5 billion.

This would enable critical projects to be progressed more quickly and kept in public ownership. For example, the eight co-located hospitals which will cost the taxpayer a fortune and further fragment our two-tier health service could be progressed in public ownership using a fraction of these liberated funds.

By 2025, the NPRF could be valued €80 billion at current prices (€150 billion at 2025 prices). Given that every taxpayer and consumer will have contributed to the Fund, what guarantees can be offered that payments out of the Fund after 2025 will be equitably distributed and not skewed towards increasingly unsustainable, unfunded "gold-plated" pensions for politicians and the public sector at the expense of much more numerous, poorly pensioned citizens in the private sector?

For example, the NPRF has indicated that public service pension costs will reach 3.7% of GDP by mid-century while social welfare pensions for a far larger number of people will only rise to 10.1%. 

As contributors to the Fund, we should be given absolute assurances that future governments will not treat the Fund as a massive "slush fund" to support vested interests as done with decentralisation, benchmarking etc.

Lead letter published in Irish Times on 26th July 2008.

Partnerships and Pensions

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The article "Why public-private partnerships work" (2nd March 2008, Sunday Business Post) included a picture captioned  "West-Link Toll bridge: an example of a successful public-private partnership in action". Successful for  who? Certainly not for the users of the M50 who, for years, have paid through the nose to queue at the toll or for the taxpayer who has been obliged to pay hundreds of millions to terminate the partnership.

Continuing use of PPPs and provision of massive tax breaks to developers, especially in the health service, are very hard to justify when the Government is borrowing well over a billion euro a year to invest in the National Pension Reserve Fund for onward investment in thousands of overseas companies and funds. This fund, valued at €21.3 billion at end 2007, lost 1.8% in the last quarter of 2007 and has probably lost a multiple of that in the current quarter. 

Perhaps more disconcerting is the fact that as recently as December last, the NPRF was increasing its investments in emerging markets, property and private equity from 7% of the fund's overall value to 23% by end 2009. No doubt these declining markets will recover but, in the meantime, we will have given the NPRF billions of borrowed money for risky investments and simultaneously provided huge tax breaks to developers and handed over critical public infrastructure to PPPs. Why?

Co-located Hospitals and the Health Service

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As is evident from your letters' page, opposition to co-locating private with public hospitals refuses to go away.

It was clear before the general election that key ministers had no idea about the cost of co-location. Furthermore, the Minister for Finance, who should know better, seemed to equate its cost with the the level of tax foregone. Conveniently, he ignored the ongoing costs that will arise due to duplication of activities and resources, the operation of two separate management systems on the same site and, most critically the premium needed to cover future profits of the developers of the co-located hospitals.

In the long run, these items will be far more significant than the initial tax breaks. In addition, private health insurance subscribers will face substantial additional premiums and, at the same time, public hospitals will encounter substantial reductions in revenue to be funded by taxpayers. This is classic "lose-lose" rather than "win-win".

The Government's mandate has been to fix the health service - not to break it by allowing the private sector to selectively cherry-pick profitable niches. Valuable time and MANY LIVES have been lost as a consequence of the single-minded pursuit of this ideologically-driven approach and the opportunity to develop a single-tier, public system could be lost for at least a generation.

Instead of pursuing privatisation by stealth and hiding behind task forces and reports, the Government should, even at this late stage, ditch this warped PD ideology and start tackling the very real and obvious issues linked to management, staffing and resources. If this had been done much earlier in the ten-year life of this government, we could have reached, by now, a situation where the end of waiting lists would be in sight and the need for private heath insurance as a method of queue jumping would have diminished.

Letter published in the Irish Times on 24th November 2007.

Harney and Health

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Your correspondent Dr X (Tuesday 6th March) asked how private health subscribers would secure private treatment if proposals to limit consultants' output to 20% of their clinical output are implemented. The answer is that a large proportion of these subscribers will opt out of this insurance if and when national waiting lists are reduced and the health service reverts to one-tier based on need rather than capacity to pay. With reduced economies of scale, risk equalisation and medical inflation, the cost of private insurance would become prohibitive and cease to offer any queue jumping benefits to the majority of subscribers.

This begs the question as to why the Government is failing to treat waiting lists with the same urgency as the introduction of tax-subsidied private hospitals and reform of the private heath insurance which accounts for only a small fraction of heath expenditure. Instead of breaking the VHI into a series of competing companies, the Government should absorb this State-owned organisation into the Social Insurance Fund, adjust health contributions and purse a single-tier, publicly-owned  and -operated health system for the great majority of citizens.

Privatisation of Hospitals

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It is patently clear that co-locating private and public hospitals is like trying to mix oil and water. It will give rise to fragmentation, duplication and staffing and operational problems on a massive scale and, most critically, it will drive an even deeper wedge into our inequitable health service. The major political parties should pledge to unwind them and the Dail must ensure that no binding commitments are entered into ahead of the next election and a comprehensive review. Failing that, politicians should give notice that they will progressively introduce terms and conditions that make this "mad cap" scheme unprofitable to the developers.

Instead, what should be done is to retain these "hospital loving" developers to design and build units with step down beds on the proposed sites to be managed by the public hospital. This could be started next spring and done within two years.  Simple !

Broadcast on RTE's Today with Pat Kenny on 21st December 2006.

If Ireland was Privatised

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With the Aer Lingus floatation en route, it would be interesting to consider an Initial Public Offering for Ireland plc. Notwithstanding a strong historic performance, I reckon that it would be considered a poor investment on the grounds that it is heavily over-borrowed, poorly managed, losing competitveneness, over-priced and over-dependent on a few sectors. In addition, large sections of its work force is very inefficient, dissatisfied, riddled with inequities and its shareholders may well depose its long-serving top management team at the next AGM.

Broadcast on RTE's Today with Pat Kenny on 14th September 2006.

Aer Lingus Privatisation

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While each of these reservations about the proposed privatisation of Aer Lingus may not be "deal breakers", their combination suggests that privatisation is a step too far:

    1. The amount to be raised via the IPO is "small beer" in the context of the airline's total needs and surplus funds at the disposal of the Exchequer
    2. The cost of the IPO and related ongoing costs will erode the IPO proceeds and future profits.
    3. Key benefits of the investment programme might be achievable without privatisation.
    4. The market-related strengths that Aer Lingus might bring to new, capital-intensive, long-haul routes are very limited.
    5. The investment programme is excessive given the airline's financial base and any disruption to profits could undermine the business.
    6. To maintain its stake post-privatisation, the Government would need to re-invest which defeats a key reason for privatising.
    7. The initial market capitalisation may not be sustainable given its likely premium to shareholders' funds, cyclic nature of the airline business and (apparent) intention not to pay dividends.
    8. If dividends should be paid, the cumulative outflow over time would reduce profit retentions and undermine the airline's  capacity to borrow and expand.
    9. If the airline industry should go "pear-shaped" for any reason, Aer Lingus might need State assistance,  irrespective as to whether it is in public or private ownership or what the EU says, for national strategic reasons.
    10. If the State's stake is diluted, it will be powerless to ensure that Aer Lingus is not subject to assets stripping or a hostile takeover.
    11. The proposed deal with the trade unions is too expensive and would restrict future profitability and flexibility.
    12. Can the proponents of privatisation guarantee that the eircom experience (stock market ping-pong, under-investment and general belligerence) will not recur with Aer Lingus.

Letter published in the Sunday Business POst on 9th July 2006. 

Privatisation of Hospitals

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Following Susan Mitchells' article (11th June) about plans for eleven co-located private hospitals, it is clear, but not surprising, that the Government has learnt nothing from the ongoing decentalisation debacle. While decentalisation could be disruptive to thousands of public servants and families and to the operation of relocated departments, the roll-out of these private hospitals is potentially far more serious.

At a time when inequitable property tax breaks are being closed off, a new break for hospitals is being ramped up. This will result in the State losing taxes equivalent to 48% of the cost of developments. In addition, it will have to give away prime sites, be obliged to pay full commercial fees to use the facilities and have no ownership or managerial rights notwithstanding having contributed almost half the total capital cost. How can this be remotely described as either progress or value for money? It is patently clear that co-locating private and public hospitals is like trying to mix oil and water. It will give rise to fragmentation, duplication and staffing and operational problems on a huge scale and, most critically, drive an even deeper wedge into our inequitable health service.

Based on your report, many key bodies have reservations or are outrightly opposed to the proposals and the only people in favour seem to be the Tanaiste, consultants, builders and investors.  As the proposals seem to driven by ideology and profit and are being pursued without any popular mandate or genuine debate, the major political parties should pledge to unwind them and the Dail should ensure that no binding commitments are entered into ahead of the next election and a comprehensive review. If, in the meantime, the Minister and HSE have the luxury of surplus resources and energy to pursue these risky and unproven ideas, they should be immediately redeployed to provide more public hospital beds, improve services and develop a more unified health service.

Letter published in the Sunday Business Post on 19th June 2006.

Aer Lingus Privatisation Submission

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Here is a detailed 6-page Submission made to the Oireachtas Joint Committee on Transport on 11th April 2006 in connection with the proposed privatisation of Aer Lingus which I opposed. Here is a copy of the Joint Committee's Report (Word document).

Toll Roads

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Judging by their silence, motorists don't give a hoot about the recent increases in the East and West Link tolls. If they made enough noise, I'm sure that they could force a roll-back of the recent increases along with commitments to limit future price rises and measures to ease the congestion.

This instance of highway mugging begs the question as to why the Government and NRA are pursuing plans to toll further roads notwithstanding that Public Private Partnership funding is minor in the context of the total investment in infrastructure; that toll operations represent additional cost burdens; that the State can raise finance on better terms than any private operator; and that profits must be generated to remunerate the private partner.

Surely, it is time for the Government, NRA and NTR to recognise that they are killing their "golden goose" in the same way that Eircom's floatation and subsequent history have constrained any future privatisations.

Letter published in the Sunday Business Post on 23rd January 2005.

Eircom

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Eircom's local loop and enormous customer base are national assets and central to Ireland's ongoing development as an aspiring "wired-up" nation.

If Eircom is acquired by Valentia, the new company will have debts of 2.2 billion euros in contrast to virtually debt-free Eircom. All the signs are that this company will be operating in an increasingly competitive, regulated marketplace and in an uncertain economic climate. How can its debt be supported while sustaining major capital expenditure without recourse to major restructuring and repricing?

Depending on interest rates and repayment schedules, debt servicing could average 300 million euros a year and ongoing capital expenditure could exceed 400 million euros a year. This estimated annual outflow of 700 million euros will have to be achieved within a business that has recently reported an annual turnover of 1.7 billion euros for its key fixed line businesses and related earnings (before interest, depreciation etc.) of 537 million euros. On a comparable basis, this turnover was just 1% higher than that the previous year and the earnings were 18% lower due to price reductions and competition.

With initial gearing of almost 3 times and low interest cover, could Valentia be overexposed? Has the Government considered the consequences if the business should fail or even stall badly? Surely, it was never the Government's expectation that Eircom would be dismantled and that its core business would be taken private in a leveraged investment deal?

Obviously, if the new business progresses satisfactorily then fears for its future will have been unfounded. However, if major difficulties should emerge, what will be done by the Government to ensure that the company's problems don't spill into the wider economy? Does it have a contingency plan, or is it just as powerless as the majority of Eircom's suffering shareholder-customers?

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