Seanad Éireann - Volume 107 - 23 January, 1985

Adjournment Matter. - Limerick Natural Gas Supply.

Mr. Kennedy: I would like to thank [99] you for giving me permission to raise this matter on the Adjournment, that immediate arrangements be made for the provision of natural gas in the Limerick area as a matter of exceptional and extreme urgency. I am delighted as a member of the Limerick City Council to do this and to do so not alone on my own behalf but on behalf of my colleagues on the city council who requested me to do so on this occasion.

Since 1978 deputations from the Limerick City Council have been received by five Ministers for Energy. Firm commitments have been given that Limerick would receive an appropriate allocation of natural gas. All of these deputations from both the city council and the Limerick Gas Company have stressed that unless an allocation of natural gas is made available Limerick Gas Company would continue to lose substantial amounts of money and customers and would have to close, with the imminent and immediate effect of putting 40 people out of work, men who have served the Limerick Gas Company and the people of Limerick for over 100 years. This would mean also that approximately 6,000 consumers of 24,000 people in all would be left without any means of cooking. Such a closure was imminent in 1980, as can be seen from the city manager's report of that year. This closure was deferred by Limerick Corporation when the Government announced their intention to extend natural gas to areas such as Limerick. Since 1980 Limerick Corporation have persevered with the operation of this gas undertaking, an undertaking which has become a very serious financial liability.

The magnitude of the task facing Limerick City Council and the Limerick Gas Company can be seen from the fact that the purchase price of naphtha, the feedstock that is used by Limerick Corporation and the Gas Company, has risen from £14 per tonne in 1973 to £320 per tonne in 1983. That represents an astonishing and unparalled increase of 2,200 per cent in a period of ten years from 1973 to 1983. This has meant that the [100] accumulated cash liability of Limerick Gas Company — and of course it is a mere subsidiary of Limerick Corporation — is now in excess of £2 million. It will continue to lose £1,000 per day unless there is conversion to natural gas.

In addition, since 1980 Limerick Corporation at the behest of the Department of Energy have spent over £150,000 by way of consultancy fees on independent studies, all of which confirm that Limerick Gas Company could operate successfully, with profits, if given an allocation of natural gas, an allocation which is already available to over 1,000,000 people in Ireland, in Dublin and Cork. A crucial deputation was received by a former Minister for Energy on 30 August 1983. He confirmed and insisted that natural gas would be made available to Limerick, but he also insisted and informed us that certain conditions would have to be fulfilled before BGE would be instructed to proceed with the construction of a pipeline to Limerick. These conditions included proof of a viable market for natural gas; the setting-up of a new company with proven competence and with management and technical expertise. The project, he insisted, must not depend totally on public funding and the transitional arrangements for the transfer of the affairs of the existing undertaking to the new company would have to be satisfactory.

On 12 July 1984 the assistant secretary of the Department of Energy, on the direction of the Minister for Energy, wrote to the Limerick city manager in which he stated that “within the context of continued public ownership” the Minister wished to be advised whether a private minority participation was considered and with what effect or result. The letter continued, “Such minority shareholding would not be inconsistent with continued public control”.

All of the conditions that were specified by the previous Minister for Energy have now been met, and a proposal to set up a new company to run Limerick Gas has been negotiated. The new company would consist of Amgas with 40 per [101] cent shareholding; Limerick Corporation, 40 per cent and BGE, 20 per cent. Negotiations were undertaken by Limerick Corporation and BGE during the summer of 1984. An agreement has been reached on the terms of a supply contract and Amgas are agreeable to the terms negotiated. I am informed by the Limerick city manager that no further business remains to be transacted between Limerick Corporation, BGE, Amgas and the Department of Energy at official level. What is now awaited is a Government decision on these proposals. Limerick Corporation and Limerick City Council favour the implementation of these arrangements negotiated with Amgas over any other arrangements as to ownership and control of the gas undertaking for many reasons.

The new company, with Amgas involvement, would bring to the Limerick Gas Company the strongest available expertise in the gas distribution business particularly in the area of marketing. Amgas itself consists mainly of Calor Teoranta with 50 per cent; Irish Life with 10 per cent; McMullan Brothers, 20 per cent and Tedcastle McCormick 20 per cent. There is also the commitment to social policy considerations in the Amgas-Limerick Corporation proposal. These considerations are reflected in the gas development plan, by providing, for example, for the supply of natural gas to both public and private housing developments and housing schemes not alone in Limerick city but also in its environs.

No financial burden is sought to be imposed on the State in respect of this project other than the cost of the transmission pipeline — which is the duty of BGE — and the cost of conversion of the existing system to natural gas. On the other hand, provision is made for the immediate recoupment of all present corporation indebtedness in the gas division. The corporation are entitled to 40 per cent of the profits on a continuing basis. The arrangements with Amgas are capable of immediate implementation as soon as Government approval is received. This has the decided advantage for Limerick Corporation of curtailing [102] the continued build-up of losses in the existing undertaking, presently running at the rate of £1,000 per day. The loss of customers continues relentlessly. Further losses are threatened unless a supply of natural gas is made available immediately to Limerick.

Amgas have indicated that if a clear decision is not forthcoming soon they will have to consider alternative arrangements for development of their financial and manpower resources. In this connection, in the absence of Amgas as partners, Limerick Corporation is unaware of any other private sector partner who would be available to undertake the project jointly with them. Therefore, it is quite clear that it is imperative that an immediate decision be given by the Government to enable natural gas to be provided in Limerick during 1985-1986 and to ensure that a satisfactory distribution company will exist by approving of the agreement between Limerick Corporation and Amgas, or at least approving of an alternative proposal which will be equally good.

Therefore, on behalf of my colleagues in the city council, on behalf of the city manager and all the employees of Limerick Gas Company I am urging the Minister for Energy, who has a very special knowledge of and interest in Limerick, and the Government to give the green light for the provision of natural gas to Limerick and to authorise BGE under section 8 of the Gas Act, 1976 to proceed with the extension of the transmission pipeline to Limerick.

I am grateful for the opportunity to raise this matter here this evening. I would like to thank the Minister for coming here to hear the case I have presented on behalf of my colleagues in the city council and on behalf of some of my colleagues who are particularly interested in this problem of providing natural gas for their own areas.

Minister for Energy (Mr. Spring): First, I should like to compliment Senator Kennedy on the manner in which he has made his case. From my discussions with Limerick Corporation and with the Lord [103] Mayor a few days ago when he visited me in my home in Tralee to discuss this matter in detail on behalf of the council, I have a fair understanding of the situation. I will reply briefly to some of the points made by Senator Kennedy and try to give him an idea of what the position is at present.

It has always been recognised that Limerick was a location, and indeed a very suitable location, which should benefit from a supply of natural gas. Recognition of this in fact is manifested in the financial and package which was afforded to Limerick Gas Company in 1981. Various studies have been carried out subsequently by Limerick Gas which supported the viability of the project. In the normal course of events one would have expected that the assessment of the project would have been concluded at an earlier stage. However, there were many possibilities in relation to the composition of the new gas company to be formed and all the possibilities had to be examined.

It was my concern, and perhaps the concern of the previous five Ministers for Energy since 1979, that all the possible vehicles for the bringing of natural gas to Limerick should be examined thoroughly. This, of course, involved the re-evaluation of the approach to the project and it brought the negotiations which were carried out during the past 12 months to a level of tripartite discussions between Limerick Gas, Bord Gais Éireann and Amgas. I certainly have every intention of ensuring that gas is brought to Limerick at the earliest possible date. When I met the Corporation in September of 1984 I assured them of my intention to have the matter concluded as quickly as possible. My concern, and I am sure the concern of every public representative in the Oireachtas, is to ensure that the agreement which is hammered out is a fair and acceptable deal and one which can be accepted by Government to protect the interests of this State, and of course in protecting the interests of the State one would also be protecting the interests of the consumer of the natural gas in the Limerick area. Natural gas is [104] an exciting resource which we, as a State, are lucky to have discovered in the 1970s and it is one which we must take care to ensure is put to the best possible use as it is obviously a finite resource.

As the Senator said, the Limerick Gas Company has been in existence for over 100 years. The gas company has always been in public ownership. The State has carried the losses of the company and has already provided additional financial aid to keep it going pending the final decision. The State, through BGE will incur further substantial costs in piping the gas to Limerick and perhaps further west in due course. It is my responsibility to see that the State gets a fair and adequate return for this substantial investment.

The Senator outlined the proposition as he understands it which in fact is under examination in my Department, and mentioned the possibilities for a project with 40 per cent private shareholding and the remainder remaining between BGE and Limerick Corporation. Of course, the Senator did not mention other aspects of the possible deal in relation to call options by the private company involved, call options which would come to fruition after a period of about eight years which, of course, would be a very significant time in the lifespan of this project because the company would be coming into profitability, having paid its costs, at that stage, according to projections. This is one of the fundamental difficulties in relation to the structure of the new company which has to be formed, because there has been an insistence on the part of the private company involved in discussions that they must ultimately have majority control over the new company which is to be formed. Obviously the most important aspect of the consideration is the matter of the investment to be made by all parties and the returns being made by all parties. It would be my intention to ensure that the costs are borne proportionately across the board by all parties involved.

I appreciate that the consideration of the project has been prolonged. This is because the underlying issues of participation commence with investment. I am [105] certainly anxious to see a successful outcome through negotiation between the parties. I hope and I believe that this can be achieved quickly. The timescale for the pipeline construction and the arrangements for the distribution of natural gas in Limerick city are dependent on the outcome of these discussions, and I do not envisage any major delays and I can assure the Senator, as I have assured his colleague, the Lord Mayor, Deputy Prendergast, that that matter will be brought to a conclusion fairly rapidly.

I would say that the responsibility which I have to exercise in the public interest as Minister for Energy in the Government is to see that the deal is fair from the point of view of the State's interest and that the State is not asked to carry a burden which is not commensurate with the level of investment that the [106] State will be putting into this project and is not out of proportion in relation to the other partners in any new company which would be formed.

I can assure the House, the Cathaoirleach and the mover of the motion that the project will be under way in 1985 and certainly from my point and from Bord Gáis Éireann's point of view we will be expecting that we will have the same expeditious handling of the building of the pipeline as we experienced in the Cork to Dublin pipeline and that the people of Limerick can look forward without any further delays to having a supply of natural gas which they are entitled to.

The Seanad adjourned at 8.25 p.m. until 2.30 p.m. on Wednesday, 6 February 1985.