ESB opts for a safe pair of hands

THE white smoke has emerged from the ESB chimney.

One of Ireland’s most important companies will soon have a new boss.

The selection of the new chief executive, Pat O’Doherty, however, has caught many people on the hop.

The near universal reaction is that O’Doherty is a decent and personable individual, but many are questioning his appointment ahead of the long-serving deputy chief executive, John Shine and former finance director, Bernard Byrne.

Some believe the appointment signals a strengthening in the grip of the Department of Energy over a company with a proud history of independence going back to the days of the Paddy Moriarty.

John Shine masterminded the overhaul of the ESB network, much of which had become a bit ropey, following years of neglect.

Bernard Byrne’s financial expertise was viewed as a big positive at a time when refinancing has become a huge issue in the wake of the meltdown in the reputation of the Irish State. The AIB man would have played a big role fronting any ESB privatisation that might culminate in an IPO (public flotation).

At the end, it came down to a choice between two internal candidates, Shine and O’Doherty, say insiders.

Shine has worked closely with outgoing chief Padraig McManus.

This may not have worked in Shine’s favour. The star of the outgoing chief executive has been waning for some time and much of this has to do with the very large salary awarded to him — about €750,000 — at the peak of the Celtic Tiger.

McManus has been viewed by much of the media as a poster boy of excess, though unlike the bankers, he leaves behind him an organisation that is, at least for now, intact and in good financial shape.

Given that the ESB has lost a shed load of customers — about 800,000 — in its core electricity market to meet regulatory- competition requirements, and given the conditions in the domestic economy, the core business has held up surprisingly well.

The operating profit for 2010 was €339m, a decline of just 3%, with revenues down from €3.1 billion to €2.7bn.

Conservative accounting practices are part of the ESB’s heritage and this has helped ensure that gearing is a relatively healthy 52% — which is just as well given the tighter constraints on funding availability.

That said, McManus’ record since 2002 has been mixed, many believe.

The case for the prosecution is as follows:

The outgoing chief allowed wage costs to soar in the early part of his reign.

He unveiled a €22bn capital programme in 2008 at a time when the economy was already headed for meltdown.

The ESB followed too closely the agenda set by the Green Party energy minister, Eamon Ryan, spending heavily on infrastructure for expensive electric vehicles which have yet to appear in any number on our street.

And the case of the defence? McManus pushed investment in renewables, ensuring that the ESB will be carbon neutral by 2030.

He boosted the group’s international power generation business after the disappointment of the Government veto on an investment in Poland back in 2001 — an investment which would have paid huge dividends for the company and the taxpayer if it had not been blocked by finance minister Charlie McCreevy.

The ESB became the key all Ireland player following the €1.9bn acquisition of NIE. The company also, last year, finally addressed the issue of its huge pensions deficit, winding up the defined benefit scheme and persuading employees to accept a pensions pay freeze and move to a system of payment based on career lifetime average earnings.

Pat O’Doherty will have the job of rebuilding relations with the Government and with a sceptical public which believes that ESB employees — average cost: €75,000 per person — are feather-bedded.

The outgoing chief will be around to consider the asset sale plan which is due to go on the table in late November.

The new chief executive will be on hand, soon after to try and defend the company’s interests in the event that the Government is pushed in the direction of some form of sale by the EU/ECB/IMF troika. Some hope that this asset sale plan aimed at raising up to €2bn will be pushed into the long grass.

O’Doherty himself has worked across the company, while spending much of his career in power generation, where much of the real action in industrial relations takes place.

He has worked in the past on branding campaigns and has spent the last 18 months at ESB International where he supervised the sale of three power stations in Ireland, including Marino Point, to the Spanish group, Endesa.

An engineer by training, O’Doherty is viewed as a reserved character.

Last year, he found himself in the line of fire when forced to defend the ESB’s handling of the response to the Cork flooding emergency of November 2009 alongside McManus.

He engaged in robust debate before the Oireachtas Environment Committee with the former Cork North Central FF TD, Noel O’Flynn.

McManus had a politician’s eye for publicity, appearing in endless photo shoots, in the manner of Bertie Ahern. His successor may be more inclined to keep the head down.

These are difficult times. The ESB is in retrenchment mode. O’Doherty’s style may turn out to be much more downbeat than that of his predecessor.

The new chief will receive €325,000 — a decent salary for sure, but far less than that of his predecessor.

Key early priorities include rebuilding a near junk status credit rating that has pushed up the cost of borrowing by a number of percentage points; steering through a major cost cutting plan, involving 1,400 redundancies and producing a capital investment programme more in line with recession realities.

He will have to prepare the company for further market openings as interconnectors increase the flow of electricity between Ireland and Britain.

Another goal will be to try and revive the spirit of entrepreneurship that some say, has gone out of the organisation.

Critics may complain about high tariffs and staff feather-bedding, but most accept that the ESB has been a real force for progress in Irish life. O’Doherty’s job will be to ensure that this remains the case.

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