State Papers 1986: Dick Spring gas plan ‘illogical’

Proposals by the energy minister, Dick Spring, to compel the ESB to buy gas from the Kinsale gasfield at uncommercial rates were described as “hopelessly illogical” by the country’s most senior civil servant.

State Papers 1986: Dick Spring gas plan ‘illogical’

Cabinet papers from 1986 show Mr Spring, the tánaiste, sought government approval for his proposals that the ESB should pay 24p per therm for natural gas from July 1 that year as well as setting a minimum of quantity which it had to buy.

In a briefing note on July 31, 1986, Dermot Nally, the government secretary, advised the taoiseach, that it was “hopelessly illogical” to require the ESB to buy gas at 25p per therm when the market price was around 8p.

“The company can get oil on the open market at one-third of that price and charge electricity prices accordingly,” said Mr Nally.

Mr Nally said there must be other ways to take gas from the Kinsale gasfield instead of “forcing the ESB to take a totally uneconomic fuel”.

The Labour leader also wanted the ESB to devise and implement a special tariff which would reduce energy costs for two of the country’s largest industrial producers — Irish Steel and Aughinish Alumina.

However, he was warned by other ministers that it represented an indirect form of State aid which ran counter to EEC rules.

Mr Spring justified the measure on the basis that the ESB had cut back on its usage of natural gas due to a drop in oil prices. He told his cabinet colleagues that the reduction in natural gas by the ESB was having serious implications for Bord Gáis revenues.

Mr Spring admitted he had serious misgivings about the proposals but he believed that a review of the terms of ESB for buying natural gas were unavoidable.

The cabinet had already approved special pricing arrangements for Irish Steel and Aughinish Alumina and Mr Spring said it was essential to introduce those measures but in a way in which it would not create a precedent for price reductions to other firms.

As the price of oil had dropped from $120 per tonne at the start of 1986 to $46, the ESB had reopened its power station at Tarbert, Co Kerry, and switched its station at Poolbeg from gas to oil.

The ESB had also reduced the amount of gas it was acquiring from Bord Gáis.

Mr Spring pointed out the company was getting gas at 25p per therm in 1985, while oil was costing 52p per therm.

He acknowledged it made sense for the ESB to use cheap oil when prices were at such low levels.

Records show the Department of the Taoiseach believed that the ESB should be allowed a free hand over how much natural gas it should buy at 25p per therm.

However, the finance minister, John Bruton, wanted the ESB to be forced to take a fixed quantity of the fuel at a price of 20p per therm — a position which received some backing from the ESB.

Mr Spring described such a proposal as “a compromise” but believed his own suggestion represented a better one.

Stressing that he still had considerable reservations about the measure, Mr Spring said it would also reduce the ESB’s capacity to lower electricity prices generally.

The tánaiste said he recognised that the compulsory gas allocation at such a price represented a serious imposition on the semi-state company.

State papers also show the government decided that the Irish Steel plant at Haulbowline in Cork should receive a 25% reduction in electricity prices and the alumina refinery of Aughinish Alumina in Askeaton, Co Limerick, should get a 30% cut.

The requirement on the ESB to burn large quantities of gas at a time when oil prices were at “bargain” prices was also criticised by Patrick Honohan, an economic adviser in the Department of the Taoiseach.

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