Why privatising State assets is not in the public interest

Protests over water charges have been rampant. But there are also concerns about the body being privatised in the same way as Bord Gáiswas, raising fears that water charges will be forced upwards as a result to boost profits for shareholders.

How can a government that spins the sale of major parts of Bord Gáis as not being privatisation be trusted with retaining Irish Water as a public utility, asks Rory Hearne

Did you know that Bord Gáis Energy is no longer a state- owned company like the ESB?

I admit I’m confused by the new ads for Gas Networks Ireland. Is it part of Bord Gáis? But wasn’t that privatised? I doubt I am alone.

But such confusion is to be expected when former government ministers claim Bord Gáis wasn’t privatised. On a recent RTÉ radio show, I asked former minister for communications, energy and natural resources, Pat Rabbitte, about this and he responded: “We didn’t privatise Bord Gáis, we retained the networks in public ownership.”

The truth is the main parts of Bord Gáis — its actual name and the retail energy supply business which provides and charges the gas and electricity for its 750,000 customers, along with the Whitegate Power Plant in Co Cork which produces power for 400,000 homes — were sold to a private company. That company is the international energy corporation, Centrica, which also owns British Gas.

The State did retain the gas pipeline network and responsibility for the safety of that infrastructure. To put it simply, the Government sold off the profitable part of the Bord Gáis business i.e. the supply and charging of gas and electricity to 750,000 customers.

But, as they sold the name ‘Bord Gáis’ to Centrica, they have had to rename the gas network maintenance aspect as Gas Networks Ireland which is operated by the new semi-state company, Ervia (and Irish Water). So just to be clear —you should ring Gas Networks Ireland if you smell gas, but of course don’t bother if it’s just the smell of spin from former government ministers.

But why the fuss about privatisation? The first concern is pre-privatisation prices get pushed up and public assets get sold for less than their worth to attract private sector buyers. This appears to have happened with Bord Gáis, as highlighted by the Public Accounts Committee. Up to €360m could have been lost on the Whitegate Power Plant as it cost €400m to build but only €40m appears to have been paid for it.

‘Sweating the assets’ is another concern; once privatised, the new owners are driven by the need to increase shareholder returns. That effectively means it maximises profits by either selling off parts of it at a higher value than it originally paid for (remember Eircom?), laying off workers or reducing wages (look at the private companies operating the bins in Dublin), reducing investment in the company (again Eircom), or raising prices (see the tolls on the privatised PPP motorways around the country, or in the case of Bord Gáis Energy not lowering prices when the price of oil and gas drops).

We are now in a situation whereby the wholesale price of natural gas has dropped by almost 30% in the last year and yet the first reduction for households and businesses in years will be a meagre 3.5%.

So much for claims that privatisation brings market competition, reduced prices and increased efficiencies. Added to this the energy regulator no longer has any responsibility or power to determine pricing.

So the public are right to be worried about the privatisation of public services and assets such as Irish Water. How can a government that spins the sale of the major parts of Bord Gáis as not being privatisation be then trusted with retaining Irish Water as a public utility? You are also likely to see water prices increase over time in preparation for its sell-off.

Recent CSO data reveals that 15% of the population were unable to afford heating at some stage in the last year — double the number in 2009. Tens of thousands of gas and electricity customers have been disconnected. The St Vincent de Paul increased its fuel assistance from €3.8m in 2008 to €10.4m in 2011. Private companies are under no obligation or motivation to address these issues.

To this debate we must also add the major challenge of our times — climate change and the unsustainability of fossil fuels. To respond, Government should be rolling out a major energy efficiency retrofitting of all our housing and business. This would significantly reduce energy demand and provide employment. But private energy providers do not like improved energy efficiency as it means reduced profits.

We should be discussing which areas of our economy would be better provided in state ownership — such as our buses (which are currently being privatised) or broadband, elderly care homes, child care etc. Of course, the private entrepreneurs and Ibec will point out examples of State failure, and there are many, but a radically reformed state and public services focused on the needs of the population is more likely to provide a better outcome than private companies’ profit-driven agendas.

In fact, services and infrastructure provided through public means can be done at a lower cost for economy and households. And this is what needs to be debated — should we let the market competition, de-regulation, privatisation, profit-for-a-few economics dictate how our society operates or should we look at innovative forms of common and public ownership and economic planning which prioritises human and environmental requirements?

Dr Rory Hearne is a lecturer at Department of Geography and Faculty of Social Sciences at NUI Maynooth

 


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