REALITY CHECKS 1107 XXIX

REALITY CHECKS

The government must feel empathy with the tourist in the old joke whose request for directions from a yokel produced the response “If I were you I wouldn’t be starting from here.” No indeed. The economic straight jacket is bad enough – and looks set to get worse. The mortgage crisis is pending. Crunch time for dealing with the public sector approaches. The first Hundred Days are passing – and let’s not forget how the original Hundred days ended!

However, as days pass there are some signs of a growing sense of public realism. While distractions continue, such as demands for public enquiries, not only on the bank bailout (2008) but now the ECB/IMF bailout (late 2010), the hard edge of our situation is now penetrating. The election may prove to have been cathartic, in that, having got rid of Fianna Fail, the public is now stuck with its choice.

Here the signs are encouraging. The job of the government is to govern, and, at this time the general mood is to look to the government for solutions. The government, and in particular the Labour ministers, have been quite unequivocal in their statements about the tough road ahead and the lack of soft options. There are also promises of real reform and there is some hope that the era of hand wringing (“we can do nothing because…”) may now be over. The medicine may be unpalatable but at least it will be administered.

One illusion has suffered a stake through its heart – the fairy tale from the left (and, indeed, the ultranationalist right) that Ireland had a metaphorical pot of gold waiting in the form of offshore oil and gas reserves. Figures of $ 100 billion and up have been bandied about in recent months by Sinn Fein and the rest of the left as waiting to be harvested as soon as we got tough with the oil companies. Never mind that the one proven and commercially viable gas field, the Corrib field, has been on hold for a number of years over local and environmental protests; the offshore reserves have been touted as the magic bullet for Ireland’s budgetary and debt problems. The myth was forensically demolished in a speech by Energy Minister Pat Rabbitte in the Dail on April 16.

The speech, which can be googled easily, merits a closer look, if only to drive the message home. The seas round Ireland are not another North Sea. There are no 10 billion barrels of oil equivalent awaiting exploitation. The figure is an estimate of what might be present and what might be found, based on geological criteria and regional comparisons. It would take hundreds or thousands of exploration wells, at $125 million a time, to discover if the estimate is accurate. The process alone would take 10 or 20 years to yield any financial benefits. In the North Sea, 1200 exploration and appraisal wells have been drilled in the Norwegian sector, and over 4000 in the British sector; 156 in total have been drilled in Irish waters. There are 300 plus producing fields in Britain, three in Ireland; the Norwegian Troll field is 50 times bigger than Corrib.

There is no conspiracy not to drill in Irish waters. The oil industry is a global one which bases decisions on exploration primarily on geology and economics. To date there is no evidence to suggest that, where the prospects are high, the multinationals will walk away. Indeed Norway and Britain both have higher rates of taxation on oil and gas revenues than Ireland. There is an element of Catch – 22 involved at present; without more exploration the petroleum potential of the Irish offshore cannot be proven, but until more commercial discoveries are made, it will continue to prove difficult to attract new exploration.

Reality checks of a different kind have come with revelations about some of the salary levels, and not just at the top, in the state-owned commercial bodies, the third part of the Irish public sector. The civil service and bodies including the police, teachers and health workers form the other parts; crucially their pay and conditions are monitored or controlled by the Department of Finance. Not so a number of the commercial bodies. The argument is that, since they are out in the big bad commercial world, and are making profits, their staff should benefit, as staff in a private company would.

Fair enough, but some of the companies are monopolies or quasi – monopolies, which certainly do not operate in a free market situation. Take the energy sector. It is dominated by two state owned enterprises, the ESB and Bord Gais; the electricity grid is run by another state company, Eirgrid. The 2009 average salary of their employees – including cleaners and bottle washers –and including also pension payments made by the employers (i.e. the taxpayer) were, respectively, $125,000 (ESB), $100,000 (Bord Gais) and $129,000(Eirgrid). Prices for Irish domestic electricity are among the highest in Europe and the companies were criticised last year for not being slow cutting off those who couldn’t pay.

Elsewhere there are considerable variations in salaries paid, ranging from an average of $170,000 in the case of the Irish Aviation Authority (which includes air traffic controllers) to around $65,000 in the case of the transport company CIE.  For those at the top the news is even better. Chief Executives in the state bodies had salary packages in 2009, including pension contributions, ranging from $450,000 (Dublin Port) to $1 million (ESB). This despite an attempt to cap or cut these salaries; in a number of cases, while salaries have held steady, other elements in the package, such as pensions, have been hiked.

The government is now to review salary scales across the whole semi-state sector, many of which have so far avoided the cuts and pension levies imposed on the rest of the public sector. Indeed ESB workers actually received pay increases under a fanciful “national pay agreement”, now moribund, in 2008, even as the country slid towards crisis. There was at least a suspicion that the last government at the time ducked a confrontation with the powerful ESB unions lest power cuts and disruption to industrial production be added to the developing economic woe. It will be interesting to see how this one develops. One thing is for sure; there will be little sympathy for ESB employees in any future clash.

Meanwhile new figures from the banking sector show that bank executives continue to receive large salaries even though the banks are on life support from the taxpayer and the ECB. At its crudest, cuts in the numbers of special needs teachers are paying for six and seven figure salaries for bankers. If there is a lesson from these and other revelations, including special pleading, it is that no one is going to yield what they have willingly. This could make the government’s job on the fiscal issue actually easier. When only belt-tightening all round will restore balance to the public finances, the more groups seek to protect their privileges at a time when others are hurting, the more support there will be for resolute action by the government.

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