ANALYSIS:A TARGET price of up to €3 billion for the State-owned businesses that the Government intends selling looks optimistic.

Four assets are going on the block:

- the Bord Gáis Energy business, which supplies natural gas and electricity to businesses and consumers;

- some, as yet unnamed, ESB power plants;

- Coillte’s forests, and;

- the State’s 25 per cent share of Aer Lingus.

While some of its power plants will be sold, the ESB will remain in State ownership. Regulatory and legislative concerns forced the Government to ditch the plan to sell a minority stake in the energy company.

The State will keep Bord Gáis networks – the pipelines and system for moving natural gas around the Republic – as that is considered to be of strategic importance as is Coillte’s land.

The biggest element of the package by far is Bord Gáis Energy. This consists of a gas-fired 450 mega watt (MW) power plant, wind farms with the capacity to generate 235 MW of electricity, with a similar amount under construction, and 900,000 or so gas and electricity customers. This is currently valued at between €1 billion and €1.4 billion.

The Aer Lingus stake was worth €127 million yesterday, although Minister for Public Expenditure and Reform Brendan Howlin made it clear the Government would not part with it for that price.

Putting it crudely, the balance would have to be made up by Coillte’s forests and whichever of the ESB’s plants the Government decides to sell. In effect, this means that the power stations will account for the bulk of the difference between the €3 billion and whatever the State gets for Bord Gáis Energy. However, Government sources insist it is not going to work that way. Instead, three factors will determine which of the plants will be sold.

The first will be reducing the ESB’s dominance in electricity generation. Second will be preserving the company’s own strengths. Third will be getting the best value in light of the other two considerations. With those in mind Minster for Communications, Energy and Natural Resources Pat Rabbitte will talk to the Commission for Energy Regulation, New Era, the agency set up to advise on managing the State sector, and the ESB before going to Cabinet with a decision on what should actually be sold.

Howlin suggested yesterday the power plants could then be sold with the Bord Gáis business to create a new, private sector-owned energy entity. He also acknowledged this would account for the bulk of what would be sold, and thus the €3 billion target.

All sorts of factors will determine what any buyer would pay for this. Ultimately, something is only worth what someone is willing to pay for it.

One company, British utility, Centrica, has been named as a possible suitor for Bord Gáis Energy; if more emerged, it would boost the chances of approaching or hitting the €3 billion. But there is still a gulf between that figure and the company’s value and it is hard to see it being bridged.

Under the updated terms of the bailout deal with the EU-IMF troika, the Government is committed to using €2 billion from the sale to pay down debt, and can invest the other €1 billion in job creation. Given that €2 billion is earmarked, the real question is, how much will be left to spend on creating jobs?

Then there is the question of timing. Howlin stressed yesterday there will be no fire sales. However, the Government has agreed with the troika, which is ultimately driving this, that it would report on what proceeds, if any, there are from the sale of State assets by June 2013.

That is not a deadline, but neither is it a licence to drag out the process for ever. The troika could put pressure on the Government to push ahead.

There are two reasons for this. First it is part of the deal and the troika wants it honoured. In addition, other bailout countries, such as Portugal, have agreed similar programmes. Any sign that the Republic is being cut some slack is likely to see them seek similar concessions.

Potential buyers are going to recognise this and, presumably, use it to get the best value they can for their shareholders. The timing and circumstances of the sale are not ideal, but there is no perfect time to sell or buy any business. The trick is to get the best deal possible in the circumstances.