Ictu proposal on State companies merits attention

Business Opinion: Having fought the Government to a standstill over the management of State companies, the trade unions now appear to being offering an olive branch.

The idea being put forward by Ictu of a single State holding company, free of direct political influence, seems like a simple way to square the circle of how to inject capital into these businesses without privatising them.

This, in a nutshell, is the problem that confronts the Government over Aer Lingus and, in time, will come to the fore at the ESB, Bord Gáis and any of the other State companies with large investment needs. All of them, including Aer Lingus, can and do borrow in the commercial debt markets but eventually a point will be reached after which fresh equity is needed.

Aer Lingus is closest to this point and needs several hundred million euro in equity if it is to finance the ambitious fleet replacement and expansion plan drawn up by Willie Walsh before he departed for greener pastures.

The prospect of the Government putting in more money is remote and is complicated by the EU's strict rules on State aid. The obvious route, and the one that was effectively recommended to the Government by Goldman Sachs, was to sell a portion of the company. The most likely route would be a share placement followed in time by a public offering.

The problem is that, in order to raise a significant amount of money and make the whole package attractive to investors, the Government would have to relinquish majority control. Such a scenario is unacceptable to Ictu, and thus to many in Government who believe in social partnership, not least the Taoiseach. Many others have long memories, particularly in respect of the Telecom Éireann/Eircom float. As a consequence stalemate has ensued.

The solution offered by Ictu is the establishment of a holding company for the commercial State companies, which would raise money for them in a manner not unlike a large plc raising funds for its various operating companies.

The sheer size, in terms of assets, of a company that took in Aer Lingus, the ESB, Bord Gáis and the other commercial State companies means that significant funds could be raised by selling off a small portion. Ictu speculates that up to €700 million could be raised through the sale of less than 15 per cent to a number of long-term investors. They also argue that the dividends from the various companies would be available to the parent entity for re-investment.

At this level, what Ictu is proposing seems like a viable alternative to the privatisation of State companies, but when you look into the proposal some obvious problems arise.

The first is over who will actually run the company. Ictu propose a mixture of vested interests and some investment professionals. Specifically, they suggest the board should comprise two nominees from the Department of Finance, three from the company itself, three from the social partners and one from private investors.

There is also an issue as to where the legal ownership of the new holding company - and thus the various semi-states - should reside. Ictu proposes the National Treasury Management, as it at one remove from the public service and thus reduces the potential for political interference.

Now, obviously the Ictu proposal is just a proposal, and intended to stimulate debate on an increasingly serious issue, particularly for Aer Lingus. Bearing that in mind, there is little to be gained from rejecting the proposed structure, but one problem jumps out.

Innovative though it may be, the proposed State holding company will fundamentally be a giant commercial State company and subject to all the flaws - and attractions - of this model. Even with a board similar to one proposed by Ictu, the potential for political interference remains and it is hard to see the private sector investing in such a structure.

The various semi-states that would be incorporated into the holding company might benefit from being spared direct political interference, but it is naive to think that it would not be exerted via the parent group. It is inconceivable to think that the Government of the day would not try and manipulate the semi-states for political gain in the way they have done since the formation of the State.

Ictu's proposal is, however, welcome in that it helps to break the logjam on the future of the commercial State companies. It should serve as the basis of a rational debate about how the need of these companies for commercial freedom can be reconciled with real and, in many cases, perceived national interests.