Exploration firms strike it rich here

What's the most valuable piece of real estate in Ireland? Dublin's Grafton Street, perhaps, or some exclusive resort in the west? Charles Haughey's former estate at Abbeville or Michael Flatley's magnificent mansion in Cork?

Actually you could have all of these for a relative pittance compared to a large patch of bleak seabed, 350 metres beneath the heaving ocean and 70 kilometres west of Achill Island. The Corrib gas field that lies beneath it is probably worth around €20 billion. The good news is that it belongs to all of us. The bad news is that it's been given away.

One of the classic images of under- development is that of ordinary Nigerians risking their lives to siphon off oil from pipelines leaving their home areas. They live in a place with abundant natural resources, and they carry the environmental burden of oil production. But they can't afford to buy the oil themselves. The benefits of what is rightly theirs have been carved up between dodgy local élites and huge transnational corporations.

This, of course, is what happens to them, the wretched denizens of the Third World. But what's happening with the Corrib field is not all that different. Earlier this year, An Bord Pleanála refused permission for the developers of the field, Enterprise Oil, a company bought by Royal Dutch Shell for £3.5 billion sterling, to build a terminal in north Mayo. The main ground for refusal was the company's bizarre proposal to shift an entire bog - some 650,000 cubic metres of peat - thus creating a huge environmental risk. Now the pressure is on to give the company what it wants.

While the immediate argument is about the tension between economic development and the protection of local communities, there is a larger dimension to the issue. It is, crudely, the issue of what's in it for us. We are collectively the owners of this fantastic resource. But in reality, it's been given away for remarkably little.

Between 1975 and 1992, any company producing oil or gas in Irish waters was required to pay royalties to the Exchequer. The State also had the right to participate in the development of the resources. After a slump in exploration, however, the Fianna Fáil/Progressive Democrats government decided, in 1992, to introduce new terms for the oil and gas companies. Stating that "since the Government do not consider that direct State involvement in this area of activity is appropriate, the pursuit of their policy objectives requires that competent private sector companies be encouraged to invest in the search for and production of oil and gas in Irish waters", it set about luring the companies back in with astonishingly generous terms.

All royalties and production levies were abolished. The pitch to the companies was an abject plea to come hither: "Most importantly, the treatment in Ireland of profits generated by oil and gas production compares very favourably with other countries. Furthermore, the structure of the tax regime is such that greatest potential benefit can accrue to those who make early commitments to exploration licences and the drilling of wells . . . The industry will find in Ireland an attitude which is receptive to and encouraging of its efforts."

The terms are indeed extraordinarily alluring. As the official information for would-be prospectors puts it, "There is no State royalty of any form. There is no State participation of any form." The fees charged are derisory: between €83 and €335 per square kilometre a year for a deepwater exploration licence, between €27 and €111 a year for a so-called frontier exploration licence, and €3,785 a year for a square kilometre of ground that is actually producing oil or gas.

When it gets the Corrib field up and running, Enterprise Oil will be able to sell the gas to us at full market rates. The only money that will accrue directly to the Exchequer is a 25 per cent corporation tax on its profits at a much lower tax rate than most ordinary workers have to pay in Ireland. And it applies of course to other recent and potentially lucrative finds, such as the Seven Heads field off Cork and the Dooish well off Donegal.

In the UK, for example, where the terms were set by Tory governments not noted for their severity on private companies, licences signed before 1993 require the companies to pay a special tax of 50 per cent of profits after certain allowances, itself a reduction from the previous rate of 75 per cent. Companies that signed their licences after 1993 have to pay a special ring-fenced corporation tax (to prevent them from offsetting losses elsewhere against oil and gas revenue) of 30 per cent, and a supplementary tax of 10 per cent. They also pay very substantial fees for the concessions they operate. None of this has prevented the oil giants like Shell from investing in the North Sea, or from making very handsome profits.

We may well be stuck with the terms given to companies like Shell when they started to explore off Ireland in the first place. But significant increases in tax on oil and gas profits must surely remain within the rights of a sovereign government. Even Shell, looking at social welfare cutbacks and squalid public provision, must reckon that a State that is so generous to them is great gas altogether.