Committee Reports > List of Committees > Joint > 1979 > Committee on Commercial State-Sponsored Bodies > Report No. 08 - Bord na Móna

MIONTUAIRISC NA FIANAISE

(Minutes of Evidence)

Dé Céadaoin, 21 Samhain, 1979

Wednesday, 21 November, 1979

BORD NA MÓNA

Mr L. D. G. Collen, Chairman; Mr. L. Rhatigan, Managing Director; Mr. D. Tipper, Chief Accountant; Mr. W. Maher, Sales Manager; and Mr. F. Barron, Personnel Officer of Bord na Móna called and again examined.

75. Vice-Chairman.—Senator Eoin Ryan has asked me to stand in for him until his arrival.*

Last week we were discussing pricing policy. We had got as far as starting to talk about relationships with the ESB. We might continue talking in the general realm of yourselves and the ESB for a moment. Perhaps I might ask a general question. How is the amount and price of turf sold to the ESB determined?

Mr. Rhatigan.—The day the power station is built one really determines what are its annual requirements. Take the example of our third programme: we survey bogs, we say we have so much, we can produce so much milled peat and we can supply this over, say, a 25-, 30- or 35-year period. Of course, from that is determined the size of the power station, and from that comes your annual schedule. There is never any great argument about it. Load factors originally were set at 55 per cent. Since 1973-74 load factors are tending to increase.

76. Vice-Chairman.—Could you explain what you mean by load factor?

Mr. Rhatigan.—In simple language this is about the number of hours the station will work throughout the year. If the ESB increase the hours, we have to supply extra peat to meet the increased demand. It is a fairly straightforward arrangement. We agree on annual schedules. We have a very close relationship with the ESB through our joint technical and engineering committees. Every year, at the end of Autumn, we look at what is in stock, depending on the weather, and we draw up a joint programme for the year ahead. In latter years the pressure has been enormous because the ESB are using all the milled peat they possibly can, particularly now that it is good value, compared with the sixties when the ratio was against us, when oil was literally at a give-away price. But we have a different situation now. As was discussed the last day, one may ask: how do we fix price? Of course we have to go to the Prices Commission.

77. Vice-Chairman.—Even in relation to Bord na Móna sales to the ESB?

Mr. Rhatigan.—Yes, with the whole package. The present arrangement is that, as our costs increase, we make a case to the Prices Commission to increase our prices, up to now largely based on what we call allowable costs. We are allowed so much; it could be £1 million, £2 million, £3 million or £4 million on the basis of increased costs. Then it is for the board broadly to decide how that will be distributed in relation to each of our products. That is what is done.

78. Senator Keating.—Is that a global increase on your total production?

Mr. Rhatigan.—Total production of peat fuel.

79. Senator Keating.—Therefore, you have some discretion as to what key you apply to that, once you get the global increase?

Mr. Rhatigan.—This depends. Our Sales Manager, Mr. Maher, is the man who really carries the can on this and he might pick up from me here.

80. Deputy Kenneally.—Mr. Rhatigan mentioned milled peat. What is the position in regard to sod peat?

Mr. Rhatigan.—My apologies. Sod peat has become a very marginal exercise on the total scene. Our future expansion programme is based on milled peat.

Mr. Maher.—The usual position on prices is that we get a total sum. Built into that— because there is one product on which there is a maximum price, a bale of briquettes, we always get what the fixed price on that will be. Bales of briquettes are sold to the public. Therefore, we must relate all the non-ESB sales to the amount we are allowed on briquettes; then the residual comes out on the ESB sales. Usually it works out that you have roughly the same proportions of the total amount allowed, spread over the various products, whether it be to the ESB or to the public.

Senator Eoin Ryan took the Chair.

81. Senator Keating—I wanted to make a very brief comment before asking a further question. I say this from some recollection of the National Prices Commission. Their prime responsibility is the protection of the public. You produce a product which is, in part, sold to the public but is, in part, sold to the next step of a chain, to make electricity, which is sold to the public. What worries me in this context is that you are in the energy business really; if we put it at its widest. You are in a situation in which the price of energy worldwide is exploding. If all that you can pass on—I am happy to see the public defended —to another consumer, which is not the public, is allowable increased costs, allowable as defined by the NPC, then the relationship between the price of oil and the price of turf is going to get totally skewed to the disadvantage of a rational development of the bogs, a rational development of your company and indeed a rational accumulation of assets within your company. Could I hear what you people have to say about that?

Mr. Rhatigan.—I quoted here the last day an extract from our last published Annual Report in which we drew attention to this. There is no question about it, there is an imbalance. As our Chairman said, we are selling cheaply and borrowing dearly. That whole proposition is very much under review at the moment. I would not like to say anything more about it at this stage.

Senator Keating.—I am perfectly satisfied with Mr. Rhatigan’s reply. It is something we might not have thought about.

Senator Cooney.—The price fixed for turf has a spin-off in many ways in rural Ireland, for the small consumers, the private cutters and so on.

82. Deputy Kenneally.—Is the supply position good enough, for what the ESB demand? Can the board supply more if the ESB request it?

Mr. Rhatigan.—A power station has a fixed capacity. When we have bumper harvests they can raise the load factors. Indeed last year the peat station at Lanesboro had the highest load factor in the whole system, either in oil stations or peat stations. That is indicative of the fact that it is the cheapest steam-generated unit in the whole system. Bord na Móna’s production is very much subjected to the vagaries of the weather. We had a bumper year in 1975-76. We had an all-time record harvest which was tremendously welcome. We produced nearly double our target production then. The weather has been going against us since. We had a bad year this year and we got only 62 per cent of our target. While we will meet the ESB schedules in the financial year ending on 31 March 1980 and will have carry-over stock which will see us through the 1980 harvesting season, it is extremely critical for the board that we have a good production season next year, because we have reduced our stocks substantially over the last four years. This is one of the undoubted hazards of peat production.

83. Senator Cooney.—Bord na Móna’s finances are tied in with the question of the price the board will get. At the moment how do the board define their financial objective? What do the board want to make in terms of money and how do they ascertain the size of surplus? Do the board aim for a particular surplus at the beginning of the year or is weather a factor? What generally is the board’s financial approach?

Mr. Rhatigan.—Our objective is to pay our way, to meet our expenses, pay our overheads, repay our capital and principal and provide fuel at a reasonable price. We budget on what we call the standard year. We are in the process of budgeting for next year. We will budget on our experience over the past four or five years and we are assuming that next year will be an average year, based on our normal standards and so forth.

Mr. Tipper.—Mr. Rhatigan covered our broad objective very well. At the beginning of the year we draw up a very detailed budget for production, for sales, for costs and so on and we look at the results. At the moment our prices, costs and other commitments, such as capital repayment to the Government are, broadly speaking, in balance. Taking the operation of the prices mechanism into account we, in fact, achieve a general balance taking one year with the next. Some years are better than others, depending on the weather. Broadly speaking, we are aiming to meet our statutory commitments, to pay interest on our capital to the Government, to make repayments of the capital, to pay the going rate in wages and to break even taking one year with the next.

84. Senator Cooney.—The board’s financial strategy does not at the moment provide for the provision of funds for future development?

Mr. Tipper.—At the moment, no.

85. Senator Cooney.—Is part of the board’s thinking behind their review of their prices structure to change that position? Do the board want to start generating extra money for some of their capital requirements?

Mr. Tipper.—The last Prices Commission Report dealt with Bord na Móna in some detail. It permitted us to include in our price rise an amount which would yield about £1 million towards capital creation in a financial year.

Mr. Rhatigan.—This is very marginal.

86. Senator Cooney.—When was that?

Mr. Tipper.—Last July. In the year just ended we will have generated about £400,000 in that way. Naturally we are looking at this situation for the future.

87. Senator Cooney.—Up to now the board have been getting their capital from the Exchequer. Has there been any suggestion that the board should start looking at other ways to get cash, that the board should start generating internally?

Mr. Tipper.—Yes. Up to last July we had some £7 million from the European Investment Bank. I imagine that there will be further drawings from the bank.

88. Senator Cooney.—Apart from borrowings, is there any suggestion that the board should generate internally from profits?

Mr. Rhatigan.—Not profits.

89. Senator Cooney.—From surplus?

Mr. Rhatigan.—This was the whole tenor of our conversation the last day. A major review is taking place.

90. Senator Cooney.—Who has inspired this review? Has it come entirely from Bord na Móna or has it been suggested to the board by the Exchequer?

Mr. Rhatigan.—We took the initiative and have been pressing this for some time.

91. Senator Keating.—This seems to be an exceedingly important issue. Most of us, as working politicians have some inkling of the relationship between semi-State bodies and Government Departments, and the relationship of all of these things with the Department of Finance. I do not want to try to persuade you to say more than you want to. It seems to me that we have got two characterisations which were substantially identical from the Chief Executive and the Chief Accountant, if I can say it that way, substantially the same thing, that you must pay your interest, repayments, wages and then a break-even situation. I have no doubt that it is so. But, with respect, that seems to me to be so denying initiative to a semi-State body as to make its work almost impossible. And I say that as somebody who believes profoundly in a semi-State sector but who believes that, if one wants to validate its incompetence, all you have to do is tie its hands in that way. If you want it to be able to validate itself as a genuine generator, both of jobs and of national wellbeing, then you have to give it vastly greater freedom. That outline of policy that you have given us says nothing about future policy; it says nothing about a depreciation policy; it says nothing about the rate of growth; it says nothing about any of the crucial things that a management, it seems to me, could not manage successfully without being able to determine themselves. This is really a description of the hegemony of the Department of Finance over all the other Departments and over all the State agencies. My experience as a Minister convinces me that that is a disaster policy. On the one hand, we urge efficiency—which we get from the semi-State agencies to a very remarkable degree—and then we do not give them the authority to manage their affairs properly. Now I have put it very sharply. What is your reaction?

Mr. Rhatigan.—In the light of today’s thinking the Senator’s criticism of the Department of Finance is really a little harsh. We made the broad statement that that has been our policy down the years. But we have embarked on a major expansion programme; the programme is there. We are going to build three briquette factories, supply two more power stations and nearly double our output of moss peat. As I have already said ad nauseam, this is now being looked at very closely.

Mr. Collen.—Yes, radically.

Mr. Rhatigan.—There is no question about it: to get a rational price structure in the years ahead there has got to be a major change of policy in relation to the funds we can generate from within the organisation.

92. Chairman.—Could I ask, within the ambit of what is a fairly conservative policy of merely paying back the capital, paying interest and breaking-even, has the board up to now—regardless of whatever may happen in the future—permitted itself the flexibility of cross-subsidisation between products, between plants or even between customers?

Mr. Maher.—We must recognise that a bog is a wasting asset and that the policy devised was in that context. It is not like a continuing business.

On the question of cross-subsidisation, there is not cross-subsidisation between the broad range of products. We have basically four products—milled peat, briquettes, moss peat and sod peat. There is not a cross-subsidisation between the products. There is, however, in the nature of things in bog development, bogs of varying sizes. Therefore, quite naturally, on the large-scale operations, you can have more economic production than you can on the smaller ones. What we have set out to do is develop a total pricing policy that would permit the carrying of the maximum number of bogs so that the whole enterprise would wind up at a “no cost” situation, bearing in mind that there is a certain life to a bog. The comment is made in that context. Therefore, there is no cross-subsidisation as between products. There is no cross-subsidisation as between pricing between various customers because the board follows a policy with regard to customers of promoting the maximum competition feasible in the particular market situation. We are fairly proud of the fact that, certainly in the fuel end, we literally created a situation that enabled people to go into distribution. We built up a completely parallel distribution system to the existing distribution system for fuel which we believe is the most economical way of securing distribution. That is the course we have followed. In so far as moss peat is concerned we follow more or less the lines of the trade practice but there is no cross-subsidisation. Moss peat is available in various markets. Therefore, when one has to take long-term and short-term matters into view one can get short-term variations. But, as an overall policy, that is not the way we look at it; we do not go into cross-subsidisation.

93. Chairman.—Each of the four areas that you mentioned must pay its way?

Mr. Maher.—That is correct.

94. Deputy B. Desmond.—Mr. Chairman, is there not considerable, and indeed major difficulty—if I may follow through the point you raised—facing our Committee in trying to assess, even in a fairly broad revenue-expenditure situation, the precise performance of each of the four products? I remember when I was a trade union official in the sixties being able to go through the accounts and getting a precise cost of production in relation to each product, the total value of sales of each product, the net overall performance of each product. I know we received from you, for 1977-78, the value of the total production of each product, the total value of each product’s sales, the total return from each sale and so on. Quite a few of the State-sponsored bodies have, in relation to each of their annual accounts, a precise breakdown of each particular product. I do not know if it is possible but I would think that the practice of identifying the financial performance of each product might help. Did the practice cease at Bord na Móna at any stage?

Mr. Maher.—In the moss peat business we are operating almost exclusively in an export market. Exports account for about 86 per cent of that business. There can be over-disclosure for our competitors on that market. That is a factor of which we are conscious. For instance, in the United Kingdom market, where we operate, we are competing with 14 separate peat producers in Britain, plus imports into Britain from the Eastern-bloc countries mainly. We have the same types of problems, with a few extra competitors, in the Middle-East markets. But the business is mainly export. Certainly it would not serve our strategies very well, in that kind of situation, to have an over-disclosure on that aspect.

95. Deputy B. Desmond.—If I might follow that point through: in your 19771978 Report—I cannot find the precise page now—you did say particularly that competitive market forces, and I do not want to revert to the ESB discussion, do not operate as far as your board is concerned in the energy field; that you are in difficulty in assessing the real cost of your board’s contribution to the ESB and the element of subsidisation that does obviously exist from Bord na Móna to the ESB in which we would be acutely interested. Certainly it would be to your advantage in terms of our assessment and, in this respect, I should like to have that factor quantified by you if at all possible—not perhaps today but in a subsequent submission—because undoubtedly it will be a very important issue not just now but in the months and years ahead. These are basic issues in terms of saying to the Irish people that a bale of briquettes will cost for instance 65p in 1981. We have to be able to say what it will cost the board, in real terms, in production costs. The Board, by and large, have the information. We do not have it in terms of the annual report.

Mr. Rhatigan.—We have never specifically published the actual price of a ton of milled peat to the ESB, although it is very easy to extract it from the report— add the revenue and divide it by the ton. We are in some difficulty over this particularly in our relations with the trade unions in the board. There is a feeling abroad that we are giving milled peat away to the ESB for nothing. We are not—even with the high price of oil. The ESB were very fortunate last year in that, overall the cost of their oil seems to have been lower than in the previous year at around £47.8 per ton as compared with £49 per ton the year before. The current year gives a different picture because the price of oil has gone through the roof. In that situation one must take the sum of the pluses and minuses across all of the peat stations. There are the old sod peat stations with very low load factors and very low steam pressures which are inefficient and are high cost today even in the high cost energy situation. There are also milled peat stations such as the one in Bellacorrick where we are always fighting against the odds and where it is a high cost production. Luckily we have the large midland stations, such as Ferbane and Rhode, where we get a good run and we can produce peat fuel at a very reasonable price. Overall there were not any great margins in the recent annual report just published by the ESB. That is the last up to date information we have. There is no gap at all in real terms. We have to take station efficiencies into consideration. We are now competing against stations like the 500 megawatt set in Tarbert. That is the overall position.

Unfortunately we are in the dog house because people think we have some malice aforethought in not disclosing this. We make our price with the ESB every year. They are good customers. About 50 per cent of our revenue comes from the ESB. They are long term secure customers and we hope they will be buying peat from us 30 to 40 years from now. They have their problems and our philosophy is to serve the ESB to the best of our ability. In serving the ESB peat is being transformed into energy that is reaching a great number of people throughout the country.

96. Chairman.—That could be regarded as cross-subsidisation?

Mr. Rhatigan.—Is it really? I am afraid that we are being manoeuvred into a situation here. I am anxious about Senator Keating’s thought that we are a bunch of conservatives. Our philosophy in our first and second programmes was broadly speaking, when we look back at how cheap money was, that we pay our way. That was in a situation where we had no new developments. Once we go into expansion, diversification and new development and have to raise capital which is so costly today, it is the height of stupidity to sell our product below what the market can give. We are all in accord on that.

97. Senator Cooney.—On this question of showing different prices in the board’s accounts, in accounts up to two years ago the board showed different prices for four products. The board have changed now; is that right?

Mr. Maher.—No. We still show the price.

98. Senator Cooney.—The board distinguish between the four products in the overall accounts?

Mr. Maher.—The question really was, why do we not show the profitability or contribution of each of the individual products?

Mr. Rhatigan.—One of our problems is that to really understand the board’s accounts and philosophy one can never look at one year in isolation. One really must take a five-year cycle because production is varying all the time. It would be a totally different matter if we had a constant production year after year. If we were to take a figure from the year when we got five million tons—a bumper harvest—that would create a totally erroneous position when one looks at our situation today. What is important is the average of the five years. This will always be with the board because we have a very significant inherent variation in the annual yield of milled peat which is our main product.

99. Senator Cooney.—Why does that stop the board showing it under the individual heads of machine turf, briquettes, moss peat and milled peat as heretofore?

Mr. Rhatigan.—That was just a tidying up operation.

Mr. Tipper.—As Mr. Maher was saying we are in an export market for moss.

Mr. Rhatigan.—Take moss out.

100. Senator Cooney.—Even with moss what harm? Would it not be better to see what profit the board would make with it?

Mr. Tipper.—Well, we do not want to disclose it to our competitors.

Mr. Collen.—It is important to leave moss peat out of it.

101. Senator Cooney.—Very well, leave moss peat out. What about the others? From reading the board’s accounts, would it not be much more informative to have this information relating to the board’s 3 other products? The public would get a clearer picture of the operations of Bord na Móna.

Mr. Rhatigan.—They would, if we could educate the public beforehand never to look at one year in isolation. One cannot make comparisons because of the variation in products. When we have a bumper milled peat harvest, everything may look tremendously rosy, but I take the Senator’s point. We did that for a number of years, did we not?

Mr. Tipper.—We did, yes.

Mr. Rhatigan.—We really are not hiding by changing that. We were simply tidying it up because we did not think it added anything significant to the report.

102. Senator Cooney.—There was an increase in surplus in recent years from £118,000 in 1974-1975 to £863,000 in 19761977. It fell back a bit last year to about £531,000. Is there any explanation for this jump?

Mr. Rhatigan.—Well, revenue dropped a lot.

Mr. Tipper.—Yes, and the level of sales interacting with the level of production year by year. In other words, we had a series of good years when we had different levels of sales. As sales increase or decrease the amount of profit achieved changes. That is one aspect of it.

103. Senator Cooney.—There was no change in policy then?

Mr. Rhatigan.—No.

104. Senator Cooney.—It was atmospheric as much as anything else?

Mr. Collen.—On a major bog on a summer’s day we drive off 13,000 tonnes of water per day. It is purely a drying process.

Mr. Rhatigan.—You have a variation in production. Take our briquette factories: full capacity is 360,000 tonnes. Last year we were well below that when we had a lot of industrial relations problems. Of course, one will have low production in a wet year. One may have a drop in revenue; for instance, it is possible that the ESB will have had problems. Every year the variances are there.

Mr. Maher.—Variations are not considerable in relation to turnover.

Mr. Collen.—Yes, they are quite small variations.

105. Senator Cooney.—The accounts to end of March 1976 showed that there was a loss on machine turf. Has that been continuing?

Mr. Rhatigan.—No, although I must say that machine turf has a high production cost. It has not the advantage of milled peat, in one sense, in that, in a bumper year in milled peat, the sky is the limit; one can nearly double one’s target production. But, with regard to sod peat, in the nature of the system, if one plans to cut 900,000 or a million tonnes—no matter how much the sun shines—one may end up cutting 10,000, 20,000 or 30,000 extra tonnes. It is a more pedestrian-type animal than milled peat. While milled peat carries the problem that it is more susceptible to bad weather conditions, it has the advantage that, in good weather, one can get in very substantial quantities. Of course, there our policy is to build up stocks against the rainy day.

106. Senator Keating.—You are like farmers in that your production is so influenced by weather?

Mr. Rhatigan.—Very much so.

107. Senator Keating.—What percentage of annual production is held in stock— because if stock was a sufficiently large percentage you could effectively iron out those annual fluctuations?

Mr. Collen.—That is what we tend to do.

Mr. Rhatigan.—We had the highest stock in our history in the wake of the 1975-1976 year. As a matter of fact, we had over six million tonnes in stock.

Mr. Collen.—Which was twice our present production.

Mr. Rhatigan.—Which was two years’ supply.

108. Senator Keating.—Which was 80 per cent of production, or something like that. That was in the wake of the year when you had your highest-ever production?

Mr. Rhatigan.—Yes.

109. Senator Keating.—So your stock was very nearly equal to that year’s production?

Mr. Collen.—Double that. Our stock: yes, it was equal to that year’s production.

Mr. Rhatigan.—When the haggard is full people tend to think one will never again have a rainy day. But, bearing in mind particularly the rate at which we have been selling, with the ESB operating above their normal load factors, those stocks can be eroded very quickly, if one gets two or three bad years in succession.

110. Senator Keating.—I am arguing in favour of the major stocks and not against. I am pursuing my line of thought, which is: is it possible that the board is effectively subsidising the ESB? Is there a transfer of wealth from the board to the ESB?

Mr. Collen.—Not to date.

Mr. Rhatigan.—I will tell you that at the end of the day when the bog is cut out, when one adds up the sums of all the pluses and minuses. I would not think so at all.

111. Senator Cooney.—What stage are you at with regard to the financing arrangements for your third programme?

Mr. Rhatigan.—We have no problems there. I would ask Mr. Tipper to come in on that.

Mr. Tipper.—Every year we submit our capital plans to the Department of Industry, Commerce and Energy and, ultimately, to the Department of Finance. We have succeeded in getting most of our third programme money to date from the Exchequer except for the £7 million I mentioned from the European Investment Bank. It appears perhaps as if we will be taking more, relatively speaking, from the European Investment Bank in the future. But this is something which will be determined by capital supply and market conditions from year to year.

112. Senator Cooney.—You are not experiencing any difficulty with regard to the figures you are putting forward, or with regard to meeting your requirements in the years ahead?

Mr. Rhatigan.—None whatsoever. As a matter of fact I would like to get in a plug for the board here. We have now quite a lot of contact with the EIB. They are really fascinated with our operation.

113. Senator Cooney.—You are a curiosity?

Mr. Rhatigan.—They think we are one of the most interesting national projects they have come across. They are particularly interested in us. In fact, we will be seeing some of them in the morning. They have a high regard for the board; we bring them down to the bogs and they are literally fascinated.

114. Senator Cooney.—Would there be any currency difficulties with regard to borrowings from the European Investment Bank?

Mr. Rhatigan.—No, the mix is reasonable enough. Up to now we have been all right on the currency risk. We now earn a fair bit of sterling ourselves. We have a big sterling revenue in the United Kingdom.

115. Senator Cooney.—From moss peat?

Mr. Rhatigan.—Yes, which is very advantageous to us. Mr. Tipper will tell the Committee how we are on currency risk at present.

Mr. Tipper.—We have done fairly well so far. Our last loan of £4.8 million was one-third Irish, one-third sterling and one-third guilders. We have no exchange risk on the Irish, or the ex-sterling. So far the guilder has proved to be a relatively weak currency within the EMS, so we are all right. Our first loan was in dollars, deutschemarks and Irish currency. We did fairly well on the dollars because we borrowed low when the pound was very low, but the deutschemarks rose. On balance, we have done all right on it, candidly with a certain amount of luck, but we have managed by watching it.

116. Chairman.—I should like to comment on two aspects of the depreciation policy. My first comment is that the board do not show the depletion of non-reproduceable turf reserves as a depreciation cost. My other comment relates to Notes on Accounts, on page 22 of the 1976-77 Annual Report where it is said:

The depreciation charge is based on the repayment of capital advances and loans over a period of twenty-five years. In cases where the loans have been repaid or assets fully written off, the annual charge has been continued and transferred to Renewals and Development Reserve or Depreciation Reserve.

Would it not be unusual to do that once the loan has been repaid, or assets fully written off?

Mr. Tipper.—Our depreciation basically is aimed at charging to the accounts an amount which will cover the cost of the asset that is wasting over the years. We do this by means of the capital part of the loan that we repay to the Government on the basis that our assets will last for the length of time that the bogs last. We achieve this, if necessary, by repairing or maintaining the assets to such a state that they will last. In some works, the assets depreciate at a different rate. For various reasons in the early days more depreciation was charged on these individual works.

117. Chairman.—Then there was higher depreciation than seemed necessary?

Mr. Tipper.—Some of the older works have been in being for perhaps more than the 25 years. We are charging relatively small amounts of depreciation over and above the main depreciation as a guard against obsolescence.

118. Chairman.—Is it not a means of producing a reserve?

Mr. Tipper.—It is. We set out the reserve that is produced thereby. We have no obsolescence reserve other than that

119. Deputy B. Desmond.—On the third development programme, do the board make a submission annually or periodically to the Department of Industry, Commerce and Energy? To what extent is there a sectoral breakdown? As I see it a State-sponsored body making a submission would make it product by product over a five-year period, specifically projecting annual anticipated output over the period. Is that kind of data submitted directly to them?

Mr. Rhatigan.—Yes, very much so.

120. Deputy B. Desmond.—How do the Department assess whether the Board are serious?

Mr. Rhatigan.—We are 40 years in existence and they know fairly well that we do not lead people astray. In relation to the history of our third programme, in November, 1973, all hell broke loose. Our programme was before the Department in February, 1974. We had plans for so many bogs, and so much milled peat but we had no briquetting included in the first version of our third programme. We put a cost on it, by product; we broke it down in terms of overheads, labour costs, plant and equipment, the cost of land and so on. When we started off our third programme our first plan involved 40,000 additional acres. At that time we had 130,000 acres. We have expanded it considerably since. We now have 63,000 additional acres. Well over 90 per cent of that acreage has been acquired. In our first version of the third programme we had no provision for briquettes, but we quickly changed that because the changing scene showed that there was a major change in the balance between current electricity and domestic demands. Our second version of the third programme included one briquette factory in Littleton, producing 90,000 tons of briquettes. We since expanded that to produce 140,000 tons. The programme is revised every year. It is revised upwards because of increasing volume and also because of the impact of inflation on the total capital cost. We are a simple organisation. We dig turf and have been digging turf for many years. The track record is there; the costs are there; our standards are there. I am sure we are the simplest of all the State-sponsored bodies as the 1946 Act so defined us.

121. Deputy B. Desmond.—If Bord na Móna were a mining authority they would have in their accounts a total estimated national value for the mining resources under their control. There would be a capital assessment of them, they would be amortized over periods and, particularly, in accounts they would be depreciating since they are irrecoverable. As long as I have known the board I have never been able to say that the total land value of the bogs of Bord na Móna are worth £X million in terms of the national resource. What is your view on that?

Mr. Rhatigan.—This is the land value of the bog?

Deputy B. Desmond.—The land value of the bog as distinct from the resource value of it.

Mr. Rhatigan.—We call it ‘bog value’. In reality virgin bog has no market value.

122. Deputy B. Desmond.—Let us be more specific about it. The board have a bog programme. Is a land bog value, as such, assessable in terms of future output over a period?

Mr. Rhatigan.—If the Deputy is talking about an acre of bog land, there is no question. We have a precise knowledge of the value of the peat resource on that acre of bog.

123. Deputy B. Desmond.—Has that ever appeared in a board document? Maybe I have not read enough, but I have never seen it.

Mr. Rhatigan.—It is not put that way.

124. Deputy B. Desmond.—CIE, for example, have a capital value for the total track that they operate and for their total stock of coaches and carriages; and the ESB have a capital value in terms of their power stations. I know of course that the board have their fixed assets and so on, but that is not the whole picture. Comment?

Mr. Rhatigan.—We cannot say that a bog will produce X tons every year. We finance the whole thing on the basis of a 25-year life. Generally, we predetermine the amount of tonnage every year for that 25 years. It is very simple to multiply that 25 years by our annual predetermined output. Taking milled peat, we budget on 75 tons an acre in our midland bogs, and we expect to get that 75 tons an acre for perhaps 30 years. On present prices, one can calculate the value of the peat resource on that. On its own this is a highly dangerous calculation to make. People are saying that there is a gold mine in every acre of bogland today. There is not, when one takes into account the capital investment to extract that peat.

125. Deputy B. Desmond.—One of my problems, in terms of arguing with various groups about resource values and so on, is that I have never been able, due to a lack of information, to make that kind of calculation. The information seems to be somewhat privy to the board?

Mr. Maher.—I do not know whether this is the exact answer to the Deputy, but in our 1976-77 accounts, of the bog that we had at that time we had extracted 30 per cent of the peat resource and there was 70 per cent left. The value of the peat in the bog is related to the extraction costs. It is unlike most other extractive industries. Here the big proportion of the value is in the cost of extraction; it has not an intrinsic value.

126. Chairman.—Surely it is not correct to say that virgin bog has no value?

Mr. Maher.—It has not actually.

127. Chairman.—If you take 1,000 acres of bog and calculate what it is going to cost to develop it, produce turf and sell it, then, presumably, the value of the bog— if there is a surplus—is the difference between what you put into it and what you get for the final product. Is not that the value, even of virgin bog?

Mr. Rhatigan.—Perhaps I was coming at it the wrong way. Perhaps I was tying it to what we pay for such bogland today. We have been under tremendous pressure in the last two years to pay very much higher rates per acre for bogland. It has been quite difficult for us, with the escalation in land values, but the reality is there is no market in the public place for virgin peatland. Two hundred acres were put up for sale in the Midlands within the past year and there was no market for it. We are paying what we think is the value of it in its virgin state. Remember, in its virgin state, it has a 95 per cent moisture content. There are only five tons of solids in every 100 tons of raw peat. It is of no value until we have drawn up our plans, invested and extracted at a very high cost the resources that are there.

128. Senator Cooney.—At that stage it then becomes your main asset?

Mr. Rhatigan.—The residual asset?

Senator Cooney.—No, the peat is your main asset?

Mr. Collen.—As it drains it becomes a usable source of cut turf.

129. Senator Cooney.—But in your accounts you do not provide for the depreciation of that asset?

Mr. Rhatigan.—No.

130. Senator Cooney.—Why is that? Why is the depreciation of your main asset not provided for in your accounts?

Mr. Collen.—It is going to be zero eventually.

Mr. Tipper.—Far from depreciating, it may appreciate. We had some consultants in about 1963-64. They looked at this particular aspect of our depreciation. Basically, what we do is record in our accounts what we have paid for the asset of land; we leave it at that; broadly speaking we do not depreciate it. The cost of transferring that asset into a revenue-yielding asset is reflected in the cost of railways, drainage and machines to do so. That is where the cost of the realisable part of the bog comes in. But the bog or land as it stands, as we buy it, really has no value at all until we spend all this money on it, indeed spend a great deal of money annually on its further drainage.

131. Senator Cooney.—So you are saying that you depreciate it indirectly by depreciating the elements that go into turning the virgin bog into usable peat?

Mr. Tipper.—Yes.

132. Deputy B. Desmond.—Have you formulated any general, very long-term view —in the context of the rapid increase in oil costs—that there may be enormous pressures developing on the board in decades ahead to, say, take on another 1,500 or 2,000 people? At present you employ 6,000 people. We are now passing through the Oireachtas the £100 million programme. There will be the argument advanced that it should be £150 million or £180 million. Then you must assess whether or not an irreplaceable resource should be depleted in the short-term, or held in reserve—that kind of strategic issue which we in the Oireachtas might be totally incapable of assessing but in respect of which perhaps we would expect you to have some very long-term view.

Mr. Collen.—It is automatic. You build a power station; technically it has got a 30-year life, so we produce enough turf around it for that, or the reverse takes place; we produce the turf and design the power station to that, as our Managing Director said at the beginning.

Mr. Rhatigan.—I have been asked that question on quite a number of occasions, the implication being, now that the energy situation has changed, the price of our products is rising—and they are very much wanted—we must be cutting the bogs away at a very fast rate. We are not really. Our plans are such it means that it is really a broad predetermined life. Of course, what really controls it is the amount of fine days we get each year, one year with another. Therefore there will be no broad change in that. We have 63,000 acres in our third programme. That is probably what we would call the outer parameter of our third programme. In effect that will have exhaused, particularly in Midland areas, all substantial areas of bog that can be harnessed and attached to the existing centre, satellite bogs really.

We are well advanced on survey, by that I mean, aerial survey and survey on the ground to determine remaining resources. This forces us very much into the west, into blanket bog which is a totally different situation from that of the Midlands. That is in progress. The Department do not have to pressurise us on this. We are generating this ourselves because we feel—and it is there in our Act—that our job is to develop every acre of peat resource there is in the country today. That is our programme.

133. Senator Cooney.—Under the heading of depreciation, there was a report some time ago, which caused some comment, of machinery you no longer needed being broken up and there was some resentment that it was broken up rather than sold. That was the report as it appeared to the public. Could I ask you to comment on that? This would afford you an opportunity to do so.

Mr. Rhatigan.—I would really have to count ten before I answer that. It was the most scandalous report I have ever come across. It was a total distortion of the facts and totally unfair to the staff at Derrygreenagh. I will not say anything more about it. In fact there was no base for it at all. The tractors that were involved were tractors that were 25 or 30 years old, obsolete tractors. I thought myself that the distortion of the real situation there was absolutely despicable, quite frankly, beneath contempt and beneath comment.

134. Senator Keating.—One of the useful functions this Committee performs is to enable a managing director to say something like that which probably he has felt for a long time. For our part, we can simply note it. I am worried at the statement about the simplicity of the board because in my experience anything that purports to be simple never is. I do not mean this disrespectfully but it looks, to an outsider, as if the really essential, long-term strategic decisions are somehow made in some nebulous way between you and the Department of Finance. There is, to me, a striking lack of clear parameters being given to you by the Government, inside which you can function, putting it in its broader sense. Having said that could I come back to the nitty gritty of the decision-making process because, faced with decision-making, you are no different from anybody else. The board have to use the accepted managerial and especially accounting techniques because they have to make decisions between alternatives. Having chosen one alternative the board have to decide on magnitude and on duration. Do the board use things like discounted cash flow? In the board’s trade they could play the most extraordinary games on that. Ore bodies are not totally dissimilar to peat bodies and although I will not pursue that, I have seen the most amazing DCF calculations there. If the board do that, what sort of factors are the board using? If they do not do that, what else do they use? If the board use a more simple return on investment what sort of return is the board looking for? The board mentioned Bellacorick, and I know of the board’s sod fired station in Connemara.

Mr. Collen.—It is an ESB station using privately produced hand-won turf.

Senator Keating.—Having regard to those two places, the board obviously have a social dimension to what they do. There is the question of employment in areas as well as the question of providing peat. Will the board say something about their whole investment decision-making process?

Mr. Rhatigan.—Many aspects of our organisation are not simple, but our objective is very simple and is simpler than ever today, that is to produce peat fuel. Professor Bristow and others wrote treatises about Bellacorick in the sixties. Dr. Todd Andrews should always get tremendous credit for going out to Bellacorick in the post-war years to what was undeveloped country, against the odds, realising that if Bord na Móna was to be a national institution they would have to have a social dimension as well. Luckily the situation is changing there, as new industries are moving in. But even today in Bellacorick if one were to do cost-benefit analysis and discounted cash flows, with the energy situation now, one does not have to rely on a social dimension there at all.

Mr. Tipper.—We used discounted cash flow where there are alternatives and will continue to use it. Usually, we use as a guide the rate of return and not the pay back period. In many cases other factors determine our course of action, and we have not very many options to look at.

135. Senator Keating.—Mr. Tipper has not said a great deal. Could he say a little more about the way in which the discounted cash flow rate or the rate of return on investments calculations are put into the decision process?

Mr. Rhatigan.—The best example to take. in arriving at the cost of briquettes for instance in the new briquette factories would be our long-term forecasting and planning on those.

Mr. Tipper.—Do the committee wish to know which rate of return we use?

Senator Keating.—The board must do discounted cash flow calculations with a number of rates or perhaps a spread of rates.

Mr. Tipper.—Basically, we work out the discounted rates over the life of the proposal, taking into account residual values of the various proposals, and we look at the rates emerging from the sums and take the best one or at least ask why we cannot take the best.

136. Senator Keating.—This can be circular. The rates emerging from the sums depend on a whole lot of assumptions that the board make, to begin with. The board could start the process from either end?

Mr. Tipper.—Yes, but this is used as a guide to help us to arrive at the decision. We look at the various factors and determine their relative importance.

137. Senator Keating.—What about inflation in this context? This is where the board can play the extraordinary games that I have been talking about.

Mr. Tipper.—With inflation, in our DCF exercises we use constant or present-day values. But when we are looking at the provision of capital for the future, we build in an inflation rate to cover our commitments.

Mr. Rhatigan.—It is a major factor today. The inflation rate for the last five years since we introduced our third programme has averaged 15.3 per cent, according to the consumer price index. What do we take for the next five years or the five years after that?

Senator Keating.—We will be talking to NET in the next few months and they are perhaps the beautiful example of this process.

Mr. Rhatigan.—I could not agree more that unless we rationalise it the end result is dear energy in the long term. There is no question about it.

138. Deputy Kenneally.—Could I ask one question about the land? The day we visited the bog we were shown a proportion of it on which crops had been planted. What value would the board put on that type of land? Would it be agricultural land?

Mr. Rhatigan.—As yet it is not stable agricultural land.

139. Senator Keating.—There were some bitter conflicts on the labour front in the history of the board. Labour relations are quite good now. One of my reasons and one of the committee’s reasons for pursuing this question of pricing policy is the widespread belief among the labour force that they, as a result of a pricing policy, which is specifically advantageous to the ESB, and as a result of the efficiency, dedication, foresightedness, competence and so on of Bord na Móna, are being paid a bit less than that to which their labour and the capital involved entitles them, to the benefit of other sectors of the whole energy chain and other sectors of the economy. Everyone recognises the importance of productivity considerations, and that you cannot pay in the long run what you do not earn. Perhaps this would be an opportunity to comment. As you know, I am not inventing those thoughts and attitudes. Is there anything in them? Was there ever? What about the future?

Mr. Rhatigan.—Mr. Barron will come in on this. One would have to go back somewhat on our history on this. I will preface my remarks by stating that of course we are a highly labour-intensive industry. Sixty per cent of our total cost is labour: 70 per cent of our direct costs is labour. Bearing in mind the nature of our business, it follows the sun or rain, as the case may be; it can be a seven-day-a-week-job. Therefore, overall our wage bill is very high. Our policy, particularly now, is to ensure that the chap who works in Bord na Móna and cuts turf— whatever level he is at—gets a fair and just wage or salary commensurate with what his colleagues would be getting, say, in comparable State bodies. To arrive at that we take—in agreement with the unions today—five or six comparable, commercial bodies and try to follow the median line there. We are not the pace setters. Neither are we at the bottom of the league table.

There is a lot of pressure on us. I can understand very well the pressures from the shop floor and from the board that, in this new-found situation—one in which there is tremendous demand for our products, with our turnover rising—wages and salaries, instead of being related to some type of long-term rational formula, will be related to the increasing price of energy. Undoubtedly this is a problem for us. We are working in very close proximity to the ESB which is a different type of organisation. They have a massive turnover; overall they have a much lower labour cost than ourselves. We are like the little tank beside the big tank which, when the stopcock is opened, can cause quite a lot of turbulence. Quite frankly, we have been going through that period. I think people on the trade union side are appreciative of our problems and that, within the constraints of the National Wage Agreements and the National Understanding, the board is doing its best to achieve a fair standard of remuneration for the people working in the organisation today. There is no question about it. We would be foolish to do otherwise.

In regard to our strike situation, of course we have had bad patches, partly due to these pressures. The last four years have not been good. We have been particularly bedevilled by the malaise within the organisation of the go-slow and the work-to-rule which has been extremely hurtful, particularly last year.

Senator Keating said earlier we are very much like the farming community. We have a battle on our hands every year. I think it keeps us all reasonably close to the middle of the road. It is fascinating that every year we sink our differences, people get down and they produce the turf; there is a good spirit and good heart. Perhaps Mr. Barron would like to talk about our actual statistical record on strikes.

Mr. Barron.—Since the formation of the board in 1946 we have had five official strikes. This may well be occasioned by the fact that we are a rural organisation; we have 23 locations in the country. Probably it has led to more unofficial strikes than other companies might have because one must bear in mind the ability of the unions, the employer and the men, three different groups to communicate with each other. Then there is even the bog itself; Derrygreenagh is 24 miles from one end to the other. Therefore communication is a big problem there.

We have had quite a number of unofficial strikes or short stoppages of work. Our total man hours lost, over the last four years, is half the national average for all manufacturing industries of which group we are a member. We had one major strike in recent times, in 1976, by our craftsmen who were stopped for 45 days when we lost 47,000 man hours. That was the biggest strike we had in recent times and it was an official strike But we have had these smaller unofficial strikes.

In regard to the question of how we pay people, I should say that naturally they would all like to be paid the ESB rates. The ESB to a great extent is nearly an urban organisation rather than a rural one. What we tend to do is work on league tables. We pay what we regard as the going-rate in the area in which we work. We have different league tables for different people. In the manual workers’ league table —and this was worked out by negotiation and so on—we have five companies, CIE, ESB, forestry workers, county council workers and the Office of Public Works drainage people. We regard these as the people who work in the areas in which we operate. We have a different league table for staff because we would be recruiting those in the cities. We have five companies in that league table also. There we have the ESB, CIE, Nítrigin Éireann, the Sugar Company and Aer Lingus. At one stage we had the Sugar Company in the manual workers’ league table but we found it was in the interests of the workers to drop them because, in Gowla, where they have bog workers, the rate was low. We negotiate on these kinds of league tables and come up with an average. Also we have bonus. About 52 per cent of all semi-skilled and unskilled worked hours are incentive-bonussed hours. We have bonuses on everything we can put a bonus on. The reason only 52 per cent are measured is that during the winter you have a lot of maintenance operations, like permanent railway maintenance and so on that cannot be bonussed. Even in the summer, when there is a break in the weather, men have to be put on unmeasurable operations such as the laying of pipes, clearance of drains and so on. Where we can, we put on a bonus. We have a very active work-study group who undertake this type of thing. Most bonuses yield about 25 per cent of basic rate, on average. Of course there are also shift rates for some operations. In negotiations, you do not put in the bonus because it is not paid to everybody and is not paid on all worked hours. Therefore, if you like it is a bonus, put on top of the basic league table.

140. Deputy B. Desmond.—One of the particular bones of contention taken up time and again here by Members of the Oireachtas, indeed by all of the political parties around the country, is the superannuation scheme of the board. Is there any prospect of the old Bord na Móna superannuation scheme being updated? Only a fortnight ago we passed through the Oireachtas the updated local government superannuation scheme. The CIE superannuation scheme has been under constant pressure for updating. The Bord na Móna unions have been saying that the 1963 scheme of the board is now very much outdated in terms of what ESB workers, or indeed local authority workers, get. The county council scheme is much superior to the board’s one. Surely the Department of the Public Service would not be that reluctant to permit realigning, or are they?

Mr. Rhatigan.—Provided both sides make the contribution.

Mr. Barron.—Our scheme is fully funded. There is a 50:50 contribution, the same as CIE, ESB, Aer Lingus and most semi-State companies of that type. Our contribution rate is 3 per cent. In the ESB it is 5 per cent and in Aer Lingus it is 5½ per cent. We are quite prepared to upgrade our scheme, but there must be an equal contribution on both sides. With our staff scheme the contribution is over 5 per cent, but it varies slightly in relation to the rate of pay.

We could visualise, eventually, just one scheme for Bord na Móna. The contribution in the staff scheme is 5½ per cent approximately. It is a better scheme and we can afford to pay more benefits. We have told the unions that we would be prepared to upgrade the scheme, but that there must be equal contributions from both sides. If we do this we will still have a cheaper scheme than some of the others.

141. Deputy B. Desmond.—Would the board have enhanced benefits?

Mr. Barron.—Yes. We can price the various items and work-out the cost of additional benefits on the basis of a 50: 50 contribution and we could operate the scheme in that way. Perhaps the unions at this stage cannot get their members to agree to an increased contribution.

142. Deputy B. Desmond.—Those with the lengthier service, the pre-1963 workers would be reluctant——

Mr. Barron.—Yes, because they got service without contributions earlier on. They did not get it for nothing; they worked hard for it, possibly harder than people work today.

143. Deputy B. Desmond.—Is it a remaining area of contention?

Mr. Rhatigan.—Yes, but we would like to see it resolved.

Mr. Collen.—The rural workers may not see it. The rural worker may have a different view on this than the average city worker because he has his little farm, or some other little income for his old age requirement.

144. Deputy B. Desmond.—What happens when some of the bogs are phased out? Inevitably the board will have substantial sectoral redundancy. Will it be phased?

Mr. Rhatigan.—Not really. We have done a lot of work on this in the long term, particularly the ESRI study in Clonsast. There is a natural phasing out, a natural wastage. Bogs will not close overnight. We have already had this in our Kerry bogs which gracefully moved into forestry without any impact at all on the labour situation.

145. Deputy B. Desmond.—How has the worker participation innovation affected the board?

Mr. Rhatigan.—Very good. When this was first mooted I was one of the people who was quite sceptic al about it. I thought the emphasis was being put on the wrong place. We had our elections last February, and had four people elected to the board. It is most encouraging that people in voting crossed the strictly union barriers to ensure that the right people would come to the board. It is a pleasure for me to say that what we have on the board are four common-sense people from the shop floor, from the bog. The basic ingredient of any director, whether he is a worker or else, is to bring a fund of common sense to the board. In a very significant way, particularly from the Chairman’s or the Chief Executive’s point of view, it has widened the whole spectrum of contribution to decision-making on the board. We are fortunate that we have four good men.

146. Deputy B. Desmond.—Is there a very strong Department of Public Service influence on the board’s senior executive staffing levels and so on, and on the personnel policies which the board must employ in relation to senior executive staff and indeed management staff? Is that influence still permeating this unique board?

Mr. Barron.—Not really. The Ministerial letter normally says that we must enforce the national understanding or the national agreement. This, basically, is what we have been doing. From time to time we have had items that went to the Labour Court and some improvements came out of these Labour Court recommendations. We did not have any problem with the Department in getting these improvements sanctioned. The Department said that we must either adhere to the national agreement or get a Labour Court recommendation. We got our Labour Court recommendations where they were needed; and it did not create any major problems with us.

147. Deputy B. Desmond.—It has struck some people and it is evident on occasion that the bulk of internal promotions at middle management and senior management levels come by and large from within the board as indeed is the case with the ESB, Aer Lingus, and so on. Time and again it has been asked “Is this a good thing? Is it desirable? What about the cross fertilisation which might be desirable in the terms of development engineers on the energy side coming from the ESB for instance?” Should they come or should the board’s people go across? These are factors which have arisen time and again. Has it ever been teased out?

Mr. Rhatigan.—That is a problem of our board in recent years. Inbreeding is a bad thing. In a minor way, we had an example of it recently when we were employing a chap from outside. The unions, unofficially, did not agree with us. However, that is another thing. Broadly speaking, this is a problem in the public sector generally and in the private sector. What are the factors inhibiting the development of Bord na Móna today? We are short of craft workers and as well as that we are short of the young design engineer, the man with real potential. We just cannot compete with the private sector today for some reason or another when looking for people like that. This is so important that Government will have to apply itself to it. If you are to have a dynamic, onward, forward looking young management in the State organisations today the whole situation needs to be looked at. I agree that inbreeding can be a very dangerous thing. There should be a cross-flow not only between semi-State organisations, but from the private sector as well. We are losing our best people to the private sector. We have always done that, but in a time of boom such as what we have been having over the last four or five years, with growth in industry and one thing and another, we just cannot compete. It is very difficult to cope with this under the umbrella of national wage agreements. I am not complaining about the role of the Department of the Public Service. They have a necessary function in the total picture. Somebody will want to look at the overall situation in the State sector in this relation because, at the end of the day, it is people who make the business, not the machine.

Mr. Collen.—On the craft side, I would just like to make a point—we produce one-eighth of the craftsmen in the country, as apprentices, which is a major contribution.

148. Senator Keating.—This must mean that you are in fact a training ground for a whole lot of people? If somebody sets up somewhere in the country he goes and fishes your pond and pulls out a good fitter or whatever?

Mr. Collen.—Yes.

Mr. Rhatigan.—Well, the board has always taken an enlightened approach on that from the very beginning. We have fed many craft workers, particularly into the growing midland industries, and we were proud to do this, but we are feeling the pinch now ourselves.

Senator Keating.—You talked about the young development engineer, for example. Again I do not want you to say things on that side of the table that would embarrass you in your dealings with the Department of the Public Service or the Department of Finance. Perhaps I will state an experience and make a comment. In my Ministerial time I fought bitterly—it is a matter of public record, so it is no harm to say it— the application of the Devlin Report to semi-State bodies. I was in the wars; one of my bits of high blood pressure, about the Department of Finance and the Department of the Public Service relates to being in the wars about remuneration. The remuneration of the chief executive is important because, if one does not pay chief executives properly, one cannot put people lower down on the pyramid above them, and the situation gets chaotic. It did seem to me that what Mr. Rhatigan said—from my point of view—was extremely important because we must not tie the hands of the public sector behind their backs so that they cannot go into the market place and get good people. The going rate is determined by the market place. I was very interested in that.

149. Deputy B. Desmond.—Could I put a question on an entirely separate aspect, the question of cutaway bog? Mr. Rhatigan served on the Inter-Departmental Committee on the cutaway bogs?

Mr. Rhatigan.—Yes.

150. Deputy B. Desmond.—The terms of reference of that Committee did not include the question of ownership or disposal in the future of bogland?

Mr. Rhatigan.—What we call the long-term land use or ownership, no.

151. Deputy B. Desmond.—Is there any prospect of obtaining in due course some view of the board on such a matter? I would put it bluntly: there is a conflicting national view developing on this issue, whereby substantial organisations at the national level, farming organisations in particular, may well hold the view that land should be allocated or apportioned at local level. As you well know, this argument does arise. Then there is the counter argument that perhaps the ambit of the board, its functions, its terms of reference statutorily, could well be expanded or some other organisation might well dovetail on a joint venture with you in due course to use such a prime national resource. Is there any prospect that the board might come forward with a development programme of that nature, admittedly within all the political constraints you are going to be faced with in terms of coming down on one side? Is there hope of a board submission on that issue because, we, the politicians, will have to—I will not say take sides—take a decision on it? I know what side I would be on but that is a different matter. However, it will be something of great importance in the next decade.

Mr. Rhatigan.—Of course, the Deputy is right. But there is far more than a hope. I thought we had already clearly defined— particularly through the medium of our Annual Report for 1976-77—what we saw as the board’s role on this because there was the danger of our getting into an area of political flak of one kind or another. We are quite clear on this, as I think are most people associated with us, including the IFA, whom I met during the year. I have met the trade unions. We work very closely today with An Foras Talúntais. Indeed, I am glad to have this opportunity of saying that because there is the kind of opinion abroad that we are like two Kilkenny cats. We have today a marvellous working relationship with An Foras Talúntais because we realise that, in each step forward in this massive land development programme, we must have the assistance of people like An Foras Talúntais. The board is quite clear that there are two basic elements in this. One is land development: you must create the land first, whether it be stable agricultural land for a range of agricultural crops, prime forest land, or land for marginal interests of one kind or another. What is emerging today is that there probably will be two main options in the land bank: one, stable agricultural land, particularly where the subsoils are favourable, have been weathered somewhat, where the optimum layer of peat is left behind and where, if at all possible, that peat is ploughed into that soil. From there we think today that, with our development programme, we can create such land, but there is a lot of work to be done on it yet. There will be a very high percentage of cutaways, particularly in the West, where it will not be possible to create that stable agricultural land, certainly not at what would be a reasonable or rational cost. But that is our role and, in doing that, we have nothing to hide. Our policy today is bringing anybody who is interested in this subject down on the ground to see what we are doing. We are looking for the best advice possible. I am sending Mr. Gerry Healy, the board’s land development manager literally all over the world to see what is happening—to see what is happening in Germany, where there are totally different situations. Then, when those broad options emerge—determined largely by the terrain, nature of the bog, location and so on—land use can be determined only in the light of Government policy of the day. The board is entirely clear on that. We have no illusions about that at all. We stated that quite clearly in our 1976-77 Report, from which I might quote as follows:

The large scale development of bogs by Bord na Móna is one of the most enterprising and beneficial undertakings in the history of the State. The many benefits to the economy in the short and medium term are evident already, but the long term benefits are only beginning to appear. 170,000 acres of land——

It is now 200,000 acres, or nearly that.

——reclaimed from the cutaway will be added to the nation’s land resources. In scale and potential this can rank with the reclamation of the polders in Holland and the fenlands in England.

In the development of bogs for turf production the Board has to establish a very comprehensive drainage system which will ensure that drainage of the reclaimed cutaway will be controlled. Many thousands of acres of privately owned cutaway and marginal land remain underdeveloped because of the fragmented structure of ownership which inhibits drainage and development essential for the full utilization of the real potential of these lands. As the Board purchased full ownership of all the lands it acquired——

Indeed, that is our continuing policy, to purchase the fee simple of those lands because, if they remain fragmented, then they will never be developed.

——no such difficulties arise so that it will be possible for the Board to create this new land bank by careful planning and development.

Land use will be determined in the light of Government policy. The formulation of policy will be undertaken by setting up an inter-departmental committee to consider in close consultation with Bord na Móna the land use which would best serve the national interest from both social and economic aspects.

We are in no doubt about our policy, our objectives and our thinking. Our job is to develop those and to leave an asset there which can be used to the maximum benefit in the national interest.

152. Deputy B. Desmond.—I will not add to Mr. Rhatigan’s statement but I should like to ask him if he would agree that Government policy in relation to land use can be profoundly influenced by the board’s initiatives, even in, say, pilot development projects?

Mr. Rhatigan.—There is no question about it—one part of the formula will be commercial forestry; take, for instance, Lyrecrumpane, which is at 800 feet O.D. down in Kerry and where there is a magnificent plantation of forest. To my mind the natural agency to do that is the Department of Forestry. If stable agricultural land emerges, vegetables have been mentioned. We were all in a state of euphoria in 1973, when there was a very poor outlook for Bord na Móna, when we thought here was a tremendous reservoir for the massive production of vegetables for canning for export. But the reality is different. It takes many years to accommodate our boglands which have been just cut away to growing vegetables that can compete with vegetables from more favourable land. We have two problems. One is that everyone thinks that in an acre of Bord na Móna cutaway there are pots and pots of gold. One can only take out what one puts in. A lot must be put into it. The other problem is that to develop the land on a scientific basis, as they do in Germany and Holland, is a long-term policy and the foundation stones must be right. But people want to rush their fences. People want to be in over their fences and set up house on a half developed asset. That would be fatal. There is no question about it.

153. Chairman.—Who decides what will be used for forestry?

Mr. Rhatigan.—Mountain bog cutaway will all be used for forestry. One could grow nothing else on the side of a God-forsaken mountain.

Mr. Collen.—Rainfall might be 60 inches up there, and nothing else would grow.

154. Senator Keating.—I find this fascinating but also worrying. It is not a new issue. We did refer to it when we were talking about accounting policies. We listened to the board saying that the price of the virgin bog is zero. Every ton that the board takes out of that virgin bog increases the potential value of what is underneath it. In the long run the board might be like some of the railways in the United States in that as a property company the board may be more interesting than when it produced peat. It is very hard to talk about the future of the board without facing this issue of the cutaway bog, because it will be a major one. It is being presented from that side of the table as if it were a purely scientific question or as if the board simply had to wait for what policy Government hand down to it. I hope that is wrong. If it were only scientific, I would be much happier because I know what decisions would come out. I fear that the vociferous large numbers of people who do not know the science of the situation will be able to skew a decision away from rational use of this extraordinarily valuable thing. I hope that the board would have its legislation altered in a way to enable the very valuable land-bank to be used in an organised way, certainly for timber and also for biomass which is becoming a new energy business.

Mr. Collen.—We are in the lead there in that.

Senator Keating.—One cannot have rational drainage and so on without it being done in an organised way. I hope that when we come to make our report we will address ourselves to the question of the necessity for the Government to give the sort of perspective that can enable this thing to be managed properly. If we simply give in to the voices of all the local people, who are numerous and whose intentions are good, but who are just misguided about the science and technology, then we will destroy one of the most valuable things the State has ever built up. I hope we will be able to get a consensus to say something about that when we come to make our report.

Bord na Móna is its staff but it is also a number of persons, who constitute its board, who have standing in the community and who were put there as representatives of the community. I wonder if they are not entitled to take a fairly strong line, at least in an explanatory way, on this. I do not believe they would be in any way in breach of their duty, but would be carrying out their duty, if they gave a very careful explanation as to why scientific and technical decisions have to prevail. Comment?

Mr. Collen.—We are a large open-air laboratory and we are there as objective scientists. We will produce objective reports.

Senator Keating.—I hope it is enough.

Mr. Collen.—After that, it is up to the politicians to take our facts. We have the policy.

The witnesses withdrew.

*Senator Eoin Ryan took the Chair later in the proceedings—see page 77.