Committee Reports::Report No. 04 - Bord Na Mona::17 December, 1991::Appendix


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Committee Reports > List of Committees > Joint > 1991 > Committee on Commercial State-Sponsored Bodies (6th Committee) > Report No. 04 - Bord Na Mona

APPENDICES

APPENDIX I

Joint Committee on Commercial State-Sponsored Bodies - Fifth Report (29 October, 1986) “Analysis of Financial Position of Commercial State-sponsored Bodies based on Latest Published Accounts” (Pl.4486)

EXTRACT

“Guaranteed Borrowings

40.In its report on Irish Shipping Limited the Joint Committee recommended that State guarantees be given for a specific period of time so as to ensure a greater emphasis on a time scale solution to the financial problems of companies. It now reiterates that recommendation. While a State guarantee will ensure that funds will be made available more readily and, frequently, at a cost below normal interest rates, the Joint Committee believes that the mechanism of guaranteed borrowings is an inappropriate solution to the long term financial problems of a commercial organisation.

41.A reduction in the amount of borrowings guaranteed by the Exchequer would, in the Joint Committee’s view, be effective in promoting a greater commercial awareness on the part of State enterprises. Furthermore, the absence of a guarantee should have the effect that the provider of funds would be obliged to apply a more rigorous appraisal of the investment risk. In this connection the following statement in ‘Proposals for Plan 1984-1987’ is pertinent:

‘An investment in State-sponsored commercial bodies should be approved only if the expected return is not less than the cost at which the funds to finance it can be borrowed by the Exchequer or with a Government guarantee plus five per cent. This is now the target rate of return required by the Government on investments in public enterprises.’

42.In the absence of capital restructuring of the balance sheets of many commercial state-sponsored bodies the achievement of the target rate of return on new investments will prove difficult. It will also be dependent upon the reduction or elimination in some companies of their long term weaknesses.”