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News : Irish Last Updated: Jan 10, 2013 - 10:35 AM


Thursday Newspaper Review - Irish Business News and International Stories - - January 10, 2013
By Finfacts Team
Jan 10, 2013 - 7:26 AM

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The Irish Independent reports that families can expect to be hit with water bills averaging €370 a year when charging is introduced next year.

The Government plans to raise €500m by charging for domestic water, which will hit 1.35 million homeowners with hefty bills.

Details of the expected charge are revealed for the first time in official IMF documents.

They say the Coalition has told the European Commission that it expects to collect €500m in 2015 after metered water charges are introduced.

This will result in average monthly bills of more than €30 per household -- totalling €370 a year.

Final decision

But it is not yet clear when homeowners can expect to receive their first bill, as a final decision has yet to be taken.

In a statement to the Irish Independent, the IMF said it expected charges to be introduced by the end of the bailout programme this year.

"The latest memorandum of understanding envisages the introduction of water metering, with a view to start charging by the end of the EU/IMF programme," it said.

"Although the exact amount of budgetary savings will depend on the parameters of the charging regime -- for example the free water allowance provided to users -- the working estimate of the potential annual savings that could arise is €500m."

The EU/IMF agreement says charging must begin from 2014 but the Government may decide to delay the inevitable until after the local elections that year. This is because there are concerns that homeowners – hit with a full year of the property tax that was introduced last month, plus water charges – will then vote against the coalition government parties of Fine Gael and Labour in the June 2014 elections.

Informed sources said the ending of the bailout programme at the end of this year could give the Government room to delay the introduction of charges.

"Supposing the IMF is gone, that can change a lot," said one. "If they're not making you implement it, it could be (delayed until) after the summer."

Ireland is one of the few countries in the OECD not to charge for water usage, with average bills among member states ranging from €100 to €450 a year. In the UK, bills are about €400 per household.

The Government intends to give each household a 'free' annual allowance of water, which would cover basic needs such as sanitation, after which charges will apply.

The company charged with collecting water bills, Irish Water, expects 90pc of domestic customers to pay up.

However, meters which measure the amount of water used will not be installed in all homes across the State for another three years, meaning that some homeowners will have to pay a flat-rate 'assessed' charge based on average usage.

The metering programme, which is expected to cost €500m, is not due to be completed before summer 2016, with work on installing meters set to begin next summer. Some 300,000 households with a private water supply will not be billed.

Two government departments – Finance and Environment – could not say how the figure of €500m had been arrived at.

Meters

"This department is not in a position to comment on what is essentially a budgetary matter," a spokesman for the Department of the Environment said, adding: "The departments of Finance and Public Expenditure and Reform would be more aware of discussions that have taken place with the IMF and the other programme partners about national budgetary projections."

The Department of Finance said it could not comment.

The charges will be set by an independent regulator, the Commission for Energy Regulation (CER), which will decide how much free water will be given to households before charges take affect.

It currently costs some €1.2bn a year to supply water to homes and businesses across the State.

It costs €500m to maintain and upgrade the network and businesses pay another €200m in charges.

The shortfall will be made up of charges from domestic customers, which will be used to cover operational costs. Households that refuse to pay are unlikely to be cut off, but they will face the prospect of having the unpaid bill registered as a charge against their property or experience a loss of water pressure, meaning that washing machines and dishwashers cannot be used.

Irish Water will write to 1.35 million households from next summer to ask for confirmation of their address so they can be billed.

The Irish Independent also reports that two European chiefs have lent their support to a deal to reduce our €64bn banking debt burden.

Both European Commission president Jose Manuel Barroso and European Council President Herman Van Rompuy made comments in support of a deal for Ireland.

The boost came as Finance Minister Michael Noonan said he still believed that a deal would be done on the €31bn cost of bailing out Anglo Irish Bank before the March deadline.

Mr Barroso said he was supportive of Ireland finding a solution to the promisory notes issue. He said the commission was generally in favour of a deal, but he declined to comment on specific proposals.

Mr Barroso said Ireland's presidency of the EU offered a great opportunity for the Government to "make its case better known".

Meanwhile, Council President Van Rompuy gave his views after his Irish EU presidency meeting with Taoiseach Enda Kenny and Tanaiste Eamon Gilmore.

He highlighted the need to tackle the issue of Ireland's banking debt – as agreed by European leaders last June.

"One of the key objectives is to break the vicious circle between banks and sovereigns, especially for Ireland," he said.

Mr Van Rompuy has consistently been one of the strongest voices at EU level arguing for a reduction in the huge banking debt burden which resulted from the disastrous state banking guarantee in 2008.

Priorities

He is president of the European Council, which is made up of all 27 EU leaders as well as European Commission President Jose Manuel Barroso. It sets the priorities for the EU.

At Dublin Castle, Mr Van Rompuy said he was not involved in the discussions about reducing the bank debt. But he said he understood that the Irish Government was working hard with the European Central Bank (ECB) to find a mutually acceptable agreement on the Anglo Irish Bank debt.

"I really hope for a positive outcome," he said.

His comments were welcomed by Mr Kenny, who said that the Government's immediate focus would be to agree a deal on the €31bn Anglo Irish Bank debt – with another €3.1bn instalment due for payment at the end of March.

Mr Gilmore said the Irish EU presidency would also be working to tackle the "scandal" of youth employment, which is averaging 25pc across the EU.

Members of the foreign press wanted to know what the Irish Government would do if British Prime Minister David Cameron demanded changes to EU treaties as a result of pressure from eurosceptic Conservative MPs.

Mr Kenny said he did not believe that there would be treaty changes in the near future, and emphasised that it would be "disastrous" if Britain left the EU.

"Britain is an essential part of the EU and has played a fundamentally important role in developing the single market," he said.

In a light-hearted moment, Mr Kenny referred to how Mr Cameron wanted to stay on in Downing Street until 2020, leading Mr Van Rompuy to ask: "You too?" Mr Kenny responded by saying "Yes, of course".

The Irish Times reports that the State sold a €1 billion investment in Bank of Ireland yesterday, having initially aimed to sell a minimum of half that.

The proceeds of the sale, which was heavily oversubscribed, will be used to pay down the national debt. This is the first time the State has recovered any of the €64 billion in public funds invested in the banks since the economy failed.

The holding in Bank of Ireland was by way of Contingent Capital Notes (Cocos), a form of investment that is converted into equity under certain conditions.

The sale received bids totalling €4.8 billion and the notes were sold at a slight premium, netting the State a profit of €10 million.

International investors 

The notes were created in July 2011 and carry an annual interest rate of 10 per cent, or €100 million, which the State has already received.

They were bought by a number of international institutional investors and the sale was organised following an approach by investment banks to the Department of Finance late last year which indicated that there was sizeable investor interest in the State’s “Coco” instruments, and in particular the holding in Bank of Ireland.

In a press briefing after the sale Minister for Finance Michael Noonan said it would make people look differently at Ireland and at the Irish banks.

He said the State had a further €6.9 billion in Bank of Ireland, AIB and Permanent TSB by way of investments over and above ordinary shareholdings, and these would be sold at the appropriate time.

He said the sale marked a “fairly significant day” and noted that it came a day after the National Treasury Management Agency sold 2017 Government bonds worth €2.5 billion in a process that was also heavily oversubscribed and involved an interest rate below that being paid to the troika.

The NTMA sale on Tuesday involved a rate of 3.316 per cent, he said, which was 0.2 per cent below what Ireland is paying on its bailout funds.

US billionaire Wilbur Ross, the chairman and co-founder of WL Ross and a significant shareholder in Bank of Ireland, said the notes sale was a “major step toward the complete privatisation” of Bank of Ireland. The State owns 15 per cent of the bank’s ordinary shares, and preference shares with a value of €1.8 billion.

Positive statement 

Mr Noonan said he welcomed the positive statement from such a significant investor as Mr Ross and said the State had no interest in owning banks indefinitely.

Philip O’Sullivan, chief economist with NCB Stockbrokers, said the sale of the notes was further evidence that the relationship between the State and its banks was moving from being a vicious circle to a virtuous circle.

The Irish Times also reports that a benchmark 10-year bond is next on the agenda for the National Treasury Management Agency (NTMA), following the successful sale of €2.5 billion in a syndicated tap deal on Tuesday.

Noting that Ireland doesn’t currently have a 10-year bond, John Corrigan, chief executive of the NTMA, said yesterday that it could be a possibility in 2013.

“It would be nice to have a 10-year bond . . . it’s on our wish list,” he said, speaking at the annual review of the agency, adding that the NTMA plans to raise €10 billion from the markets this year.

A syndicated dollar deal is also a consideration.

Commenting on Tuesday’s sale, Mr Corrigan said the agency was very happy with the spread of investors achieved in the deal, with “all but 1 per cent” going to “real money investors” such as pension funds, insurance companies and banks.

He also said the NTMA was very happy with the yield, or cost of borrowing, attained, when compared with pre-crisis funding.

Rating still an issue 

“We would have been challenged to borrow at that rate even with a Triple-A rating,” he said. However, he added that the country’s rating was still an issue.

“There is still a lot of work to do there,” he said, adding that the rating Moody’s had on Ireland was “depressingly low”.

Noting that the proceeds of yesterday’s deal would be kept on deposit earning a low yield, Mr Corrigan said it would be “hard to match” the cost of borrowing, but that the NTMA was seeking to strike a balance between funding while conditions were good, and building up a buffer.

“If the cost of carrying is important, then the cost of not carrying it is equally important,” he said, adding that, “the world is in a very uncertain place and we’re in a sweet spot at the moment”.

The NTMA will recommence its monthly treasury bill auctions on January 17th, raising €500 million.

Viewpoints The NTMA on . . . 

The disposal of Bord Gáis: “We’re very much on track, said Eileen Fitzpatrick, director of NewERA, which is managing the Bord Gáis divestment.

She said that NewERA, which also has responsibility for representing the Government’s interest in its asset disposal programme, has also started preliminary work on a disposal of Coillte’s assets, and noted that the agency has seen a “healthy degree of interest” in State assets from potential buyers.

The State Claims Agency : According to the NTMA, the estimated liability of active claims stood at €1.1 billion as of the end of December 2012, 86 per cent of which are in relation to clinical claims.

The remainder are accounted for by employer, public and property damage liability claims.

It expects the State Legal Costs Unit within the agency to be operational next month.

Public private partnerships: The National Development Finance Agency has started an “intensive market engagement” to attract interest from investors and contractors in PPPs in the education, health and justice sectors under the Government’s €2.25 billion stimulus package.

The NII/Newlands Cross PPP project is expected to reach a financial close early this year.

National Pension Reserve Fund: The NPRF’s portfolio, excluding its investments in Bank of Ireland and AIB, returned 7.3 per cent in 2012, or 3.7 per cent a year since 2001.

The fund’s portfolio of bank shares increased by 10.4 per cent.

The total value of the fund was €14.7 billion as of the end of last year.

The Irish Examiner reports that the Government, via the National Pension Reserve Fund, is making available €850m to small businesses through three new funds in an effort to fill the gap in the market by banks exiting the country.

The SME Equity Fund will have €300m-€350m at its disposal, with the NPRF putting in €125m of the total amount. Other third party investors will also stump up capital.

The fund will be managed by Carlyle Cardinal, which is a joint venture between the international private equity firm the Carlyle Group and Dublin- based Cardinal Asset Management, founded by Nigel McDermott and Nick Corcoran.

The fund will be aimed at “healthy businesses seeking to grow, including those with over-leveraged balance sheets”.

The SME Turnaround Fund will have a total of €100m in its coffers with €50m coming from the NPRF. The fund “will invest in underperforming businesses which are at or close to the point of insolvency but have the potential for financial and operational restructuring.

“Typically 40% of the capital invested by the fund will be used to buy the business and 60% will be used to finance the turnaround in order to place it on a sustainable long-term footing.”

The Turnaround Fund will be managed by London-based Better Capital. The legendary investor, Jon Moulton, is the chairman of Better Capital.

The SME Credit Fund will have an initial fund size of €450m with the NPRF committing €175m of the overall amount.

This fund will lend to larger SMEs and mid-sized corporates and will be managed by BlueBay Asset Management.

This London-based fund is a wholly-owned subsidiary of Royal Bank of Canada.

“The SME Credit Fund may also acquire and refinance loans close to maturity where existing lenders are not willing to provide new lines of credit.

“Lending by the fund will be at competitive market rates with loan sizes ranging from €€5m to €50m with an estimated average size of €€15m. Returns to investors in the fund will vary according to their position in the fund’s capital structure,” the NPRF said in a statement.

NPRF chairman Paul Carty said all of these funds will be run on strictly commercial terms as otherwise it would be a contravention of state aid rules.

Foreign news reviews and more comprehensive coverage of Irish news is available in our Daily News Digest in the Global category on Finfacts Premium.

Check out our subscription service, Finfacts Premium , at a low annual charge of €25 - - if you are a regular user of Finfacts, 50 euro cent a week is hardly a huge ask to support the service.


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