'A Fair Deal For Ireland'?
This December (Budget 2011) Ireland will learn the outcome of one of the most important budgets in decades.
The talk will be about €3,4,5,6,7 billion? of cuts and €90+ billion of national debt, so what about the €420+ billion worth of natural resources off the west coast of Ireland – isn’t that worth another look.
Because those resources are going to an oil company in what’s described as one of the biggest giveaways in history…
- There are a series of gas and oil fields extending along the west coast of Ireland
- These include the Dunquin, Porcupine and Corrib fields
- The combined value is somewhere between €420 – €540 billion
- The value of the Corrib is somewhere between €10 – €50 billion
Shell to Sea have been campaigning on this issue for years, and regardless of perceptions (or portrayal) they have a point. Shell hope to be pumping Corrib gas in 2011. Ireland will still be suffering from the recession and seeking ways out of debt.
Ireland’s purse will not see a fair reward, so where has it gone wrong?
1967 – Ireland gave the rights for gas and oil in shallow waters to Marathon Oil.
1971 – the licenses to develop the Kinsale field were sub-let to the same company.
1975 – Ireland agreed a 50% tax on profits, a 50% shareholding, and royalties of 6 to 7%.
So far so good, but…
1984 - Minister for Energy Ray Burke renegotiates the agreement with Enterprise Oil (a British company headquartered in London), and against Department advice drops the 50% right to shareholding and discards the right to royalties.
1992 - Minister for Finance Bertie Ahern reduces the tax levy from 50% to 25% – the worlds lowest at the time, builds in a 100% write off for capital investment costs, and backdates the scheme for 25 years arguing that the changes will encourage exploration. However international experience shows that oil companies will pursue exploration anyway if the potential for profit exists.
The Corrib field then gets sold to Marathon Oil who enter into a consortium arrangement with Enterprise Oil. The rights for other fields are disposed of, and in 2002 Shell successfully exercise a hostile takeover of Enterprise Oil.
And what does this mean for Irelands Corrib resources now?
The Shell-led consortium will…
- Own 100% of the gas
- Pay no royalties to the Irish State
- Can write off 100% of their costs against tax
- Have profits taxed at 25% (the international average is 68% for oil-producing countries)
- Be able to export the gas outside Ireland
- Can choose whether or not to sell the gas back to Ireland at full market rates
Thus the only apparent benefit to the Irish State is a 25% corporation tax once all the corporations’ exploration and development costs are paid, including the anticipated costs of closing down their operations.
In 2007 Minister Eamon Ryan introduced a new ‘profit resource rent tax’ which will add a maximum of 15% tax on a graded basis of profitability. However this will only apply to the most profitable fields and crucially, as it’s not retrospective, will not in any way increase the potential takes on existing licenses, such as Corrib Gas and the much larger Dunquin and Lough Allen finds.
“No country in the world gives as favourable terms to the oil companies as Ireland”
Mike Cunningham, former director, Statoil E&P Ireland – source: the World Bank.
So it’s fair to say that as it stands, 100s of €billions worth of Irelands natural resources will be inflating energy companies private bank accounts over the next 20-30 years, with very little for Ireland in return.
Can Ireland really afford to be so generous?
Most governments would be upbeat about the benefits of natural resources to their country, but in Ireland this arrangement has turned it into ‘one of those things we don’t like to talk about’.
The government is concerned that any alteration would damage our reputation abroad, however it has been done before. Yep there’d be a big row, but right now we look like a soft touch, and if we want to convince the international community that we’re sorting out our finances then surely getting a fair deal for our natural resources makes sense.
Here’s the Shell to Sea website.
Now focus on the economics for a moment and put the reporting of Rossport to one side. We’re in recession, making cuts, emigration is on the up, and giving away resources so cheaply doesn’t seem right. Shell made approx €37 billion in profits over the last couple of years, Ireland didn’t. The Minister of Finance has warned of a possible €160bn of debt by 2013.
Shell expect the Corrib gas plant to employ approximately 55 workers when operational – any jobs are welcome but this is hardly a dent in our current employment problems.
We should be looking at a renegotiation, or at least a change in the tax levy, well so it seems to me anyway.
(Note: this article was originally published in reference to the 2010 budget. Cuts at the time were approx €4 billion, and national debt was approx €80 billion).