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Energy costs to be burning issue for enterprise minister

By John Simpson

Published 26/04/2016

David Dobbin has opened a difficult debate
David Dobbin has opened a difficult debate

David Dobbin, along with a group of special advisers, was asked by Minister Jonathan Bell to consider why energy costs for large commercial customers were higher here than in other competing areas of the EU, and what steps might be taken to narrow the difference.

David Dobbin's report has been published. Decisions on implementation lie with the new minister to be appointed after the election, and also with the Utility Regulator.

Neither the minister nor the regulator comes out of the Dobbin Review lacking strong advice.

David Dobbin, with 24 wide-ranging recommendations, is critical both of the continuing absence of clear long-term objectives to deliver competitive energy policies, and also on aspects of the implementation of current policies. However, there is no single recommendation on policy or operations that offers an immediate remedy for electricity tariffs for the 20 LEU (large energy users) which are higher in Northern Ireland than they would be in the Republic of Ireland or in Great Britain.

Both a newly-appointed minister and the regulator have big parts to play in reshaping energy policies if there is a policy agreement that the unfavourable tariff comparisons for the LEU should be corrected. At the outset, any policy agreement on tariff changes is unlikely to be operational without a redistribution of the allocation of energy costs to the disadvantage of other customers.

The essential assumption is that electricity tariffs should be adequate to maintain a viable electricity supply sector. If large users are asked to pay less, then smaller users (households and smaller/medium sized businesses) will be asked to pay more.

To bring about a change, David Dobbin makes a critical recommendation: "The statutory remit of the regulator should be expanded to specifically include consideration of developing a competitive energy cost environment for manufacturing and ensuring that costs for LEUs… are competitive in an EU context."

That recommendation omits to add that the statutory remit of the regulator is determined by legislation and would, therefore, need ministerial action. Such a change would need Executive endorsement and, given the tariff trade-off, could be contentious.

There is no comfort for the LEUs when a comparison is made with tariffs across the Irish border which show that tariffs in Northern Ireland compare unfavourably with the Republic. Since there is, at least in virtual format, a Single Electricity Market at wholesale prices, why do tariffs differ?

The difference is that in the Republic of Ireland it is not the wholesale prices that make the difference. It is the allocation of network costs which, disproportionately, favour larger users in a north-south comparison. In Northern Ireland, the LEUs would like similar treatment. However, in NI there is currently a defensible allocation of network charges, etc.

Should the minister in NI want to follow the Irish methodology, the decision must be politically acceptable (and risk unpopularity with domestic users) and could possibly be tested for acceptability under the rules on State Aid (as a form of subsidy support).

Following the closure announcements of JTI Gallaher and Michelin, much criticism was made of the higher level of energy costs in NI. David Dobbin was asked to consider how manufacturing industry could be assured of a more acceptable tariff regime. There is no single suggestion but, in this review, David Dobbin's group have opened up a difficult debate.

There are possible answers. The incoming minister could follow through on the strategic over-view offered and seek Executive support for some form of unique arrangement. The Irish model might be tried and harmonised into the changing I-SEM (integrated single electricity market). Alternatively, a tailor-made 'super user tariff' might be used to justify a differential approach.

David Dobbin has pushed beyond a series of rigid constraints. However, a new market framework must now be devised by the minister and supported by the regulator.

Company report: Multi Packaging Solutions Belfast Ltd

Multi Packaging Solutions Belfast was originally named Chesapeake Belfast and, going further back, was part of the former locally-owned Boxmore companies which were bought by the US Chesapeake Corporation. The company is based in Newtownabbey.

On October 7 last year, this Northern Ireland-registered company became a subsidiary of ultimate parent undertaking Multi Packaging Solutions Global Holdings, which is registered in Bermuda.

The Northern Ireland-based business has continued to trade profitably in the last three years.

The accounting records are now based on a trading year ending in June. In 2013 and 2014 the accounting year ended in December and, in consequence, the details in 2014 are for a six-month period.

Business turnover has been relatively stable but shows a small decrease in the recent past. Operating profits, compared to 2013, are significantly lower.

However, pre-tax profits have been more buoyant, partly because of positive investment earnings added to the profit and loss account.

In a reflection of an aspect of the accounting methods of the group within which this company is located, the balance sheet shows a handsome and growing debt, of £46m at the end of June 2015, owed to the Belfast company by the parent and related subsidiaries.

This debtor balance affects the balance sheet value of shareholders’ funds which have risen steadily to reach £54m at the end of June 2015.

Employment has proved stable and averaged 168 people in the most recent year.

Belfast Telegraph

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