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The Privatisation of Northern Ireland Electricity
26 October 1994
View Report: The Privatisation of Northern Ireland Electricity
- The Northern Ireland Audit Office has completed a review of the Department of Economic Development's handling of the privatisation of Northern Ireland Electricity (NIE). The findings, which are published today in a Report to Parliament, are likely to be examined next month by the House of Commons Committee of Public Accounts.
- The privatisation, the first involving a public utility in Northern Ireland, took place in two phases :
- in 1992, NIE's four generating stations were sold to three private companies by means of trade sales
- in 1993, the remainder of NIE was floated on the London Stock Exchange.
- The Audit Office Report notes that, in effect, the Department was faced with two privatisations and describes as "a considerable achievement" the completion of the privatisation process within a period of two and a half years following publication of the Government's privatisation proposals. In pursuing its main privatisation objectives, the Department was required to achieve an outcome which represented a balance between maximising proceeds for the taxpayer, promoting share ownership in NIE plc and protecting consumer interests.
- On the sale of the power stations the Report notes that the valuation of the stations at £308 million was the Department's main benchmark for assessing the extent to which it had maximised proceeds from the sale. In the view of the Audit Office, this valuation may have underestimated the worth of the stations, thereby raising uncertainty as to how accurately the Department was able to judge, in the course of its negotiations with the bidders, that it was securing the highest possible price for the stations.
- The Report states that it is not clear exactly how much of the pension fund surplus of the former NIE, which the Government Actuary estimated at some £23 million, was reflected in the sale proceeds of the generating stations. While the Department was satisfied that it did obtain value for the surplus and that the value obtained was a reasonable proportion of the Government Actuary's estimate, the indications are that the sum fell significantly short of that estimate.
- On the flotation of NIE plc the Report describes as "a notable achievement" that it resulted in a higher proportion of shares going to individual investors than in any of the electricity privatisations in Great Britain. However, in drawing attention to the performance of NIE plc's shares in the aftermarket, the Audit Office expresses surprise at the wide disparity between the predicted and actual trading yields of NIE plc and suggests that it could have been floated at a lower yield with a consequent increase in proceeds. In the view of the Audit Office the Department adopted "a cautious approach" to the pricing of the shares.
- The Report comments on the Department's achievement of the six main objectives which had been set for the privatisation, concluding that it had achieved "in large measure" each of the privatisation objectives individually and thereby a balanced outcome which collectively the objectives called for. However, the full extent to which some of the objectives are achieved will, in the view of the Report, not be clear for some time. For example, the achievement of the lowest possible prices for consumers will depend on the effectiveness of measures being considered by the Director General of Electricity Supply to encourage new electricity generator and supplier participants into the market. The Report acknowledges that a comprehensive regulatory framework has been established as a sound basis for the protection of consumer interests, and describes as "encouraging" the rate of retention by employees and customer investors of shares in NIE plc. However, in believing that there was scope to increase the sums realised from the privatisation the Report concludes that the Department did not wholly achieve its objective to maximise proceeds for the taxpayer.
NOTE
The Comptroller and Auditor General is head of the Northern Ireland Audit Office (NIAO). He, and the NIAO, are totally independent of Government. He certifies the accounts of Government Departments and a range of other public sector bodies. He has statutory authority to report to Parliament on the economy, efficiency and effectiveness with which departments and public bodies use their resources. His Reports are published as House of Commons Papers*.
* The Comptroller and Auditor General's Report on The Privatisation of Northern Ireland Electricity is published as House of Commons Paper No 667 of Session 1994-95 and is available from HMSO Bookshops throughout the United Kingdom.
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