Neo-Liberalism in Action: Northern Ireland Electricity

The privatisation of Electricity in Northern Ireland in 1993 was the sting in the tail end of the Thatcherite era. Neoliberalist hawks sought the opening up of all utilities to market forces to ensure their greater competitiveness and to lessen the risk of government intervention discommoding the 'invisible hand' of Adam Smith.

The lesson of the West's victory in the cold war was that markets knew best and any human attempt to substitute planning was always doomed to failure, terror and mediocrity. It was, after all, as Francis Fukayama wrote, the end of history.

Yet, the perfect world projected by the neat but involved mathematical models of the Chicago school never really comes near that experienced in the real world. Far from the idealised market envisaged by the right, the reality is that business, especially big business, lives off hand outs and its myriad interconnections with the state.

Look in vain for a state as conceived by the neoliberalists which is restricted to simply being an impartial enforcer of the market. Instead, capitalist states are all thoroughly enmeshed in domestic capital through the same mechanisms and ties which make it impossible to democratically reform them. The interconnections between big business and politicians are not corruption but a symptom of the wider reality of capitalist 'democracy'. It is as Lenin called it, the 'dictatorship of the bourgeoisie'.

It was to be no different with the privatisation of Northern Ireland electricity generation, transmission, distribution and supply. The proposal, let us remember, was sold on the basis that it would give local consumers the benefits of competition.

However, from the start it was clear that the privatisation was ideologically motivated and simply left intact the procurement, transmission, distribution and supply elements under what became Northern Ireland Electricity (NIE). The four generating plants (now three) were all made independent of one another but dependent on exclusive deals to sell to NIE. As is usual for privatisation deals, the private sector was enticed to engage by a sweetener. That cherry on the bun being the guaranteed price increases open to NIE over time.

In the ten years from 1993 to 2002, the relative differential in electricity prices from Britain to Northern Ireland increased from 16% to 44%. This reflects the 'sweetheart' deal which government had to offer NIE to encourage private sector investment. Over the same period, the largely toothless 'regulator' NIAUR has sat on its hands agreeing to ever increasing bills for consumers.

So profitable has this contract been that NIE has been bought a few times over by larger private sector operators. Firstly, to enable this, in 1998 it was put into a holding company Veridian plc which established itself as a leading light in the rapidly developing all-island electricity market. Veridian is clear about its goals, its website states:

"Viridian is the leading independent energy company in the all-Ireland market. Viridian’s strategy is strongly focused on Irish energy markets, maximising the efficiency of our regulated electricity infrastructure in Northern Ireland and growing energy businesses in the competitive market across Ireland, backed by investment in power generation."

In 2006, Veridian was then acquired by Arcapita Inc. a wholly owned subsidiary of Arcapita Bank (formerly First Islamic Investment Bank) of Bahrain. The same company is now actively seeking to buy Eircom, the Republic's formerly state-owned telecommunication company (privatised in another shady deal in 1999).

In 2007, NIE rewarded its new owners with operating profits of £109 million and gave out £40 million in profits to shareholders.

The cost of these super-profits to the most vulnerable in our society is clear. On average every year, 9 pensioners die of the cold and 35 others are hospitalised from hypothermia. Inflation in living costs to pensioners - largely determined by heating costs averages 9% a year. In July 2008, the regulator allowed a price hike of 14% in September 2008 it allowed another one of 33.3%. Despite the fall in oil prices back to pre-boom levels, NIE only reduced bills by 10.8% on January 1st 2009.

Local Political Failure

The privatisation of NIE was taken forward by the previous Conservative government of Britain but, when they have had their chance, local politicians have failed to reverse its terms. This is symptomatic of the parties of government - all of whom are very good at publicly and opportunistically opposing price increases and the difficulties they present to working families and pensioners but none of whom has the commitment to actually do anything about it.

When it comes to Adam Smith's market, all four local parties agree that they can do nothing. Like a collective Pontius Pilate they wash their hands of guilt as they allow vulnerable groups to be fleeced by multi-national corporations.

Widening the Privatisation - the all-island market

Few issues in Northern Ireland politics expose the true agendas of our local parties like the all-island electricity market. Like the interconnector between Moyle and Scotland, the development of an all-island electricity market was meant to lower costs to consumers by means of opening up the market. Yet, it is clear that it will not have the positive impact that might otherwise be expected.

If anything, the once relatively cheap supply in the south from the ESB (the Republic's near monopoly electricity supplier - 95% owned by government) has disappeared as they have progressively increased their prices to match those in the north in a classic example of how competition works in the real world of the corporate big-boys. The ESB imposed, with the blessing of the Republic's regulator CER, a 17.5% price hike in August 2008 on the back of a €432 million operating profit in 2007. Again, after the spike in oil prices subsided consumers only gained a 10% reduction in costs leaving the remainder a permanent increase to corporate profits.

Government parties north of the border share the commitment to the all-island energy market. The Unionists see it as a potential mechanism to challenge the dominance of NIE in the Northern Ireland 'market' an part of a wider expansion in interconnection with the British electricity grid. Nationalists on the other hand see it as a potential 'Trojan Horse' for Irish unity. Quite how an all-island electricity market will challenge the British identity of unionists and loyalists is beyond Socialism or Barbarism.

Sinn Féin's unremitting support for the all-island energy market demonstrates their abject opportunism and the extent to which they will sacrifice the goal of socialism for even the most dubious of short-term gains. Nothing less than the organisation of electricity supply on a public-owned and worker-managed basis will radically change anything. The continued profits accruing to the multimillionaire owners of the rights to exclusive and long-term supply contracts from Irish power stations, north and south, is just the crystalisation of neo-colonialism. That Sinn Féin are happily administering such a system and, in fact, calling for its perfection through the widening of the market on an all-island scale is nothing less than shameful.

How Privatisation Works - NIE: a text-book example

Privatisation is supposed to bring the superior efficiency of the private sector into play. To the extent that this exists, it represents the ability to lower wages and increase output through mechanisms that would be resisted more effectively if the body itself was owned by government.

Because of the absence of any real significant advantage over cost-cutting from the private sector, government often has to make one up. One case is the 'risk transfer' that is worked into calculations justifying the use of the Private Finance Initiatives in our schools and hospitals. Supposedly, the private sector 'carries the can' and the government should pay for that. The reality is slightly different. Like the banks that can't fail when push comes to shove, the state will bail out the contracting body unless they prove entirely incapable. There is no risk transfer. If a school closes because of a risk being realised, the buck stops with the Minister for Education they won't be able to blame the company.

In this case, the privatisation was enabled through sweeteners - that is inbuilt profits and gains which reward private sector investment. For a start the assets sold to NIE were estimated in the original Hansard discusion (above) at £500 million, yet the price obtained was only £418 million. This is always justified through valuations which undervalue the asset base. An example of this process is the value of the power stations which was estimated by the authority at £308 million but which were sold for £356 million in the privatisation. Would a private sector investor really pay too much for hard assets? No, they were undervalued to start off with.

The value of the future guarantee contracts to NIE was the real bonus for the private sector and they have the right to extend those rights with the three power statios to 2022.

To make it even clearer, the privatisation never introduced competition to the supply of electricity in Northern Ireland. NIE was, and largely remains, a private sector monopoly. Consumers get all the alleged disadvantaged of monopoly supply and yet get none of the alleged advantages of private sector competition. The worse of all worlds.