The Real Economy: The elephant off our coast

The southern state’s natural resources were systematically handed over to foreign multi-national corporations by a Fianna Fáil regime mired in corruption but the political class has no appetite to right this wrong writes Stewart Reddin.

The so called ‘’democratic revolution’’ as Enda Kenny described the outcome of the recent southern general election, has simply reaffirmed politics as usual. The election saw the return of a Fine Gael/Labour government committed to the disastrous EU/IMF austerity plan and the Fianna Fáil programme of savage cuts. While working people endure cuts in wages and public services, vast wealth has been handed over to oil corporations, wealth that could be invested in schools, hospitals and public housing.
According to figures from the Department of Communication, Marine and Natural Resources (DCENR), at current world oil prices, the state’s oil and gas reserves have a potential value in excess of €700 billion. These figures are based on an estimated 10 billion barrels of oil equivalent in the Atlantic Margin and the current price of a barrel of oil at US$105/€74. It is important to note that these figures exclude oil and gas reserves off the south coast; the east coast as well as substantial onshore reserves. For example, on the east coast there is an estimated 870 million barrels of oil in the Kish Basin off Dalkey head, while onshore there is 9.4 trillion cubic feet of gas in Lough Allen, which is nine times the size of the Corrib gas field.

As it stands the state has no control over its oil and gas reserves. In 1987 former energy minister Ray Burke enacted legislation exempting all oil and gas production from royalty payments and offered oil corporations a 100% tax write off on capital expenditure for exploration, development and production. Subsequently, Bertie Ahern as Minister of Finance in 1992 halved the tax rate on profits from oil and gas production to just 25% and offered terms for frontier licences, which ceded control over Irish waters to oil companies and allowed them to deliver at market prices.

Thus, the assertion by Mike Cunningham, the former Statoil director, that ‘’no country in the world offers as favourable terms to the oil companies as Ireland” is well founded and was backed up by a subsequent Indecon report, commissioned by the DCENR, which found that the south offered oil companies “what is probably the lowest government take in the world”.

On the basis of recommendations contained in the Indecon report, the Green Party Minister Éamon Ryan introduced a ‘profit resource rent tax’ in 2007, which operates on a graded basis depending on the level of profitability. The standard 25% applies in all cases, but an additional 15% applies where the profit ratio exceeds 4.5 – the DCENR defines this as the rate of profits less 25% corporate tax divided by the accumulated level of capital investment. However, this new rent tax only applies to licences issued after 2007 and will make little difference anyway as oil companies continue to enjoy tax write offs against exploration, development and construction costs.

The generosity of the fiscal terms on offer become apparent when compared with fiscal systems in place in other resource rich states. Fiscal systems can include bonuses; rentals; royalties; production-sharing and corporate taxes. In some states a single fiscal system applies while in others a variety exists. The Norwegian state taxes oil profits at 78% while also retaining a 67% share in Statoil; thus directly participating in resource exploration and production. Both Britain and Denmark operate a combined royalty/tax system, the former has a government tax take of 50% while the latter is closer to 70%.

In recent years many Latin American states have taken back control of their oil and gas reserves from oil corpora- tions, the most high profile being Bolivia and Venezuela. Last December, the government in Ecuador, which holds the third largest proven oil reserves in Latin America, renegotiated a deal with private oil producers, replacing production sharing agreements with service contracts. Under the new contracts the oil corporations will receive a per-barrel fee for the oil they produce, ranging from $16.72 per barrel to as much as $41 per barrel, but only after the state takes 25% of gross oil revenues upfront. In addition, oil companies have committed to investing $1.2 billion in oil fields.

While other states have taken decisive action to reclaim their natural resources, the Fine Gael/ Labour programme for government offers a pathetically vague platitude that ‘seeks’ to maximise the return for the people, yet at the same time commits to ‘incentivise and promote’ offshore drilling. The oil corporations need have no concerns that the new minister in the DCENR, Pat Rabbitte, will return to his more radical days, when active in the Resource Protection Campaign he campaigned for the establishment of a state oil company. Rabbitte has refused to revoke the consents granted to Shell for the onshore section of the Corrib gas pipeline, scandalously issued on the day of the general election by the then Fianna Fáil minister Pat Carey.

Approximately €700 billion worth of oil and gas in the southern state is currently controlled by global oil corporations and the new coalition government has already demonstrated its unwillingness to renegotiate the giveaway of our natural resources. The decade long struggle in Erris has to date prevented the €10 billion worth of gas in the Corrib field being expropriated by Shell. Reclaiming the vast wealth controlled by powerful private oil interests will require a mass campaign and a genuine democratic revolution.

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Article published in LookLeft Vol.2 Issue.6