The ESB spent more than £3 million (€3.81 million) over two years on a major plan to buy into the Polish power market. But its bid ran aground in a matter of hours last week when the Government refused to sanction expenditure of up to €1.7 billion on a cluster of eight electricity distribution companies.
The decision on Friday morning stands as a severe blow to senior managers at the State company, which had up to 100 staff working in Poland during a due diligence examination in May. They had made no secret of their desire to acquire a large-scale business outside the Republic, where the full opening of the market to competition in 2005 will see it lose up to 40 per cent of its domestic business.
Yet according to sources, it was the very scale of the project that led to the most senior members of Cabinet to block the plan within hours of the deadline for a binding bid. As the Taoiseach, Mr Ahern, said in the Dail yesterday, the ESB's projected expenditure could well have exceeded its own market value. This was deemed a step too far by Mr Ahern and the Tanaiste, Ms Harney, who spoke in a series of telephone calls last Wednesday and Thursday with the Minister for Finance, Mr McCreevy, and the Minister for Public Enterprise, Ms O'Rourke.
Ms O'Rourke was in favour of the plan and Mr Ahern had discussed it with the Polish prime minister, Mr Buzek, on the fringes of the Gothenburg summit last month. It is thought the Department of Finance was always opposed to the scale of the venture, an opinion aired by Mr McCreevy.
But it was only when four of the State's most senior civil servants met to assess a briefing paper on the proposal last Wednesday that the Government veto became likely. An informed observer said certain figures among the secretary generals of the Departments of the Taoiseach, Finance, Public Enterprise and Enterprise, Trade & Employment were "not convinced" of the merits of the plan at that meeting.
Still, sources close to the proposal insist the Department of Public Enterprise and the Department of Finance would have received regular briefings on the ESB's bid for the G8 cluster of firms which have annual revenues of about €970 million. In order to fund the acquisition, the ESB proposed taking significant debt. One informed person said this "risk factor" was crucial to the decision by Mr Ahern and his colleagues to block the process.
The Cabinet was never presented with an aide memoire or memorandum on the proposed bid. One source suggested it had been planned to bring a memorandum to Government on Tuesday last week but one was not ready before that meeting. Because the binding bid was due by noon on Friday, an ad hoc subcommittee led by Mr Ahern was set up to discuss the plan.
Their discussions followed consideration by the four civil servants of a briefing document prepared by the Department of Public Enterprise.
That paper contained 19 points in favour of the plan and 13 against. It revealed that ESB International, which led the process, would have €500 million recourse debt to its parent if the bid was successful. There was concern, a source said, that the State would be left with the debt if the business in Poland ran into difficulty.
In addition, the company has a domestic investment programme in which it plans expenditure in excess of €2 billion by 2005. If the ESB pushed ahead with all its planned investments, its debt would rise to €5 billion in 2005 from €1 billion this year. Cabinet members were also concerned to give political priority to the ESB's development of a power station project at Coolkeeragh in Co Derry. Further concern was expressed about the risk to the ESB's domestic business if its Polish cashflows proved insufficient to service the debt.
