There are times when it feels like there is nobody at the wheel of this little republic of ours. As a trading post in the Atlantic Ocean on the edge of Europe, we function perfectly well but as soon as fair winds begin to blow askew, this model is found badly wanting.
The energy crisis that is worsening by the week involves elements that are outside of the control of our country but the question has to be asked about the long-term wisdom of mass-privatisation that reaches into even the most basic of commodities.
Just how bad a stage are we at? While all business sectors and individuals are affected by these problems, the hospitality sector seems to be getting a particularly bad run of it from a Government determined to raise the VAT rate from the end of next February.
“I’ve never experienced this before in thirty years of business,” says Stephen Belton, Chairman of Original Irish Hotels and General Manager of both the Garryvoe Hotel and the Bayview Hotel in East Cork. “This quadrupling of energy costs is unprecedented and it’s not sustainable. Whatever cash reserves my hotels have, they’re burning through it… you’re talking about an additional €46,000 per month compared to what we spent on energy (in the two hotels) in the same period in 2019. And, we haven’t put on the heating yet.”
On those figures alone for two hotels in East Cork, the TBESS (Temporary Business Energy Support Scheme) would result in about €9,200 per hotel, averaged out over the two of them. It’s certainly going to be a help, but energy costs look as if they’ll be increasing much more over the coming months.
“The double-whammy of the rising energy costs and the increase in VAT to 13.5% to come in February is just going to be passed on,” says Stephen Belton. “So you’re going to see inflation like we’ve never seen before since the 1980s.”
“Obviously, the energy crisis is having a huge effect on our business,” says Seán O’Driscoll, CEO of iNua Collection hotel group. “In the eight hotels that we own, despite the fact that we’ve worked very hard to reduce our energy usage by 15% (in terms of kilowatt-hours) compared to 2019, our energy bill to date is €1.2 million higher than it was for the first eight months of 2019.”
This means that, on average, each hotel has spent €150,000 more on energy costs compared to the same period in the last comparable year (2020 and 2021 don’t count as such as both had seasons devastated by enforced closures and restrictions).
“In terms of every room you sell,” continues Seán, “it’s costing almost €10 more on energy than it would have in 2019. And that’s on top of the huge labour inflation, huge food & beverage inflation… We anticipate that by year end, we’ll have spent €2 million more on energy than we did in 2019.”
“The energy crisis has affected all businesses,” says Andy O’Neill, CEO of the Choice Hotel Group, “but particularly the hotel sector because hotels are such vast spaces to fill with heat or cool down… We’re seriously considering charging customers a bedroom energy charge, because we don’t know how else to close the gap.”
“My own energy bill for July,” says Neil Grant, GM of the Celtic Ross Hotel in Rosscarbery, West Cork, “was about €18,200. The rate we were paying that month was, I think, 42c or 43c and we’ve been told that the next hike will be of the order of 53c per kilowatt-hour.”
“Incoherent Strategy”
“I think that it’s obvious that our country’s energy strategy is incoherent,” says Seán O’Driscoll. “The fact that we can’t store gas in Ireland is a huge problem and we’re entirely reliant on the UK pipeline and that’s a big worry for the country… It leaves us hugely exposed.
“Bearing in mind where we are at the moment with 9% inflation, the notion that the Minister for Finance is now going to put up VAT by 4.5% in February seems ludicrous. In a high-inflation environment already, it’s only going to make the problem far worse.”
Seán says that he had written to the Minister and to all the ministers concerned to make them aware of the despair that people in the business feel at the suggestion that the Government would harbour such an idea.
“We’ve had good business during the summer,” says Seán. “However, I can’t see how cafés, pubs and restaurants are going to survive this inflationary environment. I do consultancy for a lot of small independent businesses and see their profit-and-loss accounts at the moment. They’re under water. They can’t cope with the energy bills on top of labour inflation, food-and-beverage inflation and, really, every cost in their profit-and-loss account. They’re not going to survive unless the Government does something radical in the Budget to help small businesses.”
Energy forecasts are not encouraging and it’s clear that the situation is likely to get even worse – far worse – before it has any hope of getting better. The winter bills may be three times bigger than the summer ones; ones which already were, Seán points out, the biggest that they’ve ever seen.
“The supports were great during Covid, obviously,” says Seán. “They used blunt instruments to get things done quickly, whereby they supported every business. I don’t think it needs to do that this time. There are certain sectors that use more energy than others… and I think that the approach of directing funding towards businesses that used a higher percentage of their turnover on energy would be the way to go… the wise thing to do for the Government would be to keep those businesses open and to keep those jobs there and hope that, as we go into the Spring, we’ll be looking at a much more positive picture.”
The TBESS (Temporary Business Energy Support Scheme) that the Government introduced in the Budget corresponds to that hope, it seems, with the €10,000-per-month limit meaning that the smaller businesses get a proportionately larger helping hand. Whether it’s going to be enough help to see smaller businesses through the winter is another story, particularly when they have the VAT rate hike waiting to strike at the end of February.
On a positive note, the economy is booming, with full employment and a record tax take this year, so there is money to play around with and we’re not in the worst-off place.
“Something on a European level needs to start immediately,” says Stephen Belton, “and some other form of urgent action needs to come from the Irish Government… If they don’t help SME’s in this Budget, then there’s no point in helping households because the SME’s will be laying people off.”
Blind Rush into Privatisation of Vital Supplies?
It is also fair to ask the question at this point – should we have never allowed the privatisation of such vital supplies to our nation as energy and water?
Approximately 20 years ago in California, the richest state in one of richest countries in the world found itself without electricity when the private power suppliers got into financial trouble. In the EU’s rush to privatise everything, do we not find ourselves in a situation of discovering too late that we have ejected the baby along with the bathwater?
Germany must have felt that they were moving in a very progressive direction when they began closing down their coal-burning stations and laying out a programme to shut down their nuclear power plants. But in doing so, they’ve become reliant on a warring tyrant to supply their gas and their short-sightedness is now costing us all very dear. Should our Republic not have maintained some control over our vital energy supplies instead of yielding control to private interests who are currently making record profits while speculatively hoist prices through the roof for their consumers?
For Andy O’Neill, CEO of Choice Hotels, there’s no doubt that cartels of private interest have exacerbated an already difficult situation:
“On top of everything, there’s lack of competition in the (energy) marketplace,” says Andy. “Let’s be honest – the Government gets a lot of these kinds of things wrong. It’s less than three years ago since we had the insurance issue where there was no competition and they were working together as a cartel, with premiums doubling and trebling… the Government didn’t do anything to rectify that issue and we still have that issue in the market.
“Now today, I think that four energy companies have left the market… I had Electric Ireland telling me that they had no appetite to take on a property that I have; they literally refused to tender for that business… I would always have said that the energy market is a cartel. I’ve nothing to back that up, other than tendering all the time and everybody bringing a very similar price back to you. I think that the Government have an obligation to step in.”
Seán O’Driscoll wonders too if it would not have been wiser to maintain national control over vital supplies.
“In the commercial life of any country, I believe that the State only has a certain limited role to play,” says Seán, “but when it comes to things like utilities – energy and water, I think that every country has to make sure that it has a secure energy supply and water supply. No government can leave it up to the private sector alone to provide those two things to its citizens.”
“I think that there has to be some national control over our energy supplies,” says Stephen Belton. “The fact that we’re importing gas and so on is not right. I just can’t fathom in my own mind why energy keeps doubling and quadrupling in price. In our own little world, this has never happened before. My understanding is that this is because Russia has stopped supplying certain parts of Europe with gas, driving the price up. But if they’re only supplying 20% of Europe, then 80% of the gas we’re consuming in Europe is from another avenue which is still open. So how is a reduction in supply of 20% of the market causing an exponential increase in prices?”
“I hate jumping on bandwagons because so many people have said it before,” says Andy O’Neill, “but our national resources shouldn’t be sold. We’re an island – we need to able to get off it and we need energy. We can’t be dependent on a neighbouring country that has better resources than we have… I don’t think that there’s anyone thinking too strategically in the Government, such as looking at how do we get state-owned energy supply back under our control.
“One must remember too that we do provide a service within the community. We are the meeting place for the local bridge club, the swimming lessons, etc. So we provide all these services and if we decided to close our businesses over the winter, it’s going to impact communities.”
Andy would also like to see a good conversation around finding solutions for energy consumption, with the Government taking the lead: asking questions like “How do we help invest in your boilers and make them more efficient? How do we put solar panels on the top of your roofs so that in the winter, you can sell us electricity or give electricity to businesses around you for a cheaper rate?”
Neil Grant echoes this sentiment: “Our reliance on the national grid has to be reduced, which is in the form of retro-fitting. I think that there has to be a very simple grant-aid measure put in place for businesses to retrofit because that will benefit the country, it will benefit ourselves both financially and our carbon footprint and it will help the Government to hit its targets in relation to Climate Change.
“But it’s got to be something that puts money up easily at the beginning so that you have the cashflow to get a job started and, maybe it can be put back at the end of it or something. My worry is that the only grant aid available at the moment is through the SEAI. The red tape and the time it takes to go through it and the length of time needed to be able to draw it down means that you just don’t bother. It’s just impossible, unless you’ve got the resources internally to do it or the time and the patience yourself to do it… So in the long term, there has to be major resources put into that space.”
As for the Restaurant Association of Ireland, its CEO Adrian Cummins is clear – the Government have not listened, he says, and their assistance measures – though welcome – do not go far enough. He also addresses the timescale of the action.
“Whilst the announcement of the TBESS is welcome,” he said in a statement, in October “it does not go far enough. The devil will be in the detail of this and we are calling on the Revenue to open and administer the Scheme immediately – some businesses are already struggling to pay the bills coming through their doors.”
His calls were eventually answered when the scheme finally went live on the 3rd of December but businesses have yet to see just how well the system works and how much money they receive.