independent

Saturday 19 April 2014

Q&A ESB dispute

* I'm confused, all sides seem to be claiming victory in the ESB dispute.

 

On the face of it the ESB group of unions got their way, they forced the company to publicly acknowledge that the group's pension pot is a "defined benefit scheme", something it stopped doing two years ago.

A defined benefit scheme means retired staff have certainty that their annual income after retirement is a fixed amount linked to the wages they were paid while they were still at work, as long as the scheme is solvent.

* So the unions won?

Not quite. The deal struck over the weekend means both sides agree the ESB has a defined benefit pension, but they also agreed that if the fund gets into trouble then the company and the workers will have to come together to work out a financial solution.

That bears out the position of ESB managers before the dispute; that the pension scheme is not a typical "balance of costs scheme" that is the sole responsibility of the employer.

If it was, a short-fall would have to be met by the ESB, not from a combination of staff and employer.

The new agreement means unions have in effect admitted that the company is not on the hook, at least not solely responsible, if there is a crisis at the pension in the future.

* Why is it good news for the company?

The company auditors will have to take a look at the implication but it seems likely that the deal reached over the weekend means the ESB won't have to include the potential cost of a pension deficit when it does its financial accounts.

That matters because a big deficit on the company books would have implications for the group's coveted "investment grade" debt rating, an international ranking system that allows the group to borrow more cheaply on the markets.

* So everybody won?

The threat of blackouts has been lifted, that is a win for everyone.

But actually the big winner is the Government. The deal struck on Sunday means it scores on the double. A blackout on the day after the troika left Ireland would have been a blow, both financially and reputationally.

* So what happens next?

More importantly, opposition from the ESB unions to its plans to raise €400m by selling off parts of the ESB seems to have melted away.

That's significant because the threat of strike action was prompted in part by the decision to sell power stations -- initially in the UK and Spain and more recently at home -- to raise that cash.

Irish Independent

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