Tuesday 20 March 2018

Bright light in an ever darkening energy sky

As he prepares his own exit strategy, the current supremo explains why this massive semi-state should be aware that it will only get the talent it is willing to pay for. By Emmet Oliver

It doesn't pay, literally, to be a man in a hurry these days in Ireland's shrinking semi-state sector. John Mullins, a gregarious 43-year-old Corkman, knows this more than most.

Plucked from the private sector in 2007 to run Ireland's second-largest energy company, he is not your typical cagey semi-state chief and within a few months, as if to prove it, he is in fact leaving the sector, destination unknown.

With his hearty laugh and machine-gun verbal delivery, Mullins has little time for the more conservative management style associated with Ireland's state-owned enterprises.

While Mullins has been happy to make a contribution to the sector (he presided over the Big Switch campaign for example), it was never going to be his final resting place in career terms and the slashing of semi-state CEO pay arguably made the decision to leave even easier to make.

Mullins has lost his bonus and his pay has been severely cut back, although he freely admits as far as many people are concerned, semi-state pay should be cut even further. Either way, Mullins is not citing pay alone as the reason for wanting to move on.

Nor is the Government's decision to sell off assets like ESB (and ultimately Bord Gais) the reason. It is a combination of factors, he explains.

Even the location of the interview tells one something about what Mullins has been up to at Bord Gais in recent years. Activity at the Foley Street office, Dublin, where we meet, is slowly coming to an end as the company reduces the number of properties it utilises.

Mullins grabs a mug of tea and, unusually, mentions how much he enjoys media engagements.


While other semi-state chiefs have disappeared from the public stage since the recession, Mullins is refreshingly open.

"Never have I gone underground, I don't play ducks and drakes with people,'' he comments. This is true -- Mullins is even prepared to comment publicly on the valuation of Bord Gais, something few others will do in this sector (the answer is about €2.5bn by the way).

He does joke that getting involved in semi-state boards -- Mary Davis style -- has probably ended his chances of ever running for president.

Instead of sheepishly avoiding questions about semi-state sector pay, including his own, Mullins spells out an alternative view -- CEO salaries have been slashed and it may mean Ireland won't get the best candidates for semi-state jobs in future.

"There have been big debates on this, but at the end of the day, I have made my own decisions,'' he says.

Any bonus has been scrapped over recent years and his basic salary was cut by 15pc. Future Bord Gais chief executives will earn a salary of €191,000.

A hefty wage no doubt, but light years behind the salaries equivalent posts command in UK, European or US utilities.

Mullins is adamant he is not whinging, just accepting of the position.

"I joined the company to do some public service and I think I'll have done something that has added value. As far as salary is concerned, it wasn't what I accepted when I came in, and that is fine."

Overall, his salary is down 40pc -- and nobody is taking out violins. But there is a wider point he makes.

"Frankly, there is an issue. I think if you have a company that has an enterprise value of €4.6bn, that is doing some serious things on a daily basis, you want to make sure you get the right candidate for the job.

"There is a competitive market for talent out there,'' he insists.

He points out that any private sector CEO who replaces him will be taking a pay cut just to enter the state sector.

"If they are at that CEO level, they will be taking a significant pay cut,'' he points out.

As Mullins's personal cost base has been whittled away, he is embarking on a very radical cost-reduction programme across the company. The programme, known as PCR 11, will make Bord Gais look very different from many other semi-states once completed.


It amounts to €115m in savings by 2015 and includes the following: payroll savings of €34m, 65 people departing, a pay freeze until 2015, an end to the defined-benefit pension scheme, reductions in overtime, reductions in expenses and an abandonment of increments, to be replaced by performance- related pay across much of the company.

It's a big menu and mediation with the company unions will be needed. "It is an ambitious programme, but for us to move forward, we're going to have to make sure we deliver these savings.''

An emerging problem in the financial position of the company is debt arrears -- more than 10pc of the company's 1 million customers at any one time are unable to pay their bill.

An extraordinary 60,000 calls are coming through to the Bord Gais customer centre every month about the problem.

The solution so far has been multi-faceted, pay-as-you-go meters, payment plans and, yes, disconnections in some cases and legal judgments in others.

"We've had to put a lot of management time into it,'' explains Mullins. Debt-hopping, where customers leave unpaid bills behind before moving to another supplier, makes the situation even more difficult.

"What we have seen over the summer period, is we are now putting in pay-as-you-go meters, at 2,000 a month. What's happened is people are now actually taking the message.

"They are taking these pay-as-you-go meters, and people, once they get them, can completely budget. We are not saying use less gas, just be aware of what one is using.

"But they have been taking them up, word-of-mouth, and they are available if you're in trouble,'' he explains.

Even with that, the problem has not ceased -- another €8m to €9m will be written off again this year by Bord Gais. When Mullins came in 2007, it had 12 people in total on credit control.

This problem will remain a semi-state problem, because for now Bord Gais is not being sold. Instead the ESB has moved into the shop window, ahead of Mullins.

"No doubt , Bord Gais is a successful company, it is producing more cash than it has ever done, we are a much larger company, doing more diverse things,'' he says of a sale at some point.

Asked about a valuation of the company at say €2bn, he says: "I'd be disappointed if it was €2bn now, I think €2.5bn upwards would be fair."

But he says any sale of ESB or Bord Gais is facing a problem -- one of timing.

"The European utility is not in great shape -- take the German companies -- Angela Merkel has slapped a 27pc reduction in their share price by a change on nuclear. They are looking to divest."

But he admits there is a buzz surrounding asset sales in Ireland. "There are hotels full of advisers and investment bankers,'' he jokes.

But why is ESB going first?

"We had no engagement with the Government at all. We met Colm McCarthy a long time ago. The shareholder has taken a view on ESB, ahead of Bord Gais, a lot of people out there were surprised that was the case, but it's not up to me to influence them one way or another,'' he remarks.

"They may have taken a view and I would have said this, the market is not great, it is not a great time to go selling any asset, whether it be property, retail, any asset.

"But in saying that, ESB is of a larger scale, so if you want to meet a €2bn number, in a pure numbers game, they may have just chosen ESB as the appropriate asset,'' he insists.

"We would have struggled to do that number, unless you sold the totality of Bord Gais and that is not a runner either because of the networks influence,'' he explains.

But whoever buys a minority stake in either company will have one core demand, he makes clear -- a pre-defined way to sell their stake.

"Pension funds need a guaranteed exit,'' he simply says.

"If you are going to go down that road, you would nearly have to have a statement in the shareholders' agreement, after five years either there is an IPO, or you buy back our shares, but you need to give us a guaranteed exit,'' he says.

"No pension fund is going to go into an investment like that without a guarantee of an exit mechanism."

For now that is an issue for a body called New Era, which operates within the NTMA. Mullins supports the idea, but like everyone else, wants to see how precisely it will work.

But as a proud Corkman -- he chairs the Cork Chamber of Commerce -- he is clear where the money should go from the sale of state assets.

"I would much prefer if it was spent on the domestic economy, lifting all boats.

"Unless we invest in the domestic economy, we are going to stay in a serious state of stagnation, with unemployment levels staying where they are today,'' he warns.

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