Chief Executive’s Review

I was greatly honoured to be appointed Chief Executive of the NTMA in January 2015. As Ireland emerges from the financial crisis and builds for recovery this is a very interesting time for an organisation that plays such a key role in Ireland’s economic wellbeing.

2014 saw the NTMA make a full return to the sovereign bond markets with regular auctions and the issue of two new long-term benchmark bonds raising €11.75 billion in long-term bond funding. Due to the measures taken by the Government to improve the public finances, the return of economic growth and the measures taken at a European level to calm the wider euro crisis, we have seen a strong turnaround in Ireland’s debt dynamics which are now back on a sustainable and improving path. While Ireland’s debt level is still high at 110 per cent of GDP at end-2014, crucially it is on a downward trajectory and is forecast to decline to 100 per cent of GDP by end-2016 and to 85 per cent of GDP by 2020. I would note that these are gross figures and that our debt at end-2014, net of cash balances and other financial assets, was 90 per cent of GDP.

The picture has been further improved with the repayment of just over €18 billion of Ireland’s IMF loan facility using cheaper, long-term market funding generating interest savings in excess of €1.5 billion over the original lifetime of the IMF loans. Strong investor demand also enabled the NTMA to issue Ireland’s first ever 30 year bond in February 2015 in an amount of €4 billion at a yield of 2.1 per cent. The weighted average maturity of our long-term marketable and official debt has improved from 7.3 years at end-2012 to 13 years at end-May 2015.

The financial crisis has taught us that markets are impossible to predict and we must be prepared for the unexpected. There remain a number of risks to our own economic recovery and to the wider eurozone. For as long as our debt remains at elevated levels our vulnerability to domestic or external shocks should not be underestimated.

The improvement in the funding environment has also been reflected in the long-term debt market for PPPs, and the National Development Finance Agency (NDFA) has seen very substantial reductions in the funding costs available for projects.

There has also been a welcome increase in the number of international institutional investors participating in the Irish market. Overall the NDFA is currently advising on 20 projects with a capital value in excess of €3.5 billion of which €650 million is being procured by the NDFA.

The Ireland Strategic Investment Fund (ISIF) was formally established in December 2014. The double bottom line mandate of the ISIF – to invest in projects which generate commercial investment returns and have an economic impact – represents a new approach to investing. The ISIF’s investment strategy is based on developing a broad based long-term portfolio across sectors and asset classes. It will target sectors with a high economic impact and will seek co-investors where possible to leverage the effectiveness of its resources.

Deployment of funds will necessarily take place on a phased basis as investments are sought which (i) achieve the ISIF’s double bottom line of commercial return and economic impact and (ii) add to rather than displace other funding sources. The ISIF is a long-term investor and investment returns are likely to be mainly achieved in the later years of an investment rather than in the capital intensive early investment period.

NewERA provides a dedicated centre of corporate finance expertise to Government in respect of commercial State bodies. It brings a commercial focus to the oversight of these companies with an emphasis on shareholder return. The economic importance of the companies within NewERA’s remit is underlined by the fact that, on a combined basis, they employ capital of some €13.6 billion.

NewERA has developed a Shareholder Expectations Framework intended to provide clarity and guidance for each of the companies within its remit in relation to the Government’s strategic priorities, policy objectives, financial performance and reporting requirements. Shareholder Expectations letters based on this Framework have now been issued by the respective Ministers to the ESB, EirGrid, Bord na Móna and Coillte. One of the key areas addressed by the Framework is the development of a formal dividend policy for State companies.

Much of the work carried out by NewERA has replaced the requirement for external advisors with consequent savings and also enabling the building of a corporate memory. It is noteworthy that in 2014, as its experience and expertise has increased, NewERA was asked to perform a significant amount of work in respect of State bodies outside its core remit.

The State Claims Agency (SCA) carries out claims and risk management functions on behalf of the State. In April 2014 the SCA’s remit was significantly extended with the delegation to it by Government of the management of personal injury and third-party property damage claims in respect of an additional 61 public bodies, doubling the total number within its remit from 56 to 117. Another delegation by Government in June 2015 has further increased the number of public bodies within the SCA’s remit to 129.

In carrying out its role the SCA seeks to act in the best interest of taxpayers but also to act ethically and fairly in its dealings with people who have suffered injuries and take legal action against the State. In cases where the State is considered liable the SCA’s approach is to settle expeditiously and on fair and reasonable terms. In cases where the State is not considered liable it acts vigorously in defence of such claims. The SCA seeks to resolve claims by negotiation or mediation – fewer than 3 per cent of clinical claims handled by the SCA result in a contested court hearing.

The SCA, in conjunction with key stakeholders, went live in 2014 with the National Incident Management System (NIMS), an end-to-end risk management tool. This tool will support client authorities to better manage their risks so as to reduce the incidence of claims. Ireland will be one of the first countries worldwide to have a single ICT system to support the management of risk across its public service, including the healthcare system. The development and use of this system is critical to the effective management of the SCA’s risk universe. The size of this risk universe can be gauged from the fact that it includes over 200,000 State employees and 7 million user contacts with the public healthcare system annually.

In his remarks the Chairperson referred to how the mandates awarded to the NTMA have a common theme of investment and economic development in Ireland. In carrying out these mandates our aim is to work with other stakeholders to deliver long-term value for the State.

The new activities will require the NTMA to build networks and relationships with other State and private sector participants in the Irish economy. This will, for example, include ensuring that the ISIF co-ordinates effectively with IDA Ireland and Enterprise Ireland to align strategies and leverage State resources as well as building relationships with entrepreneurs, funding sources and co-investors.

In my short time as Chief Executive I have been struck by the expertise, dedication and ability of the NTMA’s employees. The organisation has played a critical role in Ireland’s successful emergence from the economic crisis. I am confident that, as the NTMA’s focus switches from crisis management to economic growth and recovery, it will continue to deliver on its mandates to the high standards expected inside and outside the organisation.

Conor O’Kelly
Chief Executive