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Corrib gas cost overruns deprive State of €600m in tax

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Corrib gas cost overruns deprive State of €600m in tax

The €2.4 billion cost overrun is largely as a consequence of opposition to the project, which was stimulated in part by poor management of it at its outset.

Peter Murtagh: Tuesday 30 June 2015

The huge cost overrun on Corrib gas, the single most expensive energy infrastructure project in Ireland and the largest since the Ardnacrusha hydroelectric scheme on the Shannon in the 1920s, will deprive the Government of an estimated €600 million in tax revenue.

The €600 million represents 25 per cent of the project’s likely cost overrun of €2.4 billion, much of which was incurred because of changes made to the project since it began.

Had this additional €2.4 billion not been spent on development costs, an extra €600 million would have been paid to the exchequer as tax on profit, which for exploration companies is levied at 25 per cent. However, like all companies, Shell Exploration and Production Ireland, which is a partner with Statoil of Norway and Vermilion Energy of Canada, can write off capital development costs against taxation.

Separate to the €600 million lost tax, it has also cost the State more than €20 million up to June 2014 to police the protests against the project – €16.4 million on Garda overtime and €3.9 million on normal payroll costs.

The €2.4 billion cost overrun is largely as a consequence of opposition to the project, which was stimulated in part by poor management of it at its outset.

Poor handling of the project

In candid remarks to a Business in the Community conference, and also in an interview with The Irish Times, shortly before his departure earlier this year to a new position within Shell, the company’s managing director for Ireland from 2012, Michael Crothers, acknowledged the company’s poor handling of the project.

“We underestimated the level of community concern and unrest,” Crothers said in the interview.

“Inadequate engagement led to decisions that, in hindsight, were too legalistic in approach rather than really understanding what the concerns were, and in spending some extra time working those through.

“What we ended up doing to rebuild relations and trust was what we should have done in the first place – that was having local community people engaged as liaisons, working at the very start of the project to understand what the concerns were, rather than be driven by a project schedule, which is what essentially happened.”

Crothers said that while Shell had permits to bring the gas on shore and build a terminal, “We didn’t have what we might have called social licence”. The company focused too much on “legality and not [enough on] legitimacy”.

The company had learned lessons from this, he said, and now focused as much on what he called “social seismic” as on actual seismic surveying to find oil and gas. But he felt Ireland too had lessons to learn from the Corrib project if the sort of conflicts and chronic delays that attended it were to be avoided in the future.

“In other countries that I’ve been to,” he said, “there’s a process where there’s a mediation required, rather than going to court. You are required to come together and sit with the planning body, or the regulator, table your concerns and actually come up with solutions in a mediated process. It’s actually time bound and it’s a public process.”

Crothers’s comments about the planning and development process are echoed by Peter Cassells, former general secretary of the Irish Congress of Trade Unions. Cassells now works at the Edward M Kennedy Institute in Maynooth University, where he specialises in conflict resolution.

In 2005 he was appointed an independent mediator after the jailing of the Rossport Five, the protesters jailed for contempt of court.

Community gain

His report, in June 2006, suggested altering the pipeline route away from Rossport and highlighted the need for “community gain” in large infrastructure projects.

Stemming from that, Shell set up three channels through which funds were given to the community. They were a local grants programme, a third-level scholarships programme and the Erris Development Fund and they have been administered by an independent board comprised of local people.

Under the latter, Mayo County Council and the company, at the request of villagers, put in lighting and footpaths in Pullathomas. Development fund support has gone to Erris Tourism, a local initiative; to projects such as river angling enhancement schemes, in partnership with Inland Fisheries Ireland; and to parish outreach groups.

More than 80 school-leavers have received annual third-level grants. Many local young people also benefited from paid internships by working for Shell during their holidays.

Critics

To date, more than €13.5 million has been disbursed by the company into the community. To critics of the project, these grants represent, in effect, community bribes. To recipients, however, they represent a windfall which critics, and a protest- focused media, have not acknowledged.

Thirty-one-year-old Reynagh Keane from Erris, a DIT graduate in environmental health, worked on several internships and is now employed full-time by Shell as an operations technician trainee, one of the 175 jobs which Shell says will be in Erris for the life of the Corrib gas field, estimated at 20 years.

Keane has just got engaged and what her job means to her, she says, is security. “I can settle down now and build [a house],” she says.

Bridie Conway, a former housing officer with Sligo County Council and expert in development funding for disadvantaged areas who is community liaison officer with Shell since 2009, says the rule of thumb for her team was to ensure “maximum benefits to the community and at the same time minimise the construction impacts of the project on local residents”.

In an interview for this series, Cassells said a lesson from the Corrib saga should be the need to avoid another protracted row through, at least in part, a system of compulsory mediation.

“Mediation, on a statutory basis, needs to be built into the [planning and development] process early on. For example, it is built in at the moment in the commercial courts,” he said.

Complaints about intimidation

Cassells spent months in Erris in 2005 and 2006 listening to local concerns after the jailing of the Rossport Five. He said there were “many complaints about intimidation” by opponents but he estimated that 60 to 70 per cent of the people supported the project, even at the height of the protests. Of the remainder, he said he believes many simply had concerns and were not necessarily outright opponents.

However, the system had no way of accommodating them.

“When you walk into the room for any planning hearing, including in the case of Corrib, you have the signs which told you the applicant, objectors and then the technical people. So if I wanted to go in and express some concerns, I actually had to sit with the objectors. So immediately the whole thing is set up in that particular way.”

Mediation

It should be part of any large-scale infrastructure project – EirGrid or a wind farm, for instance – that mediation was part of the pre-planning stage.

“Developers, who can get pre-planning advice from local authority officials, should be made also to talk to local communities,” he said.

“It should also be part of pre-planning that those who wish to do something have to consider what is the community gain from their project. Sponsoring a few things is fine but development will also have a serious impact on an area, some of it good, some not so good. So there needs to be consideration given to how does this proposal fit into the overall plan for the area?”

As he left Erris, Crothers reflected on what lessons might be learned from the Corrib saga. “Speaking from experience,” he said, “getting it right up front beats trying to recover later.”

Getting it right may be elusive, however. Cassells commented: “The one thing that certainly struck me in terms of Corrib is . . . there doesn’t seem to be any way in which we’re trying to either capture, or learn, the lessons of what happened.”

Series concluded

SOURCE

RELATED IRISH TIMES ARTICLE

Corrib gas: Keeping ecological eye on restoration at Leenamore

Peter Murtagh: Monday 29 June 2015

A stream named the Leenamore trickles off the bog and into the sea at the head of Sruwaddacon Bay. It is a tiny inlet, the stream being no more than a couple of feet wide before it fans open to meet the sea. Peaty brown water flows between seaweed and pebbles that are resting on a mudflat at the edge of the bay.

On the shoreline, between the fields on either side of the stream, there are salt marsh clumps of peaty earth, mounds covered in sea rush and a thick mane of common salt-marsh grass.

It is possible to reach this pristine, unspoilt place by strolling down a boreen off the L1202 Bellagally to Kilcommon road on the southwestern shore of Sruwaddacon Bay. What is more difficult is to reconcile what one sees today with what this place looked like two years ago, in June 2013.

Then, almost the entire 40 by 60 metre area was a 30ft hole in the ground, a deep scar not unlike those made during construction when a motorway slices through a hillock. Huge crawler excavators had gouged out the earth to create a trench into which was laid the Corrib gas pipeline, a small water outflow pipe and parallel umbilicals, the connection between the well head manifold, 80km out to sea, and the terminal.

If anything sums up the attention to environmental detail that planners and regulators imposed on the whole Corrib project it is what happened here, known to all who worked on it as the Leenamore Crossing.

The work was carried out by contractors working for Shell but the habitat translocation and reinstatement was overseen by project ecologist Jenny Neff, a Wicklow-based consultant and chartered ecologist who has been working on the Corrib project for 15 years.

In 2002, Neff became project ecologist for Shell, successor owners to Enterprise, at the insistence of the National Parks and Wildlife Service. Since then, she and her team of up to 10 specialists – including three ornithologists, two fauna experts, two botanists, a freshwater ecologist and a landscape architect – have been working on Corrib to the extent that even now, surveys of bird numbers are conducted weekly. Habitat monitoring is done on a monthly basis and more often during reinstatement work.

In her professional assessment, the project will have, at worst, a neutral impact on the immediate environment but most likely a net positive impact in biodiversity terms because of the habitat enhancement measures which include creating new wetlands and planting deciduous trees.

In 2011, the Biodiversity Consultancy of Cambridge, England, concluded that the project had been so carefully managed from an ecological point of view that by 2020, there will be no net loss of biodiversity – and possibly even a net gain.

The environmental restrictions imposed, as part of the conditions to bringing the gas ashore and processing it in the terminal, mean that parts of Erris are now among the most monitored anywhere in Ireland in terms of biodiversity and environmental impact.

“We have gathered a vast body of data and at the moment,” says Neff. “BirdWatch Ireland is contracted to carry out data analyses on all the water bird data we’ve collected since 2002. We are currently developing a similar partnership for the analysis of our sandmartin data we have.

“We’re also working with WIT in Waterford, with their molecular genetics department, where they’re analysing DNA from otter spraints to better understand the number and distribution of individuals using the bay over the years.”

Looking at Leenamore Crossing today, it would probably take a forensic archaeologist to uncover what went on just two years ago. In order to allow the pipeline to be laid and the land restored, it was decided that, in effect, the entire estuary would be removed in layers – stones on the mudflat one by one, the salt marsh by cutting it into turves.

Before removal, the estuary area was mapped, the turves numbered and the precise position of all 182 identified by geo-positioning so they could be put back in exactly the place from which they were removed. For the 10 days they were out of place, they were stored nearby in a shoreline pen where they were replenished by tidal seawater.

Environmental concerns also drove design aspects the design and layout at the tunnel start site at Aughoose. The mile-long security and screening perimeter fence was painted a shade of green so it blended in with the landscape.

Anything inside the site that protruded above the top of the fence and therefore could be seen from outside, was painted a dull grey, the ambient colour of the sky locally.

Restoration of the site includes removing and recycling 30,000sq m of tarmac and 11,600 tonnes of concrete and reinstating the peat land habitat, 40,000 tonnes of which was removed while the tunnel was being built.

Plants grown from seeds gathered from the bog itself will be put in and sphagnum, gathered locally but propagated in England, will be used to rejuvenate areas that had been degraded by overgrazing.

Despite being criticised by protesters and sometimes subjected to extreme verbal abuse, does Neff, a committed environmentalist, have any qualms about her work for Shell?

“No. This was the whole point of mitigation by design and the method of construction – to actually have the whole thing planned, from the outset, from the point of view of reinstatement and species protection. I would have walked away if it wasn’t going to be done the way it needed to be done in a manner to make sure it was done the right way. I stood over that at oral hearings and I would still stand over it. As long as we as ecologists are being listened to, our professional advice taken and habitats and species were protected, I was happy to be involved and able to influence a positive outcome.”

Jenny Neff is author of the Corrib Development Biodiversity Action Plan 2014-2019, which has been adopted by the company. It can be read via https://www.shell.ie/ environment-society/biodiversity-action-plan.html

SOURCE

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