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'We've made tough decisions': How Bord na Móna became worth €1.25 billion in less than two years

The company has radically changed in a short amount of time. But how did they do it? And at what cost?

TWO YEARS AGO things were looking bad for Bord na Móna (BnM) – Ireland’s semi-state energy generation and peat harvesting company.

After over 50 years of harvesting peat from bogs in the Midlands, and employing thousands of full-time and seasonal workers, the use of peat was coming to an abrupt end.

Peat – or turf – is a fossil fuel extracted from bogs. In the past, it was widely used to generate part of Ireland’s electricity. However, the burning of peat releases harmful greenhouse gases which are harmful for the environment, and extracting peat from bogs damages their ability to store carbon from the atmosphere.

Under Ireland’s climate goals, the end of peat-fired electricity was well flagged, and BnM had first announced in 2015 that it would stop harvesting by 2030. In 2018, the end of peat harvesting was brought forward by two years, to 2028.

But in 2019, An Bord Pleanála refused permission for the West Offaly Power Station, in Shannonbridge, to continue burning peat past 2020. Following this, ESB’s Lough Ree power station, in Lanesborough, Co Longford (which also used peat), was shut down by the EPA over environmental concerns.

Finally, that same year the High Court ruled that peat extraction on bogs over 30 hectares required planning permission.

The result of all this was a sudden halt to all extraction by BnM – the cornerstone of its business operations for decades. Job losses were flagged, and the company was put under severe pressure.

Today, BnM has had a significant turnaround in fortunes. The company recorded a before-tax profit of just under €28 million last year, after four years of losses. It has pivoted to providing renewable energy, mostly in the form of wind energy, as well as other climate friendly solutions.

This focus has helped the semi-state bounce back, and earlier this year it reported a huge jump in the value of the company.

So, how was all this achieved? And are things as positive as they seem?

shutterstock_1556231531 Shutterstock / gabriel12 Shutterstock / gabriel12 / gabriel12

From brown to green

In January of this year, BnM formally announced an end to all peat harvesting on its lands.

According to JP McGrath, the Chief Financial Officer and Chief Operating Officer with BnM, the High Court ruling and planning decisions sped up a process that was already well underway.

“I mean, obviously, people could see this coming for a period of time. The final ending of peat harvesting was probably a little bit more abrupt than expected,” he tells The Journal.

“And that’s always challenging from a business perspective. Because you like a little bit of time to manage transition.”

But when the company sat down to assess the situation, McGrath says they realised that they were in a much better place than it seemed.

“When we looked at it, it was pretty clear that our positioning was very strong in this space. We have a 80,000 hectare land holding,” he says.

Much of this is made up of bogland across the Midlands and rest of the country. In many cases it is remote, making it suited to large scale wind farm developments.

“Over the years, we’ve also built up a very strong internal capability around the development of renewable power assets,” says McGrath.

“We have a 50-strong team going to probably [reach] 100 now whose sole remit is planning and development of renewable power assets.”

Taking this into account, BnM has invested significantly in wind energy over the last few years and has plans for huge investment over the next decade. The company sees itself as highly important in helping the government realise its climate goals and emissions reduction targets.

BnM plans to increase its renewable energy output by 300% by 2030, and last year the company announced it was raising €1.6 billion in funding for a series of climate action projects.

The company currently has two wind farms under construction – Cloncreen and Oweninny (a joint venture with the ESB) – and about 5 others at various stages of planning.

“It was quite clear to us that if we increase the speed, increase the level of investment, we could become a very significant player in this space,” says JP McGrath.

“And you’re starting to see the fruits of that now.”

As well as investing in renewable energy, BnM is also carrying out a large-scale operation to restore and rehabilitate thousands of acres of bogs and peatland across the country.

The company received €108 million last year from government to carry out the restoration, which aims to protect the 109 million tonnes of carbon stored in bogs and sequester a further 3.2 million tonnes of carbon.

BnM sees these rehabilitated bogs as providing the area for wind farm developments, which will only take up about 5% of the space, and the rest being used as walking trails, parks and providing other tourist-friendly activities.

The semi-state has also significantly scaled up its recycling and waste management activities, to round off its transition from brown to green.

As a validation of these investments, McGrath points towards a recent valuation of the company. In 2018, he says, the company was valued at €400 million. That has jumped this year to €1.25 billion.

“So you can see how much value has been created by this evolution in the strategy, this kind of laser focus on delivering the renewables agenda, and on the recycling agenda on peatland rehabilitation.

“And our projection over the next 10 years would be that that would at least double again.”

Screenshot 2021-11-12 at 14.49.42 West Offaly narrow gauge railway. Industrial line for hauling newly cut peat. Shutterstock

From red to black

As well as scaling up its investment, last year BNM recorded a pre-tax profit of €27.8 million. This followed significant losses over the previous four years, as the company transitioned away from harvesting peat.

“A lot of that [loss] was asset write downs. So the fundamental underlying profitability and cash generation for Bord Na Móna was always there,” says McGrath.

“I guess we came to the end of a period when we were writing off assets. And we’re now going to a growth phase. So if you look at, say, the fundamental underlying profitability, that has always kind of remained strong.

“But also, we’ve done a lot to simplify the business. We have had to shrink the business, I guess, make some tough decisions.”

Traditionally, BNM was a significant employer in the Midlands and even built hundreds of homes to house its workforce in villages across different counties. Harvesting peat, and operating and maintaining the machinery involved, was labour intensive and required a lot of workers.

In 1980, BNM employed 7,100 people, with thousands of others working in seasonal jobs. Over the last decade, this fell to around 2,000 workers, as peat production shut down. In March of this year, the company had 1,283 employees.

As the number of staff has fallen, so have the payroll costs. In 2018/2019, for example, BNM employed 1,863 people and paid €87.67 million in wages and salaries. In the year to March 2021, the company paid €59.85 million in wages and salaries, a drop of €29 million.

Over the past few years, BNM has also spent tens of millions on voluntary redundancies. From March 2018 to March 2020, it paid just under €68 million in redundancy payments. In the most recent financial year, the cost of redundancies was €0.

So can its recent profits be explained by the reduction in staff numbers and payroll costs?

“No, not at all. As I said, the underlying profitability was there. As the business has shrunk, activity has shrunk,” says McGrath.

“We obviously had very large numbers of people involved in peat harvesting. That activity isn’t there anymore, so there’s no revenue, you know, we can’t afford to hire the people.

“So the business shrunk in terms of headcount in line with the shrinkage of activity, including the activity going into Shannonbridge and Lanesborough… there’s been no positive underlying impact on profitability from shirking headcount numbers.

“That really just kept pace with where the top line was shrinking.”

McGrath says that Bord Na Móna would have “effectively come to an end” had the company not managed staff in line with what was happening to the business and its activities in general.

He also pointed out that the company is now in growth mode and is “hiring quite furiously at the moment”.

“We expect to grow our headcount numbers back up to more or less the same level as they were when we were harvesting over the next three to five years,” he says.

shutterstock_1411426688 Shutterstock / gabriel12 Shutterstock / gabriel12 / gabriel12

A Just Transition?

As BNM has shifted away from peat harvesting, there has been a lot of focus on ensuring the towns and villages where it had traditionally been a significant employer are not left behind.

Many Midlands towns were built around bogs, with peat harvesting providing important employment to locals in the area. To protect these areas, a national Just Transition programme was established by government to support the transition to a low carbon economy.

Under this programme, €10 million in funding has been granted for projects that support growing innovation and employment in the Midlands. A further €77 million has been secured from a wider EU Just Transition Fund to help the region, which is expected to be delivered next year.

The €108 million peatland restoration project is included in this programme. The most recent update from government on the implementation of the programme said 350 jobs were being supported by this project.

However, this project, and the wider Just Transition programme, has been strongly criticised.

Eamon Dooley – a Fianna Fáil councillor in Ferbane, Co Offaly, and former Bord na Móna worker – says that the €108 million should be spent on more than rehabilitation.

“They’ve given [Bord na Móna] €108 million from central funds, but they’re not working with the communities as far as I’m concerned to provide amenities – whether it’s providing greenways or whatever – they’re saying that this money is for rehabilitation only, so I have that gripe.”

Dooley is also critical of the headline jobs figures given in relation to the Just Transition programme, which he says obscure the reality on the ground.

“They’re saying that bog rehabilitation will create 350 jobs. But I’m saying it’s not creating, it’s deferring 350 redundancies for three years until that bit of work is done, so we’ll be back in the same situation again.”

In general, Dooley thinks that Offaly and the wider Midlands region is being left behind by Bord na Móna, and that the kind of large scale employment it once offered will never feature again. Renewable energy developments require significantly fewer workers than peat extraction.

Fianna Fáil TD Barry Cowen has also been strongly critical of the Just Transition programme, calling it “ridiculously slow and poorly administered” in the Dáil in April.

JP McGrath says that BnM is still fully committed to the Midlands:

“We’re entirely focused in Midlands, so all of the activity, all of the 1,300 people going to 1,800 and beyond, they’re all in the Midlands,” he says.

“Our commitment to the Midlands is as strong as it ever has been… it’s hard to see how our commitment could be questioned, albeit that the nature of the job is changing.

“And that’s really just a natural evolution driven by the environment, driven by the wheels of time turning, but as I say we’re 100% committed to the Midlands.”

McGrath also says that BnM were “entirely supportive” of the Just Transition programme, and that it was part of the “forward step in investing in the Midlands”.

“There’s a long, long list of initiatives that are being supported by Just Transition. You know, we’d be pretty confident that given a little bit more time and patience that this programme is going to bear fruit.”

This work is co-funded by Journal Media and a grant programme from the European Parliament. Any opinions or conclusions expressed in this work is the author’s own. The European Parliament has no involvement in nor responsibility for the editorial content published by the project. For more information, see here.

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