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Why the Corrib gas Field is not going to make Ireland rich

The Irish Mail on Sunday

Colm Rapple – my view: March 4th 2012

The prospect of ever-rising gas prices has greatly enhanced the value of the Corrib gas field off the Mayo coast. The latest estimate is that it will contribute some €6bn to the country’s GDP over it’s lifetime. Four years ago, the same consultants estimated the likely contribution to be €3bn.

There might be cause for celebration if that the extra €3bn was going to flow into our economy. But very little of it will.

Most of it relates to the extra profits that will be earned by Shell and it’s partners from the sale of the gas. The cash will flow into their coffers and, just as quickly, flow out again in payments to their overseas parents.

Thanks to the generous concessions that apply to oil and gas finds, it will be years before any tax is paid on those profits and, even then, it will only be levied at 25%.

The economy has already benefitted from the Corrib project and the report from Goodbody Economic Consultants goes in some detail into the development costs and the employment created. That’s bound to have given the economy a boost, although some of the spending, such as that on security and policing, has imposed very real costs on the local community that will never show up in the statistics. Indeed much of the development has been downright harmful to the environment.

That ongoing cost will never be valued as a negative in our national income figures.

There is no doubt that the Corrib will continue to provide some economic benefit.

But those benefits are greatly overstated when expressed in terms of GDP rather than GNP – a fact undoubtedly appreciated by Michael Crothers, managing director of Shell Ireland, who has been making great play of the €6bn figure.

In essence, GDP includes all the wealth created in the country while GNP measures the wealth accruing to Irish residents. GDP includes all of the profits earned by multinationals in Ireland. GNP takes account of the fact that most of those profits flow out of the country.

Last year about €30bn of profits flowed out of the country. GDP was about €155bn while GNP was about €125bn. We still gain from the multinationals. They employ people and buy local goods and services. Profit margins can be very high in some cases. Pharmaceutical companies, for instance, can command high prices for drugs produced from low-cost ingredients. And some companies employ significant numbers of people.

Once the gas starts flowing, the Shell consortium will be employing only 73 people while almost all of the revenue from the sale of gas will immediately leave the country. It will contribute nothing to the economy, whether it’s used to pay of debt incurred in developing the project or simply distributed as profits.

In due course, some of it will be paid in tax but the gas will be flowing for many years before the Exchequer gets a cent. Shell and it’s partners will be allowed to take account of all it’s development and capital costs before declaring any taxable profit. Most companies have to write off capital costs over eight years. So if a firm pays €100,000 for a machine, only €12,500 can be taken into account each year.

But Shell would be allowed to immediately write off the €100,000 and that’s true for all of the consortium’s exploration and development costs.

It’s a major concession and may be justified by the long lead-time between investment and the start of revenue flow. But the fact remains that very little of the revenue from the sale of Corrib gas will remain in Ireland for years to come.

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