Oral evidence: Changes to NI Renewable Heat Incentive payments, HC 2070
Oral evidence, 29 April 2019.
Witnesses
Thomas Douglas and Chris Osborne.
Chair
Good morning, gentlemen. Thank you very much indeed for finding the time to come and speak to us this morning. As you know, we are conducting an inquiry into RHI. I hope we will be informing the Northern Ireland Office’s thinking in this matter following comments made by the Secretary of State recently when she appeared before the House to discuss where things have been, where they are now and where, hopefully, things will take us in the future. The evidence that you are giving today will be considered very carefully and will form an important part of the report that we write and recommendations that we make in due course. What I would like you to do is describe who you are and where you are coming from—very briefly, since we have already read any evidence that you have submitted—and what your organisation would like to see going forward. Perhaps you might like to start, Mr Douglas?
Thomas Douglas
I am Thomas Douglas. I am a poultry farmer from Dungannon, a member of the Ulster Farmers’ Union, and also the chairman of the Moy Park Broiler Breeders Committee, where the vast majority of boilers that are in with the breeders are 199s. Basically, what we would like to see is going back to what we originally signed up for as a tariff in 2016.
Ian Paisley
For our benefit, can you tell me what 199 is—the technical jargon there?
Thomas Douglas
199 is the size of the boiler. The 99 came into the scheme in 2012. Then they changed the scheme in October 2015 and brought in a capped scheme. On that capped scheme we could go up to 199 kilowatt boilers, and that is what most of the broiler breeder people have done. At that time, our maximum income from RHI was approximately £18,000 and, with the new tariff that they brought in, as from 1 April, that has been cut to about £3,000. The other thing that a lot of people do not know is that the cut is not 1 April; it is actually your anniversary date, so for a fair few of the broiler breeder people the anniversary date would be January/February, and we will probably have our allowance for the year—the RHI payment for the year—already used up.
Chair
Thank you. Mr Osborne, do you have anything to add to that?
Chris Osborne
Thank you, Chairman. Chris Osborne, senior policy officer, Ulster Farmers’ Union, representing 12,000 in Northern Ireland. As a bit of background to my position, as Senior Policy Officer I am responsible for renewable energy and all things renewable. I have been in the position since 2009. That means I have been involved in the Northern Ireland RHI since day one. As an overview on representation, we would have in the region of 300 members who have availed of the scheme. As things currently stand with this tariff that has been in place since 1 April, it is going to have a devastating effect upon these individual applicants. We have a number of people who have availed of the boilers of all sizes, the majority of which have been poultry farmers, but they have also been dairy farmers, arable growers and so on, so it has covered a varied range of people. The message from today is that these tariffs are completely unacceptable. They are completely uneconomical and we feel that the decision that was made by DfE—in their consultation and the recommendations to the Secretary of State—has left people in a very bad position, particularly the Northern Ireland poultry industry that, on the back of the Moy Park announcement last week, has added to the very fragile state of the industry, in both competitiveness and efficiencies.
Chair
What do you feel about the projected overspend from this scheme? I expect, being realistic people, you will understand that there is a need to work within a budget. This scheme most definitely has overspent—will overspend—and yet there is some dispute over the extent to which that will be the case, given the alterations to the scheme that have happened since 2015. It has been suggested that the overspend would be quite modest. There are other figures that are quite worrying. What is your own assessment? What is the Ulster Farmers’ Union’s assessment of the projected overspend on the scheme?
Chris Osborne
I think there is still to be some clarity as to the actual level of overspend. You must remember as well that, for a long time, there were a lot of figures that were bandied around that I think created a very negative impact upon the reputation of our industry. It was on social media, radio shows, television programmes, and we are still to see a hard and fast figure as to what the overspend actually is.
Chair
The figure of £60 million has been bandied about. We are taking evidence from the Renewable Heat Association following you. It has been suggesting £60 million. That is a great deal of money, but it is considerably less than some of the figures that I think the Department for the Economy has been working off. What is your reaction to that?
Chris Osborne
I would need to see the figure in detail, but it is definitely a lot less than one figure that was mentioned at one stage, which was £800 million. I think if you spread that figure out over a number of years it is actually less. If you look at how it is funded and so on, it is definitely a lot more workable than the previous figures have been. I think my associates from RHANI will be better placed to explain that.
Chair
We will certainly explore that with them. The other figure, I suppose, that has been driving a lot of this is the extent to which this conflicts with state aid rules. Obviously that brings in the moving piece, and that is the United Kingdom’s relationship with the European Union, but we are obliged to work with what we have. The figure of 12% has been cited in general, that being at the lower end of the 8% to 22% level, which is generally accepted by the European Commission as being okay for state aid. First, what is your reaction to 12% and, secondly, where does that place Northern Ireland in respect of GB and, particularly, the Republic of Ireland? I am acutely aware of competitive potential disadvantage, especially given the support scheme for renewable heat that has recently been announced in Dublin, which potentially rubs up against the self-same state aid rules. First, what are the fears of your sector in relation to what that might do? Secondly, why do you think it is that the Republic is apparently able to offer a scheme that is quite generous in relation to subsidy for farmers in the Republic of Ireland and which will place your members at a disadvantage?
Chris Osborne
Absolutely. I think Thomas has led on this again, Chairman, and made a comment that we met with DfE—whenever the announcement was made—at the end of February. Our deputy president put them on the spot and said, “Look, we are scratching our heads here to understand why, relative to, say, 12% state aid rules on rate of return here in Northern Ireland, there is a significantly higher payment in GB on ROI.” We were scratching our heads even harder when, last week, the Dublin Government had state aid approval for their scheme, when they are getting quite significantly higher than we are at the moment. Of course, as an industry representative, we are alarmed that poultry growers in GB and the Republic of Ireland are going to receive significantly higher payments for their schemes and we will most definitely be left at a competitive disadvantage.
Chair
Have you quantified that in any way? I know the announcement—particularly in relation to the Republic—is fairly recent, so you may not have done a piece of work on it, but to what extent do you think this is going to cause you a problem?
Thomas Douglas
Can I come in there, please? I am a broiler breeder producer for Moy Park. Moy Park produces in the region of 6 million hatching eggs a week in Northern Ireland, of which it uses roughly 2.6 million in Northern Ireland and the rest is exported either to the GB mainland, Europe or the south. Moy Park built a new hatchery in Newark. We are competing on price with the English producer, and we are putting 1.8 million eggs a week into the Newark hatchery. With this change in tariff, we are competing against about £19,000 off a payment in England, and we are getting £3,000. That is putting us at a big disadvantage, and if we cannot put the eggs into the Newark hatchery as keen as the English operation, Northern Ireland will become a backwater as far as Moy Park and broiler breeders are concerned.
Chair
Given the dominance of Moy Park in the market, that is obviously a very serious consideration. You could find yourself very quickly being severely disadvantaged potentially, not just by the ability of English producers to serve the undertaking you have just described but also, presumably, the Republic of Ireland as well.
Thomas Douglas
Correct, because Moy Park has the franchise in Ireland, so they put chicks and hatching eggs into the south and England and Europe, and it is going to leave us in a very uncompetitive position. The worst-case scenario is that, as you know, Moy Park is American owned, and they will look at figures. They will put up houses in England, and the bottom-end producers, or a lot of the producers in Moy Park, will cease to exist.
Chair
What pressure has the Ulster Farmers’ Union been placing upon policymakers—in particular, the Northern Ireland Office—in relation to the state aid rules? You will be aware of an exchange of correspondence between the Government and the European Commission on the level of this state assistance. Most of the advice that has come from the European Commission appears to be provisional in nature rather than definitive. I would therefore expect you to be lobbying on the part of your members in relation to that level to try to encourage the Government to push back, particularly given the scheme that has just been announced for the Republic.
Chris Osborne
I mentioned earlier on, Chairman, that, whenever the announcement was made, we had a three-hour meeting with DfE. I will be honest with you, we did not get satisfactory answers on the rate of return under the state aid rules. A week later we met with Kris Hopkins, who is the Secretary of State’s senior adviser. Again, I don’t think we got satisfactory answers in relation to state aid. I think they have most definitely taken their advice and direct correspondence from DfE because that was referred to during the meeting with Kris Hopkins.
Chair
You think that the Northern Ireland Office is pretty much taking the lead of the DfE—allowing the DfE to lead in this matter?
Chris Osborne
Correct.
Thomas Douglas
Can I come in, please? I had a meeting about two weeks ago with DfE, and the farmers have no confidence in DfE at all. DfE brought in this scheme in 2012. It has done the figures. I don't know if it expected that, if it overspent, the Treasury would fill that gap, but it was stated by one of its officials at the meeting I was at that it got the scheme wrong in 2012. It got the scheme wrong in 2016-17, and I would submit that it has the scheme wrong now. I honestly do not know what DfE is doing. That is my personal view and the view of a lot of farmers.
Chair
Presumably you have given evidence to that effect to the Coghlin review, have you?
Thomas Douglas
I fed through to the Coghlin review through the Ulster Farmers’ Union. I am on both the poultry committee and the environment committee, so my response was through the Farmers' Union.
Chair
All right. We are going to pick up on some of those points as we go through the session this morning. Before doing so, I am going to pass over to Jim Shannon.
Jim Shannon
I am a member of the Ulster Farmers’ Union. I always say that the reason I am a member—there are many reasons—is, first of all, because it is local, but also because its insurance premiums are better than most. You have all my insurance policies, so you have done quite well out of it. It is nice to see you both here. Thank you very much for coming along. It is nice to see a Strangfordian here, and there is one on the second panel as well. Last week when Moy Park attended at Westminster, it informed us that there was a 90% grant available for those who wished to go from the woodchips back to gas. Are you aware of that, and is it as much as was indicated at the Committee last week? That is the first question.
Thomas Douglas
On the broiler breeder end, at the minute they have not done anything. They want to see the outcome of this and then they will decide what will happen. Whether that is a housing bonus or whatever to change back to oil-fired boilers I honestly don’t know. It is not a grant. It is a housing bonus and it is taxable. There is a difference.
Chris Osborne
Thank you, Thomas. As you can imagine, I am inundated with phone calls from various boiler owners. Everyone that rang me up was saying that they basically cannot afford to maintain the renewable heating system that they have and they have to revert to fossil fuels. In relation to what Moy Park said last week, I am not 100% sure of the detail. That has not come across our desks as yet. It is all anecdotal, but there is definitely an urge to revert back to fossil fuels use.
Jim Shannon
I want to make sure that we have the information evidentially that was conveyed to us last Wednesday at the Northern Ireland Affairs Committee and that you yourselves—the Farmers' Union, representing a large number of farmers—have that information on board. Mr Chairman, maybe we could chase Moy Park to ensure that the scheme that was indicated to us last week is the one that is actually available. The understanding of it is, Thomas, that if it is a housing scheme there is a taxable effect to that?
Thomas Douglas
Yes.
Jim Shannon
It must be very difficult at the moment to give advice to your members, because it seems that it is not clear what is happening. Is that where we are at the moment? What advice can the Ulster Farmers’ Union give to its members?
Chris Osborne
The advice we have been giving is that, as an organisation, we have lobbied on their behalf and that is all we can do. It may be worth pointing out, Jim, that it is creating a real air of negativity for getting involved in any similar schemes going forward.
Jim Shannon
It seems to all of us on the Northern Ireland Affairs Committee—indeed, all of those involved who have been lobbied by a number of constituents in relation to it, both within the constituency and, to be fair, those outside of it as well—that the unfairness of the scheme is that you were led to believe that what they were putting forward was acceptable and, therefore, that people bought into the scheme and now find themselves in hardship because of that. What people are telling me—the people who have contacted me in my own constituency, but also elsewhere—is that they took loans from the bank on the scheme that was proposed to them. They then found that everything had changed, and that has also changed how they can make their repayments. How aggrieved are your members?
Chris Osborne
I think everyone who rings me, or who I have spoken to about it directly, is at the end of their tether. When they went to get a loan from a bank or finance house, they were told by the Government that it was going to be a 20-year scheme. They were lent the money on the basis of a 20-year payment, and for that rug to be pulled from underneath them has left them in a very dangerous financial situation. The banks themselves are concerned about how it is currently, and for the banks to use the language that they have—like Ulster Bank did a couple of weeks ago—shows the level of concern on the ground.
Jim Shannon
I know you have the Ulster Farmers’ Union numbers that are involved in this scheme. Do you have any idea of the figures?
Chris Osborne
About 300.
Jim Shannon
The last question is in relation to the hardship scheme. What would the Ulster Farmers’ Union like to see from a hardship scheme that might help its members?
Chris Osborne
The hardship scheme is something I am led to believe was mentioned during the House of Lords debate. The level of detail has not been clarified at this stage and there is no legislative grounding for it, so it would be very difficult to make a comment on that, Jim, without being difficult. We just do not know the detail, and we cannot comment until we see what is proposed.
Jim Shannon
Obviously you would want the Government to honour their commitment and ensure that farmers are not put into financial difficulty, which quite clearly they will be if this continues. Would that be—
Chris Osborne
Anything that would relieve financial difficulty, but, at the same time, anything that would maintain their position within the supply chain and their competitiveness as an industry would need to be considered as well.
Jim Shannon
We look very often at the farmers who have committed themselves. We also have a second row of people who participated in the system—those who were involved in the installation and the continual monitoring and making sure that the equipment was up to standard. We find that a lot of the people who committed themselves to secondary involvement in the scheme are also disadvantaged because of the scheme now falling back or not being encouraged in the way it was. I know that is separate from the Ulster Farmers’ Union, but if you are in the scheme and there are not the same number of people to look after it, we will have problems in the future as well.
Chris Osborne
Obviously, because the boilers will need to be maintained if they are up and running. I think RHANI would be in a very good position to give you further details on that, following ourselves.
Thomas Douglas
Can I just come in there? The 199 for the broiler breeder mostly came in at the end of 2016, or February 2016, so we have had about three years of payments of RHI. Most of those farmers took out a 10-year loan to pay off their system. They have to go back to their banks and reschedule the loan. The problem with the 199s at the minute is that we don’t know exactly how this cut is going to hit us. We know it is going to hit us, but we haven’t had time for it to come through yet. Another two to three months will show very clearly how it is going to affect us. Hindsight is a wonderful thing. When the RHI scheme closed, other broiler breeder farms in the Moy Park group still put hot water heating in, but they put it in with gas boilers. At the time RHI was available, a number of us availed of that. In hindsight, we should never have bothered, and should have put in gas or just burnt fossil fuels. We would have been far better off.
Chair
One of the unique features of this issue in Northern Ireland is the lack of availability of gas, which is why heating in Northern Ireland tends to be more reliant on kerosene and oil-based fuels. To what extent does that alter the dynamic? The Department for the Economy and the Northern Ireland Office will probably say that the delta—that is to say the difference in price between the default fuel in Northern Ireland and a renewable form of heat generation—is very different to that that would apply in GB, which we will come on to shortly, hence the apparent difference in the way Northern Ireland and GB have been treated in respect of this. What would your reaction be to that?
Thomas Douglas
To be quite honest, with the track record of the Department for the Economy, I would not put credence in any word, any figure or anything it comes up with.
Chair
It is certainly the case that Northern Ireland producers would be more reliant upon very expensive forms of fuel as the default position—that is to say, they would have less access to gas than oil-based fuel. Would that be right?
Thomas Douglas
No, in the Moy Park organisation—I could be wrong—I do not know of any farmer using kerosene. It is all gas heating.
Chair
It could be that smaller operators perhaps could—
Thomas Douglas
It could be smaller operators, but Moy Park bulk-buy gas and they pass that saving on to the farmers in their costings.
Chris Osborne
Chairman, it is worth pointing out as well that we have queried DfE on some of the figures that it has used for pellet prices and the price of LPG, in both the consultation and previous to that. The UFU stands by the figures that we have.
Ian Paisley
Gentlemen, it is good to see you here today. I want to focus my questions on the 1 April 2019 scheme that the Government have introduced. The Department told me that it had consulted widely before it introduced this legislation, and the Ulster Farmers’ Union was part of that consultation. Does what emerged in the new legislation bear any resemblance to what it consulted with you about during the previous summer?
Chris Osborne
No is the very blunt answer, and I will elaborate on that. We started our response to the consultation process in June. We went to all our committees, and I read the consultation basically from beginning to end. I do not mind saying this in a public forum, but we feel that there was a predetermined response to the consultation. The outcome was predetermined. On the eight options that remain available, some comments were made that, basically, a lot of them are not viable. We questioned many of them. It is worth pointing out that 83% of respondents were in favour of one of the options that was put on the table. For the Department to put a line through the will of 83% of recipients, I think, just relates back to the flaws that were in the consultation. We did draw upon the flaws during the public hearing and Sir Patrick Coghlin’s inquiry as well.
Ian Paisley
Let’s get this clear: there were eight options during the 2018 consultation and none of those options are ultimately contained in the April 2019 legislation?
Chris Osborne
I am sad to say that, yes.
Ian Paisley
Yes, and 83% of those members who were consulted during the consultation period did agree—overwhelmingly, clearly—with one of the options that was made available, but, again, that did not materialise in the April 2019 legislation. It is important to have that on the record. Thank you for being so clear. Can we turn to the issue of the equivalence between the scheme operating now in Northern Ireland and that which operates in the rest of the United Kingdom and the new one that will be operating in the Republic of Ireland? Have you had any discussions whatsoever about state aid rules and how they apply in Northern Ireland with your equivalent bodies in GB, that is the National Farmers’ Union of Scotland or the equivalent in the Republic of Ireland?
Chris Osborne
We have had discussions, but not with the Republic of Ireland, because, like I say, it was only clarified last week in relation to state aid. We were due to meet with them at the end of February, beginning of March, but that meeting had to be rearranged. In relation to GB, yes, we have had discussions with our counterparts and, as far as they are concerned, their scheme is working well. Their scheme has been very successful. I think there are 20,000 boilers operating in GB. In relation to state aid, we have made it clear that we cannot understand why state aid rules are being applied here and yet not being applied in GB.
Ian Paisley
I understand the state aid rules are being applied in GB, but the interpretation in Northern Ireland appears to be very different. Have you had any discussion about that interpretation of the rules with your equivalent body, the National Farmers’ Union?
Chris Osborne
Those discussions are ongoing.
Ian Paisley
For example, I understand that, if you break it into three silos, in the Republic of Ireland the scheme allows people to use as an allowable expense the cement that the machines will be setting up, the electricity and the fans that are available, as well as all of the subsidiary costs—that is legal planning and so on. Those are taken into the calculation of what state aid will allow you to calculate as a viable part of the scheme. In GB, with the exception of cement, I understand that all of those issues are liable calculations—your spark, your legal costs, your planning costs, your installation costs, the fans, the equivalent systems. But in Northern Ireland the only thing that is being calculated that is allowable under state aid rules is the actual purchase of the boiler.
Thomas Douglas
Yes, that is correct.
Chris Osborne
That is absolutely correct. RHANI has done a lot more detailed analysis of this, and it will be able to give you further detail, basically backing up what you have just said.
Ian Paisley
Does that suggest to you that our Department has interpreted the state aid rules correctly, or has it interpreted them incorrectly?
Thomas Douglas
Can I answer that, please? If you are working with state aid rules under Brussels, the whole package has to go to Brussels and it is signed off. I must be stupid or thick or something, but I cannot understand how, in the south of Ireland and the GB mainland, everything is covered. That is allowed under the state aid rules. In Northern Ireland, the Department for the Economy says it is only the boiler, and in fact the Department for the Economy would tell you that England and the south have it wrong. How do you work it out? I feel that I am absolutely stupid because I just cannot understand this.
Ian Paisley
It would be logical then, Thomas, to suggest that if GB has got this wrong, by now our civil servants in Northern Ireland should have informed the Cabinet Office that this is a huge error, that their colleagues in the mainland civil service have miscalculated the state aid rules and that this must now be stopped in the rest of GB. You would assume that that would be the obvious approach that is being taken by our civil servants. I am sure they have obviously picked up the phone and done that. What would be your assumption, then?
Thomas Douglas
My assumption, on the rumours, is that they have informed Europe that in GB and the south now tariffs are wrong, and that both GB and the south of Ireland have miscalculated, compared to them, what the state aid rules are. To me, it is very funny, because not only is there GB and the south, there are also European countries—like Holland and Portugal—that have brought out schemes that are completely different to the Northern Ireland scheme. That is why I say a lot of people in Northern Ireland that are farmers have absolutely no confidence in our Department for the Economy.
Ian Paisley
Thank you. I have in front of me the Brussels communication on the state aid regulations. For reference, it is 16 February 2018, and it is the Northern Ireland renewable heat incentive scheme state aid rules. Paragraph 8 makes it clear that in March 2017 the modifications implemented in 2015—that is what left farmers here with about £12,000 of payments each year—were notified to the Commission and were compatible with the internal market under article 107(3). That is a state aid rule on the Northern Ireland heat incentive. A year ago, the payment of £12,000 or thereabouts, which farmers were receiving under RHI, was compatible entirely with the state aid rules. Now, suddenly, that is not compatible and we allow farmers to receive only £2,000, whereas during the same period of time, both GB and the Republic of Ireland schemes, which are considerably higher payments, are compatible. Who do you think has it wrong? Do you think maybe our Department in Northern Ireland has it wrong?
Thomas Douglas
That would be the feeling on the ground, to be quite honest, because, as I said earlier, one of the officials admitted that they got the scheme wrong in 2012. They got the scheme wrong in 2016, and I would think that they probably have the scheme wrong now. I do not think they are capable of running a scheme or running anything.
Chris Osborne
That point was made by you at a previous Northern Ireland Affairs Committee meeting. I had a chance to go and look at what you had said, and checked up on the facts. I think that, basically, if it is put in black and white like that, it does infer that somebody has got it wrong.
Ian Paisley
Chris, you mentioned that you have 300 farmers affected by this. I am trying to find out how many of them are really negatively affected to the point that their business is now in jeopardy as a result of the 1 April legislation. Of the 300, would you say it is half of them, a quarter of them, all of them? How many of them are looking at significant hardship as a result of this legislation?
Chris Osborne
Significant hardship can mean a lot of different things to different people. If it means basically that your business is under pressure, I think you could say a very large majority of those people are experiencing that. I would say every single call I have received has been somebody who does not know how to basically get through the next year on the basis of this particular tariff.
Ian Paisley
Let me just qualify that. When you say “every single call”, are we talking about all of the 300 or are we talking about 150?
Chris Osborne
Nobody is happy. Nobody has rung me up and said, “Yes, I am happy with that tariff.” I think that is a pretty safe thing to say.
Ian Paisley
Finally, you mentioned the anniversary date for payments. To be clear, Thomas, that means that, for you and farmers whose anniversary date is February, no one will receive a payment for the entirety of 2019. Am I correct?
Thomas Douglas
They will get £3,000 this year at some stage for their RHI if they have used the boilers.
Ian Paisley
Is that this financial year?
Thomas Douglas
This financial year, which will all probably fall in the February quarter, and then there will be nothing for a year’s time.
Chris Osborne
From a cash flow point of view that is—
Thomas Douglas
On the 199, which most of the breeder people have, they will get one payment. Then, that is it, and they are under severe pressure with bank commitments and all going forward. I would say the biggest end of the broiler breeder men that have them will be under financial pressure.
Ian Paisley
Do you think this is the end of renewables in Northern Ireland?
Thomas Douglas
It is the end of trust for the Government when it comes to looking at renewables and offering incentives to put renewables in, because we have now learnt that you don’t trust the Government. When they say, “You sign up to this, and we guarantee you 20 years,” who is going to do it? That is not the biggest problem. What bank is going to lend money to anybody, whether it is farmers, hoteliers or factories, on the strength of a renewable payment going forward, when they have done this backward step with RHI? There is no credibility there.
Chris Osborne
The most overarching issue would be that guys were told to basically invest in this scheme in order to play our part or contribute towards a 10% target of getting heat from renewable sources. Needless to say, it has been confirmed by the Department for the Economy that the 2020 target will not be achieved in Northern Ireland. The 10% target will not be achieved and, as an industry, we are under pressure from an environmental point of view. There are issues to do with nitrogen, ammonia and so on, and as an industry we have always said that we are capable and willing to go ahead to do our bit in terms of addressing the environment through our own actions. What we did was that farmers out there adapted their farm businesses to incorporate renewable boilers, and now it feels like we are going into reverse, with guys having to go and revert back to fossil fuels. From an industry point of view, from a reputational point of view, I think that we are under severe pressure as well.
Ian Paisley
Thank you very much.
Chair
This is quite useful in terms of a debate that will be held in the House of Commons on Wednesday in relation to climate change. I am interested in the evidence you have of farmers reverting back to fossil fuels because of the failure of this scheme, which is an extraordinary thing. We like to rail against China for building coal-fired power stations, but this is analogous in the sense that we are going from a renewable form of heating potentially to one that is deeply regressive. I am trying to get an idea of the scale of this particular thing. Are you able to give any figures, beyond which you have already hinted at, in relation to the number of your members who are reverting back to fossil fuels as the primary way of delivering heat for their undertakings as the result of the failure of this scheme?
Chris Osborne
You could probably say it is at least half, but that half is going to increase as this year goes forward, because any farmer that is going to survive through this will basically need to keep his business going.
Chair
Are you seriously saying that half of your members who have invested in this scheme have now reverted to fossil fuels?
Chris Osborne
No, sorry, Chairman, it would probably be more accurate to say that they are looking into reverting to that.
Chair
That is very different, isn’t it?
Chris Osborne
It is, but—
Chair
I appreciate the timeframe is very tight and these things do not happen overnight, but how many would you say have actually reverted?
Chris Osborne
I could not give you a precise figure. However, I will perhaps revert back to my associates from RHANI.
Chair
If you are able to find out something more specific than that, I would be most grateful. I appreciate how difficult it would actually be to achieve.
Thomas Douglas
I would say, on the broiler breeder end and 199, as the year goes on, and if the tariff does not return to what we signed up for, we will have to go into negotiations with Moy Park—as Jim talked about—about a housing bonus to put in gas boilers. Somewhere between 50 and 60 on the breeding side in Moy Park have boilers—RHI—and I would say that, within a year, you are probably looking at every one of them reverting to gas.
Chair
For those who can revert back to gas, which of course is relatively cheap, you would be inclined to feel that over time the bulk of membership in your sector—
Thomas Douglas
Yes. It makes economic sense. That is the bottom line of it.
Chair
Yes, which of course is the reason we brought in heat incentives in the first place, since gas is a far cheaper option. Thank you.
Kate Hoey
Thank you very much for being with us. Does the Ulster Farmers’ Union have a research department and people who are spending time researching issues generally?
Chris Osborne
No. We would nod to Government scientific departments and so on. I do a bit of research myself, but it is very much on a lay basis.
Kate Hoey
I am wondering whether, back in 2012, anyone in the UFU looked at the scheme and thought, “Hang on, this might just be a little bit too good to be true.” Or when the Government brings something in, do you assume it has all been checked and is correct?
Chris Osborne
Very much so. I would refer you back to the evidence we gave in a public inquiry—Patrick Coghlin’s inquiry. Yes, it would have been the case that we would have assumed that, for a Government scheme, they had done all the relevant checks and rubber-stamped it.
Kate Hoey
As a union, did you send anything out to your members saying, “This looks like a good scheme. We are advising you to look into this carefully” or anything like that?
Chris Osborne
We would never give advice like that ever. As evidence that was given in October 2018 to the public inquiry, we did, through the press, refer people back to the scheme, to tell them that the scheme existed, but in no way did we ever encourage people to avail of it.
Kate Hoey
Now that you are in this situation, apart from giving them sympathy and making representations, are you doing anything as a union to help those 300 members who are suffering? For example, are you reducing their membership for a year? Are you doing anything as a union to support them?
Chris Osborne
Well, my day-to-day job is to lobby on their behalf. We also have a structured team of technical officers, for example, who would be able to provide advice and also to provide advice—that is probably with a capital “A”—in relation to any pressures they may be under, and revert them back to a third-party body if we think it is necessary and so on. That is the thing where we lobby and advise.
Kate Hoey
You are doing more than just being sympathetic?
Chris Osborne
Very much so.
Kate Hoey
Thomas, you are pretty clear that you think the Department has completely lost all confidence by members.
Thomas Douglas
They have lost all confidence in the north, and you have to remember that the scheme closed on 26 February. Up to very close to the closing date, you had DETI and the Department of Agriculture and Rural Affairs having roadshows and meetings around the country advising people to put RHI boilers in. You actually had two Government Departments advising to put them in when another Government Department was saying, “We have this wrong. This is all wrong. We are going to close it.” To me, there was no joined-up thinking in Government, never mind anything else.
Kate Hoey
Clearly, you feel very strongly about the Department. Have you also met with the Northern Ireland Office as such?
Thomas Douglas
I have emailed our Northern Ireland Office, and we got an e-mail back. That is about the height of it.
Kate Hoey
The Ulster Farmers’ Union has had a fairly close relationship with the Secretary of State and Governments over the years—I think you got a first look at the withdrawal agreement before anybody else did, practically, as I understand it. You have obviously met the adviser, Kris Hopkins, but have you asked to see the Secretary of State?
Chris Osborne
First and foremost, we start at the top any time we make such requests, and we did request to meet Karen Bradley, Secretary of State. That did not happen.
Kate Hoey
What did they say?
Chris Osborne
It was referred back to her senior adviser.
Kate Hoey
Are you saying that the Secretary of State—admittedly, she has only spent 30 nights here, apparently, since she has been appointed—has not met the Ulster Farmers’ Union on an issue that is hugely important, both politically and economically, for Northern Ireland?
Chris Osborne
We should make it clear that she has not met me and my team. However, there were vague discussions whenever she met my senior colleagues—the chief executive and president.
Kate Hoey
She has met the chief executive?
Chris Osborne
I think that was a Brexit event, and I think RHI was mentioned on the edges of that meeting, but it was not a face-to-face meeting to specifically discuss RHI.
Kate Hoey
I think that particular issue should have been something that was a specific item, and actually to meet with—
Ian Paisley
Do you feel a little used, in the sense that, as a union, it was very beneficial for the Secretary of State to have your support on Brexit and the withdrawal agreement issues, and to have your ear, but when it came to something that actually affected your membership—back of the hand? Do you feel a little jilted by the national Government on how they have treated you on that?
Chris Osborne
On behalf of my members, I felt that we should have been warranted with a one-to-one meeting with the Secretary of State—absolutely.
Thomas Douglas
In answer to our email, she referred us back to the Department for the Economy.
Kate Hoey
That is very helpful. Basically, you have no confidence in the Department, and it sounds like you have almost no confidence in the Secretary of State.
Thomas Douglas
The Secretary of State did not appear in front of you and say that the Department for the Economy put the new tariffs in front of her. She never read it. She never took any consultation. She just signed it.
Kate Hoey
I think we will be meeting her again on this issue, but from what you have said, it sounds that you, like a lot of other people, do not have a great deal of confidence in her. As the Ulster Farmers’ Union, do you think that you are being militant enough on this issue? When you look around some parts of the rest of Europe and see what farmers do there, have you not thought of perhaps getting your farmers to be slightly more aggressive?
Chris Osborne
That is quite a difficult question to answer. I have been involved in the Ulster Farmers’ Union now for the best part of 15 years. I am also responsible for the dairy sector and, whenever prices are bad, for example, people ring us up saying we should have tractors blocking the roads and so on to protest. We have a way of doing things in Northern Ireland and the United Kingdom, full stop. I think that we are effective in what we do and how we do it. We will continue to lobby on RHI and continue to make the case with all the relevant authorities, but, to be honest with you, I don’t know what a militant form of action would actually achieve in this case.
Kate Hoey
No. You are not suggesting, like they do in France, bringing a whole pile of manure and dumping it on the steps of Stormont or anything?
Chris Osborne
No, but I think that—
Kate Hoey
Thank you very much. That is very helpful.
Chair
Thank you, Lady Hermon, for looking after our domestic needs. Over to you for questioning.
Lady Hermon
Thank you very much indeed, Mr Chairman. It is very good of the two of you, and the other team, to come along to give us evidence. This is a very important issue. It affects a great number of families and your members—you mentioned over 300. Many are from family-run businesses, and it is a time of great anxiety and worry for them. That being the case, could I come back to a series of issues? Presumably the Ulster Farmers’ Union, given the very large membership, has a hardship fund. Does the union have a hardship fund that its members can avail of in circumstances like this?
Thomas Douglas
No, we don’t. As a board member, we do not have a hardship fund.
Lady Hermon
That is a very interesting fact to have established. I was intrigued and quite perturbed when asked by a colleague about the hardship that has been endured and has been inflicted on your members. Mr Osborne, when you were asked, you said you could not really comment on the scheme because it had only been mentioned in the House of Lords. But we, as a Committee, are taking evidence. We want to know what we could recommend for those who are experiencing hardship. Could you say something about what you would expect, bearing in mind that a Government Minister made a suggestion in the House of Lords about hardship and an independent chairman reviewing each individual case, as I understand it?
Thomas Douglas
Personally, I mentioned the hardship and the buy-out scheme to the Department for the Economy, and the answer was that, until you finish your investigation, “We can do nothing. We cannot set up a committee or group or anything, or even look at it.”
Lady Hermon
Right. The Department has indicated to you that it is sitting tight until the Northern Ireland Affairs Select Committee—
Thomas Douglas
Correct.
Lady Hermon
Therefore, here is your opportunity to tell us what it is that would work for your members. I took down what you said. You mentioned it would be “devastating” for poultry farmers. You said that Northern Ireland could become—I think it was—a backwater for poultry production compared to others.
Thomas Douglas
That is right.
Lady Hermon
Given the seriousness of what you have indicated—and we accept that this is a very serious situation—how would you wish this Committee to structure hardship?
Thomas Douglas
To be quite honest—and this might sound incredible—I do not want a hardship fund. I do not want a buy-out fund. I want us to go back to the tariff that we signed up to in good faith with the Government. We on the 199s were on a capped scheme, so we could not be accused of abusing it.
Lady Hermon
You are saying quite clearly to us that you do not want this Committee to recommend a hardship fund or hardship—
Chris Osborne
No, sorry, Thomas—
Thomas Douglas
I am talking on 199s now. Chris is talking—
Chris Osborne
I am talking about everybody in the industry.
Thomas Douglas
Yes.
Chris Osborne
Sorry, Lady Hermon, I make it very clear that Thomas has said what he thinks you guys should actually recommend as a Committee. I think—
Lady Hermon
That was the question I asked. We are taking evidence here, so do you want to contradict each other? Is that what we are—
Chris Osborne
No, certainly not. I am adding to what Thomas is saying and basically complementing what Thomas is saying.
Lady Hermon
Right. Carry on.
Chris Osborne
However, if we were to see the details of a hardship fund, then, in principle, it would be possibly a minimum that we would basically buy into from this Committee. If we were to see the details of it, and it was to address some very real hardship that individual farmers are facing, it needs to be taken on an individual basis. We are not saying no to it, but it also needs to be considered in the grander scheme of things for the tariffs that we are looking at here today.
Lady Hermon
You are supplementing what Thomas has said?
Chris Osborne
Yes.
Lady Hermon
But Thomas was quite clear on what he said about the hardship fund. Thomas, if you had the choice, you want to revert to the tariffs at what rate?
Thomas Douglas
At the capped rate that we came on to—approximately an income of £18,000 a year on RHIs. That is what our figures were all based on, what our bank commitments were based on, and that is what we would like to go back to.
Lady Hermon
Yes, and when you bought into the scheme, you had a legitimate expectation that this was a scheme that was backed by a Government Department, that it was a safe investment, and you went to the bank and—
Thomas Douglas
Correct. To be quite honest, you had no problem with the bank because the bank said, “It is backed by the Government. No problem. We will lend you the money.”
Lady Hermon
Yes. What are the banks saying to you now?
Thomas Douglas
The banks have actually said that they had a meeting with the Department for the Economy, and it was a waste of time.
Lady Hermon
Are all of the banks saying that?
Thomas Douglas
Two of the banks are saying that. The four main banks in Northern Ireland went together to the Department for the Economy, and they came out of it very dissatisfied with the answers that they got. At the present minute—and time will tell—I have had no correspondence or pressure from my bank, but it will come.
Chris Osborne
Lady Hermon, it is worth pointing out that the Ulster Bank last week said that it was concerned about the fact that boiler owners in Northern Ireland have outstanding debt incurred by investing in something that is not generating any income. Also, they are beginning to receive increased overdraft applications and extensions to the loan applications because a lot of these loans were taken on the basis of five, six, seven years, and the applicants are now asking for it to be extended to 15 years. As well, guys are looking basically to borrow more money to invest in gas-fired boilers.
Lady Hermon
That is very interesting, because the distinct impression was given to us by the representative of Moy Park last week, who gave evidence to the Northern Ireland Affairs Select Committee, that every poultry farmer already had as a back-up—
Thomas Douglas
He was talking about the broiler producers.
Lady Hermon
Right, so be a bit more specific, because the indication was that this was just an easy thing to do—to switch from one boiler to an LPG gas boiler.
Thomas Douglas
The broiler producers would have gas boilers, because they would have replaced the gas boilers with RHI boilers and they would still have those boilers on site.
Lady Hermon
Yes, so it was easy enough to switch.
Thomas Douglas
For the broiler men. The broiler breeders are different. Moy Park were taken by Abbey Gen to Sweden to see the best production of hatching eggs in Europe. They came back with two things. One of them was mash feed, and one of them was hot water heating. Moy Park invested £3 million into their mill at Randalstown to give us mash feed. I think a percentage of the breeder group invested in hot water heating. RHI was available at the time. We fulfilled the criteria to join it, and that is what we did. We actually have RHI boilers, but we have no gas back-up, so we are in a different ballgame.
Lady Hermon
How many of you are there that in fact have—
Thomas Douglas
There are 50 to 60 farms with RHI boilers in. There is—
Lady Hermon
Right, but you do not have a back-up LPG—
Thomas Douglas
We do not have a back-up.
Lady Hermon
That did not come out of last week’s evidence, as you are probably aware. That is a serious issue. Can I ask about the role of Ofgem in all of this? Ofgem was given a supervisory role, and the clearance was given by the EU Commission that Ofgem had the supervisory role. How often would you have seen Ofgem on the ground visiting farms?
Chris Osborne
Lady Hermon, I think it is worth pointing out that we had always called for a full audit process throughout the whole scheme. Ofgem was not forthcoming at the time, and it only seemed to be once this blew up that, basically, audits started happening. That is another issue. There are major issues on the ground in relation to these audits and how they are being conducted and administered by DfE.
Lady Hermon
Did you ever meet an Ofgem inspector at any stage?
Thomas Douglas
As far as I know, Ofgem never sent an inspector over to Northern Ireland from GB.
Lady Hermon
At the time of the RHI scheme being introduced, Ofgem had no presence in Northern Ireland. Is that correct?
Thomas Douglas
As far as I know, that is correct.
Chris Osborne
Up until recently.
Lady Hermon
What is the presence now of full-time members of Ofgem staff in Northern Ireland?
Chris Osborne
I am not sure about that. I could not give you an answer on that, but it is more to do with their interactions with DfE now. It would be a lot more evident in the day-to-day running of the scheme and the roll-out of the audits.
Thomas Douglas
Ofgem still might not have anybody full-time, or a permanent presence, in Northern Ireland.
Chris Osborne
Despite our own efforts of communicating with Ofgem, seeking meetings and so on, whenever the scheme was actually run, it was usually a very drawn-out process trying to get hold of the right person.
Lady Hermon
How would you describe the role of Ofgem in relation to the RHI scheme?
Chris Osborne
I would say arm’s length, possibly.
Lady Hermon
Ofgem is the one with the supervisory role, and it was, and still remains, apparently, at arm’s length. The other thing that you made quite clear, Mr Osborne, is the fact that you have a lobbying role. As we are aware, there is a confidence and supply arrangement between the Democratic Unionist party and the Conservative party, because we have a minority Government at the present time, and agriculture is written into that agreement. Presumably you are lobbying the DUP to lobby the Conservative party.
Chris Osborne
To give you an example, at the end of February, beginning of March, in our lobby of this whole process, we lobbied all MPs and all political representatives. It is not just the DUP. We lobbied everybody—all the relevant parties.
Lady Hermon
Right, so you lobby all relevant parties?
Chris Osborne
Yes.
Lady Hermon
Do you see the importance in this particular situation, where your members are being so seriously affected?
Chris Osborne
Yes.
Lady Hermon
Do you see the significance of the—
Thomas Douglas
Yes. While I know where you are coming from, Lady Sylvia, personally we have emailed all the political parties and, as you probably know, we personally have emailed all the members of this Committee, and we have had a response from a lot of the members of this Committee. We got a response from some of the political parties, but where it goes from there I just do not know.
Lady Hermon
Your preferred option is to go back to the tariff rate that you had, and that is the £13,000?
Thomas Douglas
No, the £18,000 we were on.
Lady Hermon
£18,000, I am sorry.
Thomas Douglas
The scheme that we signed up for. This might sound a very cheeky question, but at the end of the day, you are going away to do a report and make recommendations. Will those recommendations be listened to?
Lady Hermon
There is a very good question. We live in hope; we live in expectation of good news.
Chair
To answer your question, the usual way to deal with Select Committee reports is for the Department concerned to read it, examine it and respond specifically to recommendations that have been made. That response is then published, and we comment on it and we follow up things. This investigation has been given a special status in the House of Commons by the Secretary of State, so we take this particular investigation especially seriously, given the remarks made the Secretary of State, which are on the record and we take at face value. In general—and comments made by Lord Duncan in the House of Lords would reaffirm this—we would expect what we say and recommend to be rolled out unless there are very good reasons why not. We would be looking for the Government to respond in that light. We therefore feel it incumbent on us to get this right, which is why I think Lady Hermon was pressing you on the hardship fund, for example, which Ministers have been talking about. What I am getting from you is that you feel that is the wrong way of looking at this, because in the event that tariffs were correct in the way that you have described, there would presumably be no need for a hardship fund. A hardship fund is basically an admission of failure. If what you are saying, as the Ulster Farmers’ Union, is that you do not feel that should be a central feature of our report, we are more than happy to reflect on that. Otherwise, we would be looking to you, as the representatives of probably the bulk of people who have been adversely affected by this, to make suggestions to us as to what that fund should look like and how it should be structured. Does that make sense?
Chris Osborne
It does, Chairman, yes.
Thomas Douglas
If the hardship fund came in, or a buy-out fund came in—whichever—
Chris Osborne
Sorry, make sure that we keep the two separate.
Thomas Douglas
It will be used, I would say, by the vast majority of the 199 farmers that I represent as a way of replacing the biomass boilers with gas boilers.
Lady Hermon
What is the cost of that replacement boiler?
Thomas Douglas
Depending on the size of your site, it is anywhere from £5,000 to £10,000.
Chair
That is quite a serious proposition, because that would give a definite structure to any such fund or proposition. It would also enable those who are going to ultimately have to fund this to get some sort of grip on the cost of it. If you were to give that, as the Ulster Farmers’ Union, some further thought to feed into this piece of work that we are doing, we would be very receptive to that. I have to tell you that I suspect the Government, broadly defined, would be less than enthusiastic, given the regressive step that that would be in relation to its carbon targets. I do not think the optics of that would be very good. Nevertheless, the aim of what we are trying to achieve here and now is to make sure that your members—people who have invested in the scheme in good faith—are not disadvantaged. That has to be our principal consideration at the moment in relation to this matter.
Thomas Douglas
Personally I do not want to go to gas. I am very happy with RHI. If the payment structure reverted to what it was and was going right, I have absolutely no problem in keeping using RHI boilers.
Lady Hermon
Is that because of your commitment to reducing carbon emissions?
Thomas Douglas
We have put it in, and it is working well in the houses. It is probably dearer to maintain and look after, and there is more work with it, but it is doing the job. Why replace something that is working?
Lady Hermon
Is that the view of the majority of your members?
Thomas Douglas
It is the view, I would say, of the majority of the broiler breeder people that I represent.
Chris Osborne
Plus as well, Lady Hermon, there were a lot of production efficiencies that came about as a result of the switch to the new form of water heating.
Lady Hermon
Yes, but do you have in your head a time limit to this? If it does not revert back to the original tariff that you entered the scheme on, do you say to yourself, “Beyond six months I could not afford to carry on”?
Thomas Douglas
Six months to a year.
Lady Hermon
That is very helpful for us.
Thomas Douglas
That is the timeframe we are looking at, and then decisions will have to be taken.
Lady Hermon
Sooner would certainly be better.
Thomas Douglas
Sooner would be better.
Lady Hermon
Certainly, that is always very much business.
Thomas Douglas
Chris talked about efficiencies. We did a study in the broiler breeders. When we put the hot water heating in, the farms that were over 10 years of age that put hot water heating in saw an increase of six chicks per bird. There is a lot of efficiency. Again, this is coming back from what they have seen in Sweden.
John Grogan
Very briefly, to get it clear in my mind, can we go back to the buy-out and the hardship scheme and so on? On the buy-out scheme, in your written evidence—I will not quote it all—you referred to the costly bank loans and credit agreements that needed to be honoured. You said that that must be considered when assessing what constitutes hardship. You referred to the banks extending the terms of the loan being all that has happened so far. Then you said, “Consequently consideration should apply to a wider selection of solutions and options.” Did you mean, as we have been talking about, solutions and options beyond a buy-out scheme, or are there some ways in which the buy-out scheme could be improved? What did you mean by that?
Chris Osborne
Yes, absolutely, the buy-out scheme could be improved, because at the moment it is not a viable option for many businesses.
John Grogan
How could it be improved, exactly?
Chris Osborne
By taking into consideration the level of debt that has been incurred by such businesses and so on. It would need to be vastly improved before we would give it any sort of consideration.
John Grogan
It would have to consider all of the set-up costs and so on?
Chris Osborne
Direct costs and, more importantly, indirect costs as well.
John Grogan
Yes, I see. On the hardship scheme, and indeed on the buy-out scheme, when you had the meeting with the Government adviser, Kris Hopkins, were those on the agenda, or was it the tariffs?
Chris Osborne
It was the tariffs.
John Grogan
Just the tariffs. On the hardship scheme, this quote from Lord Duncan in the House of Lords, which is a bit vague, says, “My proposal is that the Department for the Economy in Northern Ireland—not on our instruction, but because it believes it to be the right course of action—sets up a unit” and on and on. Are we all basing our discussion about this on that statement? Have you had any other communication? If I am clarifying, the Department for the Economy officials said that they are waiting for us.
Chris Osborne
John, that is as much—that is what we are expecting.
Thomas Douglas
That is where we are at the minute: waiting on your report, and then deciding how this will be set it up, who will chair it—who the independent chair will be. It is so woolly it is unbelievable.
Lady Hermon
But in principle they are quite happy to set it up?
Thomas Douglas
In principle they are, but, again, as you said, John, Lord Duncan’s comment is wishy-washy. He is not forcing the Department to set up a group; it is up to it to decide whether it does it or not.
John Grogan
This has been communicated orally to you; there is no letter about it?
Thomas Douglas
No.
John Grogan
No, okay. Then I have to ask the question: do you think that managing to get an Executive restored would help the situation?
Chris Osborne
I think absolutely it would.
Thomas Douglas
The problem is very simple. Northern Ireland as a country is being ruled by the civil servants ,and we need a taskmaster above them to tell them to wise up and do what they should be doing. If you have a Minister, then you have constituents feeding into that Minister and, quite honestly, you are at him or her, whereas you have faceless civil servants who are running the country and who have actually no answer or no recourse to anybody, and that is the problem.
Chair
A marvellous description of the constitution.
Lady Hermon
In the absence of a functioning Assembly, senior civil servants are doing the best they can to run the country and to keep the show on the road.
Kate Hoey
Yes, unless we got direct rule, and then Karen Bradley would have to take responsibility.
Nigel Mills
Mr Douglas, I think you mentioned a few minutes ago that adding in the hot water heating raised productivity quite significantly—an extra six chicks per hen or something.
Thomas Douglas
Yes.
Nigel Mills
I have the impression that you used to do the heating a different way that was not very good for the birds or the environment.
Thomas Douglas
We had no heating in the broiler breeders. It was after Moy Park went to Sweden that we said to put the heating in.
Nigel Mills
When you say you decided, was that because they told you that you had to?
Thomas Douglas
No.
Nigel Mills
Did they not hint quite strongly that—
Thomas Douglas
No, they said that they had seen these increased performances in Sweden, and a lot of the breeder farmers decided that they would invest in this heating. It was helped by Moy Park.
Nigel Mills
When you looked at investing in the heating, did you look at the choice of doing it via biomass versus LPG or whatever else, and look to see which was the most cost-effective?
Thomas Douglas
At the time, the RHI was the most cost-effective.
Nigel Mills
Is that because of the grant? Were the up-front costs about the same to have an LPG one?
Thomas Douglas
No, no, no. A 199 RHI boiler is somewhere between £50,000 and £60,000, whereas you would have spent £10,000 on a gas boiler. It was the payment structure from RHI that made it economically viable to put RHI in and, again, you were not using fossil fuels.
Nigel Mills
There were no other efficiency advantages. Effectively, it was a choice of spending £40,000 or £50,000 more up front, which you thought you could get back through the RHI subsidies?
Thomas Douglas
Yes.
Nigel Mills
Was the life of the boilers the 20-year subsidy period?
Thomas Douglas
Twenty years. When you put in an RHI boiler, there is a serial number on it. For the lifetime of the scheme, the 20 years, you have to have that boiler with that serial number. If it packed up and you have to completely recondition it, it still has to be the boiler that went in at the start with that serial number.
Nigel Mills
You are basically spending £40,000 or £50,000 more up front and then you are hopefully making it back over 20 years from the subsidies?
Thomas Douglas
Yes.
Nigel Mills
That is about £2,000 or £2,500 a year you need to make, the up-front capital, without any interest costs?
Thomas Douglas
Yes, but then you have the costs of the boiler house, the pellet bin, the meters, the pipework. There are a lot more additional costs.
Nigel Mills
In the UFU submission, you talked about borrowing from a bank at base rate plus 3.5%, if I remember that right. Base rate is not very much at the moment, is it? Are you saying that is a 3.5% loan, or is that a bank base rate that was a higher percentage?
Chris Osborne
It was between 4.5% and 5%, wasn’t it?
Thomas Douglas
It all depends on your circumstances and your bank. Some of the farmers are paying up to 7% to the bank on the interest rate.
Nigel Mills
Can you help my simple maths? If the buy-out option is to give you a 12% return, and your finance cost is somewhere between 3.5% and 7%, why do those maths not work for you?
Thomas Douglas
We are talking about this buy-out scheme, but there have been no figures put on the ground. The Department for the Economy said the day we were in with it, or I was in with it, that it would give you the 12% return over the period, but it would also take off what you have already received in payments.
Nigel Mills
You, overall, would get a 12% return?
Thomas Douglas
Yes, overall. Probably at the end your buy-out is buttons.
Chris Osborne
Buttons, if anything.
Thomas Douglas
Buttons—not worth talking about. It sounds good, but when you get into the reality of it, it is—
Nigel Mills
That is what we do not know. Presumably, if your up-front was £75,000, on the example we had worked for us, or something like that—£76,237—what it gave you was basically that plus a 12% return. That would sound like it worked, to me. You would be able to pay your bank loan off.
Thomas Douglas
We were able to pay the bank loan off; we were able to run the system, pay everything. On the 199, if we made a maximum of £1,000 a year out of it at the start, that is what we were making. But as I said earlier, that boiler had to do 20 years. Somewhere down the line, you would have a major refit or expenditure on the boiler. The boiler, on the RHI, was not going to make the 199 men any money really. It was the efficiency gains and the welfare and environment gains that we were getting out of them.
Nigel Mills
I suppose I am a bit naive to think the alternative solution here is that Moy Park will have to pay you a bit more to do what you do for it.
Thomas Douglas
I do not know if it is up to you, but it was already put to us that Moy Park will not be footing the failed Government scheme.
Lady Hermon
It made that quite clear. It was asked, yes.
Nigel Mills
It needs you, to a certain extent presumably, to keep doing what you do, otherwise—
Thomas Douglas
As I said earlier, we are now part of an American group. The American group has no loyalty to Northern Ireland. If it is more cost-efficient to grow chickens and produce hatching eggs in England, that is where it will do it, and it will spend the money there doing it.
Lady Hermon
Moy Park was asked directly—forgive me, Nigel—to confirm on the record that it had a long-term commitment to Northern Ireland, and it did confirm that.
Thomas Douglas
Yes, it has a long-term commitment to Northern Ireland, but did it commit to what size that long-term commitment was?
Lady Hermon
What is your worry about that?
Thomas Douglas
That we could shrink. It will still have a commitment here. As I said earlier, we are putting 1.8 million eggs a week into a Moy Park hatchery in England. With the economics of Northern Ireland, where we have the shipping of the eggs to England, we are doing it on efficiencies, on economics. If that does not work, the eggs going into the hatchery in England will be a lot dearer, and it will look at ways of reducing that cost. That is probably building units in England.
Lady Hermon
Is that your fear?
Thomas Douglas
That is my fear—that it will have a long-term commitment in Northern Ireland, but the size of that long-term commitment has not been specified.
Chris Osborne
Moy Park has already said it is stalling one of the lines of production in Ballymena, so there are moves afoot to rejig its business model maybe.
Thomas Douglas
It is hoping. It is saying that that line will be going again in January—its marketing associations—but that could slip. You just do not know.
Chris Osborne
Nigel, to pick up on a point there you made about the buy-out scheme, we said in our consultation response that a reservation we would have is that the budget that would be in place to buy out boiler owners could be spent very, very quickly. Added to that, we do have a severe number of reservations in relation to how that might be administered. That would be, furthermore, to the point about the buy-out scheme.
Nigel Mills
I was reading some of the reports of the, I guess, not enjoyable session you had at the RHI inquiry. It was a very unfortunate quote from the Ulster Farmers’ Union that it was more profitable to burn oats than to sell them.
Chris Osborne
That was taken completely out of context. That was a conversation that was had in a committee meeting, and it was definitely not in relation to putting said oats into any boilers or anything like that. That was done more just as a matter-of-fact conversation that was happening.
Nigel Mills
When the minutes said it was, as an example, £130 a tonne at market value or £300 to burn them, that was not what—
Chris Osborne
No, that was not as a feedstock to put into an RHI boiler.
Nigel Mills
Do you regret that you did not spot that this scheme was fundamentally flawed and advise your members, “This is too good to be true, and there is so much risk that this will not run full term the way it has been structured, that we should just not touch it”?
Thomas Douglas
All I can say is the scheme I am on was a Government scheme worked out by the Department for the Economy. You had the principle that the Department knew what it was doing in how it worked out the scheme and that it was backed by the Government. You would not question it.
Nigel Mills
I was asking Mr Osborne, who is classed as being an expert in this area. I think the Ulster Farmers’ Union was advocating for this sort of scheme, going back long before it started. Did you not realise this was not structured very well?
Chris Osborne
I want to make it very clear that I am certainly not an expert. Like I said, I cover other areas as well as renewables. Even renewable heat is a part within the context of the renewable sector. There is renewable electricity as well. At the time, we were basically told that the RHI was a way of meeting the targets that were held within the strategic energy framework directive, which is the overarching policy. To a large extent, my colleagues and I always rely upon the experts who work within the various Government Departments. If we had noticed that there was a problem at the time and challenged it, they probably would have turned their backs on us and told us that we do not know what we are talking—that, exactly as I said, we are not experts.
Nigel Mills
There was a report in 2011 that you attended a presentation from DETI and cautioned that introducing RHI in Northern Ireland would create a danger of over-incentivisation, which turned out to be quite prescient. I assume you did not spot early on that this was a flawed scheme that would allow exploitation to happen and thought, “This is too good to be true; let’s just flog it.” You presumably just did not spot until it was too late that these loopholes had been left in, and everybody else did not realise either.
Chris Osborne
It is worth pointing out that, up until 2014, the scheme was significantly underspent, and any analysis or any observations we made about the scheme were based upon the Government Department in question telling us that the RHI was under budget.
Nigel Mills
You were not marketing this to your members in any way, saying, “This is a great way of making money hand over fist” or anything? That was never what you were looking for?
Chris Osborne
It was always the position that sometimes you get people ringing in to tell you they have this product, for example, that is going to enhance production, wherever it may be within the agricultural sector, and we would never promote or give favour to any such technology. The same applies for the wider renewables. No farmer rang me up and said, “Would it be a good idea for me to put up a wind turbine?” We would never say yes or no. They go and do their own analysis and speak to their accountants or their lawyers.
Thomas Douglas
When you said the union met with DETI—in 2011, I think you said—and they brought this up, that was lobbying before the scheme was opened. You would have thought that the officials would have listened to what was said—that the union said you have to be careful in what way you set this up. As Chris has said, the scheme really took off in about 2014. That was because the poultry industry came in.
Nigel Mills
How did you hear about the scheme, Mr Douglas? Was it general—
Thomas Douglas
There was word of mouth, because we knew it was going on. It was the Moy Park agri project team, it was newspapers. As I said earlier, DETI and the Department of Agriculture were having roadshows and meetings right up until maybe December or January, promoting it. You had two Government Departments promoting it and another Government Department trying to close it down, all at the one time.
Nigel Mills
It is easy with hindsight, isn’t it? It did not ring any bells that you could install a heating system for £10,000, or you could install one for £60,000 and get a load of subsidy, and it would all be fine over 20 years? You did not think that is not—