Mr. Seamus McCarthy:

At the meeting of 2 May 2013, I outlined the financial difficulties of the Dublin Docklands Development Authority in 2010, which was the first year in respect of which my office carried out an audit of the authority's financial statements. A key factor contributing to the authority's financial position was the ongoing impact of its participation in a joint venture with private developers to buy and develop the Irish Glass Bottle site.

In October 2006, the authority and its partners in a joint venture company, called Becbay Limited, agreed to bid €412 million to acquire the Irish Glass Bottle site in Poolbeg. Other related expenses brought the total acquisition cost to €431 million, of which €291 million was borrowed. The authority provided equity and loan funding for the joint venture upfront, as well as guaranteeing the repayment of a share of the Becbay Limited loans, which were initially provided by Anglo Irish Bank. Following a deal done with the National Asset Management Agency, NAMA, on 27 July 2011, the final cost to the authority of its involvement in the Irish Glass Bottle site venture was around €52 million. Further substantial costs were incurred by the State when losses on the bank loans were realised.

In October 2006, the authority's management presented to the executive board an assessment of the level of investment, benefits and risks of the Irish Glass Bottle site project. There is no evidence, however, that a detailed analysis of those factors, commensurate with the scale of the proposed investment, was carried out. Management advised the board that the property market in 2006 was overheated but nevertheless recommended the investment for strategic reasons.

The information submitted on 12 October 2006 to support the authority's application to the Department of the Environment. Community and Local Government to increase its borrowing capacity stated the value of the site was approximately €220 million. It appears the authority did not update the Department when it decided to bid almost double that amount. Consequently, consent by both the Minister for the Environment, Community and Local Government and the Minister for Public Expenditure and Reform for increased borrowing and for the authority's participation in the joint venture was evidently given on the understanding that an investment to the value of around €220 million was being contemplated.

The authority did not obtain its own independent valuation when it was deciding on the bid that Becbay Limited should make for the site. In the course of the examination, my office reviewed the management by the executive board of conflicts of interest around the decision to invest in the joint venture. In the case of the decision to purchase the Irish Glass Bottle site, a number of board members disclosed their connections as directors of banks that were providing project finance. The authority took steps to assure itself that its decision-making in the provision of finance was in accordance with its code of conduct. The executive board minutes do not record disclosure by board members of any other personal, professional or business interests that could represent a conflict of interest with the decision to acquire the Irish Glass Bottle site.

Apart from its involvement in development activity, the authority has important planning functions in its geographic area of operation. Certain aspects of this function were also examined, and are reported on in chapter 4 of the special report. Difficulties arose with the development of a planning scheme for the Poolbeg area, where the Irish Glass Bottle site is located. Such planning schemes provide the framework within which fast-lane applications for planning approval are decided. These are referred to as section 25 applications.

The Minister granted an order in June 2007 specifying an area in Poolbeg for which the authority could prepare a planning scheme. Drafting of the scheme was completed in December 2008. The authority subsequently commissioned a review of the scheme prior to submitting it to the Minister for final approval. The review found the preparation of the scheme had not been carried out in a fair, equitable and transparent manner consistent with best practice and that the scheme was not robust enough to be submitted to the Minister. The planning scheme for the area has not subsequently been finalised.

The context in which the review of the draft Poolbeg planning scheme was commissioned was the findings of the High Court in October 2008 in a case taken against the authority on a section 25 application in the North Lotts area. The section 25 application in question related to a development company called North Quay Investments Limited and was submitted to the authority in May 2007. The executive board approved the issuing of a section 25 certificate to the company in July 2007. The basis of the adverse High Court finding was that an agreement entered into in May 2007 by the authority with North Quay Investments Limited was ultra vires, in that the authority should not have entered it in advance of determining the application for the section 25 certificate. Furthermore, the agreement could also be construed as either the authority or its executives committing that the executives would make a particular recommendation to the board. The proposed North Quay Investments Limited development was inconsistent with the North Lotts planning scheme. Non-compliant applications cannot be made compliant by the authority imposing conditions requiring modifications, which it had purported to do. The procedures employed by the authority were unfair as they did not allow adjacent landowners an opportunity to make submissions prior to the section 25 application decision being reached.

The authority's section 25 process was amended following the 2008 court decision. A subsequent review of the revised process found that it was satisfactory. However, the special report indicates that the level of section 25 applications since 2008 had been negligible.