Mr. Seamus McCarthy:

I thank the Chairman. The appropriation account for Vote 30 - Communications, Energy and Natural Resources, had total gross expenditure of just under €394 million in 2013. Figure 1, which could now be brought onto the screen, indicates how that expenditure was divided between the various Vote programmes. The largest programme was in relation to broadcasting, under which a total of €242 million, or 61%, was spent. The bulk of the expenditure under that programme was in the form of grants paid to RTE - just under €182 million, and to Teilifís na Gaeilge - €33.7 million. €14.4 million was paid into the Broadcasting Fund. €11.2 million was paid to An Post in respect of the costs of collecting broadcasting licence fees. The fees collected by An Post are remitted to the Department, and account for the bulk of the appropriations in aid of the Vote. In 2013, a total of just over €216 million in broadcast licence fee income was received by the Vote. The net expenditure on the Vote was around €27 million less than was provided for the Vote for 2013. The Department got the agreement of the Department of Public Expenditure and Reform to carry over €8.5 million in unspent capital funding to 2014. The balance of the surplus was due for surrender.

The report before the committee this morning relates to an examination of the arrangements for the provision of a national emergency call answering service, which comes within the responsibilities of the Department of Communications, Energy and Natural Resources. By way of background to the examination, I should explain that, in the course of carrying out the audit of the financial statements of ComReg for 2011-12, we noted that the regulator had incurred legal costs of over €310,000 when it settled a legal case taken against it by a telecoms provider. The company had challenged ComReg on the manner in which it had made a decision to increase the emergency call handling fee by 50%. It also complained about the absence of an appeal process in respect of fee changes. Our initial review established that the Department had put in place a complex framework to underpin the emergency call system, and I decided to review the arrangements in parallel with the audit of the 2013 appropriation account for Vote 30.

Historically, emergency call answering was done by Eircom operators. Since July 2010, the service has been provided by BT Communications Ireland, which won the contract following a tender competition run by the Department between 2007 and 2009. The contract is for a period of five years, with an option to extend for up to two more years. I understand that the initial five-year term is due for completion in July of this year. The emergency call service is fully funded by the telecom service providers. The companies are charged a handling fee for each call made through their networks. There is no direct charge for the person making an emergency call. In practice, the costs are passed on by the companies to their customers through the normal user charges.

The emergency call fee charged to the telecoms companies by BT is regulated by ComReg and is based on the expected cost of providing the service and the anticipated volume of emergency calls. Annual revisions of the call handling fee by ComReg take account of any under- or over-recovery of costs by the service provider in prior periods. We found that the volume of emergency calls received over the period 2010 to 2014 has been relatively constant at around 2.8 million calls a year. This is around 42% lower than projected when the service was put out to tender. The much lower than anticipated call volume, together with some other cost changes, led to a 50% increase in the call handling fee, from the initial rate set of €2.23 per call, to a rate of €3.35 per call. There were subsequent reductions and increases in the rate, which, in the period 2014/2015, stood at €3.08 per call. Legislation provides for ComReg to determine the costs BT may recover through fee charges. The scope of what costs are reasonable is set out in the concession contract. This specifies that the costs include a guaranteed rate of return of 6.63% on the capital sum invested by BT, which applies for the duration of the contract.

Our examination found that the guaranteed return is calculated on the gross book value of its capital investment - just over €11 million - giving a flat-rate guaranteed return of around €750,000 each year. This is factored in as a reasonable cost in the fee-setting model. As BT is also allowed to include a depreciation charge in its costs, its effective rate of return on its capital investment is significantly higher than the 6.63% set out in the agreement. The rate of 6.63% in the contract was arrived at from a base rate set by the Department, plus a margin proposed by BT in their tender. The National Development Finance Agency advises State authorities on the optimum financing of public investment projects. I recommended that the Department should consider consulting with the NDFA on any future projects of a similar size and involving similar complex structures, in order to ensure that the most appropriate terms are agreed, including advice on whether it is appropriate to specify a base rate of return.

The governance arrangements for the call answering service are set out in figure 2, which can now be shown on the screen. The concession agreement between BT and the Department envisaged the establishment of a project board, with representatives of the emergency services, and a liaison committee to facilitate communication on all matters between the Department and BT. In fact, the liaison committee was never established. Instead, meetings are held at least quarterly between a Department representative and BT's representative. The planned project board, referred to as the Emergency Services Group, has been established but it has no formal terms of reference and formal minutes of the group's monthly meetings are not recorded. I recommended to the Department that it should draw up formal terms of reference for the group and maintain formal records of its meeting, and it has agreed to do so.

BT reports monthly on its performance against service delivery standards specified in the concession agreement.

The reports are reviewed by ComReg and the Department and any instances where performance fails to meet the specified standard are raised and addressed with BT. Overall, performance standards are being met. Although provided for in the concession agreement, no annual reviews of BT’s performance have taken place. However, as part of its 2014 annual review of the call-handling fee, ComReg planned to engage an independent consultant to formally review and test the methodology by which BT compiles and calculates its performance reports. The Department has also agreed to a recommendation to publish an annual report on the performance of the emergency call answering service.