Mr. Fergal Mulligan:

I read out the state aid guidelines earlier. These guidelines require member states to have a clawback. The guidelines state that it is up to member states to negotiate the best possible clawback. The state aid guidelines do not prescribe the percentages. Again, there is a percentage of clawback for the build, a percentage for excess profits if everything goes wonderfully well and a percentage for excess profits relating to the value of a business at the end of it, particularly if it is a gap funding model. This can range from 0% to 100% with regard to any of these three categories and that is where the best possible outcome for the State is negotiated while keeping incentives on the bidder. In a perfect world where there were multiple bidders and perfect competition, which is virtually impossible to achieve in a telecommunications sector like this given the incumbencies and the different technologies and infrastructures available, it is less risky with regard to bidders coming in with a prudent view on costs or likely profits. In a less competitive or a risky environment regarding a contract like this for 25 years, no matter what the competition or process, all bidders are likely to have a very conservative view. That is what we found with the three bidders at the table. Nobody was running to make the cheapest possible offer because the consequence of doing that later on - going bankrupt - was fairly significant. We were dealing with three bidders that had a very realistic view of the world. That realistic view was that prices might go up. It is like the Baz Luhrmann song in that certain things can be guaranteed but it can nearly always be guaranteed that prices and materials will go up. Therefore, there is no point in predicting that prices will not go up and ending up getting burned. In addition, we did not want to deal with operators that told us that prices will go up by 10% every year and that if they did, the State needed to give them all this money. We told them that we might give them some money but if it did not happen and the increase was 2% every year, we would claw that back.

In the current situation with most of the cost for build, we claw back 100%. That is what we got to after Eir left. Mr. Griffin mentioned that the recommendation was to go forward with a much improved and robust contract and governance model because we were in a single bidder situation. Before Eir left, we did not have 100% clawback. We had 50% regarding the majority of the build costs. It was a significant shift from having two to three bidders in the process to having one bidder on the main risk cost areas where we now only pay what it costs. Although it was not fully negotiated, previously, the commercial guys would have been looking for 50% of the savings that may have been realised, which would have been a significant bonus to them if they realised savings.

From memory, the figure relating to excess profits was a lot less than what we have now, which is 60%. It had been 50%. Again, we negotiated that up rather than down, which in a competitive environment would have been probably negotiated down by competitors, the more risk they saw with the project and the greater the risk relating to construction and demand.

On terminal value, I believe we now have 40%. We had a lot less before. I cannot remember the percentage. It might not have been much but we got a much better outcome in a single bidder situation on the claw-backs to the State. I refer to protecting ourselves from the single bidder situation, which may take a more conservative view on costs and demand, but that is exactly what the state aid guideline sets out. Where there is asymmetric information involving the authority and the bidder, one includes protections related to a claw-back. It happens all over Europe. As I said before, BDUK has already clawed back from BT £700 million or £800 million in certain projects in the UK. It would probably have predicted certain scenarios where the risk did not reflect what was actually the case. As ESB said, in a project of the scale in question, considering the scale of the construction risk, a seven-year period in which many housing and construction projects would be taking place, and the fact that subcontractors are out the door, nobody can predict the prices. It is, therefore, hard to make predictions for a model. The company predicted what might happen to prices. We have contingency plans if the trend gets worse. We have 100% claw-back if it gets better. That is a significant part of the governance model that Mr. Griffin alluded to. We expect the €10 million per year that we may spend on governance to be more than covered by savings.