Oireachtas Joint and Select Committees
Thursday, 7 February 2013
Public Accounts Committee
2011 Annual Report of the Comptroller and Auditor General and Appropriation Accounts
Vote 32 - Department of Transport, Tourism and Sport
Chapter 6 - Financial Commitments Under Public Private Partnerships
Chapter 26 - Collection of Motor Taxation
Financial Statements 2011 - National Roads Authority
I advise witnesses that they are protected by absolute privilege in respect of the evidence they give this committee. If they are directed by the committee to cease giving evidence on a particular matter and continue to do so, they are entitled thereafter only to a qualified privilege in respect of their evidence. Witnesses are directed that only evidence connected with the subject matter of these proceedings is to be given. They are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against a Member of either House, a person outside the Houses, or an official by name or in such a way as to make him or her identifiable.
Members are reminded of the provision within Standing Order 163 that the committee shall also refrain from inquiring into the merits of a policy or policies of the Government, or a Minister of the Government, or the merits of the objectives of such policy.
I welcome Mr. Tom O'Mahony, Secretary General of the Department of Transport, Tourism and Sport and invite him to introduce his officials.
Mr. Tom O'Mahony:
I am accompanied by Ms Doreen Keaney, principal officer responsible for our public transport investment programme, Mr. Donagh Morgan assistant secretary with responsibility for sport issues, Mr. Fintan Towey, principal officer in our finance unit, Mr. Dominic Mullaney, principal adviser responsible for roads issues, in particular, and Mr. Gerry O'Malley, the principal officer who heads our operation in Shannon that collects motor tax, the national vehicle and driver file.
Mr. Seamus McCarthy:
Vote 32 provides for expenditure in respect of transport, tourism and sport. In 2011, the Department incurred expenditure totalling €2.3 billion. Of this, €2.1 billion was spent on transport, with the remainder going to cover tourism, sport and the Department's administration expenses. The functions in relation to tourism and sport transferred to Vote 32 from the former Vote for the Department of Tourism, Culture and Sport during 2011. The majority of the Department's expenditure is ultimately through other State agencies. In 2011, the Department paid €1.3 billion to the National Roads Authority. A further €503 million was paid from the Vote to the National Transport Authority. The National Transport Authority's 2011 accounts were considered by the committee two weeks ago. They show that the authority paid €395 million to the CIE group of companies for capital investment and payments under public service obligation agreements. In 2011, €146 million was also paid directly from the Vote to CIE in regard to capital expenditure, mainly aimed at improving railway safety.
The financial statements of the National Roads Authority are also before the committee today. The primary function of the authority is to secure a safe and efficient network of national, regional and local roads. In practice, this function is largely discharged through the relevant local authorities. In 2011, the authority had income totalling just under €1.38 billion, and it incurred expenditure of approximately €1.39 billion.
The authority provides funding to local authorities for road construction and maintenance. Funding for major multi-annual projects is agreed with the local authorities each year based on amounts committed and expected costs. Smaller construction and improvement and maintenance projects are funded on the basis of proposals from local authorities, together with the results of an examination of the condition of the road network, which is conducted annually. In 2011, the authority incurred total expenditure of €865 million in regard to road construction and improvement. Some €806 million, or 93% of this, was paid to local authorities. Expenditure levels in 2011 decreased by approximately a quarter by comparison with 2010. Expenditure of €161 million was incurred in respect of road maintenance and management, with €139 million, or 86%, being paid to local authorities.
The Government decided in June 2012 to manage the National Roads Authority and the Railway Procurement Agency to form a new entity incorporating the functions of both bodies and taking on some new functions. The Accounting Officer and chief executive will be able to provide an update in that regard. From previous meetings, members will recall that chapter 6 focuses on the Exchequer's financial commitments arising from public-private partnerships, PPPs.
In the case of the National Roads Authority, expenditure up to the end of 2011 on ten PPP projects totalled just under €1.3 billion. The outstanding commitment arising from those projects was almost €1.7 billion.
The chapter draws attention to a dispute in 2011 between the National Roads Authority and the PPP, public private partnerships, company concerning the N6-Galway-Ballinalsoe project. A mediated settlement was agreed in August 2011. Under this settlement, the authority agreed to pay an additional €16 million to the company and the company undertook to complete specified works. Most of the additional payment was made in 2011.
One of the key features of PPP projects is the allocation of project risks between the public and private sector partners, including sharing of risks where appropriate. The chapter highlights the outturn on risk-sharing regarding certain road projects. In the case of two PPPs, the M3-Clonee-Kells motorway and the Limerick tunnel, the NRA is now making payments to the PPP company because actual traffic levels on these routes are below a threshold set out in the contract. When the projects were approved, it was expected such payments would not arise because traffic levels were expected to be significantly higher. In 2011, the NRA paid €5.2 million under these arrangements. The chapter demonstrates that even if actual traffic volumes grow by an average of 2.5% each year, the NRA will make traffic–guarantee payments until 2025 in the case of Clonee-Kells and for the whole duration of the Limerick tunnel contract which runs until 2041.
Risk-sharing has also resulted in payments being received by the NRA. In 2011, it received just over €1 million from revenue-sharing provisions in other tolled PPP projects and just under €1 million from insurance risk-sharing provisions. As outturns are different from those projected when the PPP deals closed, post-implementation reviews of the value for money actually achieved are important in identifying lessons that can be learned for future projects. Such reviews are particularly necessary where there are additional project costs relative to what was originally projected. Three further road PPP projects have been in development for several years and the Galway city bypass was added as part of the July 2012 PPP-based stimulus package. The status of these projects in July 2012 is set out in the chapter.
The other chapter for consideration at today’s meeting, chapter 26, reviews the systems in place for the collection for motor tax and for the monitoring and deterring of motor tax evasion. An average of €1 billion a year is collected in motor tax. Several bodies play a role in the collection, administration and enforcement of motor tax. The Department of Transport, Tourism and Sport has responsibility for the maintenance of the register of vehicles which facilitates the collection of motor tax. It also has responsibility for the collection of online motor tax. The other main players are the Department of the Environment, Community and Local Government which has responsibility for motor tax policy, local authorities which collect motor tax locally and the Garda Síochána which enforces the requirement to display a motor tax disc.
I understand the committee will examine the Department of the Environment, Community and Local Government and the Garda at later dates regarding the issues which arose in the chapter. Accordingly, I will confine my remarks this morning to the matters more closely related to the role of the Department of Transport, Tourism and Sport.
There are no formal systems in place to measure and track the extent of motor tax evasion. It is, therefore, difficult, to assess the overall effectiveness of the collection system. Analysis of traffic on the M50 on four days during 2010 and 2011 indicated an evasion rate of 5%. If that applied nationally, it would equate to under collection of motor tax of around €50 million a year. It is vital the Department’s register of vehicles is kept up to date and that non-payment of due tax is identified promptly and followed up. Analysis of the register identified some 2.6 million registered vehicles which were not taxed. Of these, 170,000 have never been taxed and 800,000 have not been taxed in over ten years. It is likely that many of these vehicles are no longer in use and, therefore, their categorisation on the system as current registered vehicles potentially distorts that analysis of evasion rates and impedes follow-up of vehicles that are untaxed. The chapter recommends there should be a more robust system for dealing with situations where vehicles are declared by owners to be off-the-road and thus exempt from tax. The Departments have indicated that there will be a legislative response to that recommendation.
If fixed-charge penalties for non-display of a valid disc are to be an effective deterrent, they must result in motor tax arrears being paid and payment kept up to date. However, one in five vehicle owners issued with fixed-charge notices between 2008 and 2011 had not paid motor tax by April 2012. Of those who had paid, at least one in four had declared the vehicle to be off-the-road for the period during which they were fined. Furthermore, around 40% of those detected not displaying a current tax disc had not paid the fixed-charge penalty. This indicates that the system for the imposition of fixed-charge notices is not changing behaviour in a significant number of cases. The integrity of the off-the-road declaration system is also undermined. For this reason, the chapter recommends the need for the review of the effectiveness of fixed-charge notices as a deterrent to the non-payment of motor tax.
Mr. Tom O'Mahony:
I have provided the committee with some advance briefing material which I hope is helpful. I am not certain we have got the balance right in terms of the level of detail the committee wants. I propose to discuss with the committee’s secretariat over the coming months some of the models from other Departments which the committee has found to be good practice.
In 2011, the Department's overall expenditure totalled €2.346 billion of which €1.496 billion was capital expenditure and €850 million was current expenditure. The overall expenditure outturn was a saving of just under €16 million of the funding allocated by the Dáil. Of this amount, €8.7 million was carried over to provide for capital expenditure in 2012.
On the capital side, the main areas of expenditure were road improvement and maintenance, public transport investment, maritime safety, the coast guard, tourism product development and sports. In 2011 over €1 billion was spent on road improvement and maintenance. Regional and local roads expenditure accounted for €343 million while €674 million was invested in national roads. The following projects went to construction stage: the N3-Belturbet bypass; the N4-Downes grade separation; the N5-Longford bypass; the N25-Cork southern ring road interchange upgrades; and the N52-Carrickbridge-Dalystown.
In 2011, the Department spent €377 million on public transport investment. This enabled the continued implementation of the third railway safety programme and the completion of the Luas red line extension to Citywest. Construction and installation works continued on the Dublin city centre rail re-signalling project and works on the road crossing automation programme for 2011 focused on the Galway and Mayo lines. The Leap Card integrated ticketing project was introduced in the greater Dublin area, GDA, and good progress was made on the roll-out of real-time passenger information signs on the services of Dublin Bus in the GDA.
A total of €16 million was spent on investments in the maritime area. The main area of expenditure was on Coast Guard buildings and equipment. This included the second milestone payment for the helicopter search and rescue services contract of €6.7 million. This milestone was payable on written confirmation from Sikorsky Ltd of the readiness for delivery to Ireland of a new build S92 helicopter. In addition, €4.3 million was spent on remedial works at regional harbours.
In 2011, the total allocation to Fáilte Ireland to support capital investment in tourism was €25 million. Notable projects approved for funding included Garnish Island, Killarney House, a further development of the Mayo Greenway and the upgrading of the Book of Kells visitor centre in Trinity College, Dublin.
A total of €34 million was spent on capital investment in sport and recreation services in 2011. The main elements were €23 million on grants for sporting bodies and €10 million on provision and renovation of swimming pools.
In 2011, the Department's current Vote expenditure totalled €850 million. Current expenditure on roads was €254 million. This was accounted for by maintenance of regional and local roads of €110 million, maintenance on the national road network of €49 million, PPP operational payments of €81 million and NRA administration costs of €14 milion.
Expenditure of €278 million on public transport services was mainly accounted for by funding of €265 million provided in State subvention, through the NTA, to the CIE companies. The rural transport programme accounted for €11 million and the green schools programme accounted for €2 million.
Current expenditure under the tourism heading amounted to €126 million, which comprised of grants of €63 million to Fáilte Ireland, €17 million to Tourism Ireland and over €46 million to the tourism agencies for the overseas promotion of Ireland as a tourism destination. Current expenditure on sport amounted to €48 million, which was almost totally the grant to the Irish Sports Council.
The other major areas of current expenditure were maritime safety and the Irish Coast Guard which accounted for €39 million, the road safety agencies which spent €16 million and regional airports which also incurred expenditure of €16 million.
As I have given detailed advanced briefing to the committee on the two chapters from the Comptroller and Auditor General's report about which Mr. McCarthy has spoken, I will not add anything further at this point. Obviously, I am happy to deal with the various questions that will arise over the course of the morning.
Mr. Fred Barry:
I thank the Chairman and committee members for the invitation to appear before the committee today to discuss the National Roads Authority's 2011 accounts and Chapter 6 of the 2011 annual report of the Comptroller and Auditor General and Appropriation Accounts.
The year 2011 represented a transition year from completion of the major inter-urban route network, which was achieved in 2010, to focusing on managing and maintaining the road asset already in place and improving safety and removing bottlenecks. While network improvements will continue and are much needed, the mix of improvements in coming years will see an increasing proportion of single carriageways and an increased focus on the upgrading of the national secondary road network.
The Government's Infrastructure Investment Priorities 2010-2016 plan acknowledged that the road network should be maintained to a sufficient standard to ensure that the value of the original capital investment does not depreciate prematurely over the coming years. The Infrastructure and Capital Investment 2012-2016 capital spending programme stated "amongst the main priorities over the medium term will be ensuring adequate maintenance of the national road network in order to protect the value of previous investments and target the improvement of specific road segments where there is a clear economic justification".
The replacement cost of the national road network is in the order of €30 billion and on the basis of a 20 to 30 year average life cycle, it would deteriorate to the extent of €1 billion to €1.5 billion per year in the absence of this investment. With this focus and mindful of the limited funding levels planned for 2012 to 2016, inclusive, the authority's priorities were reviewed in 2011 as follows.
Priority 1 is asset management, network rehabilitation and network operations. The first priority beyond existing liabilities is to maintain the asset value of the network and ensure its reliability and functionality. This is critical to ensure that the network performs efficiently and safely and continues to support national economic competitiveness.
Priority 2 is national secondary roads improvements, bottleneck improvement projects, safety projects and traffic management projects. Most of the national secondary network routes are deficient in terms of capacity, safety and alignment. The authority will seek to implement improvements as funding permits.
Priority 3 is major improvement projects. The investment in the national road network in recent years has vastly improved many of the busiest and most strategic national roads. However, there remain many improvement schemes highly desirable from the perspective of economic benefit, safety, regional growth, competitiveness and quality of life, and these will be advanced as funding permits. These priorities were reflected in the authority's work programme for 2011, and, indeed, since.
There are two particularly significant developments since 2011 that should be highlighted. One is that the planned merger of the NRA with the Railway Procurement Agency is being actively advanced and may well come to fruition this year. The other is that the Government announced a PPP stimulus programme in 2012 which includes three major roads schemes: the N17-N18 Gort to Tuam, the N25 New Ross bypass, and the N11 Gorey to Enniscorthy.
We have, as requested, submitted a briefing paper, and will of course be happy to answer the committee's questions. If the committee has any questions that we cannot answer today, we will, as always, follow up with a written response.
Before calling on the first speaker, Deputy Connaughton, I will respond to correspondence that the committee received on Dublin Waterworld and the incorrect charging of VAT on the issue of the National Aquatic Centre. I want to put on public record this statement in respect of the issue of the VAT charges on the lease of the National Aquatic Centre which was the subject of a committee report in May 2012 following on from two hearings of the committee in November 2011 and February 2012.
While the report of the committee to which the Minister for Public Expenditure and Reform, Deputy Howlin, has replied would normally mark the end of our consideration of an issue, the fact is that we have received ongoing and extensive correspondence which raises further concerns about how this issue arose and why this issue was pursued through the courts by the State.
The conclusion we drew in our report was that this VAT case should never have been taken or prolonged by either Campus and Stadium Ireland Development Limited, CSID, or its successor, the National Sports Campus Development Authority, NSCDA. Every piece of evidence that has been supplied to us since our hearings and the publication of our reports lends more weight to that conclusion.
I will not reopen this issue in detail today. I understand and accept that VAT law is complex but the line taken before the committee by the Department and by CSID, later NSCDA, that it relied on Revenue guidelines to try to levy the VAT charges on the lease of the National Aquatic Centre, does not stack up. This is because the evidence recently supplied to the committee shows that the professional adviser of CSID, PricewaterhouseCoopers, was not relying on Revenue guidelines but had correctly interpreted the VAT legislation in late 2002 and realised that VAT could not be charged. However, as the 2001 Revenue guidelines had not been updated to take account of the 2002 legislative developments, these guidelines were a better fit. The VAT charge was raised and the case was pursued based on a loose interpretation of these guidelines.
The correspondence clearly shows that withholding the valuation report from Dublin Waterworld and its professional advisers was a central plank to this strategy. The fact is that the policy adopted by CSID and NSCDA was fundamentally flawed and those who had an obligation to protect the interest of the taxpayer failed in their duty.
It is regrettable that the committee was not provided with the 2002 PwC advice from the outset. This was less than acceptable and a material omission by the Department and the NSCDA in their appearance before the committee. I note that this information only came to light following the intervention of the Information Commissioner.
The entire episode is not the way a State company or statutory authority should do its business. Moreover, as these agents of the State hired and paid with taxpayers' money a multi-million euro team of professional advisers, the correct and common-sense advice from both the Comptroller and Auditor General and the Office of the Attorney General was provided for free but was ignored.
The committee met yesterday to consider the issue. While we will not at this time reopen the issue, we will, first, write to the Office of the Attorney General asking that the latest list of documentation be considered by it in the review of the judgments as contained in Recommendation 6 of the committee's report and whether there is an onus on a State company, statutory authority or body to show its full hand, specifically advice that might call into question its position to the Revenue Commissioners, its overseeing Department, the Office of the Comptroller and Auditor General and the Office of the Attorney General, when, as in this case, these parties become directly involved and have a direct interest in protecting the position of the taxpayer.
Second, we will write to the Revenue Commissioners in view of the fact that in 2002, CSID and its professional adviser were fully aware that Revenue guidelines were not a perfect fit with the VAT regulations so that this latest correspondence and this statement can be incorporated in the formal review that arises from the acceptance of Recommendation 8 of the committee. We will also ask the Revenue Commissioners, in light of the doubts that existed about its guidelines in late 2002, whether it would expect a State company or statutory authority to put Revenue on notice of the need to review and update those guidelines and whether Revenue would have expected them to have elaborated on the apparent flaws in its approach to this matter in its correspondence with Revenue. It is most likely that such notice would have led to a review of the guidelines and, had this happened, so much time, money and resources would not have been wasted on this flawed and needless dispute. We would also ask the Revenue Commissioners to confirm whether they would have provided the confirmations to CSID and its advisers that it had been made aware of the professional advice held by CSID in late 2002.
Third, we will write to the Department of Finance asking if it had been made aware of the 2002 advice from PwC to CSID and, if so, would it have advised CSID on the matter in which it did.
That deals with correspondence and the issues arising from the report. I call Deputy Connaughton.
Mr. Fred Barry:
I can to an extent, although I might also ask the Secretary General to speak about it. The plan to merge the organisations was announced as part of the McCarthy review of State bodies. We are aware that over the last six or 12 months, legislation permitting the merger to take place was being prepared within the Department and, I assume, the Attorney General's office. It is expected that the legislation will go to the Cabinet reasonably shortly. It is on that basis that we expect the merger to take place later this year.
Mr. Fred Barry:
Yes. The original target was to achieve savings of several million euro per annum in overhead costs. We anticipate these savings will be realised. As we may also be asked to carry out further functions, it may be the case that some of the savings will come from carrying out these functions with the same people. We will see how that works out in the legislation.
Mr. Fred Barry:
Public private partnerships generally transfer financial risks associated with designing, building and operating schemes from the client to the PPP company. The construction of any large civil engineering works - the route in question was an enormous project - carry a high degree of risk that actual costs will be ahead of estimated costs. This is particularly so for construction companies when they are tendering competitively because competitive pressures may constrain their ability to provide fully for contingent risks. The M6 Galway-Ballinasloe contract transferred most but not all of the construction risks to the PPP consortium. It transpired that the construction proved exceptionally difficult and the costs were far in excess of the PPP estimates. Some of the additional costs, to a total of €16 million, were determined to be to our account under the provisions of the contract but most of the cost overruns were paid by the PPP company and its contractors. In 2010, for example, N6 (Construction) Limited, which was constructing the route, published accounts which recorded cumulative losses of €50 million on its part when it would, of course, have expected a profit. This was a huge project which gave rise to a variety of difficulties.
The cost for most of these difficulties stayed with the PPP company but we were responsible for certain matters under the terms of the contract. There was, for example, extensive flooding in Galway in 2009. Members may recall that Galway city was virtually cut off from its hinterland, other than for very limited access. We arranged with the PPP company for sections of the road to be opened earlier to provide access to Galway by land transport. The cost of this was additional to the contract and we paid extra for it. There was a dispute with the PPP company as to how much should have been paid, which is why it was included.
Mr. Fred Barry:
The payment for it was included in the €16 million. The PPP company originally asserted claims of €140 million or €180 million, but by the time we reached the final negotiations its claims had decreased to the region of €80 million, including a claim of €6 million relating to flooding. We ended up with a settlement of €16 million, with the balance carried by the PPP company. That €16 million is a global settlement against the €80 million being claimed and is not itemised for different elements.
Mr. Fred Barry:
As there were gaps in the road, the company brought in equipment and manpower on an emergency basis to fill them. The staffing costs were very heavy because people were monitoring safety. The road and access roads were lined with safety bollards. The company incurred a cost but there was dispute over the amount of it.
Mr. Fred Barry:
We received a breakdown totalling €6 million but we did not accept all of it. Issues also arose in respect of quarries and material that should have been made available. All of the PPP construction contracts provide that if the State's standards change during the course of construction, the additional costs are picked up by the State. That arose in regard to CIE standards relating to bridges over railway crossings.
Mr. Fred Barry:
Some of that cost was offset against the contractors and some of it was paid by the NRA and Galway County Council as part of the normal course of construction. When one builds a project like this one will damage local roads. We paid for normal damage to local roads as part of the cost of the project.
Mr. Fred Barry:
There was liability on the part of the company. It was restricted in regard to the roads it could use. When we start work on the N17 and N18 Gort-Tuam road, we recognise that damage will inevitably be done to local roads by construction traffic. That is part of the cost of a project.
Coming from the area, I hope that motorway is constructed sooner rather than later. What will be different in the contract for that project compared with the M6 project to prevent damage to roads in that part of Galway and to ensure damaged roads are repaired on a more efficient basis?
Mr. Fred Barry:
We have included a number of provisions in the new contract which restrict the contractor in regard to the local roads that it can use. This will not eliminate damage to local roads but it will certainly minimise it and make it easier to keep track of damages, identify which are attributable to the project and assign costs to the contractor if it is not doing what it is supposed to do.
Mr. Fred Barry:
The Gort-Tuam route is included in the PPP stimulus plan. We are at the point of preferred tenderer, which in PPP speak means that the winning bidder is selected. We are in a position to negotiate the final agreement with that tenderer and close the contract as soon as the commitment of funding to cover the State side of the costs comes through. Once the commitment comes through, we expect it will take six or seven months to close the contract.
Mr. Fred Barry:
PPP contracts are managed by the NRA. In most contracts, there has been little or no uplift in the payment to contractors beyond the original tender price.
There was some uplift on the M3 but it was a fraction of what we are speaking of here and, on other ones, I think I am right in saying there was negligible uplift. On other parts of the motorway, where the contracts were managed directly by the local authorities, I am sure there were claims and payments all around the place.
Mr. Fred Barry:
Those members of the committee who have been listening to me on this over the years will excuse me if I cover some old ground. The committee will recall that by the mid-2000s, PPP tenderers and their funders were beginning to become more risk averse with regard to traffic forecasts than they had been previously. When we in Ireland were developing the earlier PPP contracts, the companies were willing to assume the entire traffic risk on tolled roads. By the mid-2000s, that was no longer the case. When it came to contracting the M3 Clonee to Kells and the Limerick tunnel schemes - both large and complex schemes - tenderers and their funders were unwilling to bid on the basis of them carrying the full traffic risk. Both PPPs were tendered on the basis that the NRA would take some of the traffic risk by guaranteeing minimum traffic volumes.
The PPP tenderers did their own traffic forecasts and, in both competitions, all the bidders forecast traffic volumes and revenue well above the NRA guarantee levels. The circumstances and the fact that we were entering this arrangement was reviewed by the committee in the mid-2000s. The PPP companies carry risk and cost of traffic being below their forecasts subject to a floor guarantee from the NRA. The mechanism has worked quite well from a public interest point of view. While I cannot reveal the individual consortia's precise commercially sensitive information, I can advise the committee that for 2012 the shortfall in revenue based on the PPP consortia forecasts at the time of the tenders was carried roughly two thirds by them and one third by the State. As a way of sharing the risk, it is working reasonably well. Of course, we would much prefer that we did not have to pay that money but given the choice was to carry the entire risk or put a risk sharing mechanism in place, as we succeeded in doing, we were better off with the risk sharing mechanism.
We are, like so many other businesses and enterprises in the country, dependent on the economic situation to improve our own finances as well as everybody else's. When the economy starts growing, the burden of the traffic guarantees will begin to ease and the payments from the revenue sharing schemes will begin to grow a little, but for as long as the current economic circumstances continue, we will, as the Comptroller and Auditor General has highlighted, continue to make traffic guarantee payments.
Mr. Fred Barry:
No, because even the risk share we have in this arrangement is not available to us anymore. We can no longer get PPP companies to take any of the risk. The PPP companies that took the full risk have, by and large, done very badly out of it. Even in the current situation, where we are guaranteeing some floor to companies, they are still doing badly against their own traffic forecasts because they are carrying a significant burden of the risk. The position on PPPs now is we cannot get any tenderer to take traffic risk. This is not just an Irish phenomenon, just in the case the Deputy thinks what has happened here is in any way unique.
Mr. Fred Barry:
The Comptroller and Auditor General referred in his report to the need to do post-project reviews. Typically, we do such reviews some years after a project is finished so that things have settled down. We have started this year on doing the cycle of post-project reviews on the PPP schemes that were opened in the 2000s. The first we are doing is the N4 Kilcock to Kinnegad scheme but we will also revisit the M3 and the Limerick tunnel. We have done preliminary calculations on the cost benefit ratios to see how they stand up in light of reduced traffic giving reduced benefits and the costs, including the additional costs we are paying through the traffic guarantees. It is very clear, even from the preliminary calculations, that both schemes are still delivering good value in that the benefits to the public are still well in excess of the costs.
Mr. Fred Barry:
We have values put against safety savings, that is, a certain value is put on a life or an injury. It is not calculated by us but we are given values to use. We look at changes in travel times and, again, values are used to reflect the cost of a heavy goods vehicle per hour, the cost of business traffic and the cost of social and personal traffic. They are all modelled and they give us benefits over the life of the project. Against that, we set the costs to the public of the project, which are the payments we make.
Mr. Fred Barry:
The maintenance budget for 2013 is €42 million. The budget has been, like everybody else's budget, squeezed down quite a bit over the past few years and, therefore, we and the local authorities struggle with the maintenance budget at the level it is at but we are also aware that we are not only ones in this position.
Mr. Fred Barry:
We need to perform the proper motorway maintenance. We have flagged and are saying publicly that the funding for rehabilitation work on the road network generally this year is below a sustainable long-term level. We can live with it this year. Undoubtedly, by the end of the year some work will not be done in various places around the country that would have been better done this year and it will be pushed out to next year. However, if that happens for one year, that is not the end of the world. Given all the cuts taking place across the State sector, we do not think we are being harshly treated but we are flagging that if we were to go through several years of under-funding in rehabilitation and maintenance work, the ultimate cost of doing that work will greatly exceed what it would have cost if it had been done in a timely manner.
Mr. Fred Barry:
For us, the users fall into two categories. Most of the users are registered in one way or another. They either have a tag, whether it is a e-flow tag or Easytrip tag or other tag or they have one of the registration systems in place. Where we have those arrangements in place, the non-payment is extremely low. Where people are not registered, and there are irregular users in some cases, I will refer to Mr. Kennedy.
Mr. Fred Barry:
We take enforcement action. At a certain point if people are not paying, we hand the matter over to the solicitors. We have sessions in the District Courts on an almost monthly basis where we pursue people for non-payment. Most people come to an arrangement to pay during the course of enforcement proceedings and we end up in the District Court with those who persist in not paying. Some people simply escape. Overseas drivers who do not pay are very hard to pursue. It does not make sense from the point of view of costs to bring proceedings in eastern Europe, for example, to recover a toll.
I welcome the witnesses. Mr. Fred Barry is switching from Galway East to Galway West in terms of questioners. I wonder if he can provide an update on the Galway city outer bypass before I turn to my primary issue. A great deal of money has been spent to bring the bypass scheme to where it is, yet it seems to be mired in legal difficulties. How much money has the Department spent on it and when does it expect to see movement?
Mr. Fred Barry:
Yes, it has. The application was made to An Bord Pleanála in 2005, which approved the scheme a few years later. A judicial review was taken of that approval which centred on the interpretation of the habitats directive. The High Court found in favour of An Bord Pleanála and said that it had acted properly. The High Court decision was appealed to the Supreme Court. The Supreme Court was asked by the appellants to refer the question of the interpretation of the habitats directive to the European Court of Justice. The Supreme Court agreed to do that and the reference was made two and a half years ago. We are waiting for the European Court of Justice to give its interpretation to the Supreme Court which will allow the latter to decide whether to affirm An Bord Pleanála's approval, in which case the scheme can go ahead, or to quash it, in which case it cannot. Galway County Council, the Department and everyone else who is trying to promote the scheme is in a legal limbo.
Mr. Fred Barry:
The worst case scenario is that the European Court of Justice will rule that in a protected habitat, no work of this nature may proceed on the basis on which An Bord Pleanála approved the scheme. In that case, the planning approval might be quashed. If that happens, any new application for approval will have to start from scratch. It is a very unhappy situation.
Mr. Fred Barry:
We expect the judgment within a month or two. The Advocate General who advises the court provided an opinion several months ago. The matter will then revert to the Supreme Court and we have no idea whether it will deal with the matter immediately or whether it would go back into the regular list. If it goes back into the list, it could be several years before the Supreme Court gets to decide the matter. It is completely outside our control.
It seems from the Comptroller and Auditor General's report that the motor taxation system is very convoluted in terms of the number of players involved including the Department of Transport, Tourism and Sport, the Revenue Commissioners, the Department of the Environment, Community and Local Government, local authorities and the Garda, which is responsible for enforcement, and others. The report states that the level of evasion is not being recorded properly. While some sampling is done on the M50, there is no system in place comparable to the one in the UK which provides a regular view of the level of evasion. What is the Department's view on that? According to the report, we could be losing up to €50 million per annum in unpaid motor tax but the system is not capable of measuring it.
Mr. Tom O'Mahony:
The point is that the system did spot it. It is our work that the Comptroller and Auditor General's report is on. Now that we have electronic monitoring of who travels on the M50, we are in a position to carry out this kind of survey. We can get the registration numbers of cars which are on the road and check those against the numbers in the national vehicle and driver file to establish whether they are taxed. Our suspicion was that the evasion rate would prove to be about 5%, based on the experience in countries which have had the system we currently have. Under the current system, it is open to a person to attend a local Garda station and make a declaration to the effect that his or her car has been off the road for a particular period of time. A garda must witness that declaration but, of course, has no way to verify it. It is an obvious gap in the system and there are a great many people who exploit it. We carried out the surveys and they showed that there is an evasion rate of approximately 5%.
In the UK when they changed from a system under which one could make this type of declaration to a continuous licensing system under which the car must be continuously taxed the evasion rate dropped to below 0.7% or 0.8%. We expect that the same would happen here. The Government has agreed to close this loophole and the Department of the Environment, Community and Local Government is preparing the legislation because the Minister for the Environment, Community and Local Government is responsible for motor tax legislation. I understand that will come before the Oireachtas in the next couple of months and will change the system so that one must make the declaration in advance. If one has declared that one's car is off the road for three months and it is spotted on the road then one is in trouble.
The Comptroller and Auditor General's report comments on the studies on the M50 to which Mr. O'Mahony refers, in July and September 2010 and March and June 2011, which found that 7% did not have current motor tax. Is the M50, as an isolated point in the country, a representative sample? Not everybody on the western seaboard would travel regularly on the M50. There might be different compliance rates in urban as opposed to rural areas and so on. Does Mr. O'Mahony think that figure is accurate and that the M50, as a single point of sampling, is effective?
Mr. Tom O'Mahony:
Probably not, but the benefit of using the M50 is that it is available. Without having to put Garda or any other resources into checkpoints there is a system in place. We are taking legal advice on the possibility of using speed cameras in the interests of tackling motor tax evasion. There may be legal issues around using that system for a reason other than the one for which it was put in place. We will also have to consider whether that would run any risk of undermining public acceptance of speed cameras. It is certainly something else that could be done.
I am not being pedantic but the Comptroller and Auditor General's report states that in order to tackle the problem it must be possible to assess it correctly. The Comptroller and Auditor General is of the view that the current system is not effective. Mr. O'Mahony has accepted that and has agreed to put a better system in place following the recommendation. What progress has been made on that? I take his point on the speed cameras. That would seem to match the UK system with regular spot checks throughout the country.
Mr. Gerry O'Malley:
Basically, the model we are looking at is the UK system. When they introduced continuous licensing in 2004, their evasion rate was in or around 5%. That is well documented. In the meantime, because of continuous licensing, it has dropped to 0.7%. That is the latest figure. We have opened discussions with the UK authority about drawing on its model for tracking and monitoring the ongoing effectiveness of the measures it has introduced.
Here people who have not paid their road tax but decide that they want to legitimise it claim it was off the road and get it certified as such, whereas in the UK one must first say the vehicle will be off the road and one wants permission not to pay tax.
Mr. Gerry O'Malley:
Typically, what can happen here is extended gapping. Somebody may pay tax for three months then leave the car untaxed for one month - leave a gap for that month - then tax for three months again. It is quite easy to see that over say a 12 month period that person is effectively escaping three months' tax, a quarter of the annual tax. That is the gap we intend to close.
I will not press Mr. O'Mahony on that. The Department is responsible for maintaining the national vehicle and driver file, NVDF. The report expresses some concern about its accuracy and how up to date and relevant it is. I gather there are 5.8 million vehicles on the register, of which 5.1 million are current, 2.5 million of which are taxed and 2.6 million untaxed. We have a legacy issue of 1.8 million coming from an old system and 500,000 with no tax activity and so on. It seems to me that a database that is not accurate is not worthwhile.
Mr. Tom O'Mahony:
I will put this in simple layman's terms and Mr. O'Malley can then give the more technical explanation. If I owned a car 30 years ago, there was no requirement to notify anybody whenever that car came to the end of its life, so the database that has been inherited has all of these old vehicles. A large number of those 2.6 million, if they were still operating, would be over 20 years old. There are all sorts of requirements and means to ensure that when a vehicle comes out of commission, it comes off the system. Unfortunately, we are stuck with millions of vehicles on this database where, apart from the fact that they have not been taxed or used to our knowledge, we cannot say categorically where they are. That is the layman's way of putting it. Perhaps Mr. O'Malley can put it in more technical terms.
Mr. Gerry O'Malley:
That is a good description of where we are. I do not want to argue on semantics here but we would not contend that the NVDF is not up to date. It is up to date as regards the 4 million to 5 million motor tax transactions and the 1 million changes of ownership that hit the system every year and all the outputs for the system, right down through penalty points and associated business. In that sense it is an up-to-date system. As the Secretary General said quite accurately, there is a problem in closing the life cycle of the motor vehicle and getting the designation of its being destroyed, scrapped or out of business, in effect at the end of its life. The EU directive on end-of-life vehicles has assisted considerably in that regard.
Mr. Gerry O'Malley:
The purpose of the database is to administer motor tax and to monitor ownership of vehicles. We alluded earlier to the fact that €1 billion is collected in motor tax. Approximately €500,000 in local charges is collected through parking fines and other such charges which are also collected directly through the system.
I accept this, but if the purpose of the database is to monitor road tax and see who is paying it and who is not, if more than 2.6 million cars show no activity, it must make it much more difficult to pinpoint this information and use the database effectively.
Mr. Gerry O'Malley:
If continuous licensing is introduced, people will be much more encouraged to notify a change in a vehicle's ownership or its destruction because otherwise they will continue to be liable for the motor tax. Once the legislation for continuous licensing is in place, we will follow up in a more rigid fashion on vehicles in limbo.
Something in the chapter I found interesting, which comes back to the problem of so many people being involved in the collection, administration and policy of motor taxation, is that the Department of Transport, Tourism and Sport issued 21 million renewal notices in 2010, which 17 million people paid and 4 million people did not. Those who did not pay were issued with a final notice, but as soon as a final notice is issued the process stops and there is no follow-up or further action. I found this rather startling.
Mr. Gerry O'Malley:
It comes back to how the motor tax law currently stands. Motor tax becomes due based on the use of a vehicle in a public place. All we can do as the custodians of the database is to communicate with those individuals and remind them the system has noted they have not paid. After this, the data are passed to the Garda Síochána as part of an ongoing process with it. The list of untaxed vehicles ends up in the file used for the automatic camera detection system. This is the enforcement mechanism because the vehicle must be detected in use.
I take the point. From what the Comptroller and Auditor General stated in the report, no response was received from 2.4 million people, which is 60%, within the following two months. The Department takes no further action if no response to a final reminder is received and it only issues further renewal notices if the vehicle is taxed again. This contradicts what Mr. O'Malley stated, as he said the information is passed to the Garda Síochána.
How effective is the Department's interaction with the Garda Síochána? What is the effect of giving the data to the Garda? Does the Department see a sudden spike in payments? Are many people caught? I cannot imagine it would have a huge impact on compliance.
Mr. Gerry O'Malley:
We already have a process in place whereby the data is passed to the Garda. It goes back to changing the basis on which motor tax is levied. If we move from levying it based on use to a system where it is levied based on ownership, we will be in a position to follow up on individuals more aggressively.
Mr. Tom O'Mahony:
As is the case in many instances, a technological fix to this will make matters much better. The file is given to the Garda on a weekly basis and, as the Deputy probably knows, the Garda has a system for automatic recognition of number plates. Although it will require the legislation, we hope it will become legally possible to use speed cameras for this purpose. We also have the M50. Quite a number of opportunities exist to electronically check cars on the road and tally them automatically with the list of untaxed vehicles so that, over time, particularly when this loophole is closed, we should be able to reduce the evasion figure to a very small number, as is the case in the UK.
I fully accept the Department cannot be responsible for the entire operation of the system. The Comptroller and Auditor General is very clear in the report that he does not believe there is comprehensive analysis of non-compliance. I take the point that the new system will lead to huge changes in compliance but part of confirming a change is working is to have a very good idea of the status quo and compare it with the situation after the change is made. If we do not have information prior to the change being made, we will not know the improvements. We must ensure if these changes are introduced that we see their effects and measure them and ensure it has the impact we want. Is the Department preparing for this? Will it have a base level study done before the changes are made to see improvements and measure effectiveness?
Mr. Tom O'Mahony:
Taking the Deputy's point, the West Link is not entirely representative but I must be honest and state we regard that the work already done gives us a baseline. Our two priorities are to work with the Department of the Environment, Community and Local Government on the legislation, because the single biggest problem is the local, and to improve enforcement. As I stated, we already follow up with the Garda on a weekly basis. The other measures I spoke about would greatly improve evasion figures. When the new system is in place, it would make sense for us, after a relatively short period of time, to conduct a comprehensive study and examine whether we can take on board more than the West Link. We can certainly examine the rate of improvement. It is reasonable for us to assume that taking the estimate of 5%, which has been the basis of our work so far, would mean we will not be very far removed from the actual situation.
It is not my view; it is the view of the report I read. There is no satisfaction that adequate testing of compliance is in place at present. The West Link is probably a good sample because thousands of cars from throughout the country use it every day. Certain areas of the country have different attitudes and different enforcement regimes where one may have more ability to escape being seen and the system may not be up to scratch. This seems to be the view of the Comptroller and Auditor General and I would like to put this out there. If we are making changes, we must be able to measure whether the change is effective. This is my point.
Mr. Tom O'Mahony:
We do take the point and we must develop the means by which we can measure. The West Link is great because the number plate of a car going through it is automatically seen. If one travels the road between Galway and Carraroe, one's car is not seen, unless the Deputy wants a toll bridge on that road. If we can get a legal change with regard to using speed cameras, it will be very easy. We acknowledge that having the information would be better, but we are limited in the means by which we can require it.
I welcome the witnesses and thank them for attending. I will start with Mr. Barry on the issue of public private partnerships, PPPs, and the recommendations in paragraph 6.48, page 90, of the Comptroller and Auditor General's report. I wish to discuss the future use of these tools and how they can develop in light of Mr. Barry's points. After that, I wish to discuss with Mr. O'Mahony CIE's situation and its relationship with the Department of Transport, Tourism and Sport.
I thank Mr. Barry for his explanation of how PPPs have operated in the past and the challenges they currently face. My observation on his comments is that difficulties will exist in the future use of these instruments because of the increasing reluctance of private sector actors to take on board the type of risk of previous years. The second factor compounding difficulties is the smaller amount of capital available vis-à-vis what used to be the case, which places demands on the National Roads Authority, NRA. Am I missing anything in my analysis or does it capture most of the situation?
Mr. Fred Barry:
I agree completely. Perhaps I did not say so earlier, but I accept the Comptroller and Auditor General's recommendation on this sort of risk sharing mechanism. As recent review reports in the UK would suggest, the likelihood is that PPPs, if they are to continue to provide value for everyone, will need to include more risk sharing measures between the client and the public sector in future.
I would like to develop that issue further. We discussed it with the Departments of the Environment, Community and Local Government and Public Expenditure and Reform a number of months ago and we have touched on it with the witnesses already. I have read the report of the UK's National Audit Office on the use of private finance initiatives, PFIs, the UK's equivalent. What kind of changes will we need to make in the PPP offering that we are making if we are to get the support that the State wants on particular projects?
Mr. Fred Barry:
Currently, the Government does not propose that any of the PPPs being planned should be toll-based. In the absence of tolling, the risks that fall on PPP companies are primarily more traditional design and build risks. There are risks relating to the availability of the road following construction, but the relative level of risk for the PPP company at that point is significantly lower than it is where there is traffic risk.
The plan for the three PPPs included within the stimulus programme is to develop them without tolling. In those circumstances, the risk that the PPP companies are being asked to take are well within the level of risk that PPP entities and their funders are willing to take these days.
We still have the more general issue that much of the investment market is cautious about investing in Ireland. This is the sovereign risk issue. However, some funders are available, for example, domestic banks. The National Pensions Reserve Fund, NPRF, is also in the background. We are reasonably confident that funders can be found for the schemes we are proposing on the risk sharing plan that is currently in place.
Turning to the risk difficulty being generated by existing PPPs, Mr. Barry made a point to Deputy Connaughton. The issue is picked up on page 83 of the report. I will be pedantic and read from a footnote: "The traffic levels, which are well below the base case scenarios underpinning the PPP contracts, will also have an impact on the PPP companies' returns relative to those envisaged at contract signing." Will Mr. Barry develop this point a little further? I ask him to do so because there can be a perception that most of the up-side in such projects sits with the private company and most of the down-side sits with the State.
Mr. Fred Barry:
Certainly. On our two schemes that involve risk sharing, the down-side is heavily shared by the PPP companies. Their loss of revenue as against their tendered forecasts is well in excess of the amount that the State is paying through the guarantee payments. In the other PPP projects where revenue risk is being carried in its entirety by the companies, different schemes are doing differently. Some are doing okay, some are doing poorly. In the round, however, the traffic volumes on those schemes are, as we would all expect, well below the levels forecasted by the PPP companies. Consequently, the revenues to those companies are well below what they expected, as are the returns on their investments. In some cases, the PPP sponsor companies have needed to inject further equity into schemes because their original equity has been burned by the lack of revenue coming through.
Mr. Fred Barry:
It is particularly acute in Ireland in that the volumes being lower than the PPP companies forecasted is true of virtually every scheme. Perhaps this is unusual. PPP schemes running into risks and risks materialising is not in any way uncommon. Recently, there have been reports of considerable problems in Australia where PPP companies have run into grave difficulties, PPPs in Spain ran into difficulty for reasons not unlike our own, and so on around the world.
I appreciate that, as the PPP commercial arrangements are complex, somewhat confidential and not in the public arena to the same extent as other commercial arrangements, people are concerned that PPP companies are doing terribly well behind the scenes. However, I would address the committee's attention to the published reports of the PPP companies for 2011, which are all registered. Cumulatively, PPP companies lost money in 2011. Far from making super-profits behind the scenes, they lost money primarily because of reduced traffic volumes. Some schemes made money, but others lost money. When totalled, the companies lost.
I will conclude on that point. Our difficulty in discussing these schemes is that when we press further on a particular project, the answer that we tend to get from Mr. Barry and others is that they cannot go into the detail for reasons of confidentiality, which I understand.
In the absence of those types of answers, a judgment along the lines to which I referred earlier is often formed. I wanted to establish with Mr. Barry broadly where the allocation of that downside has been and where it might be in the future.
I would like now to engage in some discussion with Mr. O'Mahony about CIE. Since the last occasion on which I met Mr. O'Mahony, I have purchased a Leap card. It is an exceptional scheme, the planning for which I am aware took a great deal of time. It is being marketed well. The combination of the Leap card with the real time passenger information system will, in my view, lead to a real change in how people perceive the Dublin bus network and how it can be integrated with other forms of public transport. It is a hugely positive nudge to achieving the type of public transport system we all want. The success of the departmental working group on this matter must be acknowledged.
Mr. Tom O'Mahony:
I thank the Deputy for his remarks. It is hugely important for the development of public transport. The results are beginning to show. People who previously would not consider taking the bus for all types of reasons now welcome that while sitting somewhere having a cappuccino they can access information, by way of an app on their iPhone, on when a bus will be at a particular location and so on.
Mr. O'Mahony would be entirely incorrect with regard to me. The system is great and that must be recognised.
On CIE, I would like to hear from Mr. O'Mahony about the nature of the governance relationship that the Department has with CIE, particularly in light of the recent reports on losses at the company and concerns in that regard. Perhaps Mr. O'Mahony would outline the nature of that relationship and how it interacts with the auditor's reports of the company's accounts.
Mr. Tom O'Mahony:
CIE is a commercial semi-State organisation, which means it is required to operate to a commercial mandate. Its directors are responsible for ensuring that the group delivers on that mandate, that it complies with its legal requirements and complies with the Government's code of practice for the governance of State bodies. The directors also have fiduciary responsibilities and are responsible to the Minister in terms of governance.
A commercial semi-State body will usually operate without Government subvention. There is no question of the Government giving a general purpose grant and so on to CIE but it can engage with Government Departments or agencies in terms of funding for services for particular purposes. Most of the services which the CIE companies provide would not be possible without public service obligation support. This is not unique to Ireland and would be true of public transport everywhere in the world. The PSO support is governed by EU rules to ensure there is no unfair subsidisation to the detriment of other providers or potential providers and so on.
As the National Transport Authority appeared before the committee a couple of weeks and gave the committee a detail exposition on how the PSO contracts operate, I will not repeat that information. The Department provides the NTA with the funding to procure PSO services, in respect of which the NTA has contracts with Irish Rail, Dublin Bus and Bus Éireann. The committee has already discussed monitoring of the NTA with Mr. Gerry Murphy. However, for the sake of completeness, Bus Éireann has an arrangement with the Department of Education and Skills for the schools transport scheme and is accountable to that Department in that regard. The NTA forgoes a substantial amount of income through the free travel scheme and, as such, has a relationship with the Department of Social Protection in terms of funding in that regard. That is the situation in respect of current funding.
On capital funding, the State makes significant investments in the network, particularly the railway. Maintenance of the rail network requires substantial ongoing capital expenditure to ensure safety and enable service improvements. The rationale for the State investment is to enable provision of the PSO services. While the PSO subvention compensates for the operating costs, the capital provision meets the capital cost directly. In so far as buses are funded by the State through the NTA, there are now legal agreements in place which provide that if any of the services are subsequently taken over by other operators, the NTA can repurchase those buses for a nominal sum. I think the amount is €1. This ensures their continued use for the PSO service.
In normal circumstances, where CIE is operating smoothly and is not experiencing financial difficulties - which was the case until the recession hit in 2008 - our interaction with it would be satisfying ourselves that from an accounting and management point of view, it is okay. We would regularly review its compliance with the code of governance and undertake spot-checks and monitoring of capital expenditure and so on. As I said earlier, the NTA closely monitors its performance on contracts. However, the situation, financially, over the past couple of years has not been okay. From 2009 onwards, CIE suffered a succession of knocks, with almost everything with which it dealt going in the wrong direction, including the substantial fall in passenger fare income owing to the deepening recession, the cut in PSO subvention owing to the Government's need to make substantial savings, the significant increase in fuel prices, the abolition of the tax rebate scheme on excise paid on diesel, which previously benefited the company substantially, and the introduction of the carbon tax, which resulted in the company losing a significant amount of money. The company's response to these hits was to engage in a range of cost cutting measures, including voluntary redundancies, reductions in premium pay and so on. While a process has been ongoing, the company has continued to lose money.
Everything came to a head at the beginning of 2012, when the company "suddenly" - I use the word "suddenly" because this was a failure of systems in the company, which we have subsequently had to address - discovered that it was going to breach its borrowing limits and would not have funding to meet its commitments, which would have been extremely serious and required the Minister and Department to engage extensively over a long period. The purpose of this engagement with the company, which has been ongoing for the past nine or ten months, is to ensure that the hole that had emerged could be plugged, that measures would be put in place to enable the company to trade its way out of its difficulties and get back to financial stability and to ensure that financial and other systems in the company change to ensure this type of problem does not recur. Substantial changes in the company have been made.
The Government gave a further €36 million to the NTA for PSO subventions. The NTA, in engaging with companies, was able to establish that the losses being made by them meant that the €36 million in additional PSO payments could be paid without there being any question of a breach of EU regulations. Companies are allowed to make a small profit on PSO routes, but subventions can only be used to subsidise losses and to ensure a normal rate of return.
The companies involved changed their financial systems and new people and systems have been introduced. Most significantly in terms of the relationship between the Department and CIE, given that this issue had arisen and with the financial reporting arrangements not fit for purpose, new arrangements were put in place. The Department has been assisted in this by NewERA, a unit of the National Treasury Management Agency. The Department engaged Deloitte to examine the companies and cash management arrangements, as well as processes for a recovery plan, treasury and debt risk management procedures, and make an assessment for a reporting framework. It made a number of recommendations, all of which have been implemented. We agreed a memorandum of understanding between the Department, CIE and NewERA and now receive weekly updates on CIE's cash position, with representatives of NewERA assisting the Department and providing technical support.
There is a turnaround plan in place which includes the various issues being negotiated through the Labour Court. There are also issues of budgets, cash flow, the process for disposing of non-core assets and so on. Apart from ensuring this will put the company back on the route to viability, as well as ensuring it will not again run into unforeseen crises, it will also enable it to engage with banks, as it is now doing. New credit facilities are being opened. When the overdraft limits were breached last year, the banks indicated that they would not allow any more breaches or extend the limits, but the company is now engaging with them, with the expectation positive that it will be able to return to normal funding patterns.
Mr. Tom O'Mahony:
The NTA's role is separate. I know the issue was teased out in some detail a couple of weeks ago, but the authority's role specifically relates to the services provided, with very detailed monitoring of contracts and performance, etc. There was a discussion of this topic by the committee. It relates to general governance matters rather than contracts.
Okay; I understand the distinction. I am familiar with the legislation behind the setting up of the authority and understand the relationship it has with companies such as CIE. As concerns were raised by PricewaterhouseCoopers, does the Department engage with that company and how is this tracked? It issued an "emphasis of matter", as it was concerned about the ability of CIE to trade into the future.
Mr. Tom O'Mahony:
This relates to the audit of the 2011 accounts and the company did exactly as the Deputy described. The issue was also raised here a couple of weeks ago, which is the reason publication of the accounts was delayed. The CIE directors took the position very seriously where the auditor was essentially challenging the group's ability to continue to trade as a going concern. Properly, they indicated that they would not sign off on the accounts until they were satisfied with the plans produced by management to remove that uncertainty. By November, they were satisfied with the progress made in developing a recovery plan by management, including measures such as selling non-core assets; some of this was done in November. There were also reductions in the cost base. There was the required reassurance and the accounts were signed off on. With the assistance of NewERA, we are very closely involved not just in monitoring the finances on a weekly basis but also what is happening in the development and implementation of the recovery plan.
Mr. Tom O'Mahony:
It is all a work in progress. To the best of my knowledge, what was recommended by Deloitte has been implemented and NewERA is working very closely with CIE. When CIE reports to us, representatives from NewERA are also present. At this point, everything that needs to be done is on track and there is no indication from NewERA or anybody else that what needs to be done is not being done or that there is no willingness to totally change the systems within the company.
We had representatives of the National Transport Authority before us recently to discuss the procurement of carriages for Irish Rail. Some €36 million was paid to Irish Rail at the end of 2012, yet 21 carriages, with a value of approximately €44 million, were not in use. What due diligence process would have been carried out by the Department in that respect? In December 2010 there were 50 carriages-----
What due diligence process was carried out, given that level of investment in carriages? There were 21 carriages idle at the end of 2012, yet the Department saw fit to extend €36 million to Irish Rail at the time.
Did the witness request information about the possible value of the carriages in terms of resale? I refer to the original contract. Did any negotiations take place whereby contingencies were built in that if the volumes were not available, there would be perhaps reservation and title maintained over the carriages by the vendor? At that time, in December 2008, the Celtic tiger economy was coming to an end. We were making this extraordinary investment and I am trying to find out about the due diligence carried out at the time. From the viewpoint of the ordinary taxpayer, they see €44 million tied up in carriages and the Irish State having to pay €36 million to plug the hole in Irish Rail. There are many good people working in Irish Rail. I am putting this purely in terms of following the money for the Irish taxpayer.
Mr. Tom O'Mahony:
The process that was followed in 2007 and 2008, when it was decided to proceed with this, was the normal one with regard to capital investment. A business case was drawn up. It was based on demand projections. It was also based on what was then Government policy relating to the expansion of services. The business case was looked at in the Department and was reviewed by, I think, Goodbody Economic Consultants. On that basis it was decided to go ahead. I am not aware, although I will have it checked and send a note to the committee, that the contract would have provided any type of contingency clause.
Were these carriages all acquired at once or were they acquired over time? Why do we have a situation where there is obviously not the capacity to use the 21 carriages? Planning was probably done for that in 2006 and 2007, which was the height of the Celtic tiger economy. However, it was running on hot stem at that time and at a speed that was not natural. Why was it not done on a phased basis, so that if the demand was not there the carriages would not have to be bought?
Effectively, 51 divided by 21 means that over 40% of the carriages of that particular order were bought when the Celtic tiger economy was running down at a rapid rate. The 234 carriages date back to the 2004 order. Is that correct?
That was in 2004. My point is that between 2004 and 2008 circumstances changed. Clearly, at that point in time there was a trigger mechanism whereby it got the 120, 30 and the 33. When it came to 2008, could it have varied the order for the 51 and opted for 30 carriages?
Mr. Tom O'Mahony:
My understanding of this is that at that time the expectation was that this amount was needed. There is one small detail which I wish to put into the mix as well. We have been talking about 21 carriages as being surplus to requirements. At all stages in this exercise, when the need for 234 was worked out, 12 of the 234 were always envisaged as being back up, which would be available in situations where rail cars go out of service or whatever. If there had been no recession at all and if all of the rail cars were being used to the full extent that was envisaged when these projections were being done, there would be 12 there for back up. Instead of having 12, we have 21.
I can understand the 120, 30 and 33. Was there a decline in passenger numbers? In my view one could see a major dip in the Celtic tiger economy in July 2007. When in 2008 were the carriages purchased?
They were purchased after the bank guarantee. We were in a situation where Ireland did not have those resources. What was the methodology used by the Department and Irish Rail to sign off on 51 carriages, which is 19 more than were ordered in the previous year? Were passenger numbers increasing? What was the logic? Why did they not pull back and re-order? Mr. O'Mahony speaks about their lifespan, but that is not the issue. The issue is that we ended up putting €36 million into Irish Rail at the end of December last year, and it had investment in stock. Let us park the requirement for 12 rolling stock. There is at least €20 million plus, over and above what was required in terms of investment. Explain the logic to me.
What I am interested in is the methodology. The job of the Committee of Public Accounts is to find out if the procedures within Departments are robust. Explain the process by which these 51 carriages were agreed.
Mr. Tom O'Mahony:
The methodology was a business case which was prepared in 2008 in Irish Rail. It took account of stated government policy which included opening new lines, that were subsequently opened, which were going to need rolling stock. Government policy on those lines envisaged more being done than has been done. To give an example, the Navan line has only been opened part of the way.
The business case was also based on projections of future passenger demand. I agree completely with the Deputy that in 2008, it would, or should, have been possible to see we were heading towards something of a recession.
Mr. Tom O'Mahony:
I would challenge Deputy O'Donnell if he was suggesting that anybody - any economic forecaster or forecaster of any description - would have predicted in 2008 the depth of the recession we were going to go into and the impact it would still be having six or seven years later. Remember these were purchase decisions for equipment which takes up to five years between ordering and delivery and which will be used for the next 30 years. Based on those projections, the view of Irish Rail and the Department at the time, which we now know to be wrong, was that these would be needed for future capacity. That work was then given to Goodbody Economic Consultants, which reviewed it. Goodbody approved it and the order was placed. That was the process that-----
That is fine, and I accept that. In 2008, a system should have been put in place whereby Irish Rail could have looked at the 51 carriages and come up with an options system based on passenger numbers. Things were clearly slowing down across a range of areas. The Department should request Irish Rail to get a valuation of these carriages and of their disposal value.
It was agreed with Mr. Murphy that he would provide us with all of that information. We have asked him to link in with the Department and anywhere else necessary in order to make the information given to us comprehensive and full.
Mr. Tom O'Mahony:
I will give the committee my understanding of what has emerged but it should rely on what comes from Mr. Murphy for the definitive figures. As I understand it, if these carriages were to be sold on for use somewhere else, they would have to be substantially modified and the cost of the modification would have to come off. The book value is just over €40 million but the modification would cost about €10 million, so the potential sale price based on the book value would be a maximum of €30 million. This is for 21 rail cars. However, the expectation is that one would have to offer a substantial discount to get somebody to take them. One could not be sure what the discount would be. It could be as much as 50%. If that were the case, one could get in the region of €15 million to €20 million, or, say, €1 million per rail car. It is true that would bring cashflow in but if, in four or five years' time, one needed to buy rail cars, one would be paying €2.5 million for them.
If a business orders stock way in excess of what is required, there is an old rule about working capital and running a business. When this order was made, the methodology and due diligence were soft and not rigorous enough. Ultimately, people living in Ireland - the taxpayer, the person in receipt of social welfare or whoever - are picking up the tab. It should not have happened. It is an affront to the Irish taxpayer that €44 million was invested in something which is probably worth roughly 34% of that. It has lost three quarters of its value. That is bad business. If the book value of the carriages is €40 million, less €10 million for modifications, and if one has to give a discount of 50%, they are worth €15 million. They have lost 75% of their value.
I accept that point, but even then, I hope this will never happen again. A strategic view must be taken of these carriages. Will they ever be put into use? If they will never be put into use, there will have to be a proper evaluation. I hope we will have a further rigorous evaluation. This is not personal, but it should not have happened. It is a waste of taxpayers' money. I believe in public transport and I use Irish Rail - it is something I feel very strongly about. It does not make sense to put in €36 million when the taxpayer has €20 million at a minimum or up €44 million tied up. Will the Department follow this through? The Committee of Public Accounts will follow it up rigorously.
I have questions for Mr. Barry on the issue of tolls. The two tolls about which I am talking are Clonee and the Limerick tunnel. When were they both completed?
So, roughly, we are talking about €15 million overall, and for the past two years, of the order of €7 million to €8 million in total each year. What are the projections for both of those? I note there is a PPP in place for the Limerick tunnel up to 2041 and for Clonee up to 2025. It is 28 years in the case of the Limerick tunnel and 12 years in the case of Clonee. What are the projections in terms of the cost to the State of Clonee and Limerick over their lifetimes?
Mr. Fred Barry:
The report does not have the monetary figures but we will get them and submit them to the Chairman. The report notes, however, that based on 2.5% growth, we will continue to make traffic guarantee payments to the Clonee-Kells PPP company until 2025. On a similar basis the projected traffic levels using the Limerick tunnel will not reach the guaranteed traffic levels and the State will make payments to the PPP company for the duration of the contract.
So for the next 28 years - looking at the figures for Limerick, which were €4.453 million and €4.497 million - the State could pay another €112 million, a total of €120 million over the lifetime of the contract.
Mr. Fred Barry:
It is not reflected in the report but there are other caps on the payment. They are also capped by senior debt repayments within the deals. Even in a bad situation in which economic growth was slow for a long period, we would not have this extended payment at that level. As the debt is paid down, eventually the cap relating to the debt repayment would kick in and limit the payments.
If the economy does not pick up and if traffic does not grow, we will be paying the traffic guarantee payments.
That is an astronomical amount of money. The State might pay more than €100 million over that 28-year period. In negotiations with the PPP provider, were the figures for traffic volumes too generous on the part of the NRA?
Mr. Fred Barry:
If we had not offered risk-sharing where we carried the traffic risk, we would have been carrying the entire traffic risk. Under the risk-sharing mechanisms that are in place, the State might end up putting in €10 million, €50 million or €100 million, but if they were not in place, the State would be putting in €200 million instead. The option of developing the schemes with the traffic risk being carried in its entirety by the PPP companies simply was not available. It is not as though we said we knew better than them and would take our chances. This was a stark choice. We either took some of the risk or we took all of the risk. We could not get a PPP company to sign up on these terms today. That might change - the pendulum swings back and forth - but right now everyone is risk-averse and we could not get these terms.
The Gathering is taking place this year. Some of the signage is not great. We expect tourists to be able to find their way and we are encouraging them. Who has responsibility for road signage in Ireland?
Mr. Fred Barry:
Responsibility is shared. The NRA and the local authorities have responsibility for road signage on national roads. In saying we have the responsibility for it, the Department has certain standards for signage that apply to everyone across the board. The policy on what gets signed and where on national roads primarily rests with us.
I am keen for the new motor tax legislation to come in. I was shocked when I found out a year ago about the extent of registration of vehicles as being off the road. In discussions with Deputy Nolan, checks on the M50 were mentioned. I was shown figures that indicated that one in eight cars in the Dublin region are registered as being off the road. In Monaghan the figure was as high as one in four vehicles. Obviously some of these were genuinely off the road but when there is such discrepancy in the figures, in all probability, there is a greater level of non-compliance with the rules in Monaghan than in Dublin. That is not to say there is not a significant level of non-compliance in Dublin as well. The only reason I mention it is that it might give a guideline as to how non-compliance might be checked.
Mr. Tom O'Mahony:
The legislative system we have at present gives too much of an invitation to people to abuse it. I will not speculate about the extent in different parts of the country, but the system is too wide open and it is being abused. We must close the loophole and then use technology and enforcement mechanisms to track people. That has worked in other countries and we would be happy that it would work here.
I recognise the huge improvement the NRA has made to the national road network. Some of that money should have been used to improve public transport in cities, but the improvement in the roads has greatly helped.
I was interested in the answers given to Deputy O'Donnell. The subvention that must be paid for the M3 has been increasing. I have not used that road very often but it is curious that there are two tolls on the road. If I drive from my house in west Dublin to north Meath, where my mother is from, I must pass through three tolls, one on the M50 and the two on the M3. What is the logic of having two tolls on that road? In Deputy McGuinness's neck of the woods, there is no toll on the motorway to Kilkenny and Waterford.
The Chairman is obviously indicating that the previous Minister, Noel Dempsey, was not very effective in County Meath. Can I have an explanation for the number of tolls on the M3? I can understand the reason for two tolls on the long stretch of motorway on the road to Cork
Mr. Fred Barry:
I will give an explanation in so far as there is one. On the M3, which is being developed and is substantially being paid for by direct payments from the taxpayer - perhaps I should have said this earlier when questions were being asked about the guarantee payments - the primary payments on the M3 are fixed payments. We made fixed payments during construction and are making fixed operational payments. It is a toll road and as a single PPP scheme it was felt it would be better to have two payments of a lower toll such as €1.30 or €1.35 as at present rather than a single higher toll. On the M4 in Kinnegad, the single toll costs as much as the two tolls on the M3. That was done because the M3 road extends towards Kells, which is quite a long distance. One will get quite a few users who are using the northern end but not the southern end and vice versa. That was the thinking in levying two lower toll rates.
Mr. Fred Barry:
Indeed, but it was felt to be somewhat equitable to have the toll spread over two payments rather than a single higher toll.
In response to questions on all the roads that are not tolled, the Deputy mentioned Waterford but many schemes were built without tolling. The general principle was that roads would be developed and built with Exchequer funding but not tolled unless there was an arrangement that they would be tolled. The NRA was given a target of the money that must be raised through PPPs to be supported by tolling and agreement was reached broadly speaking on the location of the toll points. In relation to the road to Waterford, it is not a toll road but many other schemes were also built that have no tolls.
Mr. Fred Barry:
Certainly the traffic volumes are such that the cost of collecting tolls would be disproportionately high. Toll collection is not the most cost effective way of raising revenue. It works well in terms of the user pays principle but there are connected expenses with it. If one starts imposing tolls on a lightly travelled road, a disproportionate amount of the money collected will go into administrative costs.
I am a Deputy for that area and I am sure Deputy McGuinness will support me because he will have to use that crossing. I welcome the NRA's decision to proceed rapidly with that project, but what concerns me is the question of the democratic input. A unanimous decision was made by South Dublin County Council, which was supported by both elected councillors and officials, some years ago that the main dual carriageway would be taken under the subsidiary road from Clondalkin to Tallaght. That has been over-ruled. My problem with the NRA is that it is not sufficiently responsive to democracy. I appreciate and understand the argument that sometimes local interests could be too dominant but at the same time there is a need to be responsive to the local interest because the people who live very close to it will be severely impacted by the road. To what extent is the NRA responsive to local pressure, some of which is reasonable but sometimes it may be unreasonable?
Mr. Fred Barry:
I agree with the Deputy's point. Ultimately these matters are resolved through the planning process. I am not in any way gainsaying the fact that if I were living close to the road I would prefer that it went under rather than over. I am not disagreeing with the Deputy on that point. Ultimately, we or the local authorities will go to An Bord Pleanála and those who think we should be doing it differently make their case. Usually we are granted permission but sometimes An Bord Pleanála refuses permission but very often changes what is be done and imposes conditions. That is how the issue is resolved by the planning process.
When the NRA and the RPA come together how will that amalgamation affect the general philosophy of transport delivery? As I have indicated, the NRA has done some excellent work, although perhaps some of the funding ought to have been invested in public transport in urban areas rather than in roads.
Mr. Fred Barry:
Our funding comes in different streams and the streams are ringfenced in terms of on what the money can be spent. I expect, and the Secretary General will have a strong view on this, that in the future the funding streams that come to us will identify which funding is for the light rail side and which is for the national road side.
Mr. Tom O'Mahony:
The Government periodically publishes the priorities for the capital investment framework for a four or five-year period. Previous Governments have done the same. It was always the case, before the financial crisis hit, that it was envisaged that with the completion of the major interurban motorway network we would come to the end of a period of massive investment in improving our road infrastructure and we were planning to move on to a very substantial investment in improving our public transport infrastructure, with the construction of a DART underground and so on being important parts of that strategy. At present, most of that proposal is on hold, a limited amount of work is being done, in particular on the Luas cross city but the funding is not available for public transport investment on the scale that was envisaged. However, the projects are not cancelled and the Ministers have made clear that projects have been put on hold. The expectation would be that as we get into the phase in which the economy has recovered and there is money available for investment, public transport, particularly in Dublin, will need to be substantially improved. It would be a matter for Government to agree that and then it would be a matter for the new entity to work with whatever resources it was given to do the parts for which it was responsible.
I presume the Secretary General will have some influence on the Government in that regard. To what extent does Mr. O'Mahony see the interconnector between Heuston Station and the DART and St. Stephen's Green as a priority when sufficient moneys become available? Does Mr. O'Mahony see that as the most important piece of rail infrastructure in the Dublin area?
Bureaucrats often have a huge influence on what actually happens. I would like to mention two other road projects. I assume the development of a link between Kennelsfort Road and the N4 is pretty far down the line because of the lack of resources.
I know. It is one of the few that could be justified if resources were available. I would also like to ask about the West Link toll on the M50. I understand from one of Mr. Barry's earlier replies that all of the profits from the toll go back to the State through the NRA.
I have personally found eFlow to be very unresponsive when the public has a problem. I recently had to make representations for a constituent who was alleged to have built up a series of unpaid toll crossings. The company was extremely difficult to deal with even though the man in question had a letter from the Garda accepting that he had not crossed the bridge. It eventually accepted that he had not made these crossings and that a person of a criminal nature had cloned his registration plate. I accept that such cases are rare and unusual, but is there anything the NRA can do to make eFlow more consumer-friendly? It seems that every obstacle is put in the way of consumers who wish to contact the company. As a public representative, I have great difficulty contacting eFlow. I have a regular account with the company but I cannot reply by e-mail to the statements it sends me if I have a query about a transaction. Is there any way in which the NRA can ensure eFlow is more friendly towards the consumer?
It was difficult to find the phone number, but I found it eventually. I think the number should be displayed on the boards one sees when one crosses the West Link bridge. It would be useful if a phone number or an e-mail address, which people could access if they have problems, were provided on the boards that say "pay your toll by 8 p.m. tomorrow". It must be extremely difficult for people from outside the State to know what to do if they are suddenly presented with a notice of non-payment of a toll crossing. I really think there is a need for more to be done. I have given just two examples of the many complaints I have received from various people about this matter. I would appreciate it if the NRA could contact eFlow in this regard and write to me to let me know what response it receives. As I have said, I find eFlow very difficult to deal with.
My final question relates to tourism investment. Mr. O'Mahony mentioned various projects that have been funded under the allocation to Fáilte Ireland. Some of them are greatly enhanced as a result. I very much appreciate the work that has been done in this regard. My specific question relates to complaints that were made recently on radio about the decision to close Derrynane House in County Kerry, which is the ancestral home of the O'Connells, this summer because of upgrade works. It was alleged in the radio programme I heard that most of the work which needs to be done is internal work, rather than external work. Would it not be possible in such a case to do that kind of work outside the summer season? If a great deal of external work were involved, I appreciate that it may have to be done in the spring or summer. Given that this is the year of The Gathering, is there anything the Department can do to ensure Derrynane House will be open for the summer season? It is an important tourist venue in a part of Ireland that is one of this country's most important tourism centres. If similar works are needed on any other projects, can the Department issue a direction to ensure it will be possible to keep our important tourist venues open to the greatest extent at those times of the year when the greatest number of visitors will be around?
I would like to ask about the payment of €152 million that is made by the Department of Social Protection to CIE in respect of the free pass scheme. What are the figures which support that payment? How is the number of people who carry passes quantified or checked? How is the figure of €152 million arrived at?
Does CIE quantify the figures in any way? In other words, is the company satisfied that it is not being underpaid or overpaid in relation to the €152 million the Department pays it to operate the scheme or some sort of a notional figure arrived at?
Is it a policy decision in CIE? Does the company accept the figure provided by the Department? If I was operating the scheme, I would know if I was being short-changed on the €152 million. Mr. O'Mahony informs us that the Department reviews the accounts of CIE every week. Does the Department believe CIE is being short-changed on the €152 million it receives or is the company making a profit on that figure?
The Department of Education and Skills pays €61 million to CIE for school transport. My question on that scheme is similar. I presume the Department gives CIE the sum of €61 million for work which is, by and large, subcontracted to other bus operators.
Has CIE quantified the level of usage of school transport? Does the company make a profit on the €61 million it receives from the Department for school transport or is the scheme largely carried out by the subcontractors? Does CIE have a separate account for school transport?
Mr. Tom O'Mahony:
There is a separate account. I am basing my answers on information that may have been provided to the committee at one stage. There is an agreement in place between the Department of Education and Skills and Bus Éireann, which dates back to 1975. It sets out accounting procedures and so on. One of the things it provides for is an administrative charge. The administration charge in the original agreement was 13%. I would interpret this to mean that what Bus Éireann gets back is the actual costs incurred, as shown by audit, and an administrative charge. However, the administrative charge is no longer 13% because it was agreed in 2011 to cap the charge at €16.7 million. Given that the total payment from the Department of Education and Skills was €152 million, this sum would amount to approximately 11%. Mr. McCarthy may have the precise figure.
Is school transport a profitable scheme for CIE? Does the company make a profit from the various schemes or does it simply accept payment from different Departments without knowing whether the schemes are profitable?
Last year, PricewaterhouseCoopers flagged issues relating to the accounts of CIE. The response of the Department and CIE was to come together with NewERA to monitor the accounts on a weekly basis. Two major elements of CIE's accounts are the €61 million and €152 paid to the company by the Department of Social Protection and Department of Education and Skills, respectively, for operating two separate schemes. Is it not possible to state whether CIE believes the two schemes are profitable?
Mr. Tom O'Mahony:
On the free travel scheme, I do not believe CIE has a choice. The Government has decided as a matter of policy that certain people should have free travel and it is prepared to make a subvention available for that purpose. It would not be open to the national transport company, as a matter of policy, to decide not to abide by that policy. Basically, therefore, it is a taker.
One takes what one is given. Surely, however, CIE has the ability to count the number of people who pass through its system and on that basis it could argue with the Government from time to time that it deserves a larger subvention because the number of people availing of the schemes has increased. Likewise, with regard to the Department of Education and Skills, which pays CIE €152 million, including €16.7 million to cover administrative costs, if the figures were wrong, surely someone in CIE is counting the results of the scheme? I presume the €152 million includes a profit for CIE.
As I read these documents, it struck me that the Department of Education and Skills also pays the maintenance costs of some transport vehicles. I ask Mr. O'Mahony to check the position, ascertain the precise figure and provide it to me within the next week.
I return to an issue relating to railway carriages which I raised some weeks ago with Mr. Murphy from the National Transport Authority. Deputy O'Donnell raised it again today. Irrespective of whether the number of carriages involved was 21 or ten, in an action that is typical of CIE, the company stuck its head in the sand on the Friday following the committee's meeting with the National Transport Authority and attempted to ignore the content of Mr. Murphy's contribution to the meeting. Mr. Murphy stated clearly that there were 21 carriages involved, yet a spokesperson for CIE did the rounds of the news programmes to respond to some commentary from this committee and deny some of the facts presented to us by Mr. Murphy. The spokesperson then attempted to present a story that the carriages in question were being towed around at the end of a train and that they were being used and did not have to be stored.
Nothing was further from the truth. That comment annoyed me because it meant denial on the part of the company. Therefore, I am pleased that you have come before us this morning and have not attempted to deny the facts as presented and have tried to explain the use of the carriages in a constructive way and the possibility that nine of them may have been needed to be used anyway. I commend you on that. If the culture within CIE is as demonstrated, I am not surprised it finds itself in difficulty with its accounts, particularly if it ignores the facts presented to us by the National Transport Authority.
With regard to the report we asked for, we asked the NTA to give us all of the facts and figures behind this issue and to liaise with the Department or whoever had those historically, as it is new in the business. I ask the Department to liaise with Mr. Murphy, likewise, to ensure we get a comprehensive response to the issues raised at this meeting and to the questions that have been raised this morning. One of the points with which I would take issue with the Department is that during the period when these carriages were being ordered, the National Roads Authority was constructing at speed motorways all over the country, thereby encouraging people to travel by car and other means. This seems not to have been factored into the consultant's report which supported the business plan for the purchase of the carriages. Therefore, the plan was flawed from day one.
To move on to the board, can Mr. O'Mahony tell us the salaries of the main players within CIE? What type of salary do they command for their expertise?
Mr. Tom O'Mahony:
I do not have that information with me, but I will forward it to the Chairman. From recollection, I think the chairman of the board probably receives approximately €30,000. I am not quite certain what an ordinary board member receives, but I will get that information to the Chairman by tomorrow. There are standard scales for board members of State boards, but I do not know them off the top of my head.
I understand that. However, in coming before a committee like this and in declaring that you generally examine the accounts on a weekly basis, these are figures I would have expected you to know. One of the issues that came up with Mr. Murphy was that he had the ability to grant aid many of the projects through government, but he had no ability within his office to look at the costs on the other side of this. They are a matter for the CIE board itself. Therefore, I was waiting for this meeting so as to determine through Mr. O'Mahony the cost of these board members and to discover the type of salary being paid to the person who runs CIE. What type of salary is that person on? I would expect Mr. O'Mahony to know that.
Mr. Tom O'Mahony:
The Chairman is correct. I do not have the figures with me because they are not specific to CIE, but are the standard scales for chairmen and board members of organisations of different sizes. It is remiss of me not to have them with me. I acknowledge that oversight and will send the figures to the Chairman.
I need details on three issues with regard to CIE, but I do not expect Mr. O'Mahony to be able to provide the information on these this morning. There was an incident with regard to the illegal scrapping of commercial freight carriages and I would like to know the details of that. Will Mr. O'Mahony ask about that?
We spoke about the purchase of carriages and the non-use of carriages. Does the same apply to the locomotives that pull these carriages? How are they purchased, where are they maintained and who has the contract for their maintenance? Can Mr. O'Mahony provide that information also?
Perhaps Mr. O'Mahony can check something else when searching for that information. A gentleman wrote to us and said that he was asked by the board to produce a report. I am probably free to name the company in question, Grimes & Company, because a copy of the report was sent to every member. Can Mr. O'Mahony determine the detail of that contract?
Mr. Tom O'Mahony:
I can tell you what the expected loss is for 2013. An operating deficit of approximately €28 million is expected in 2013. Over the course of a year, that would be less than €500,000 a week, but it would be more than that currently, because many of the cost reduction measures which will kick in during the year are still under negotiation with the unions.
Mr. Tom O'Mahony:
Yes and it must manage cash very tightly to stay within it. Part of the process it is discussing with the banks currently is to enable it to have working capital so as to be able to more comfortable over the year as it moves to reducing the losses. It is negotiating with regard to increasing the facility with the banks. Currently the limit is €107 million and the company cannot exceed that.
I want to put my questions in context. I asked about the consultant's report regarding the purchase of the carriages, which raises many questions.
I have asked a number of questions about the carriages and locomotives and also about the matter of operating costs and losses this year. On receipt of that information and the other information promised, it may very well be necessary to talk again to Mr. O'Mahony and NewEra. It appears that a wide range of questions remain unanswered with regard to CIE. There is grave concern about the company as a result of the comments by PricewaterhouseCoopers. I will say no more, however, until we receive the information required.
I have a question about staff numbers in the Department. The total number was 497 in 2011, of whom 56 were in receipt of €10,000 or more for higher, special or additional duties.
Mr. Tom O'Mahony:
I am aware that the very high payment relates to an officer of the Department who was on secondment to another organisation. She was an assistant principal officer, but her duties were at assistant secretary level. She was, therefore, in receipt of an allowance to make up the difference between the salary of an assistant principal officer. Effectively, she was being paid as an assistant secretary, but it was treated as being an assistant principal officer's salary plus an allowance.
Mr. Tom O'Mahony:
Yes. However, I emphasise that this was a person seconded to work in a post at assistant secretary level, but her salary was only that of an assistant principal officer. The other way of looking at it would be that she was being paid an assistant secretary's salary for as long as she was carrying out the duties of assistant secretary.
Mr. Tom O'Mahony:
In most cases, they were Coast Guard radio officers who had retired. We had been unable to recruit replacement radio officers for a period of time. For safety reasons, the Coast Guard desks could not be left unmanned. It was necessary for a period of time, therefore, to bring back retired personnel to cover these posts until replacements could be recruited. The replacement staff have been recruited and the payment is no longer being made. A similar situation arose in the air accident investigation unit where there were delays in recruiting new staff. Because of the amount of work involved, it was necessary to bring back one person on a temporary basis. There are other relatively small amounts where a person would have been asked to chair a group or do a particular piece of work for a payment of €1,000 or €2,000 on a contractual basis. These payments are included in the figures because they are retired civil servants.
On a separate issue, a number of weeks ago I raised with Fáilte Ireland an issue about the various concession desks in the Suffolk Street office. I was anxious to ask the chairman what negotiations had taken place between the businesses manning these desks which are independent of the office. The outcome has been the closure of some of these desks and the loss of jobs as a result of the knock-on effect for the businesses generated on-site and the referrals to other businesses. I ask the Secretary General to give the committee a note on the matter.
I have some questions for Mr. Barry of the NRA. On the last day he attended the committee I asked about motorway access roads and gave some examples in my constituency, including Goresbridge, Graiguenamanagh and the Waterford bypass. Some heavy goods vehicles are using minor roads. I cite as an example Johnstown, County Kilkenny, where such vehicles are travelling through the village, despite the availability of the motorway. Frankly, I did not regard Mr. Barry's response as satisfactory, nor was the response of Kilkenny County Council. The problems persist. It is unsatisfactory to the extent that I had the impression that I was being passed from the NRA to the county council, with no one being willing to accept responsibility for the problems that had emerged as a result of the construction of the motorway. Perhaps Mr. Barry might ask an official to contact the county council about the queries I raised with him with regard to Goresbridge, Graiguenamanagh, the Waterford bypass through Cuffesgrange and Johnstown, County Kilkenny. These are specific issues, but I imagine there are similar issues across the country. I would like a note on the matter, please.
The motorway to Waterford was subsided in parts. Who bore the cost of repairs?
Very good. I refer to the point made by Deputy Robert Dowds, with whom I agree. I refer to the difficulties with dealing with the company, which is not what one would expect from a company which has chased an individual by way of lengthy correspondence. It is difficult to get an answer from the company and for an individual to deal with it. I am not talking about those who are in the wrong. I am referring to an individual who is trying to have a matter rectified, is in the right or in cases in which an error has been made. It is extremely difficult to deal with the company in such circumstances. I ask that this message be conveyed to the company in the context of providing better customer services.
With reference to the case mentioned, every fortnight an additional threatening letter was sent, irrespective of the fact that the person concerned was trying to deal with the issue, and the charges kept mounting up. It seemed as if it was being done automatically without intervention.
I raise this matter with Mr. Barry because I would not like him to think Deputy Robert Dowds was referring to isolated incidents. This matter needs to be addressed in the interests of customers who may need to contact the company for one reason or another. It is not related to one constituency, nor is it a parochial concern. Does Mr. McCarthy wish to add anything?
I thank the witnesses for coming before us. The information they provided was enlightening. I reiterate that there is a need to bring officials from the Department and NewERA before the committee in respect of the accounts of CIE, particularly in the context of the issues raised during our exchanges today. All of the information we requested from our guests would be pertinent and relevant in that regard. In that context, I remind Mr. Barry and Mr. O'Mahony that members are anxious that it would be provided by the relevant Accounting Officers as quickly as possible. Again, I thank them and their officials for coming.
Is it agreed that the committee should dispose of Vote 32 and note the 2011 financial statement for the NRA? Agreed. We will leave chapters 6 and 26 open because the issues involved are not confined to the bodies before us. Is that agreed? Agreed. Is it agreed that we will hold a further hearing in respect of CIE? Agreed.