Oireachtas Joint and Select Committees

Thursday, 21 July 2016

Public Accounts Committee

2014 Annual Report of the Comptroller and Auditor General and Appropriation Accounts
Chapter 2 - Government Debt
Chapter 24 - Accounts of the National Treasury Management Agency
National Treasury Management Agency Financial Statements 2015

Mr. Conor O'Kelly (Chief Executive Officer, National Treasury Management Agency)called and examined.

9:00 am

Photo of Seán FlemingSeán Fleming (Laois, Fianna Fail)
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I welcome Mr. Conor O'Kelly, chief executive officer, National Treasury Management Agency; Mr. Ciaran Breen, director of the State Claims Agency; Mr. Ian Black, chief financial and operating officer of the National Treasury Management Agency; and Mr. Eoin Dorgan from the Department of Finance.

By virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of the evidence they give to the committee. If they are directed by it to cease giving evidence on a particular matter and continue to so do, they are entitled thereafter only to qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person or an entity by name or in such a way as to make him, her or it identifiable. Members of the committee are reminded of the long-standing ruling of the Chair to the effect that they should not comment on, criticise or make charges against a person outside the Houses or an official by name or in such a way as to make him or her identifiable.

I invite the Comptroller and Auditor General to make an opening statement.

Mr. Seamus McCarthy:

The National Treasury Management Agency is a complex organisation with multiple functions that extend beyond its original and core role in managing Ireland's national debt. Its functions were expanded and reorganised under the National Treasury Management Agency (Amendment) Act 2014. The revised structure of the NTMA following the amendment is outlined on the screen in front of members, on which they can see the myriad functions of the agency. A distinction must be drawn to their attention. The agency provides staffing and services in support of the Strategic Banking Corporation of Ireland and the National Asset Management Agency. These two bodies have separate boards and their chief executives are the accountable persons for the activities of the agencies. Within the functions that fall under the National Treasury Management Agency there are a number of sets of financial statements which were presented this morning and which the committee noted when it was looking at the accounts and statements presented.

The NTMA's primary function is to manage borrowing on behalf of the State. The results of that borrowing activity are reported in the agency's national debt account each year. This account is also reproduced as Part 2 of the finance accounts which are published separately by the Department of Finance. The committee might wish to note that the national debt account does not reflect the total indebtedness of the State.

One of the objectives of chapter 2 of my annual report is to set national debt financial reporting in the context of overall or general Government debt, estimates of which are compiled by the Central Statistics Office. Other functions and services of the NTMA include management of compensation claims on behalf of certain State authorities through the State Claims Agency, the management of the Ireland Strategic Investment Fund and the provision of procurement and financial advice on certain public private partnerships and other large capital projects through the National Development Finance Agency. As I said, the NTMA also assigns staff and provides certain other services, on a reimbursement basis, for two independent bodies, that is, the National Asset Management Agency and the Strategic Banking Corporation of Ireland, which are governed by separate boards. The NTMA is not accountable for the activities of these bodies. It also provides staff on secondment for the banking unit in the Department of Finance, in which case the costs are carried by it.

Photo of Seán FlemingSeán Fleming (Laois, Fianna Fail)
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I ask Mr. O'Kelly to make his opening statement.

Mr. Conor O'Kelly:

I thankful for the opportunity to brief the committee. I do not intend to read my opening statement or go through my presentation. Members have been provided with a copy of our annual report which competes to be one of the heaviest annual reports in the State sector. They have also been provided with my presentation in which I seek to address some of the areas that I know are of specific interest to the committee and have been in the past. We can take questions on them later.

I will give a brief overview as events have moved on since 2015 and some things are already out of date, certainly in the case of the market base. I will start with the original and historical business of the NTMA - debt management.

As members know, we manage circa€200 billion of debt on behalf of the State. In that regard, 2015 was a significant year for a number of reasons. In that year we raised €13 billion at an average interest rate of 1.5% and with an average maturity of 19 years. To put the matter in perspective, that was approximately half the yield and about twice the average maturity in the previous year. The first year we were able to take advantage of the very low interest rate environment was 2015. We also issued Ireland's first 30-year bond, the bond with the longest maturity the State has issued up to that point, which raised €4 billion. We have since issued a 100-year bond for a small amount at a yield of 2.35%. It is interesting that in 2013 it was hard to get investors to lend us money for 100 days, yet today we can borrow money for 100 years. That says an awful lot about the current extraordinary interest rate environment, as much as it does about Ireland's credit rating, although the improvement in our credit rating has been a big feature in that respect.

On the rating agencies, Moody's upgraded us to the A category, meaning that all rating agencies now have Ireland in the A category. That is significant in the sense that some of the more conservative investors, in particular, can only lend money to sovereigns in the A category across their businesses.

While the interest rate environment for new borrowing is benign and very favourable for Ireland, it is worth remembering that our stock of debt has increased very considerably since 2007. That €200 billion figure was €47 billion in 2007, on which the interest bill which was €7 billion in 2015 was only €2 billion in 2007. The forecast in 2013 was that the interest bill in 2015 would be €10 billion. The €7 billion figure must be seen in that context. It is down from €7.5 billion, but it was on a trajectory to be considerably higher. We will talk later about the potential trajectory for interest rate savings and improvements. However, we have a very high stock of debt. We are still an ndebted nation and vulnerable to shocks and changes in the marketplace.

I will move on to our four other mandates. The Ireland Strategic Investment Fund, formerly the National Pensions Reserve Fund, has completed its first full year of operation. It has what we call a double bottom line - it must have a commercial return and an economic impact. The investment committee for oversight of the fund is independent and made up of two non-executives from the board of the NTMA, plus three independent non-executives. They have oversight of the investment process and approving the investment decisions. The fund invested €750 million in 2015 and a further €200 million so far this year in a variety of projects which I have outlined and are available on our website. I will highlight three of them to give members an example of the kinds of investment the fund is making. The first is a fund called Activate, of which some members may have heard and which is relevant in the housing sector. It is a €500 million fund. The Ireland Strategic Investment Fund has committed €350 million and provides all-in-finance for residential house builders who are struggling to get money from the banks. The banks will lend probably only about 60% of one's requirements, but the fund is set to lend 90% plus. It has put €40 million to €50 million into the market in the year to date to allow the building of about 1,000 units in three separate projects, all of which are in the Dublin area. Ultimately, the objective of the fund is to be capable of building around 8,000 houses in total.

The second project is at Dublin City University, DCU, where the fund has invested €50 million in student accommodation. It is part of a broader campus development worth €230 million. The significant part of our investment is that it released €70 million of European Investment Bank funding to DCU which required a local institutional investor to be part of the transaction. The Ireland Strategic Investment Fund, in putting in that €50 million, released €70 million from the EIB and essentially allowed the entire campus development project worth €230 million to take place.

The third project involves the Milplex fund, a product produced in co-ordination with Glanbia and Rabobank and a fund directed at dairy farmers. One of the reasons dairy farmers do not like to borrow money to invest is the unpredictability and volatility of the price of milk. The fund adjusts the term of a loan to the price of milk, such that if the price of milk is falling, the terms of the loan will extend to make it more palatable for buyers. It is a unique product which we think could be replicated in a number of ways. It is something we see as being applicable to other products.

Moving on to the National Development Finance Agency, NDFA, the matter relates to PPPs in the provision of accommodation. Any infrastructural transaction over €20 million is subject to financial advisory oversight by the NDFA which is involved in a number of PPPs in delivering court, school and primary care service accommodation. Fourteen primary care centres closed recently and we might talk about that particular example in more detail later.

We have NewERA which, essentially, is the State's in-house corporate finance advisory body. Its specific mandate centres on commercial semi-State companies where it provides advice for the shareholder on shareholding matters. In assessing a shareholder expectation framework, the idea is that all of the commercial semi-State companies will have the same template, meet the same standards whether it be a business plan, investment expectations, dividends policy and returns on capital. They will do this in a consistent, seamless way across the different semi-State companies. NewERA also advises Ministers on specific projects. For example, last year it would have advised the Minister for Transport, Tourism and Sport on the sale of the stake in Aer Lingus.

The final body is the State Claims Agency, of which Mr. Ciaran Breen is director. It manages claims on behalf of the State, both clinical and non-clinical. We are managing about 8,000 claims, for which the provision is around €1.8 billion in total. We are trying to get more into the business of risk management for all of the entities within our remit. The agency has grown significantly as a part of the NTMA. One third of the staff in the NTMA now work for the State Claims Agency.

The number of entries under our remit is now 130, up from about 30 three or four years ago. Therefore, this has been a significant area of growth. I know members will have plenty of questions for Mr. Breen. That is a tour of the businesses.

Photo of Seán FlemingSeán Fleming (Laois, Fianna Fail)
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I thank Mr. O'Kelly. Before I invite Deputy Rock to contribute, I wish to ask Mr. O’Kelly a question on the national interest payment. I am reading from a schedule on government debt and gross debt in 2015, the source being the European Commission. It gives for each EU member state the level of gross debt, the interest payable as a percentage of GDP, the interest payable in actual monetary terms, and the implicit interest rate. I am quoting the European Commission documents supplied to me by the Oireachtas Library. I can provide copies if those present do not have them already. What shocked me on reading the documents is that Ireland paid approximately €6.7 billion in interest in 2015. The implicit interest rate was 3.3%. Everybody knows Greece has had a very difficult time. Its implicit interest rate for 2015 was 2.1%. That means it is borrowing at a rate substantially lower than that at which Ireland is borrowing.

Mr. Conor O'Kelly:

I will talk about Greece and the other countries separately because there is a different rationale in each case. In the case of Greece, while its interest rate is low, I do not believe it is one we would want. The main reason its interest rate is low is that €130 billion in borrowings are subject to an interest rate moratorium. Therefore, Greece does not pay any interest at all on the majority of its debt. It will have to pay interest at the end when it repays. At present, in the context of its annual refinancing, it does not pay any interest at all. Its debt-GDP ratio is 170%. Obviously, the debt is official borrowing and debt, and the covenants in respect of all Greece's affairs are set by the troika. The Greek example is probably not one on which we should concentrate.

I have heard people say the interest rate per capitain Greece is lower than in Ireland. It is, but only because its GDP is about the equivalent of ours, even though it has a population twice the size and unfavourable demographics. It also has a very high unemployment rate. It does not have as productive an economy. It is, therefore, difficult to take one statistic in isolation. One could often get the wrong impression. The circumstances in Greece are mainly because it does not pay any interest on the majority of its debt currently.

The examples of Spain and Italy are much more relevant for us. The Chairman is correct to point out that their interest rates are a little lower than ours, on average, despite the fact that one would believe we were a better credit. Actually, the market does rate us as a better credit. Therefore, what is occurring is anomalous. The main reason concerns refinancing, the pace of refinancing and where that comes. As I said in my opening statement, Ireland really only benefited from the extraordinary low-interest-rate environment in 2015. That was the first 12-month period and in it we borrowed €13 billion, which is only about 6.5% of our total stock of debt of €200 billion. It is like moving the average, which is 3.4% on the €200 billion. Movement is only at a rate of 6% so it takes a while. It is like moving the Titanic; it will take a little while to move. The movement in Spain and Italy is a bit faster, for a couple of reasons, one being that they have much more of their financing of their debt in short-term bills and securities of less than one year. Ireland does not do that. Typically, it does not finance in the short area of the market. Why not? One of the main points that concern us, as a borrower - many things concern us - is the question of from whom one is borrowing one's money. The State is no different from any other borrower. It is a question of whom one is borrowing the money from. In our case, we borrow the money from overseas investors. Some 90% of investors in Irish debt come from overseas. We are extraordinarily dependent on international markets. In the cases of Spain and Italy, a huge amount of their borrowing comes from domestic savers, local savers. In Spain, savers have traditionally been bond investors or fixed-income investors, not equity investors. That is where most of the savings go.

Japan is a good example of a state with an extraordinarily high debt–GDP ratio. It is one of the highest in the world, yet people are not concerned about it because it could fund all its debt entirely from domestic savings. Therefore, with regard to the debt–GDP ratio, it matters from whom one is borrowing in terms of the risk profile. The rating agencies would look at a country like Ireland and say it is very dependent on international investors for its borrowing and, therefore, ought not to have too much refinancing risk in the early parts, over the next 12 months, etc.

The reality for Ireland is that we will be a little slower than those other countries to enjoy the benefits of the current low-interest-rate environment. There are significant chimneys, and there are some graphs that show that when the maturities are coming up, €45 billion in debt will mature in the three years from 2018 to 2020. It will be high-coupon debt that we borrowed historically at higher interest rates. That will roll off and then we will get the chance to issue new bonds, hopefully in the low-interest-rate environment. Our prediction, which is obviously difficult to make, is that, based on our current projections and the assumption that the interest-rate environment will be as predicted, the interest bill could head from €7 billion towards €6 billion over the period in question. That would get our average rate down below 3%. Could our average rate go towards 2.5% over time? It is possible but that would be quite extreme. One would be looking for a very favourable interest-rate environment for that to happen in light of the stock of debt we have, €200 billion, which will probably remain unchanged or even increase a little. I hope that offers some explanation as to why our average debt figure does not move quite as quickly as it might. It will move, however, particularly in the big refinancing years of 2018, 2019 and 2020.

Photo of Seán FlemingSeán Fleming (Laois, Fianna Fail)
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I am not convinced. Mr. O'Kelly has explained every single case away. Each country has a good reason as to why its interest rate is a bit different, including domestic factors and every other factor Mr. Kelly just mentioned. I am sure that if the governments of those countries were asked a similar question in their parliaments, they would find other reasons as well.

I am just saying that the global picture of the 3.3% is still very high in an era of declining interest rates. We will be asking the NTMA to do whatever it can to bring forward and buy out some of the longer term and more expensive debt because every one tenth of 1% saving by that organisation delivers €200 million to the Exchequer. The money and the scale of what the NTMA is doing is phenomenal. If the HSE or any other Department had an extra €200 million, it would be serious money. I am concerned that because of the scale of the figures it deals with, the NTMA is probably not focusing on the impact a 1% saving could have on the wider economy.

Mr. Conor O'Kelly:

I assure the Chairman that we do that every day. We focus exactly on that. We are looking at ways to more efficiently manage the national debt, which is our mandate. That is all we do every day. We have 430 people, a huge proportion of whom are working in that area. We do it with oversight from our board. We challenge ourselves and give five-year projections to the Department of Finance twice a year as to what we think the interest rate bill will be and we measure ourselves against that. So, of course we understand that. The Chairman will see from the annual report the refinancing of the IMF loans, which we managed to do last year. We completed €18 billion in refinancing. The total saving over the four-year lifetime of that loan was approximately €1.5 billion. We are very aware of the impact of every bit of saving that we can possibly do and we are open to any suggestion any member of the committee might have as to how we might do it better.

Photo of Seán FlemingSeán Fleming (Laois, Fianna Fail)
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I will conclude with this. I am looking at the document the Minister produced on budget day. The expected payments on the national debt are set out at C.47 of the public budget document he produced. It sets out two figures for the national debt interest. It refers to the cash payment and then the euro statistic interest payment on an ESA 2010 basis. Mr. O'Kelly knows what that means, albeit most others will not. There is no substantial reduction, however. I acknowledge that Mr. O'Kelly says the debt will sit at €200 million but even in 2021, the Minister is projecting well over €6 billion. It is still a lot of money. Mr. O'Kelly says the NTMA is trying to move it over a period of time but six years down the road, we will still be in the €6 billion to €7 billion range. I know Mr. O'Kelly will say the debt is high but could we get closer to the lower interest rate some other countries have? I ask the NTMA to understand our impatience because we are in the Dáil every week of the year battling over €50 million or €10 million and then we see these types of figures. Every saving that can be made translates into better public services. I know Mr. O'Kelly agrees with that.

Mr. Conor O'Kelly:

Of course, I do.

Photo of Seán FlemingSeán Fleming (Laois, Fianna Fail)
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We will come back.

Photo of Noel RockNoel Rock (Dublin North West, Fine Gael)
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I thank Mr. O'Kelly for his introductory remarks. To pick up from where the Chairman left off on the bailout debt, the NTMA has paid back the majority, or €18 billion, in IMF loans. These were the most expensive loans from the troika era. The remaining loans are mostly from European institutions and bilateral loans from the UK, Sweden and Denmark. Are the effective costs on all these borrowings equivalent to each other or do any still stand out as being more expensive? If so, will the NTMA seek approval to redeem the higher interest rate loans first?

Mr. Conor O'Kelly:

I refer the Deputy to page 6 of the slides presentation I circulated which includes a table setting out the outstanding debt in official and benchmarked bonds. The Deputy can see from that the amount outstanding, the average life and the rate we are paying on each. We cannot borrow at cheaper rates than those of the EFSF or the EFSM. We paid €18 billion of the IMF loans and €4 billion remains. The rate on that is approximately 0.5% for an average life of six years. Depending on where the market is at any one time, there are marginal savings we could opportunistically look at if yields went a little bit lower but it is quite marginal. To repay the IMF loans requires the approval from all members of the troika, which they gave for the €18 billion on the condition, where we did not have to pay their loan back pro rata, that post-programme monitoring would be in place. The minimum amount of loans that could remain with the IMF was €4 billion, which means that the IMF is obliged to continue to monitor Ireland in the post-programme period. That was a condition of that. So there are two things. It is not straightforward to repay that. It would require the permission of all of the member states and the savings would be marginal.

Respecting that, as the Chairman says, marginal in the context of a €200 billion debt is not the same as marginal in the world the Oireachtas operates in day-to-day, the savings in the market now could be €20 million a year over the lifetime of the loans if we were to get permission. By the time one did it, markets might have moved, one might not be able to refinance and those savings might not be as clear. It is quite marginal and all of the other official sector debt is at a maturity and financing rate that the State could not improve on and that is unlikely to change because there are stronger parties than us who are refinancing in the market place.

It is the stock available, which goes back to the point about why our average is not and will not come down as fast. It is the stock of debt in Government bonds, which is the €125 billion. We cannot necessarily mature it faster than we borrowed it. They are fixed rate bonds and they are not callable. It is possible to conduct a reverse auction. That has been done. We could announce that we would like to buy back those securities but the issue there is that we would need quite a lot more cash to do it. Those bonds are all trading at a significant premium because as yields go down, prices go up and as prices go down, yields go up. For every €100 million we bought back, we would probably have to pay €130 million. We would have to pay out €30 million in cash, which would affect the economics of the transaction.

Photo of Seán FlemingSeán Fleming (Laois, Fianna Fail)
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Can Mr. O'Kelly say that slowly again because we are in macroeconomics here? Mr. O'Kelly is saying that buying back a Government bond of €100 million would cost, given its market value, €130 million.

Mr. Conor O'Kelly:

Correct.

Photo of Seán FlemingSeán Fleming (Laois, Fianna Fail)
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Did we underprice it when we sold it if it is worth so much more now? Mr. O'Kelly says it is worth €130 million in the market even though we only got €100 million for it.

Mr. Conor O'Kelly:

That has to do with interest rates. We borrowed at a certain time.

Photo of Seán FlemingSeán Fleming (Laois, Fianna Fail)
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There must be a very high interest rates if it is worth so much more.

Mr. Conor O'Kelly:

Correct but even German bonds are trading at €120 million which were issued at €100 million. As interest rates come down in general-----

Photo of Seán FlemingSeán Fleming (Laois, Fianna Fail)
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Are some of our bonds trading at a much higher premium than their face value then?

Mr. Conor O'Kelly:

Of course.

Photo of Seán FlemingSeán Fleming (Laois, Fianna Fail)
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Internationally.

Mr. Conor O'Kelly:

As interest rates come down, the price of all bonds goes up. That is the other side of that coin. They all mature at €100 million, or at par, but as they are marked to market, they would differ if one was to intervene rather than to wait until they mature. That is why we wait for them to refinance because we do not want to pay a premium. They refinance at €100 million and then we issue €100 million.

Photo of Seán FlemingSeán Fleming (Laois, Fianna Fail)
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But there is an interest saving so it is a trade off on the interest one will save versus the extra premium one has to pay.

Mr. Conor O'Kelly:

That is correct. Exactly.

Photo of Seán FlemingSeán Fleming (Laois, Fianna Fail)
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I am only saying that because the public will probably get a little bit lost.

Mr. Conor O'Kelly:

Absolutely. That is the equation which is why doing a reverse auction is not as obvious a saving as it might seem because one has to pay that premium.

Photo of Seán FlemingSeán Fleming (Laois, Fianna Fail)
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I just make that point for clarity.

Photo of Noel RockNoel Rock (Dublin North West, Fine Gael)
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In July 2012, the NTMA used an instrument it has not used since in terms of bond exchange where holders of Irish bonds would be given the chance to swap them for new longer term bonds. Are there any plans to do that again given the long-term implications where we could lock in the long-term low funding costs we currently have?

Mr. Conor O'Kelly:

Again, it is a similar dynamic but the Deputy is absolutely right. In the background, we are trying to do it. Going back to the Chairman's point, we are trying in the background to improve where the opportunity arises. If the market had too many of one security and was looking to sell those, we could do that in the background. This year, we have bought back €1.5 billion of bonds and swapped them for longer-term debt because the mathematics around the premium versus the savings was an official gain. It does not always work out. It depends on what the pricing is and where investors want to sell them to and where they are prepared to buy bonds that we are going to reissue. That mathematics is being looked at all the time. Whenever we can, we do a trade, whether it is on official terms in a reverse auction or unofficially as we do in the background. As I said, we have done €1.5 billion in the background so far this year. One needs to have flexibility in the market.

Like anything, if one announces and pre-announces what one will do, and everyone knows exactly what one is going to do, the market will be able to set up for that trade and potentially the value would decline and one would not get the efficiencies one might have got. I advise the Deputy that we have done that and when there is a gain to the State, we will try to do that.

Photo of Noel RockNoel Rock (Dublin North West, Fine Gael)
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I am interested in the 100-year bond Mr. O'Kelly mentioned. How did that come about? Did investors seek out the NTMA or did it put it to the market?

Mr. Conor O'Kelly:

No.

Photo of Noel RockNoel Rock (Dublin North West, Fine Gael)
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That is quite unique internationally. A 100-year bond is very rare, given, as the Mr. O'Kelly said in his introductory remarks, that we could barely borrow at one stage and we could barely lend for 100 days. I am curious as to how that came about.

Mr. Conor O'Kelly:

It was what we call a reverse inquiry. We were contacted by an investor who was wondering whether we would be interested in issuing a bond of that length. We went through negotiations and discussions with them as to whether that would be worthwhile. It is not a big amount of money. The amount we issued was €100 million. That was the demand. The rate was 2.35%. In the context of where all our other bonds trade, that appeared at the time to be very good value and it still does today, notwithstanding the Deputy's point. When one looks at interest rates in the marketplace, in the Financial Timesor on a screen, it does not mean that we can access those interest rates just because there are on the screen. They are on the screen at €100,000 or €1 million in value. We issued €4 billion of a 30-year bond in 2015. The price at which the market is prepared to buy and lend us very significant amounts of money is the price that matters most to us. If it is there in a couple of million euro, it is not really a relevant price for us as an issuer. It is more for people trading in the marketplace. It does not necessarily mean that we can issue at that price. We felt it was a good thing to do. The demand is more a reflection of the desperation and the chase for yields that insurance companies and pension funds have in this extraordinary environment where so much of our interest rates are even in negative territory, including even Irish yields.

Photo of Noel RockNoel Rock (Dublin North West, Fine Gael)
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Yes, indeed. There is the impact of the quantitative easing, QE, and all that, and there is a longer term implication there, but I should probably stick to this line for now. Has there been any independent external reviews of the debt service costs?

Mr. Conor O'Kelly:

No, not that I am aware of. This is a legitimate point in the context of how does one know that €7 billion is a good number, is the debt office doing a good job, is that figure efficient or could more be saved. Historically, from looking at some of the old files in the NTMA, and I have only been there 18 months, there was an attempt to get a benchmark against which we would measure performance, but that was abandoned. It is extremely difficult because of the daily moves and the volatile moves. I would make a few points, from which the Deputy can hopefully take some comfort, but I know his job is to look for more than that. We are always challenging ourselves in the NTMA to try to find ways to do things better. We have interactions with other European debt offices with which we are very close. We are very close to the UK debt office and we talk to them about what they are doing, what they are looking at and what new products there might be. In terms of oversight, some of the non-executives on our board have very significant financial market experience and they put us under quite a degree of scrutiny. I can assure the Deputy of that. Notwithstanding that, and if that was not a comfort, if I was seated where the Deputy is, I might ask what might happen if the debt office was not doing a good job and what might be the signals that I would look for. If we issued at an incorrect yield or at an inappropriate price, or too low a price or two high a yield, in an action, we would probably get a headline in the Financial Timesthat day and the financial press would report it. That would the first signal to look for - a failed auction of some description.

The second signal would be if we were taking risk or not financing efficiently, our credit spread investors would start to move our credit spreads to reflect the fact that we were not efficiently managing the debt because that would affect them. The third signal is that the rating agencies would start to comment on the debt management agency's profile, refinancing risk, financing capability and activities in the marketplace. That is where one should look to see whether a debt office like the NTMA, or any other debt office, is potentially optimising the financial conditions and taking advantage of those. For now, the rating agencies do not talk about financing risk. They are comfortable that the average maturity, profile and refinancing risk are appropriate. I believe that is the case. For the moment that is confirmed. If I was looking at the debt management agency as a citizen and a taxpayer, I would be looking at that and to see whether they could be doing a better job.

Photo of Noel RockNoel Rock (Dublin North West, Fine Gael)
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On the NTMA's other external functions, of which there is an increasing number, and as Mr. O'Kelly acknowledged there is a great many, is the NTMA satisfied with the pace at which the Ireland Strategic Investment Fund, ISIF, is investing since its establishment? The investment has been €2.2 billion from what I can see up to the end of 2015 but it depends on matching funds and co-investment. Is the NTMA satisfied with that? Does it intend to review that strategy or approach?

Mr. Conor O'Kelly:

An 18-month review of the overall mandate is currently under way and it is measuring success against the mandate and how that is going. We are talking to the Department of Finance about that as well. Our bias is not to spend money unless the projects meet the requirements of the fund. If we do not spend the money, for us, it is still an asset in the State, the cash is sitting there and on the balance sheet. A worse mistake for the strategic investment fund to make would be to spend the money on projects that were not going to be successful, did not meet the investment criteria and from which we were unlikely to get our money back. It is not grant money, this is investment money and we are looking to get that money back and to get a return on it, so that it can be recycled again. If we have a bias it is that if the money is not invested and the projects are not there, then we should not invest it.

Photo of Noel RockNoel Rock (Dublin North West, Fine Gael)
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Yes, absolutely. A 50:50 component, or how it is currently constituted, would seem to be a potential missed opportunity in so far as the NTMA could have the European Investment Bank, EIB, matching to the level of 10% or 20% perhaps and us taking 75% and 90%. It has often been posited to me that ISIF would perhaps be the first investment fund in the world to run out of ideas before it ran out of money, which perhaps is testament to Mr. O'Kelly's work and how well he is doing it. It seems there is a potential missed opportunity to reap the benefits of what so far seem to be quite wise investments.

Mr. Conor O'Kelly:

Yes. Hopefully, the opportunities will keep coming. I do not see any sign of the pipeline slowing for the moment. There are 60 plus opportunities in the pipeline now, what we call our live pipeline, that we are considering. As long as the quality of proposals keeps coming through with co-investment, I would be comfortable that we will probably keep the pace, certainly for the next 12 months, with that which we had for the last 12 months, and the pipeline looks very good. There is a capacity question, which is a separate legitimate question, that many have been asking, namely, given the size of the Irish economy, can it take the size of the strategic investment fund investment? For us, the strategic investment fund can grow the envelope of the economy in total rather that it replacing, displacing or being additional to projects or money that is still in the system.

Photo of Noel RockNoel Rock (Dublin North West, Fine Gael)
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One theme that jumped out at me as I read the report was the impact of Brexit on the NTMA and how it conducts its business. Some 20% of the remaining loan assets of the National Asset Management Agency, NAMA, are located in the UK. To what extent have derivative assets and exchange rate hedging, in particular, shielded the NTMA from the fall in the value of sterling?

Mr. Conor O'Kelly:

First, we had no currency exposure in terms of any of our debt. Everything is hedged; both interest rates and currency are hedged completely, so we did not have any exposure in that regard. From our narrower point of view on Brexit, obviously the implications of Brexit are all encompassing, and much more so for many of members than for me, there are the political and geopolitical implications and then there is the economic impact. Nobody is saying it will be a positive for Ireland.

It will be a drag but the question is what will be the impact ultimately. Our own team probably feels that the correlation is a bit higher between UK GDP falls and our GDP. They are saying that for a 1% fall in UK GDP, Ireland would expect the GDP fall to be 0.8% or 0.9%, which is at the higher end of most of the economists' figures. It will be a negative impact and it will have a drag. We will have to wait and see how much it is.

In the interest rate market and what has happened in terms of interest rates since the vote, if the Deputy had asked me where would German ten-year yields and Irish ten-year yields be four weeks after Britain had decided on Brexit, that is, to exit the EU, I am afraid I have to say my prediction at that stage would have been a long way off. I might have been able to guess where Germany was - it is currently around 0% or -5 basis points - but Ireland has traded extremely well and I probably would have said it could have been out at 1% in ten-year notes. It is around 0.5%. We have not had any real credit impact, if one likes, for Ireland or the other peripheral countries. Why is that? It is because investors react to the first thing in front of their noses. The political and economic impacts are down the road and the thing in front of their noses that they really believe in is central banks and their ability to pump liquidity into the system. That is a proven capability that all the central banks have and they have indicated they are prepared to that do again if there is any kind of instability in the marketplace. That confidence in liquidity coming in has been what has driven spreads lower and kept credit spreads tight. We should not be complacent about that. That is a short-term phenomenon because of that liquidity that they are confident of coming into the system. Ultimately, the economic impact for Ireland and any political impact, if negative, will be reflected in our credit spreads in the medium term.

Photo of Noel RockNoel Rock (Dublin North West, Fine Gael)
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I ask Mr. O'Kelly to discuss the impact of quantitative easing, QE, and how we will adopt to a post-QE world.

Mr. Conor O'Kelly:

Ireland has been a very big beneficiary of quantitative easing. Notwithstanding the Chairman's remarks at the beginning, the fact is that lower interest rates in general have been very helpful to us. I point out again that the budget forecast in 2013 for debt service costs in 2016 was €10 billion. Today, the cost is €7 billion and it is trending towards €6 billion. In large part, the reason for this is quantitative easing and the extraordinary interest rate environment that has been created by the interest rate policy in Europe, in addition to our improving credit story, which is obviously helping us move from being peripheral as a credit to being what we now describe as "semi-core" as a credit. We have that combination but really it is the overriding interest rate policy and the driving of interest rates lower that has assisted us. Particularly indebted nations benefit more proportionately from a lower interest rate environment and Ireland has been a very significant beneficiary.

Ultimately, this is a big debate. People are asking if this is the new normal environment or if we will return to a previous environment with which we are familiar. That debate is ongoing because when quantitative easing was initially mooted, it was supposed to be for the short term. It has been going on for much longer than anybody ever intended. The role of central banks and the limitations of monetary policy are becoming clear. That is why one is seeing a move towards the Juncker plan and fiscal policy. We have to find other ways to stimulate economies because the traditional instrument of monetary policy has clearly had limitations and is not providing the stimulus or creating the inflationary impact it was designed to have.

Photo of Noel RockNoel Rock (Dublin North West, Fine Gael)
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Does Mr. O'Kelly believe the NTMA has taken all it can in the current environment in the context of the possibility that costs will increase? As he stated, this could be the new normal but that may not be the case. Does he believe the NTMA has taken the greatest possible advantage?

Mr. Conor O'Kelly:

Again, we can make some decisions around the edges in relation to where we think interest rates will be and to optimise our position. Ultimately, however, our refinancing profile is what determines our ability to lower that rate and has the most impact. We are not in the betting business on interest rates. That is not what our mandate is to do. I could take a big view on interest rates right now but I am not mandated to do that. The NTMA is not a hedge fund and we are not being asked to bet on interest rates. We are trying to manage the environment we have. Our borrowing requirement is based on the budget that comes from the Oireachtas annually plus the refinancing requirement that comes through each year and that informs our requirement. When rates are very low, we can potentially do a little more around the edges, move the maturity profile, mitigate our risk by widening our investor base, make sure our profile is right in terms of refinancing and optimise that and where we go on the yield curve, at what time or what part of the calendar we go on. They are the decisions that we have a mandate to try to operate in and be as efficient as possible. Making big bets on interest rates is not part of our job as we see it.

Photo of Noel RockNoel Rock (Dublin North West, Fine Gael)
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That is fair enough. In terms of staffing and remuneration at the National Treasury Management Agency, one thing that jumps out is the level of bonuses, which has multiplied by seven between 2014 and 2015. Does Mr. O'Kelly care to comment or provide an analysis of that?

Mr. Conor O'Kelly:

Yes. Bonuses and performance-related pay have been part of the NTMA model historically and people have a bonus provision in their contracts for the most part. During the crisis, bonuses were not paid and performance-related pay was not really a feature, and appropriately so. We have an independent board and an independent remuneration committee and they set the remuneration policy. Within financial services and the sector that we are in, variable pay and performance-related pay are part of the competitive environment. Financial services is a well remunerated sector and whether that is right or whether it is overvalued or undervalued is a debate for another forum. We are operating in a marketplace where that is becoming more of a feature. For that reason and due to the competitive pressures that are there, the board and the committee decided to increase the amount to just short of €500,000. As a result, 60 or 15% of the 430 employees of the NTMA received performance-related pay, which means 85% of employees did not receive any performance related pay. The average payment was around €8,000, which I believe is proportionate. While recognising that we cannot and will not compete with the private sector, we have to recognise that we want to recruit, hire and retain the kind of expertise that we need to conduct our mandates and that this expertise is valued in this sector in the marketplace.

Photo of Noel RockNoel Rock (Dublin North West, Fine Gael)
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Is staff retention increasingly difficult in this more competitive market? Is the NTMA at risk of losing staff?

Mr. Conor O'Kelly:

We have to monitor that. I would not wish to overstate or understate it but it is a feature of the market and we keep an eye on it all the time. People are not necessarily motivated by money. That is not necessarily what gets people into the office to do a good job, perform, stay late and all of that. It is a factor. Remuneration must be fair and reasonable but it is not what motivates people. We have to be balanced about it and bear that in mind.

Photo of Noel RockNoel Rock (Dublin North West, Fine Gael)
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On that note, 78 NTMA staff are on gardening leave. How much does that cost?

Mr. Conor O'Kelly:

The majority of them are National Management Asset Agency staff. Gardening leave is the notice period before someone is allowed to take up a new job or-----

Photo of Noel RockNoel Rock (Dublin North West, Fine Gael)
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That is natural enough. The concept of poacher turned game keeper applies when staff leave. I understand and appreciate that gardening leave is necessary.

Mr. Conor O'Kelly:

That is a fact. Turnover at NAMA is obviously significant because the agency is downsizing significantly. As people leave, the question is whether they should have a notice period, whether it should be enforced and how long should be allowed before they can take on another role and so forth. Basically, three months is the average and the majority of the individuals in question are in NAMA. The figure is not necessarily relevant for-----

Photo of Noel RockNoel Rock (Dublin North West, Fine Gael)
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I accept that. The note I had stated it was relevant to the NTMA. I have one or two questions on the State Claims Agency before I wrap up. Perhaps they are more relevant to Mr. Breen. PPOs are in decline and it appears that many more lump sum payments are being made. What is the position with regard to the legislation forthcoming in this area and how is it affecting how the State Claims Agency fulfils its role?

Mr. Ciarán Breen:

We have done 50 PPOs, of which 13 have reconverted into lump sums in the absence of the legislation.

As members are aware, the Department of Justice and Equality is bringing forward the PPO Bill. I refer to the Civil Liability (Amendment) Bill. That is happening right now. Earlier in the year, the Minister said she was very anxious to bring the Bill forward to provide more certainty to the PPOs because the truth of the matter is that it is really volatile for us. It is something that we have wanted to put in place for families to make life easier for them, to provide certainty and that they would not have to worry about money running out and that they would not have investment risk. That is the way we wish to proceed because we think that is the ethical way to proceed and to give certainty to these families.

Photo of Noel RockNoel Rock (Dublin North West, Fine Gael)
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Absolutely. I think they are an important instrument and whatever legislative change that needs to take place should be made in an expedited way. It seems to have been a long time coming. Is that Mr. Breen's view?

Mr. Ciarán Breen:

Yes. I was on the judicial committee - the clinical negligence committee - which originally brought this forward in 2010. What we did around that time was that we took the step ourselves of putting in place PPOs because we felt that was what we should do as an immediate reaction, on the basis that we would get the necessary statutory underpinning.

It has taken a long time. For us, it creates quite a lot of problems because it brings families back before the courts on returnable dates of either two, three or five years. If we can put in place five-year PPOs or sometimes eight-year PPOs we will try to do that as well, but if we had the legislation it would be a much easier path both for the families and for us.

Photo of Noel RockNoel Rock (Dublin North West, Fine Gael)
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Going back to Mr. O'Kelly, in terms of the ISIF, there is a section that outlines certain foreign assets and liabilities of the NPRF which have yet to be transferred to the ISAF. What is the nature of those assets and liabilities?

Mr. Conor O'Kelly:

They are almost non-existent at this stage. Essentially, they were mostly deferred tax liabilities that we were claiming such as taxes that had been withheld for the most part in certain jurisdictions and that takes quite a long time. If one thinks about investments being sold, the liquid investments are sold and moved into the ISIF and moved into the fund, other less liquid investments, and then we were into the long tail, which was claiming back withholding tax among other issues. Right now, I believe there is less than €1 million outstanding from the entire portfolio which is still being claimed from the Canadian authorities, as it happens.

Photo of Noel RockNoel Rock (Dublin North West, Fine Gael)
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In terms of the €6.2 million of administrative costs for NewERA, what is the breakdown of that?

Mr. Ian Black:

In terms of the cost, it would include both the salary costs and non-salary costs. It is the cost of running the NewERA function.

Photo of Noel RockNoel Rock (Dublin North West, Fine Gael)
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In terms of non-salary costs?

Mr. Ian Black:

Let me just check and get that information for the Deputy.

Photo of Noel RockNoel Rock (Dublin North West, Fine Gael)
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It just stood out in the context of the other functions as quite a high burden.

Mr. Ian Black:

It also includes the professional costs associated with the disposal of the Aer Lingus transaction.

Photo of Noel RockNoel Rock (Dublin North West, Fine Gael)
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So it was a one-off cost and we will not see it replicated in 2016 and 2017?

Mr. Ian Black:

Yes, unless there are other one-off costs in other years.

Photo of Noel RockNoel Rock (Dublin North West, Fine Gael)
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That is fair enough. I suppose there are a lot of one-off costs from year to year. That is it for me. I thank the witnesses for their time.

I had a look at the accounting statement and I think the NTMA is doing a fantastic job. The number of people seeking to invest in the 100-year bond is a testament to what a good job the witnesses are all doing. I know Mr. O’Kelly is new in the role and I wish him continued success because his success is our success. Every €200 million or 0.1% the NTMA saves us is a real saving to the taxpayer. I appreciate the work the witnesses are doing.

Photo of David CullinaneDavid Cullinane (Waterford, Sinn Fein)
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I welcome the witnesses, Mr. O’Kelly and his team. I wish to focus on three areas. The first is GDP and the relationship between it and borrowing costs. The second relates to issues concerning the strategic investment fund and the European Investment Bank. The third is the National Development Finance Agency, which I understand has been subsumed into the competencies and mandates of the NTMA.

What effect, if any, does Mr. O’Kelly think the revised GDP figures will have on our borrowing costs or has he given any thought to that?

Mr. Conor O'Kelly:

There are a couple of impacts. The first is the market impact of the surprise of the statistics. I said at the time that we fielded a lot of calls from investors, post the number, and there was a lot of explaining to do, and to some extent, if one is explaining, one is losing. GDP as a statistic and therefore the debt-to-GDP ratio and other ratios we use that include GDP are less valuable today than they were a couple of weeks ago because they have been distorted and are more difficult to explain. Investors we have been speaking to are already moving on to look at other indicators of our economic health and ability to repay rather than relying on the traditional debt-to-GDP ratio. It is less valuable as a tool than it was and if economists or the CSO comes up with some new series that is GDP without the distortions, then perhaps we could go back to having some confidence in that but for the moment investors are looking at other indicators in terms of the economy.

Photo of David CullinaneDavid Cullinane (Waterford, Sinn Fein)
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Many people would see it as a bit more than a lot of explaining having to be done. There is disbelief internationally from many economists. Much of the international reporting of the growth figures is that they were more than just distorted, that they do not form the basis upon which decisions can be made. We know that the GDP figures have an impact on the application of the fiscal rules and the debt-to-GDP ratios, but in terms of borrowing, fund and asset managers hold 50% of Government debt and they must have confidence in the figures.

It is interesting that the language Mr. O’Kelly used is very similar to the language used by the CSO director general, Pádraig Dalton, at the Magill summer school. He said that GDP and GNP, although required internationally, no longer provide a sufficient understanding of the domestic economy. That is only because one could say the figures are distorted or not real and we are not being presented with the real figures. Surely that must be a real concern because as we know, GDP and GNP are the figures that are used internationally. They are the figures that investors look at. What I hear from Mr. O’Kelly is that he accepts that fund managers and asset managers are concerned and have been in contact with his office to express their concerns about the figures. Surely that is something that must be addressed.

Mr. Conor O'Kelly:

In so far as it needs to be addressed, we are addressing it by engaging in conversation with them and trying to clarify the situation. To a large extent, I do not disagree with what the Deputy said in relation to GDP and GNP in that they have been distorted and are less useful. There is no doubt about that. However, if one looks at the investor pack that we take out on the road – we are constantly on the road – which is available on our website and is updated every month, it probably contains 40 different economic indicators of which debt-to-GDP is one and perhaps GDP makes up three or four of them. These are big decisions that investment managers make and they are looking right under the bonnet and getting in and taking a look around. They are looking at 20 or 30 indicators to make sure that things are what they seem. It is the combination of indicators that will give the overall picture.

Photo of David CullinaneDavid Cullinane (Waterford, Sinn Fein)
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Mr. O’Kelly also has to explain - he said that he had received calls from investors – the GDP figures. He used the word “distortion”. What does he mean by that term in the sense of a distortion of the GDP or GNP figures? What is his understanding of the distortion?

Mr. Conor O'Kelly:

What I mean by that is the debt-to-GDP ratio as traditionally used. The reason that it is used by bond investors in particular is that as one’s debt-to-GDP ratio falls or improves, the assumption is that one’s ability to pay one’s debts and refinance one’s debts is improving simultaneously. That is why it is used as a good indicator. In the case where an element of the GDP growth has no economic value on the other side, therefore, one’s ability to repay and finance one’s debts are no more improved than they were before the number changed then it is less valuable as a tool for investors to use.

Because of the distortion in this case, we have been told by the CSO that it is not necessarily matched by actual economic activity. Therefore, one's ability to repay and refinance is not matched in the way it ordinarily would be in the case of growth in GDP.

Photo of David CullinaneDavid Cullinane (Waterford, Sinn Fein)
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Does the NTMA have a role in reporting to the Department or the CSO? It is on the front line on the borrowing side in terms of requests from asset and fund managers and has had to explain what has happened, as it has done. It has a view on what the issues are. I assume it has some responsibility to report back to the Government. Will Mr. O'Kelly talk us through what this involves? Is there any reporting back from the perspective of the NTMA?

Mr. Conor O'Kelly:

We have a very close working relationship with the Department of Finance and always give feedback on any material issue. The Secretary General is an ex officiomember the board of the NTMA; therefore, there is regular contact and a very good relationship, with feedback back and forth. As the CSO is independent, that is a separate matter.

Photo of David CullinaneDavid Cullinane (Waterford, Sinn Fein)
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Does the NTMA engage with the CSO?

Mr. Conor O'Kelly:

No.

Photo of David CullinaneDavid Cullinane (Waterford, Sinn Fein)
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Does the CSO engage with the NTMA?

Mr. Conor O'Kelly:

No.

Photo of David CullinaneDavid Cullinane (Waterford, Sinn Fein)
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Would it be useful for the CSO to engage with the NTMA, given that it calculates the figures?

Mr. Conor O'Kelly:

That is a matter for the CSO.

Photo of David CullinaneDavid Cullinane (Waterford, Sinn Fein)
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On the Strategic Innovation Fund and its relationship with the European Investment Bank, what is Mr O'Kelly's definition of investment? What criteria are used in determining whether a project should be funded?

Mr. Conor O'Kelly:

We have what we describe as a double bottom line. For investment to get through the pipeline and ultimately the investment committee, it must have a demonstrable economic impact and a commercial return which is risk adjusted and proportionate. Certain types of transaction demand a higher return than others. We decide the criteria based on similar investment opportunities and peer comparisons. The blended return is the return we get on all of our investments together. Ultimately, it should exceed the cost of borrowing; otherwise, the State would not be benefiting.

Photo of David CullinaneDavid Cullinane (Waterford, Sinn Fein)
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The European Commission has published a report on the EU Urban Agenda Toolbox which looks at the workings of the European Investment Bank which does a similar job to the Strategic Innovation Fund. It discusses the building of a sustainable community. In a reference to the office in Poland it states the first time EIB bankers came to discuss the extension of the small metro system in Warsaw, they did not ask the questions the deputy mayor had expected to ask and the question a commercial banker would have asked, that is, whether the city would be able to pay back the EIB. The EIB wanted to know why the city needed a metro system. The report goes on to state the mayor was impressed by the fact that the EIB wanted to be sure the city was taking the right decision financially and in terms of EU policy goals. It states: "The EIB is not there to finance a project but to help solve the strategic challenges of the city". Once the EIB approves a project, one has real proof of the concept. It seems the Strategic Innovation Fund takes a different approach, with a very heavy concentration on a commercial return. I am not so sure that is the best approach to take. Has Mr. O'Kelly compared how the EIB sees investment as opposed to the NTMA?

Mr. Conor O'Kelly:

The Deputy is correct. Our mandate was given to us by the Oireachtas; therefore, the NTMA has to meet the condition of making a commercial return. We would not be able to change our mandate, unless it was changed for us. We have to meet the condition of generating a commercial return.

The EIB is a major institution. What the Juncker plan can and is trying to do is very interesting. Where projects in Ireland can link with and secure funding from the EIB we are happy to assist. The National Development Finance Agency has linked on a number of occasions with some of the new EFSI funds. I mentioned the GCU and primary care projects which have also linked with that fund. It is a very interesting fund, but it not one on which I am an expert. Therefore, I would not want to be quoted on it. Clearly, it is trying to do similar things. It seeks to use a fiscal stimulus and make a direct investment in infrastructure in economies to do what I suggested earlier, that is, to make up for the clear deficiencies in monetary policy. It is not doing what some people thought it might do.

Photo of David CullinaneDavid Cullinane (Waterford, Sinn Fein)
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Mr. O'Kelly has said a commercial return forms a heavy part of the blend of the mandate given to the NTMA by the Oireachtas. Mandates can be changed if they are too restrictive. I am assuming that as this is a new fund, it is being established and that the NTMA will have to evaluate its effectiveness. In doing this has it formed an opinion on the need to change the mandate to make it more flexible, or is it flexible enough to meet the demands of the State in terms of investment?

Mr. Conor O'Kelly:

Going back to the earlier question, the pipeline indicates that for the NTMA, there are many interesting projects and that we are having a very significant economic impact. The multiple we are getting on our money is two and a half times what the ISEF is investing because of the need to have co-investors. We are multiplying the €2 billion invested in the economy by a figure of 2.5. It has the additional impact an EIB fund would not necessarily have. Provided we are seeing this multiplier amd the pipeline of projects we think are viable, although we are conducting a review and will continue to review, I do not necessarily have a strong view. If we get to a point where we are not seeing the pipeline and it is drying up, we will have to review it in the light of the change. One might have to have that conversation.

Photo of David CullinaneDavid Cullinane (Waterford, Sinn Fein)
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I wish to focus on the former remit of the National Development Finance Agency and public private partnerships. The important aspect of public private partnerships is that we get value for money. It is important that information be given to Oireachtas Members and citizens in order that we are confident we are getting value for money. How does this work?

Mr. Conor O'Kelly:

I am relatively new to this, but my observation is that the PPP projects are probably the ones with which we as citizens should feel most comfortable in terms of getting value for money because they must jump two or three hurdles in order to proceed. Initially, a sponsoring Department engages in a desktop exercise to determine whether it should do it directly or take the PPP route. If it decides that it meets the guidelines for a PPP project set down by the Departments of Public Expenditure and Reform and Finance, it goes to us and the NDFA. The public sector benchmark is constructed together with all of the methodology to be used not just in determining the upfront capital cost but all of the maintenance and servicing costs over the lifetime of the project. The procurement process then starts and if the preferred tender or preferred bidder comes back with a tender, it has to be below the public sector benchmark; otherwise, the project will not be allowed to proceed to the next stage. That is the test. Before it reaches financial close, probably six to nine months down the road, there must be a retest against the public sector benchmark in case any of the variables has changed. Only then will it be signed off on and allowed to move forward as a PPP. There are a number of tests in which one has to meet the criteria. That is important.

Photo of David CullinaneDavid Cullinane (Waterford, Sinn Fein)
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Will Mr.O'Kelly give us a quick glimpse of the areas covered by PPP projects? What type of building has been constructed using a PPP?

Mr. Conor O'Kelly:

The best example I can give is the current project. We have just had a financial close on the 14 primary care centres to be built around the country by Balfour Beatty, a major UK firm. It won the mandate. The financial details cannot be revealed for confidentiality reasons, but the Comptroller and Auditor General could analyse the project.

I think he has done that in the past. It is a substantial discount on the public sector benchmark.

Photo of David CullinaneDavid Cullinane (Waterford, Sinn Fein)
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I will get to the Comptroller and Auditor General shortly but in terms of the areas where public private partnerships, PPPs, have been prevalent, so far it has been schools, courts-----

Mr. Conor O'Kelly:

Correct.

Photo of David CullinaneDavid Cullinane (Waterford, Sinn Fein)
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-----and nursing homes, which are a new feature. Now, public private partnerships are in health care as well. Essentially, these are tried and tested areas-----

Mr. Conor O'Kelly:

Yes.

Photo of David CullinaneDavid Cullinane (Waterford, Sinn Fein)
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-----and we are told that one of the advantages of PPPs is that there is risk-sharing.

Mr. Conor O'Kelly:

Yes.

Photo of David CullinaneDavid Cullinane (Waterford, Sinn Fein)
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The State takes a share of the risk and the private sector shares the risk, but there is not any real risk in many of these projects. That is something on which there should be more of a focus because if there is no risk, these are lucrative projects for the companies involved. I read the Comptroller and Auditor General's report on PPPs and some issues arise from that which I will come to shortly. My understanding of their rationale is that they give value for money and risk is shared but if the spend on the PPPs is in tried and tested areas, there is not much risk-sharing going on.

Mr. Conor O'Kelly:

There would have to be risk-sharing for it to be considered off-balance sheet and that test, as we know, in terms of Eurostat, is continually assessed and tested. As the Deputy said, there must be risk-sharing and that risk burden must be there. If we go back to crisis, many of those who participated in PPPs - the construction companies and the financiers - will tell the Deputy that there certainly is risk-sharing because all projects in Ireland were abandoned and all the people who were participating, whether they were investors or others who had resources on the ground in terms of contracting, commitments, etc., essentially had to shut up shop. They took a substantial risk, and substantial losses, because they incur very significant costs in the bidding process and in even preparing the resources. The risk certainly does lie with many of them.

Photo of David CullinaneDavid Cullinane (Waterford, Sinn Fein)
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Is Mr. O'Kelly familiar with the model in British Columbia and other regions in Canada in that the authorities publish reports as soon a contract is signed in respect of a PPP project? It sets out risk analysis and the complete 25 or 30-year picture. It gives information on the entire project. It evaluates whether value for money will be achieved. Everything has to be captured and justified. We do not seem to have the same type of process here, as far as I can see. That seems to be a better model because, for us, information is key. Our job is to evaluate information.

On the same track in terms of information, the Department of Public Expenditure and Reform's website is where we get a list of all the PPP projects but it is three years out of date.

Mr. Conor O'Kelly:

I am not familiar with the Canadian model but it sounds like a good idea. It might be one for the Comptroller and Auditor General to look at.

Photo of David CullinaneDavid Cullinane (Waterford, Sinn Fein)
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The Department of Public Expenditure and Reform website is three years out of date. One of our functions is to ensure that we get value for money and that we understand PPPs in terms of their volume and number. If the website is three years out of date and does not provide the full PPP listings, surely that is a failure on the Department's side. It also has an impact on the work of the National Treasury Management Agency, NTMA, given that it is now one of its mandates. Was Mr. O'Kelly aware that the website is three years out of date?

Mr. Conor O'Kelly:

No.

Photo of David CullinaneDavid Cullinane (Waterford, Sinn Fein)
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Is that something that can be examined?

Mr. Conor O'Kelly:

I am sure. The Deputy would have to talk to the Department about it.

Photo of David CullinaneDavid Cullinane (Waterford, Sinn Fein)
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It is one of the NTMA's area of competence now and I am hoping it is something Mr. O'Kelly will be able to help us with.

Mr. Conor O'Kelly:

I will follow it up.

Photo of David CullinaneDavid Cullinane (Waterford, Sinn Fein)
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I might ask the Comptroller and Auditor General to comment on it because he has furnished the committee with a report also.

Mr. Seamus McCarthy:

The kind of information that is on the website is about what has been spent and what is committed.

Photo of David CullinaneDavid Cullinane (Waterford, Sinn Fein)
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Yes.

Mr. Seamus McCarthy:

It is useful to have that kind of information to know the level of commitment in the future regarding those projects.

The question on the evaluation of value for money is one my predecessor and I have commented on, that is, explaining publicly where the value comes from in a public private partnership. The concern we would have, and to use an example of the schools, is where a succession of projects have been put out and developed under PPP. Effectively, somebody who has been successful in bundle 3 knows the commerciality of the deal and if there is not some explanation to allow others to understand what we are looking for and the kind of value we want, there is a risk that one is limiting the potential for competition in the market.

In terms of publishing something, it might not necessarily be the full value for money benchmarking exercise Mr. O'Kelly has mentioned but a cut-down version of that. The Deputy is correct that there are examples of where there would be an explanatory memorandum on a project explaining the nature of it, the key risks involved, who is carrying what risks, the headline commitments regarding it and why it is a better way of delivering the services we require than doing it by conventional means.

Photo of David CullinaneDavid Cullinane (Waterford, Sinn Fein)
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In terms of-----

Mr. Seamus McCarthy:

If I could just say that when the commercial sensitivity of it would be removed is after three or four years when the project is up and running and it has settled down. As I understand it, there is a requirement under the capital appraisal guidelines that there be a look-back exercise to verify that the value has been delivered in the way that was expected. Conventional PPP projects have been running since around 2003 and I am not aware of any look-back exercise having been published. There is a dearth of public knowledge about how this works and why it delivers value, and it is something that possibly needs to be addressed. It might need to be taken up with the Department of Public Expenditure and Reform as well.

Photo of David CullinaneDavid Cullinane (Waterford, Sinn Fein)
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It is my view that because of the way we do it in this State, the commercial sensitivity argument has been used to almost frustrate information that is given to committees such as this one. If, even after three years, we are not getting the look-back reports, that is a problem. Having done some research, I raised the example of British Columbia. I do not know whether the Comptroller and Auditor General's office is aware of those types of models or other international models that are better at providing information because once a project is signed up to, that is it. I am not sure why we have to wait three years but my understanding is that in those areas in Canada, comprehensive reports are provided.

Mr. Seamus McCarthy:

It is early.

Photo of David CullinaneDavid Cullinane (Waterford, Sinn Fein)
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Is the Comptroller and Auditor General familiar with that?

Mr. Seamus McCarthy:

Yes. I will probably need to look at it again but I am aware that in the past those would have been published. The point has often been made here that the committee can be assured that value for money is being achieved because the Comptroller and Auditor General can look at these projects. For me, looking at any one of these projects would take a full-time staff member a year. I do not have the resources that would allow me give the Deputy the reassurance that every single PPP project delivers value for money. If I look at it I will report on it, and we have done in the past, but the Deputy needs to look for assurance from the National Development Finance Agency, NDFA, and from the sponsoring Departments on the value for money they are achieving, and not assuming that just because I can look at them I have looked at them. I do not have the resources to do that.

Photo of David CullinaneDavid Cullinane (Waterford, Sinn Fein)
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Following on from what the Comptroller and Auditor General has said and his observations, does Mr. O'Kelly believe there are areas in respect of what has been articulated that can be taken on board by his organisation?

Mr. Conor O'Kelly:

Yes, I believe so. I am very comfortable that value for money has been achieved. They have to pass those tests and they are quite rigorous. Finding a way to give that kind of transparency to this committee and to the public is probably something we should try to do. Each project has its own board and there will be an independent Accounting Officer on that.

There also will be a member of the sponsoring Department on it. Consequently, there is transparency: they are all signing off; they are all seeing the value for money. There is some comfort in that but ultimately, finding a way to demonstrate that would be helpful.

Photo of Seán FlemingSeán Fleming (Laois, Fianna Fail)
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On foot of what Deputy Cullinane has said, we will write formally to the Department of Public Expenditure and Reform asking it to provide whatever information it has in respect of a look-back audit on all the public private partnerships, PPPs, entered into since the recent round commenced in 2003 or 2004. If no look-back was carried out, the Department should explain why because it was a Government policy. We will let the Department come back with the answer and will take it from there.

Photo of Catherine ConnollyCatherine Connolly (Galway West, Independent)
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I thank the witnesses. It has been interesting and I appreciate their openness. I also appreciate the gender representation here; it is overwhelming.

Photo of Seán FlemingSeán Fleming (Laois, Fianna Fail)
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On our side as well.

Photo of Catherine ConnollyCatherine Connolly (Galway West, Independent)
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Just taking up on the issue of public private partnerships, my experience as a public representative on what was a VEC does not reassure me that there is value for money with public private partnerships. I heard Mr. O'Kelly reassuring me. Obviously, it is somewhat like David and Goliath here in the sense of what members must go through - with the help of the Comptroller and Auditor General - to try to look at matters. Going on my experience, I remember being on that committee and it was a mantra that public private partnership was better. However, that mantra was not proven or backed up by any evidence and when some evidence came before us, it showed that the direct building of schools was much cheaper and much more cost-effective. This has been stated by Deputy Cullinane and raised by the Chairman, which I support fully. It concerns me that the Comptroller and Auditor General has stated that despite a statutory obligation, there has been no look-back on any of these public private partnerships. At this point, that is a red alert. A second red alert is he does not have staff to do it. Consequently, while reassurances from Mr. O'Kelly are wonderful, they do not reassure me in that sense. I really would like to see it in plain English, in order that I can explain it to the taxpayers. That is the first point.

Staying on the subject of public private partnerships, what is the up-to-date status of the transfer of public private partnerships from the National Development Finance Agency, NDFA, to the new Transport Infrastructure Ireland, TII? What is the current status and how many are there?

Mr. Conor O'Kelly:

On the gender issue first, I apologise to the Deputy.

Photo of Catherine ConnollyCatherine Connolly (Galway West, Independent)
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It was tongue in cheek but-----

Mr. Conor O'Kelly:

No, but it is an important issue and 50% of the staff of the NTMA are female. It is 70:30 in terms of what we call senior management and we have just launched a gender balance initiative to try to see what other biases might exist in the organisation.

Photo of Catherine ConnollyCatherine Connolly (Galway West, Independent)
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Those figures are all the more worrying, given that there is no gender balance at the top table but in any event-----

Mr. Conor O'Kelly:

Yes. On the TII and the NDFA, the agency has got its financial advisory side and its procurement side and the procurement side of the NDFA is set to merge with TII.

Photo of Catherine ConnollyCatherine Connolly (Galway West, Independent)
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That is right.

Mr. Conor O'Kelly:

Those discussions are ongoing and it will be necessary for legislation to go through, which could be an issue in terms of timing. Discussions are taking place, however, there is a working group with the Departments of Public Expenditure and Reform and Transport, Tourism and Sport and the NDFA and they are looking at moving that forward. We also are talking to staff. About 40 out of the 60 staff members in the NDFA will be affected by this. It has been a highly uncertain environment for them because this has been in the public domain for a number of years. We have to manage a group of staff who currently are working on some significant projects while their future is uncertain. We are anxious to move everything through as quickly as possible.

Photo of Catherine ConnollyCatherine Connolly (Galway West, Independent)
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It has not happened. There has been no transfer yet.

Mr. Conor O'Kelly:

No. While it needs legislation, the working group has been set up.

Photo of Catherine ConnollyCatherine Connolly (Galway West, Independent)
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Is there a timeframe for that?

Mr. Conor O'Kelly:

There is a timeframe. We probably are talking about 12 months from now before it will be executed.

Photo of Catherine ConnollyCatherine Connolly (Galway West, Independent)
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I thank Mr. O'Kelly. As for the Strategic Banking Corporation of Ireland, SBCI, are the witnesses in a position to answer questions on that?

Mr. Conor O'Kelly:

No. We only provide outsourced services. It has its own board and its own chief executive.

Photo of Catherine ConnollyCatherine Connolly (Galway West, Independent)
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Does that come under the committee's remit?

Photo of Seán FlemingSeán Fleming (Laois, Fianna Fail)
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Yes.

Photo of Catherine ConnollyCatherine Connolly (Galway West, Independent)
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Because there are serious questions there for the committee regarding the drawing down of funds. Again, it was my experience of the crisis in Galway - which reflects nationally - that there was no funding for small to medium-sized enterprises. Is that not one of the SBCI's main functions? From what I am reading here, the drawdown of that has not been great, which raises questions.

Mr. Eoin Dorgan:

To be of assistance to the Deputy, the 2015 annual report has just been published this morning. It was laid before the Houses of the Oireachtas this morning.

Photo of Catherine ConnollyCatherine Connolly (Galway West, Independent)
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On this particular-----

Mr. Eoin Dorgan:

On the SBCI. I do not have those figures with me because as Mr. O'Kelly stated, it is separate. I think there may have been a drawdown of €192 million by the end of 2015 but I must double-check.

Photo of Catherine ConnollyCatherine Connolly (Galway West, Independent)
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Out of what funds available was that drawdown of €192 million?

Mr. Eoin Dorgan:

Approximately €750 million but it takes time from commitment to drawdown. Essentially, almost all the €750 million has now been-----

Mr. Conor O'Kelly:

Almost all that money has been committed to the platform, so therefore that is the first step in drawing down. The actual drawdown figures represent the money going out to the SMEs.

Photo of Catherine ConnollyCatherine Connolly (Galway West, Independent)
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That is right. What is the time lapse between funds being committed and being drawn down?

Mr. Conor O'Kelly:

It depends on which institution but it could be six to nine months. For the on-lenders like the banks, such as AIB, Bank of Ireland and Ulster Bank, it is faster as they already are set up but for some of the non-bank lending platforms, it is a little bit slower.

Photo of Catherine ConnollyCatherine Connolly (Galway West, Independent)
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But that is as much as the NTMA can say.

Mr. Seamus McCarthy:

The annual report and financial statements will be presented and I expect that when we come back in the autumn, it will be one of the ones listed. At that stage, it would be open to the committee-----

Photo of Seán FlemingSeán Fleming (Laois, Fianna Fail)
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Which organisation?

Mr. Seamus McCarthy:

The Strategic Banking Corporation of Ireland, SBCI. It will be open to the committee to call it, if members wish.

Photo of Catherine ConnollyCatherine Connolly (Galway West, Independent)
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As for the State Claims Agency, I think Mr. Breen stated there were 50 periodic payments. Is that right?

Mr. Ciarán Breen:

That is correct, yes.

Photo of Catherine ConnollyCatherine Connolly (Galway West, Independent)
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And out of that, 30 have reverted back.

Mr. Ciarán Breen:

No, 13.

Photo of Catherine ConnollyCatherine Connolly (Galway West, Independent)
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I beg your pardon. They have reverted back to full payments-----

Mr. Ciarán Breen:

Yes.

Photo of Catherine ConnollyCatherine Connolly (Galway West, Independent)
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-----because of the absence of legislation.

Mr. Ciarán Breen:

Yes.

Photo of Catherine ConnollyCatherine Connolly (Galway West, Independent)
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I should also congratulate the State Claims Agency, as it got a clean audit on everything from the Comptroller and Auditor General. Obviously, our questions do not pertain to the auditing of accounts; they pertain to the agency's role and function and queries on that. I will turn to the single recommendation from the Comptroller and Auditor General regarding the agency. It pertained to the 20% margin of comfort that the agency allowed, whereby it overestimates the liability by a 20% margin of comfort. The Comptroller and Auditor General recommended that the agency should change it and that it should be based more on statistical probabilities and by informed analysis of outcomes of previous cases. Has that recommendation been taken on board?

Mr. Ciarán Breen:

It has. There are two parts to it and I refer to the prudential margin, as we call it, which is a conventional insurer provision that they do. Just to explain why we had it there and what is its purpose, when one sets a reserve on a case, the case can deteriorate over time. Moreover, our reports on a plaintiff, which might be medical reports, might be more favourable in terms of outcome than, for example, their own reports. Consequently, one can get a deteriorating picture. It also is to allow for any precedent a case might set, for example, new levels of damages. Currently, for example, there is some active debate in the court about the cap on general damages and whether that should be increased. That margin was there for that. Our actuaries are an independent firm of actuaries in London and they adjudicate all of our indemnity schemes and provided advices on it. They advised us to maintain it but to incorporate the Comptroller and Auditor General's statistical probability model as well. Effectively, we are marrying the two models in respect of our reserve setting. The Deputy might be happy to know that our actuaries indicated that on a look-back basis from our inception to the present, when they look at what we reserved and what the outcome was, they said we got it right over the period.

Photo of Catherine ConnollyCatherine Connolly (Galway West, Independent)
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I may allow the Comptroller and Auditor General to come in later to comment on that and whether he is satisfied that his recommendation is being taken on board.

As for the risk assessment, my experience in a different life was that the risk was not managed well by the health executive and by the hospitals and that risks could have been avoided. I believe the agency is taking a proactive approach in this regard.

On early apologies, the vast majority of these cases - 75% of them, I think - are to do with medical negligence.

Mr. Ciarán Breen:

Yes.

Photo of Catherine ConnollyCatherine Connolly (Galway West, Independent)
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They represent an extraordinarily high percentage of the overall claims. It seems that often what was necessary, in addition to compensation, was an early acknowledgement. I have two questions in that regard. What risk assessment improvements have been made? Would Mr. Breen also comment on the necessity of early apology?

Mr. Ciarán Breen:

We have a clinical risk management unit, which is headed up by a doctor. That unit comprises medical practitioners, nurses and allied health care professionals. One of the objects of what they are carrying out has two elements. They carry out site visits to hospitals. Really, it is a kind of audit of what a hospital is doing and how it is managing its clinical risk, objectively looked at by them. Also, critically, they examine the lessons learnt by looking at closed claims and how they translate - what were the functional deficits in terms of clinical risk - and feed them back into the system.

We have concentrated largely on the area of obstetric risk, which, even though it counts for only 25% in terms of claims volume, can be has high as 60% in terms of payouts. We are just finishing now a review of the 19 maternity hospitals around the country in which we looked at them from a best practice point of view in terms of obstetric medicine and some of the deficits that we might have identified. That is a very active area of our business and we are constantly doing that. We do it on the non-clinical side as well, with all other State authorities.

Deputy Connolly's second question then was-----

Mr. Conor O'Kelly:

The apologies.

Mr. Ciarán Breen:

The apologies, yes. A number of years ago, along with the HSE, we initiated an open disclosure project. We had two pilot hospitals - originally Mercy Hospital in Cork, and then the Mater Hospital in Dublin. That has been expanded right throughout the hospitals. We advocate that doctors apologise where there is an error and indicate what they are doing about it, in terms of the future, what lessons have been learnt, etc., but it can be complex on occasion. If the Deputy can imagine, say, a situation in which a child is born and there are clearly problems ab initio, but the exact cause is not amenable to an immediate discussion, we have advocated that even in those circumstances doctors should be having very open discussions with the parents of the child and looking to the reasons a combination of things may have happened. This is a project that we have expanded over a period of time, and there is no reason, in cases where there is absolutely clear error, for hospitals not to admit to that error and apologise for it.

Photo of Catherine ConnollyCatherine Connolly (Galway West, Independent)
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Certainly. How is that policy, where the apology is coming earlier and there is open discussion, being monitored?

Mr. Ciarán Breen:

The HSE has just had a report carried out by a former doctor, who used to be with the Medical Protection Society, looking at how good the project is and what are the aspects of it that would need to be fine-tuned further. That report was delivered only a matter of weeks ago to the HSE.

Photo of Catherine ConnollyCatherine Connolly (Galway West, Independent)
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Will those two reports - that of the maternity hospitals and the one Mr. Breen just mentioned - be available publicly?

Mr. Ciarán Breen:

Yes. In fact, we published a report last year that was a look-back over five years at clinical incident reporting in relation to maternity and obstetrics, and our pattern in the future will be one of producing reports on different areas where there is clinical reporting generally.

Photo of Catherine ConnollyCatherine Connolly (Galway West, Independent)
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Finally, on this particular area, there was a saving of 42% in legal costs after the agency went back and examined the issue. That also is to be welcomed. How did the agency manage that? A 42% saving is significant. Were they over-compensating in their estimates of costs or what?

Mr. Ciarán Breen:

Maybe I could give the Deputy an example of it. Obviously, there are two aspects to our costs. There are our own costs - the costs of our own solicitors and barristers - and then we have the plaintiff's costs. We had a case in which the professional fee of a plaintiff's solicitor was €485,000 in a catastrophic injury case and we could not get any agreement, and therefore went to the taxation of cost system. The fee was ultimately reduced to €267,000. That was appealed further to the High Court and it was affirmed by the High Court that that was the proper reduction. Unfortunately, the Court of Appeal has now indicated that it has set aside that judgment, so that might have an effect. However, that particular case had a fairly dramatic effect in terms of the number of settled costs that we got over a period of time.

In relation to our own costs, we carried out procurement for barristers in which we got them to tender in an open tender competition. We imposed caps and limits, and we did the same with our own solicitors. The combined effect of all of those things has driven down costs, but it is an ever-difficult challenge for us. I could not say to the Deputy, given what has happened in this latest Court of Appeal decision, that we will always be as successful as we have been over the last period. In fact, one may see costs rise if this decision has effect, particularly in relation to lower and medium-value cases.

Photo of Catherine ConnollyCatherine Connolly (Galway West, Independent)
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I thank Mr. Breen.

Moving on to another area in terms of investment, Mr. O'Kelly stated the NTMA's role is in managing the debt and all of that, but it has another role in investing money throughout the world. In fact, I was staggered - I do not come from a financial background - at the amount of investment. I looked at the risk assessment, which is a major issue for the NTMA. Has climate change come into the NTMA's risk assessment? I will also ask about the NTMA's investments in fossil fuel. I will not delay, but it is worth reading out one or two quotes on climate change and our commitment to ensuring that the average rise in global temperatures is kept below 2°C. The Economist Intelligence Unit, in a major piece of research in 2015 entitled "The Cost of Inaction," stated that the cost of inaction significantly outweighed the cost of action. According to Mr. Mark Carney, governor of the Bank of England, "The challenges currently posed by climate change pale in significance compared with what might come". He also stated: "Once climate change becomes a defining issue for financial stability, it may already be too late." It goes on in a similar vein. I have a report by an advisory committee to the European Systemic Risk Board on the risk posed by climate change. I could quote Mr. Hank Paulson, the former US Secretary of the Treasury, and many others whom I will not quote, highlighting the climate change risk. Where does that risk feature in any of this? Why is the NTMA still investing in fossil fuels? Has the agency made a decision to change that, or is it agency reviewing its policy? I will start there.

Mr. Conor O'Kelly:

Clearly, this is a live issue in investment markets. We have examined it, and are continuing to do so. I suppose our first decision is around the transfer of money from National Pension Reserve Fund, NPRF, investments into the new Strategic Investment Fund. They were already investments with fund managers. We ourselves are not directly investing in those stocks; we are investing in fund managers who are investing in those stocks on an ongoing basis. The mandate that we give them can change at the time that one puts out the money, and at various stages throughout the year or the period. What is happening in reality is that all that money has been transferred and liquidated and put back into the Strategic Investment Fund. That is currently undergoing the so-called global portfolio transition strategy, so its investment mandate has changed very significantly. The risk we used to take in terms of the kind of investments we made has changed significantly, and now the money is going through this new transition process. It will come out, essentially, in three buckets: one will be a very liquid cash bucket; the next bucket will have short-term Government bonds and be semi-liquid, if you like; and the third one will have a little bit more risk, which could have some of those equity exposures.

In that case, we will be subscribing to the latest global protocol regarding investment, including in respect of fossil fuels and the environment. However, we have made a decision not to proactively force or ask because it would literally be impractical for us to do so in light of the mandate and the current transition. The new settled portfolio will subscribe to the latest global standards regarding those areas.

Photo of Catherine ConnollyCatherine Connolly (Galway West, Independent)
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I could not be happy with that answer. Climate change is the biggest risk we face. I have asked Mr. O’Kelly in regard to the very well-produced, glossy report where climate change fits in and where it is identified as a risk. Mr. O’Kelly tells me there is a transition. Do I understand that the NTMA is to move out of all the current investment arrangements? There are 55 corporations listed that extract, transport or burn fossil fuels. They fall under the quoted debt instruments. Under quoted equities, there are 241 corporations that extract, transport or burn fossil fuels. There are significant investments in the world’s tobacco corporations. There are questions to be asked the about companies, including those that finance mercenary armies, etc. These are the investments of the NTMA. Mr. O’Kelly might say they are a legacy. Who makes the decision on the morality of these investments and, more importantly, on the effect of the fossil fuel industries on climate change? What date does the NTMA have for stopping this? When is this going to stop? Is it being reviewed? Who is reviewing it?

Mr. Conor O'Kelly:

As I said, those are totally fair points. I completely agree. Our decision has been based on the logistics of the transition portfolio and the strategy currently in place, which is live right now. The portfolio is being transitioned and we will ensure that the new portfolio guidelines will subscribe to a higher standard in this regard than in the past.

Photo of Catherine ConnollyCatherine Connolly (Galway West, Independent)
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I have not been given a date on when the transition will be completed. Mr. O'Kelly is not answering my question on the serious economic risk posed by climate change, not to mention its impact at the human or any other level. Why is this not listed in the document as one of the major risk factors associated with the NTMA’s investments?

Mr. Conor O'Kelly:

Could I reflect on that and come back to the Deputy?

Photo of Seán FlemingSeán Fleming (Laois, Fianna Fail)
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Is there an ethical investment policy covering armaments manufacturing, tobacco, etc.? There must be something in this area. Obviously, climate change must be coming into that overall picture.

Mr. Conor O'Kelly:

That is correct.

Photo of Seán FlemingSeán Fleming (Laois, Fianna Fail)
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What is in place in this area? In what way does the NTMA need to expand this area?

Mr. Conor O'Kelly:

Currently, armaments is the only specifically restricted category.

Photo of Seán FlemingSeán Fleming (Laois, Fianna Fail)
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Is the Irish taxpayer still investing in tobacco?

Mr. Conor O'Kelly:

Yes.

Mr. Ian Black:

However, as Mr O'Kelly explained, we are in the process of moving our legacy investments into three buckets. The first bucket would be cash, the next bucket would be credit-related instruments and the residual would be real estate, absolute return funds and other similar investments. Therefore, we do have an ethical and social responsibility policy. The best thing is to send it on to the committee to clarify the position more.

Photo of Catherine ConnollyCatherine Connolly (Galway West, Independent)
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Clearly, the process today has highlighted a lapse and a gap. This is extremely important. Climate change does not feature in the document. I appreciate the delegates' openness in answering my question.

Mr. Conor O'Kelly:

I take the point completely on board. We will come back to the Deputy.

Photo of Catherine ConnollyCatherine Connolly (Galway West, Independent)
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Reassuring me there is a transition phase is hiding behind words. I refer to the impact of the delegates' or their predecessors' decisions to invest in all these companies and to their failure to include a reference to the risk posed by climate change.

Mr. Conor O'Kelly:

I will take the point on board.

Photo of Seán FlemingSeán Fleming (Laois, Fianna Fail)
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The delegates will come back to us specifically on this issue.

Mr. Conor O'Kelly:

Yes.

Photo of Róisín ShortallRóisín Shortall (Dublin North West, Social Democrats)
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I apologise for being late. I was following most of the debate on the monitor. I have just a few questions, the first of which picks up on the Deputy Connolly's final point. In a recent response to a parliamentary question, I was informed the proportion of the Ireland Strategic Investment Fund's investment in fossil fuel industries had been reduced very significantly, from 25% at the end of 2014 to 11% at the end of 2015. Is there a plan to phase it out completely? Over what period will it be phased out? In reply to Deputy Connolly's final question, the delegates spoke about ethical and social responsibility policy. We would welcome sight of that. Could the delegates outline the plan for phasing out investments in the areas that the NTMA does not regard as ethical?

My second question relates to the comments made earlier about the leveraging of EIB funds for the DCU development. That is a very welcome development. It represents very good use of the strategic investment fund. What is the potential for using that same kind of approach in terms of leveraging European funds for general house-building? What is the NTMA proposing in this regard? There is a strong sense that access to funds is possible but that we are not maximising the potential in that regard. Could the NTMA enter a similar arrangement with either local authorities or approved housing bodies?

My third question picks up on points made earlier by Deputy Cullinane on public private partnerships. We have received some correspondence on this. Members of this committee have asked, on an ongoing basis for a number of years, for evidence that public private partnerships actually represent value for money. While we are told there is a public sector benchmark, we have yet to get sight of one. Unfortunately, as we have learned on many occasions at this committee, initial costings for major infrastructural projects often run over budget and what may look like good value at the start may not turn out to be such good value. Certainly, it may turn out to be very poor value afterwards. A good example is the M3 project. It appeared that value for money was being obtained. The actual project was more or less on budget but afterwards there was not sufficient traffic to support the tolling system. Therefore, the State and taxpayer ended up making compensation payments. Presumably, these were not factored in to the original benchmark. Many of us remain to be convinced that public private partnerships are the right way to go. I would welcome the delegates' comments on that.

Mr. Conor O'Kelly:

I thank the Deputy. I will take the questions in order. On the ethical policy, I suppose our position is that we had decided not to take proactive action during the transition phase in respect of a portfolio that was out with fund managers who did have the exposure referred to by Deputy Connolly and a portfolio probably not appropriate for contemporary thinking. I think we have to review that and we will come back to the committee with our latest policy when the global transition strategy is complete. I take the point that there is a gap and we need to take a close look at it.

With regard to DCU and the EIB, we are in dialogue with the latter about other potential areas. More particularly, it is a matter of the other universities taking a look at what we have done and to determine whether they could access funds. It is specifically for students and campus development that the EIB money is available in the case in question.

Photo of Róisín ShortallRóisín Shortall (Dublin North West, Social Democrats)
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Mr. O'Kelly referred to the case in question. Is there other EIB money available for housing investment?

Mr. Conor O'Kelly:

Potentially, yes. There can be a difficulty in terms of whether sites available for social housing are of a scale sufficient for the EIB to consider them for projects. That is a challenge.

As the Deputy knows, the Ireland Strategic Investment Fund is examining a number of areas in regard to various vehicles, but that does not necessarily include the EIB. It does include attracting private capital off-balance sheet to try to create some vehicles in the area of social housing, which is following the NARPS model that exists in NAMA and which we are trying to expand. I refer also to the addition of a fund for infrastructure around sites to enable the building of houses.

Therefore those two off-balance sheet funds are being examined right now by the strategic investment fund. Both have possibilities and have been included in the Minister's plan.

Photo of Róisín ShortallRóisín Shortall (Dublin North West, Social Democrats)
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I wish to pursue that issue, if I may. Off-balance sheet is one aspect of it, but obviously being able to access European funds is an important aspect from the viewpoint of investment in public housing. Given the huge demand for public housing and the fact that money has not been available for that in recent years, I wonder why the NTMA would not have pursued that as a possibility. If European funds are available, why would we not try to leverage those for a public housing programme?

Mr. Conor O'Kelly:

It is really a matter for the Department of Finance or the Department of the Environment, Community and Local Government.

Photo of Róisín ShortallRóisín Shortall (Dublin North West, Social Democrats)
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But is Mr. O'Kelly saying that it would be possible?

Mr. Conor O'Kelly:

The European Investment Bank, EIB, has got funds that it is looking to make available for all infrastructure projects that can apply, but I do not know what the details are in relation to housing in particular.

Photo of Róisín ShortallRóisín Shortall (Dublin North West, Social Democrats)
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Yes, but is Mr. O'Kelly saying that the NTMA was never asked to assist in developing a decent public housing programme?

Mr. Conor O'Kelly:

Specifically, the NTMA was asked to examine the off-balance sheet possibilities in relation to social housing and residential housing, and that is what we have been confining our activities to. That is where, because of the strategic investment fund, we have that availability to bring in matching capital. On-balance sheet is a matter for the Department of Finance.

Photo of Róisín ShortallRóisín Shortall (Dublin North West, Social Democrats)
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It is very strange that that has been the case. Therefore, the perception is true that there are public European funds available for investment in housing and we are not drawing them down.

Mr. Conor O'Kelly:

I think that is a matter for the Department.

Photo of Róisín ShortallRóisín Shortall (Dublin North West, Social Democrats)
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So I am right in thinking that. Okay, thanks. Mr. O'Kelly talks about an off-balance sheet vehicle for delivering public housing, not using European funds. One of the sites earmarked for that is in my own constituency in the Finglas area, but people just do not have a clue what it is about. How developed is that proposal? The small bit of experience that there is in public private partnerships, PPPs, for public housing has not been good by any means. It has been fairly disastrous. How does Mr. O'Kelly think that such a proposal would operate? I am asking if Mr. O'Kelly is aware of the Finglas proposal and there are other sites.

Mr. Conor O'Kelly:

That is the PPP?

Photo of Róisín ShortallRóisín Shortall (Dublin North West, Social Democrats)
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Yes.

Mr. Conor O'Kelly:

I was not referring to the PPP. I do not believe that PPP is a significant solution for social housing, given the scale one would need to get an effective PPP and the timelines involved. The current PPP experiment project is for 1,500 houses - three bundles of 500 houses - but they will not be built to move into until 2020 or 2021 by the time one goes through all the public procurement, which is extremely onerous as the Deputy knows. The identification of sites is a difficulty there, so personally I do not believe that PPPs will be a solution for social housing. Looking for PPPs to be a solution is a mistake and will not be productive.

I was talking about two initiatives concerning the NTMA on social housing. NAMA has a fund which we are looking at the possibility of replicating. If properties are for sale which approved housing bodies or local authorities want to purchase, which they have identified as being appropriate for social housing, for which they do not have the capital or money and cannot or do not want to borrow the money, this vehicle would buy the property on their behalf and enter into a lease with them over 20 or 25 years. This vehicle already exists and has worked quite well for properties that NAMA has been selling, which have been identified. A vehicle already exists within NAMA which has more than 1,000 units in it. The approved housing bodies and local authorities have found it to be useful. They do not have to provide upfront capital cost, so this fund could bring in capital from the strategic investment fund as well as external capital, potentially, and access a vehicle that could buy the houses and even buy Part V houses and new houses being built, therefore accelerating that programme. That is one of the suggestions we have made that we think has possibilities.

The other one is where the strategic investment fund would look to create a fund that would be drawn down for enabling infrastructure. We have heard many reports that there are 30,000, 40,000 or 50,000 houses, even in the greater Dublin area, that could be built and are waiting for enabling infrastructure to get started. We are talking to developers and local authorities about creating a fund that would lend money over the long term in a way that other financial institutions would not do. It may take in the houses themselves as collateral and ultimately take in the levies that might be created as ways of paying down the loan over time. We think that proposal could be impactful, so we are taking a close look at it.

They are the two live areas for the NTMA in the strategic investment fund. There are so many other initiatives but for our area of expertise the questions are whether we can bring in co-investors, whether we can keep it off-balance sheet, and whether we can create a model that may be replicated by other institutional investors and therefore get some scale. There is really no point in us adding to opinions or activities that are already being covered by other areas.

Photo of Róisín ShortallRóisín Shortall (Dublin North West, Social Democrats)
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As regards the three bundles of 500 houses that Mr. O'Kelly spoke about, where is that proposal currently?

Mr. Conor O'Kelly:

Bundle 1 is going through the process right now.

Photo of Róisín ShortallRóisín Shortall (Dublin North West, Social Democrats)
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Where is that?

Mr. Conor O'Kelly:

I do not think it has reached financial closure yet, so it is going through the procurement phase.

Photo of Róisín ShortallRóisín Shortall (Dublin North West, Social Democrats)
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Fine, but are they local authority houses?

Mr. Conor O'Kelly:

Yes.

Photo of Róisín ShortallRóisín Shortall (Dublin North West, Social Democrats)
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Therefore, NAMA has a development of 500 local authority houses. Does the NTMA have any role in voicing its views on the viability of a project like that?

Mr. Conor O'Kelly:

No. As we discussed earlier in terms of the process, the sponsoring Department will essentially decide that it can bundle those houses. It has the sites and will then potentially put it into a PPP. We will take it from there and set up the project, managing it from there. However, the sponsoring Department would initially decide that it is appropriate.

Photo of Róisín ShortallRóisín Shortall (Dublin North West, Social Democrats)
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Policy-wise it certainly does not fit-----

Mr. Conor O'Kelly:

No.

Photo of Róisín ShortallRóisín Shortall (Dublin North West, Social Democrats)
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-----with the Government's statement on the social mix, so I just wonder if that is going forward. The other question was about PPPs and value for money.

Mr. Conor O'Kelly:

In general?

Photo of Róisín ShortallRóisín Shortall (Dublin North West, Social Democrats)
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Yes. I mean the M3, for example.

Mr. Conor O'Kelly:

I suppose that, in everything, things change and not everything is going to work out as initially thought. However, I personally think there is a place for PPPs, particularly where one has scale - that is the most important thing - where one has a very low interest rate environment as we have right now, and where the State has got some on-balance sheet restrictions, which is the case right now. They are conditions where PPPs are attractive and should be looked at closely, but for smaller once-off projects it is not an effective mechanism. It is time-consuming. The real value comes in the cost and that really comes from the scale. That is a key element.

Photo of Róisín ShortallRóisín Shortall (Dublin North West, Social Democrats)
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Would Mr. O'Kelly accept that it is not true to say that PPPs give value for money to the taxpayer? Can one make a blanket statement like that? The M3 would be an example of where it did not work in the taxpayer's interest.

Mr. Conor O'Kelly:

I do not think it is fair to take one example, given that there have been so many. Of any of the pieces of procurement that the State puts out, one can be most assured about the PPP model. It has to pass so many value for money tests along the way that it is probably the one that one could have the most confidence in and that it is value for money. I do not think, therefore, that is correct.

Photo of Róisín ShortallRóisín Shortall (Dublin North West, Social Democrats)
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Just to stick with that example, perhaps Mr. McCarthy can say if there is any attempt to look back on a project like that one, which turned out to cost a lot more.

Mr. Seamus McCarthy:

There were actually two projects. The M3, as the Deputy mentioned, and the Limerick tunnel was the other one. Although it is some years since I examined it and reported on it, my recollection is that the demand risk for the use of the road was carried by the developer, except that a floor was put under it. What happened was that the traffic went below that floor and it triggered these payments. It was always conceived that this was a possibility and that made the project more bankable for the special purpose vehicle.

They could get funding because the floor was there and they were not carrying all of the demand risk. My recollection is that the National Roads Authority no longer seeks to put those kinds of floor in. As such, there was a learning point there and subsequent projects have not seen that risk being left with the State party. I spoke earlier about the importance of doing the look-back exercise and seeing that the value that was expected was actually achieved and where the value came from. How is it that the thing was able to deliver value? If there is some kind of innovation in the development of building schools, why would the State sector not learn from that point as well where it is doing direct build? Why would it not incorporate the same money-saving technology and design? There is a lot of value in those look-back exercises but I am not aware of any being carried out or, if they were, of them having been published. If there are learning points there, it would be good practice to do it. Deputy Connolly mentioned earlier a concern that look-backs are not being done despite a statutory obligation to carry them out. It is not a statutory obligation but it is a clear obligation in the guidance from the Department of Public Expenditure and Reform on capital projects that there should always be a look-back exercise.

Photo of Seán FlemingSeán Fleming (Laois, Fianna Fail)
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I have a few questions to ask, some of which relate to the annual report. Approximately 15% of staff got bonuses, which is approximately 60 people. They got an average payment of €8,000. I see on the remuneration chart on page 54 of the annual accounts that of the 430 staff members, approximately 330 earn salaries of under €100,000 and approximately 100 earn salaries of more than €100,000. In which categories were each of the 60 people who got the bonuses? Did they go to those earning more than €100,000 in salary or did they go to those earning less than €50,000?

Mr. Conor O'Kelly:

It was right across the board. Nobody from the senior management team was paid a performance related payment.

Photo of Seán FlemingSeán Fleming (Laois, Fianna Fail)
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It is good that I am asking the question so that Mr. O'Kelly can say that publicly.

Mr. Conor O'Kelly:

Thank you. It was right across the board from some of the lowest paid people in the organisation up, but it was not designed for management.

Photo of Seán FlemingSeán Fleming (Laois, Fianna Fail)
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It is good to hear that. I turn to page 90 of the accounts and direct the following question to the Department of Finance. Agency membership fees for 2015 were €30,000 per member of the board, or agency as the Department calls it. I acknowledge that the chairman, Mr. Willie Walsh, waived his remuneration for 2015, 2014 and other years. I want to record that. I see from the previous year's accounts that the €815 figure is not an exact comparator. The fees in previous years were €25,000 in some cases, less 10% public service related deduction. Why did the Department of Finance approve a 20% increase in directors' fees for members of the board from €25,000 to €30,000 for 2015? That is not happening across the public service and this is a public service organisation.

Mr. Eoin Dorgan:

This reflects the change in the role. Before, it was the NTMA advisory board whereas now it is a full board with increased powers and responsibilities. It was done in consultation with the Department of Public Expenditure and Reform. There was a much greater responsibility on the board members after the National Treasury Management Agency (Amendment) Act 2014 which gave them much more clearly defined roles and improved the corporate structure of the NTMA. It was a reflection of the change in their responsibilities whereas it would have been less when it was the NTMA advisory board.

Photo of Seán FlemingSeán Fleming (Laois, Fianna Fail)
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Do they have to attend more board meetings now? It is not big money but it is the idea of a 20% increase for some group of people in the public service when that is generally not available to the other 300,000 people.

Mr. Eoin Dorgan:

There is an increased number of board meetings, a risk committee, an audit committee, a remuneration committee and an investment committee. It is certainly a lot more onerous as a statutory board than it was as an advisory board.

Photo of Seán FlemingSeán Fleming (Laois, Fianna Fail)
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I am just putting the question out there. Was that an exception from the Department's perspective? Did it increase board fees for any other State body or was this an exception?

Mr. Eoin Dorgan:

I would have to double-check but I do not think so.

Photo of Seán FlemingSeán Fleming (Laois, Fianna Fail)
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Mr. Dorgan might come back to the committee because we would like to know if this was an isolated case and who made the case for it. It is not big money at €30,000 but there has been a 20% increase for somebody in the system.

Mr. Eoin Dorgan:

My initial reaction is that we did not and it was a reflection of the change in the nature of the board. For absolute clarity, I will check.

Photo of Seán FlemingSeán Fleming (Laois, Fianna Fail)
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Mr. Dorgan might send us on a note. Dealing with pages 92 and 93 and this issue of garden leave for people who have left, it does not jump out at me. What was the total cost of garden leave in 2015? That is agency staff and it seems a lot of them were NAMA people who had left employment but could not go on.

Mr. Ian Black:

The total cost was €1.7 million, almost all of which related to NAMA.

Photo of Seán FlemingSeán Fleming (Laois, Fianna Fail)
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What was the average payment per person?

Mr. Ian Black:

The number of staff involved was 68.

Photo of Seán FlemingSeán Fleming (Laois, Fianna Fail)
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That is fine. It is just to record that. I move on to the State Claims Agency at page 118. I have a couple of question on the agency and people will know that I have form on this from the past. I still cannot get over the cost of legal fees on either side. Can the agency send on to the committee, as it has done previously, the top ten payments in the years 2013 to 2015, inclusive, to firms of solicitors and barristers? I want to see the list. The most important list is one we have not discussed before. Somebody touched on it, but I have an absolutely different take on it. People put in a claim and there was a 42% reduction. The case quoted was one where the Taxing Master made a reduction. That was no credit to the State Claims Agency, it was a credit to the Taxing Master. I acknowledge that the agency was not willing to pay the fee. The public and I want to see the list for the three years 2013 to 2015 of the top ten over-claims by solicitors or barristers having regard to what the agency eventually paid out. I bet the witnesses know the list of firms or people who consistently over-claim. I suspect they have an idea of who they are. I have no idea, but I would like to see if on average there is a 40% reduction. The agency was saying, for example, that the fee was €600,000 where the claim was for €1 million. As such, the saving was 40%. Ultimately, the claims were 60% higher than the final fees. I would like to see the list of those firms that are consistently doing that or to see if there is a pattern. People should know. I suspect that when the agency sees these firms coming from the other side, it is a matter of "here we go again with an over-claim". I would like to see that. Putting that information out there will alert the public and people in general that people who are putting in claims are being watched carefully and publicly because it is all taxpayers' money. That is a list I would like to see.

I am here a couple of years but I am shocked at the State Claims Agency's estimate of final liabilities. It has gone up 80% since 2011. In the accounts at the end of 2011, it was €990 million. At the end of 2012, it was €1.1 billion. At the end of 2013, it was €1.23 billion. At the end of 2014, it was €1.47 billion and today it is €1.79 billion. That is an increase of 80% over four years, which is phenomenal. Why have those claims gone up by 80%? The agency referred to early apologies and so on. All of that sounds right, but none of it seems to match. They are not claims by people. These are the figures the agency has prudently pared back to put into its accounts as a liability. As such, it is the agency's view that what it will have to pay has gone up by that amount.

Given that the State Claim's Agency accounts today say that in 2015 it paid out €165 million and there is an outstanding liability of €1.79 billion, it will be well over ten years at the rate it is going before it clears what is on its table as of 31 December 2015. Many of those will have been several years in the system. We all hear about children of eight, nine, ten and 11 and of things that happened at their birth. How long will some people be in the system? It will take ten years at this rate to clear them. Some of them are probably there ten years already. Will Mr. O'Kelly give us an age analysis of that €1.79 billion? What I mean is that out of that, how much of it relates to claims that were lodged in 2015, 2014, 2013, 2012, and right back to perhaps the millennium year? How long have the oldest claims been in the system, because that figure is increasing? Much of that will be legal fees. That is why I am highlighting the legal fees issue.

I want to ask one or two other small questions. The witnesses probably do not have those answers; it is information that they can send on to us. I want to come back to page 21 of the accounts which refer to the strategic investment fund. I will not get into the issue but the biggest investment the NTMA made was to Irish Water. That is one Government body moving money to another Government body. That is the biggest flagship investment. The figure is €56 million of direct equity. That is 2.5% of what the agency has invested so far of its €2.2 billion. It is a tiny amount; 2.5% of €2.2 billion investment relates to direct equity. Will Mr. O’Kelly comment on why the NTMA’s equity investment is only 2.5% of total investment?

Mr. Conor O'Kelly:

Direct equity is a small component of our overall strategy. That would be the highest risk strategy for us to take to directly invest in a single company as an equity investor. That will definitely be a small bucket even at the end of the day. We are more likely to invest in platforms and funds where we are getting co-investors in rather than directly, which is representative of the other areas. So the real estate is the activate fund that I talked about earlier. The food and agri side does not include the MilkFlex fund which has been added since then. That is the reason for that.

Photo of Seán FlemingSeán Fleming (Laois, Fianna Fail)
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So is it the case that it is always going to be a tiny per cent?

Mr. Conor O'Kelly:

It is

Photo of Seán FlemingSeán Fleming (Laois, Fianna Fail)
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It will, therefore, be mainly loan finance.

Mr. Conor O'Kelly:

It can go on any part of the capital structure. If we want it risk adjusted, if a debt instrument works better, such as mezzanine financing, we will want to go down to the highest risk as little as possible. It will be a diversified portfolio across the capital structure and equity will be the lowest component.

Photo of Seán FlemingSeán Fleming (Laois, Fianna Fail)
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How much more does the NTMA intend investing in Irish Water? I see there is a loan to Irish Water in the back page of the accounts as well. That is €650 million that the NTMA has put into Irish Water.

Mr. Conor O'Kelly:

No, it is €450 million.

Photo of Seán FlemingSeán Fleming (Laois, Fianna Fail)
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So €450 million includes the loan.

Mr. Conor O'Kelly:

Yes.

Photo of Seán FlemingSeán Fleming (Laois, Fianna Fail)
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The €450 million includes the loan. Just to help people, I am on to-----

Photo of Róisín ShortallRóisín Shortall (Dublin North West, Social Democrats)
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I would not mind coming back to the State Claims Agency if it is appropriate to ask a question.

Photo of Seán FlemingSeán Fleming (Laois, Fianna Fail)
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The Deputy can ask a question if it is on this topic. I have two more small questions.

Photo of Róisín ShortallRóisín Shortall (Dublin North West, Social Democrats)
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I have a question on the State Claims Agency.

Photo of Seán FlemingSeán Fleming (Laois, Fianna Fail)
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Yes, we will deal with it now.

Photo of Róisín ShortallRóisín Shortall (Dublin North West, Social Democrats)
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Other members have spoken earlier about serious problems with this and with the whole question of an apology and the delay which the Chairman raised. Families are put through the ringer. Given the level of legal fees that are paid out I know there are several legal companies around the country that would not survive if it was not for medical negligence claims. It is a crazy basis on which legal practices can survive. It is ultimately the taxpayer that is picking up the tab. Reference has been made to mediation. Has there been any kind of serious attempt to look at an alternative resolution system like, for example, what we were supposed to have in the case of insurance with the PIAB? Is there any consideration being given to some kind of alternative resolution system that would cut out a big element of the outrageous legal fees that are paid at the moment?

Mr. Ciarán Breen:

I think one of the things which would effect a major change, particularly in regard to legal costs which are such a high percentage, is the pre-action protocols. The pre-action protocols have been enabled as a result of the Legal Services Regulation Act. They are similar and will be similar to the protocols that operate in England and Wales in regard to clinical negligence. They are all about the pre-proceedings. In other words, one is not getting into those high legal costs associated with proceedings. The purpose of the protocols is to drive behaviour on both sides to be very upfront very quickly, to concede liability for the things one should be conceding very quickly and getting to settlement at a much earlier time. The effect of it in England and Wales was so dramatic that it reduced the average life of a clinical negligence claim, down from about 4.5 years before the introduction of the protocols to about eight or nine months. If one looks at the National Health Service Litigation Authority's 2014 accounts in particular, it has a graph showing the measurable effect of pre-action protocols and what they will do. We take on average about three years from the time we get the claim to resolving it. We would like to make that a lot less except we have a lot of difficulties getting experts and getting our reports and so on together. The pre-action protocols would definitely change that and take out a lot of cost building that is in the current tort system.

Photo of Róisín ShortallRóisín Shortall (Dublin North West, Social Democrats)
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What has the experience been elsewhere where they have introduced those protocols? Mr. Breen says there is a reduction in the length of time it takes to settle but in terms of the actual compensation payments and the legal costs, what has the effect of the protocols been?

Mr. Ciarán Breen:

The effect of the protocols has been to reduce costs very significantly. There is no doubt that the longer the life cycle of a claim the greater the cost element is. By reducing that very significantly back and by not allowing one to issue proceedings in court until one has been through the protocols and resolving it at the time of the protocols, one can imagine that has a very significant effect on costs. It has no effect on compensation for the victims. In other words, one is delivering the same level of compensation much more expeditiously and at less attendant cost value in terms of legal costs. That is the whole purpose of them.

Photo of Róisín ShortallRóisín Shortall (Dublin North West, Social Democrats)
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Are the two parties required to adhere to the protocols?

Mr. Ciarán Breen:

Yes, both parties are. There are very definite time limits for the making of the claim and what one asks the defendant to do. One must set out what the nature of one's claim is and give expert evidence to support it. As a defendant, one must do exactly the same - come back within a prescribed period of time and set out what one is admitting to and not admitting to. The whole idea of this is that instead of everything being at issue as it is currently, one knows very well at the end of the day what is at issue between the parties. One of the things it introduces as well is that the experts on both sides can meet and produce a joint report to say what it is they are actually disagreeing on and what they have agreed on. The idea of it is to make the system efficient and upfront.

Photo of Róisín ShortallRóisín Shortall (Dublin North West, Social Democrats)
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Where are we at the moment in terms of introducing those reforms?

Mr. Ciarán Breen:

They have been enabled as a result of the Legal Services Regulation Act and the Minister will then make regulations for their introduction to enable the rules of court to be adjusted to take account of the protocols. There is a consultation period before that happens.

Photo of Róisín ShortallRóisín Shortall (Dublin North West, Social Democrats)
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Has the consultation period started yet?

Mr. Ciarán Breen:

My understanding is it has not actually been started but it is about to start.

Photo of Róisín ShortallRóisín Shortall (Dublin North West, Social Democrats)
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I thank Mr. Breen.

Photo of Seán FlemingSeán Fleming (Laois, Fianna Fail)
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That is very interesting and hopefully it will be of benefit. I have one or two other small points on the financial statements at page 141.

It is a strategic investment fund. We will all get lost in this. I see a figure in the directed portfolio - directed by the Minister - for the NTMA to invest mainly in AIB and Bank of Ireland shares. There is an item in 2014 that has gone in 2015 - the €765 million repurchase agreements receivable. What is that about?

Mr. Ian Black:

I think that was cash that was invested for short-term purposes.

Photo of Seán FlemingSeán Fleming (Laois, Fianna Fail)
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It was cash and not bank shares or any other thing.

Mr. Ian Black:

No.

Photo of Seán FlemingSeán Fleming (Laois, Fianna Fail)
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In the quoted investment schedule on page 204, there is €125 million invested in Irish infrastructure trust. Who or what is that? Is it a loan or an investment? What does it do? When did that happen?

Mr. Conor O'Kelly:

The Irish infrastructure fund is a fund that invests in the convention centre. So that is a fund in which we are a shareholder. It is the fund that invested in the convention centre.

Photo of Seán FlemingSeán Fleming (Laois, Fianna Fail)
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It is the convention centre.

Photo of Róisín ShortallRóisín Shortall (Dublin North West, Social Democrats)
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What shareholding does that represent?

Mr. Conor O'Kelly:

I will have to check. It is a minority shareholding anyway.

Photo of Seán FlemingSeán Fleming (Laois, Fianna Fail)
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Mr. O'Kelly might send us a note on that.

Page 28 relates to the National Development Finance Agency and I come back to PPPs that several members have mentioned today. Page 28 of the accounts shows the list of 12 projects and there is a little description on each of them. Two of them are worrying. One is the DIT campus in Grangegorman. The preferred tenderer was appointed in February 2015. In March 2015 legal proceedings were initiated against the NTMA and the Minister for Education and Skills in respect of the public procurement competition. Judgment in these proceedings is awaited. Does Mr. Kelly have an update on that?

Mr. Conor O'Kelly:

No. It is subject to court proceedings and it is a live procurement, so I cannot comment on that.

Photo of Seán FlemingSeán Fleming (Laois, Fianna Fail)
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Fine. It has not completed. Has that stalled this project?

Mr. Conor O'Kelly:

Yes.

Photo of Seán FlemingSeán Fleming (Laois, Fianna Fail)
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The NTMA had appointed its preferred tenderer almost 18 months ago and it has been stopped in its tracks now.

Mr. Conor O'Kelly:

Correct.

Photo of Seán FlemingSeán Fleming (Laois, Fianna Fail)
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I know the NTMA is a defendant and does not comment on the court case. We are all clear on that. It is disturbing that that can happen.

The last one is No. 12, the design, construction and operation of two service stations on areas located on the M6 motorway east of Athlone and on the M9 motorway south of Kilcullen, together with a fit-out operation and maintenance of a third service station on the M11 motorway north of Gorey. The status is that the preferred tenderer was appointed in May 2015, again over a year ago, and the project is on hold following application for a judicial review of the contract awarded by the National Roads Authority. Is there any update on that?

Mr. Conor O'Kelly:

No. There is no update on that. May I make a general point?

Photo of Seán FlemingSeán Fleming (Laois, Fianna Fail)
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Yes.

Mr. Conor O'Kelly:

What one is seeing here are examples of difficulties with public procurement. PPPs are often confused with public procurement. The public procurement processes in itself has become extraordinarily complex and extraordinarily slow subject to legal cases. There is European law and local law combining. The incidence of people taking legal action when they are not the preferred bidder has escalated to the point that it is making these projects extremely problematic.

Photo of Seán FlemingSeán Fleming (Laois, Fianna Fail)
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Are those two projects PPPs or public procurement projects?

Mr. Conor O'Kelly:

They are PPPs, but it is the procurement process not the PPP element of it.

Photo of Seán FlemingSeán Fleming (Laois, Fianna Fail)
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The NTMA was only at the stage - I ask Mr. O'Kelly not to comment on any legal case - of announcing the preferred tenderer. It had not actually signed a contract; it was only at preferred tenderer stage. It is unfortunate that we have those long delays in the system.

On schools bundles 5, for a number of schools a preferred tenderer was appointed in December 2015 with financial close expected mid-2016. Has that closed?

Mr. Conor O'Kelly:

Literally, today or tomorrow.

Photo of Seán FlemingSeán Fleming (Laois, Fianna Fail)
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It was good I asked that again. We expect a press release on that one from all and sundry.

Mr. O'Kelly will be pleased to know this is my last question. On the 14 new primary care centres, the status in this report was that preferred tenderer was appointed in May 2015 with financial close expected mid-2016. Does Mr. O'Kelly have more good news?

Mr. Conor O'Kelly:

That has closed and they are on site.

Photo of Seán FlemingSeán Fleming (Laois, Fianna Fail)
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Can Mr. O'Kelly forward a copy of the 14 locations to the committee?

Mr. Conor O'Kelly:

Absolutely.

Photo of Seán FlemingSeán Fleming (Laois, Fianna Fail)
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I am sure it is in its press release.

Photo of Róisín ShortallRóisín Shortall (Dublin North West, Social Democrats)
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How long did that process take?

Mr. Conor O'Kelly:

Is the Deputy asking about the primary care centres from start to finish?

Photo of Róisín ShortallRóisín Shortall (Dublin North West, Social Democrats)
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Yes.

Mr. Conor O'Kelly:

They are only starting on site now, but maybe 18 months.

Photo of Róisín ShortallRóisín Shortall (Dublin North West, Social Democrats)
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I am asking about from the initial identification of the list, in which I had some involvement, to the actual awarding of the contracts. It was a long time, was it not?

Mr. Conor O'Kelly:

It is a long time.

Mr. Seamus McCarthy:

It is probably four years.

Photo of Róisín ShortallRóisín Shortall (Dublin North West, Social Democrats)
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Is there any way of short-circuiting that?

Mr. Conor O'Kelly:

Probably that was the first one. I do not know what the current policy is necessarily, but let us say the intention was to build 100 primary care centres and this was the first bundle of 14. Because it was new possibly it was a bit slower with a new sponsoring Department, identification of the sites, getting the sites clean and the title. All of those things are complex, particularly the first time around. Maybe one would hope the next time around it could be faster.

Photo of Seán FlemingSeán Fleming (Laois, Fianna Fail)
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We have asked quite a few questions. On behalf of the Committee of Public Accounts I thank all our witnesses from the NTMA and the Department of Finance, and the Comptroller and Auditor General for participating in the meeting and for the material they supplied to the committee. We look forward to receiving the specific items we asked for in due course.

Is it agreed to close and dispose of the NTMA 2015 financial statement as well as Chapters 2 and 24 of 2014 Comptroller and Auditor General report? Agreed.

The witnesses withdrew.

The committee adjourned at 12.17 p.m. sine die.