Oireachtas Joint and Select Committees
Thursday, 10 February 2022
Public Accounts Committee
2020 Report of the Comptroller and Auditor General and Appropriation Accounts
Vote 29 - Environment, Climate and Communications
National Broadband Plan Expenditure and Related Matters
9:30 am
Brian Stanley (Laois-Offaly, Sinn Fein)
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Apologies have been received from Deputy Verona Murphy. I begin by welcoming witnesses and members to the meeting. While Covid-19 restrictions are receding, and while it is open to members and witnesses to attend meetings in person, I ask that they continue to use face coverings. When addressing the committee, face coverings can be removed. Members of the committee who are attending remotely must continue to do so from within the precincts of Leinster House. This is due to the constitutional requirement that to participate in public meetings, members must be physically present within the confines of the place where Parliament has chosen to sit. The Comptroller and Auditor General, Mr. Seamus McCarthy, is a permanent witness to the committee.
This morning, we engage with the officials from National Broadband Ireland, NBI, to examine the national broadband plan, NBP, expenditure and related matters in the context of the 2020 appropriation accounts, Vote 29 - Environment, Climate and Communications. The meeting will be suspended for an hour at 12.30 p.m. When we resume at 1.30 p.m., we will engage with the Department of the Environment, Climate and Communications, to examine the national broadband plan expenditure and related matters further.
NBI has been advised that the committee may wish to examine the following matters related to expenditure on the national broadband plan during the course of the engagement: the impact of the pandemic on delivery; NBI's financial structures; the current progress and timelines; subcontracting arrangements; lease and rental of infrastructure from other companies; and penalty clauses in the contract. We are joined in the committee room by the following officials from NBI: Mr. Peter Hendrick, CEO, Mr. T.J. Malone, chief executive officer of deployment, Ms Tara Collins, chief marketing officer, Mr. Barry Kelly, chief financial officer and Ms Jenny Fisher, chief legal officer. They are all very welcome. When we begin to engage, I will ask those who are attending remotely to mute themselves when not contributing, so that we do not pick up any background noise or feedback. As usual, I remind all those who are in attendance to ensure their mobile phones are on silent or are switched off.
Before we start, I wish to explain some limitations to parliamentary privilege and the practice of the House regarding references witnesses may make to other persons in their evidence. As the witnesses are within the precincts of Leinster House, they are protected by absolute privilege in respect of the presentation they make to the committee. This means they have an absolute defence against any defamation for anything they say in the meeting. However, they are expected not to abuse this privilege and it is my duty as Cathaoirleach to ensure that privilege is not abused. Therefore, if witness' statements are potentially defamatory in relation to an identifiable person or entity, they will be directed to discontinue their remarks and it is imperative that they comply.
Members are reminded of the provisions of Standing Order 218, that the committee shall refrain from inquiring into the merits of a policy or policies of the Government or of a Minister of the Government or the merits of the objectives of such policies. Members are also reminded of the long-standing parliamentary practice that they should not comment on, criticise or make charges against any person outside the House or an official either by name in such a way as to make him or her identifiable.
The CEO, Mr. Hendrick, is very welcome. As is detailed in the letter of invitation, he has five minutes. I know he has a longer statement, which has been circulated to members. I ask that he keep within that timeframe.
Mr. Peter Hendrick:
I will. I thank the Chair and the committee for the invitation to discuss the national broadband plan today. I am the CEO of National Broadband Ireland. I am joined by Mr. T.J. Malone, who is CEO of NBI Deployment and who leads the team that is building the NBI network. In addition, we have senior management teams: Ms Tara Collins, who is responsible for marketing communications; Mr. Barry Kelly from finance; and Ms Jenny Fisher on governance and who is the interface with the Department of the Environment, Climate and Communications. The team and I know from our work with other Oireachtas committees that it can be challenging to convey the size, scale, and complexity of the NBP from a boardroom setting. Therefore, we have instigated a programme of field trips to show first-hand how the NBI network is being deployed. The sessions have been widely recognised as informative and helpful. For this reason, there remains an open invitation to all committee members to experience the work of our teams out in the field.
As CEO of NBI, I remain incredibly proud of the work our team is delivering, particularly against the backdrop of turbulent conditions caused by Covid-19. NBI has been operating for 25 months, 23 of which have been under the shadow of the pandemic. I believe that, despite the extreme and turbulent conditions faced throughout the project to date, the work of our team provides a platform that gives us confidence to deliver the project on time and on budget. Our team has now scaled, with construction active across all 26 counties and more than 1,200 people hired, onboarded and working on the project. That includes our specialist subcontractors, the likes of Integro, Indigo, KN Group, Secto, Actavo and TLI. We are also working with infrastructure operators such as Open Eir and Enet. I acknowledge all of the hard work that has been done by everybody involved to date, as well as the collective commitment to bring high-speed broadband to those who need it most.
Across the project, we have already made major achievements. More than 298,000 premises have been surveyed, of which in excess of 252,000 have been designed or are in detail design. These activities are vital precursors to the main build and they are continuing at pace. More than 54,500 premises are currently able to place their order via their preferred retail service provider. There are in excess of 154,000 premises that have been constructed or are under construction. For context, the original plan would have seen us at approximately 180,000 premises under construction at this stage in the programme. We have now awarded contracts to our build partners for more than 195,000 premises, which includes network build due for completion in first half of 2023. A total of 475 broadband connection points, including schools, have been installed by NBI. We have also increased our minimum speed from 150 Mbps to in excess of 500 Mbps, as well as offering 1 Gb and now 2 Gb products. We recently announced that we are delivering high-speed broadband infrastructure to six islands off the coast of Donegal and Mayo, two of which were completed in January. More than 50 retail service providers have already signed up to sell services on the NBI network, ensuring an increased range of products, all being offered at competitive prices for consumers.
As I have just mentioned, in excess of 154,000 premises either have been constructed or are under construction. We believe this metric is the leading indicator for delivering the programme. For context, the equivalent figure this time last year was approximately 19,000. Therefore, it can be seen how this is ramping up and how it will directly feed into premises passed and connection numbers in time. Additionally, we are implementing a series of initiatives that lend confidence to the delivery of the 2022 programme and beyond, including, but not limited to, the fact we have contracted with Eir to increase the volume of pole replacement and duct insulation, which commenced on 1 October 2021.
Turning to other matters, I can appreciate some recent media attention on the shareholder structure of NBI may have concerned members of the committee. We endeavoured to clarify these matters in a transparent and open way at an Oireachtas joint committee two weeks ago. We welcome the opportunity to attend today to provide further clarifications. Consequently, I would like to clarify the following points. The ownership structure remains as it was at the signing of the contract. The shareholders of NBI Infrastructure DAC and NBI Deployment DAC are Metallah Limited and the Minister, who holds a special share with certain consent rights in respect of NBI Infrastructure DAC and NBI Deployment DAC. The shareholder of Metallah Limited is Granahan McCourt Dublin Limited. Above Granahan McCourt Dublin Limited, there are holding companies and investment vehicles into which the various investors have invested at different levels. This structure would not be unusual in the context of a major infrastructure project with a series of international investors. David McCourt, via voting rights in each tier of the company's structure, retains control of NBI.
On the potential for bringing in new investors to the project, I would clarify the following. As the risk profile of the project evolves, it is likely that some of our early stage investors, who helped to turn NBI from an idea into reality at a point when there was still much unquantifiable risk in the project, will be replaced with investors who specialise in long-term investments. This has always been the plan and is the reason that mechanisms for change of ownership are allowed in the contract, subject to approval from the Department, as is standard practice in such long-term contracts.
The corporate structure as it is today or into the future will not change NBI’s contractual commitments or collective goal, delivering the infrastructure that will radically transform the country’s broadband landscape. Any new investors will be required to step into the proportional share of the shareholders' funding commitments. The shift to new investors, who will bring this long-term capital, will not cost the people of Ireland or the State any additional money and will not impact on the day-to-day operations of the business.
Brian Stanley (Laois-Offaly, Sinn Fein)
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I must stop Mr. Hendrick there. His script is available to members, and they have read the rest of it.
The lead speaker this morning is Deputy O'Connor. He has swapped with Deputy Devlin. Deputy O'Connor has 15 minutes and the other speakers will each have ten. I will give the Deputy a reminder after 12 minutes. We will break for ten minutes at 11 a.m. approximately.
James O'Connor (Cork East, Fianna Fail)
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I welcome the representatives from NBI and thank them for appearing before the committee. For the purposes of full disclosure, I have met all of them previously through the other Oireachtas committee. I was also on one of the field trips. I found it was helpful to go and see the work being done. It helped me develop a better understanding of what NBI is doing. However, the job of the Committee of Public Accounts is to scrutinise the financial aspects of these deals.
How does NBI make a profit? I ask Mr. Hendrick to keep an eye on the time because it is precious.
Mr. Peter Hendrick:
NBI’s profit ultimately comes from the revenue we generate from the network - the take-up of customers connecting to the network. We are a wholesale operator. We sell services to retail operators, which many consumers know in terms of their broadband, television or voice services. It is the connection of those end users whether it is homes or businesses, including farms, and the revenue we generate from those retail operators that connect those homes, where we generate our revenue and ultimately our profit. The profitability of the network is dependent on our operations costs versus the revenue we take in. The objective of this subsidy is entirely about building the infrastructure.
James O'Connor (Cork East, Fianna Fail)
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Is it correct that NBI and its shareholders are not making any profit from approximately €2.6 billion in public money approved under EU state aid rules or is it part of the overall set-up of the organisation?
Mr. Peter Hendrick:
It is entirely funded towards the build of the project; it is not about shareholder return. The subsidy goes to specific categories, what we call permitted expenditure, which is all about the building of the network and the infrastructure that we are delivering in the national broadband plan.
James O'Connor (Cork East, Fianna Fail)
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Is Mr. Hendrick in a position to outline how much it costs NBI on average to install broadband in a home? How many homes are in the intervention areas? I think it is approximately 500,000.
Mr. Peter Hendrick:
When the contract became effective in January 2020, there were 537,000 premises. Today there are 554,000 premises. Even though the number of premises is going up, there is no additional subsidy allocated. We are still required to deliver the project within that subsidy envelope. On average, we estimate it is just over €2,000 to pass a home. Obviously, there is a subsidy associated. That is just building the infrastructure putting the cable on the poles or under the ground to pass the home. Then there is a cost in connecting homes. The cost in connecting homes can be an average of €2,000.
James O'Connor (Cork East, Fianna Fail)
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That is interesting. I thank Mr. Hendrick. A very good investigation was carried out into the NBI deal by The Currency. I give the people there credit for the work they have done. One of the issues they raised is that when this was originally proposed, approximately €220 million was promised in equity to NBI by shareholders, which, I think, has turned into about €100 million in debt. Why were the original promises by investors not honoured? Can Mr. Hendrick give the committee any details on that matter?
James O'Connor (Cork East, Fianna Fail)
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How much of that €175 million has been put in so far?
Mr. Peter Hendrick:
Shareholders have invested €120 million of the €175 million. So, that is the contract. However, between the company and the shareholders there is a commitment of €223 million to support our working capital requirements. In terms of equity and shareholder loans, from a corporate finance perspective, they are viewed as being one and the same. That would be very typical of infrastructure projects, including State-funded infrastructure projects in terms of putting in money between equity and shareholder loans.
James O'Connor (Cork East, Fianna Fail)
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The killer question is: where is the other €55 million?
Mr. Peter Hendrick:
In terms of the committed shareholder investment, that was always envisaged to come in over a number of years of the deployment of the project. In December 2021, our shareholders invested an additional €20 million and the expectation is that there will be additional funds drawn down in Q4 of 2022.
James O'Connor (Cork East, Fianna Fail)
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That is interesting to hear. I thank Mr. Hendrick. What consultancy firms does NBI employ to do its auditing and the ongoing analysis that needs to be done to ensure it is on target and on track?
Mr. Peter Hendrick:
We have multiple, what I would call, independent assurance advisers, including accounting from a project agreement perspective on our expenditure and everything we do. As internal auditors, we use PwC. Our external auditors are Grant Thornton. Where appropriate, we will pull in other advisers as is required, whether as technical advisers or financial advisers on different aspects of delivery of the project.
James O'Connor (Cork East, Fianna Fail)
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Is Mr. Hendrick aware if the Department of Environment, Climate and Communications using either of those for its consultancy work?
James O'Connor (Cork East, Fianna Fail)
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How much money has NBI spent on consultancy since its contract began?
James O'Connor (Cork East, Fianna Fail)
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Would Mr. Kelly be in a position to answer that question?
James O'Connor (Cork East, Fianna Fail)
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This is a pretty important question. The representatives of NBI should have brought that information this morning. I ask them to check it out and revert to me, immediately after the meeting if possible.
Mr. Peter Hendrick:
I might outline what our subsidy is paying for. It is about the building of the network. Up to the end of December, we had received €177 million in subsidy. We can only claim that subsidy on achievement of milestones. When we achieve those milestones, that gets referenced against specific permitted expenditure. The permitted expenditure needs to have been audited and verified. All the invoices, largely to do with our build contractors' materials we are buying and infrastructure that we are building out, making ready or repairing, are assessed and verified by our own financial team. Our internal auditors do an assessment of that, as do our external auditors. Equally, the Department has its own advisers, EY, who assess all those invoices. When all of that is done and all the verification on the permitted expenditure is done, when we have achieved a milestone, there is an independent certifier that certifies we have achieved the milestone and all the permitted expenditure is signed off and applicable to the subsidies we receive. There is quite a diligent independent assurance process around all our subsidy receipts.
James O'Connor (Cork East, Fianna Fail)
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That is what I need to justify, asking Mr. Hendrick that question.
Deputy James O?Connor:
It is important to say that the State has had significant problems in the past regrading the cost of consultants. That is why I am asking the question. It is interesting that we do not have an answer to it yet. I will be interested to see the answer.
Originally, more than 600,000 homes were to be connected prior to the creation of the current entity, NBI. There was an agreed reduction for that to happen. I want to make sure that I have my figures correct. The original target set down by Government was approximately 927,000 homes being installed. NBI currently has a contract for 542,000 homes. Am I correct in that?
James O'Connor (Cork East, Fianna Fail)
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Was the figure of 927,000 homes unattainable? Was it more feasible for commercial operators to come in and fill the gap in that regard?
Mr. Peter Hendrick:
If I go back to 2015, the then Department of Communications, Energy and Natural Resources ran a consultation with the industry to see what companies were delivering. The definition of high-speed broadband then was anything above 30 Mbps. Any premises with less than that speed was deemed to be in the intervention or amber area. The overall number in that category was 900,000. As the programme of procurement and bidding continued, the Department continually engaged with the industry concerning activity around the construction of commercial networks. In 2016, Eir announced it was going to complete 300,000 premises, predominantly in townland areas, by replacing its old copper-based network with one based on fibre. Ultimately, that network would deliver more than the 30 Mbps speed to those homes. In the final consultation run by the Department in quarter 4 of 2019, the final assessment for the overall number of premises at that stage was 537,000.
James O'Connor (Cork East, Fianna Fail)
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That is interesting to know. I thank Mr. Hendrick. When is it expected that the last homes will be connected as part of the contract?
James O'Connor (Cork East, Fianna Fail)
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In that regard, does Mr. Hendrick think there is a significant risk when that stage of the contract is reached in 2026 that the connection speeds available through satellite technology could outstrip what NBI will be able to provide through direct home connections? Is that a concern for NBI?
Mr. Peter Hendrick:
It is not. We looked at this aspect of alternative technologies in 2018 and 2019. We explored where the market for low-orbit satellite technology was going and that for 5G. Considering the future-proofing of fibre technology, it was intended originally that we would have launched with 150 Mbps. The benchmark in urban areas became 500 Mbps. In this context, it is important to remember that the purpose of the NBP is to provide equality in broadband access across the country between urban and rural areas. In urban areas, 500 Mbps is now the minimum benchmark product. We moved our product to that standard. The network we have built and are building supports speeds of up to 10 Gbps being delivered to homes, without replacing any equipment. We can undertake a software upgrade to bring that speed up to 25 Gbps, which will involve replacing a small box in homes and that can be posted out. The fibre technology itself, the capacity we are building into the fibre network and the way we are designing and engineering that network will support many hundreds of Gbps of capacity way into the future. We have looked at this over a horizon beyond 25 years.
James O'Connor (Cork East, Fianna Fail)
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Regarding the pandemic, the last two years have been difficult for many different firms working on contracts. What impact has the pandemic had on NBI's roll-out of broadband? How much has it slowed it down? Has any analysis been done concerning set targets that have not been met during the last two years? I am not trying to damage any of the work NBI is doing, but it would be interesting for us to get an idea of what type of a knock-on impact Covid-19 has had on the roll-out.
Mr. Peter Hendrick:
Mr. Malone can give more detail throughout the meeting but the initial surveys are the critical part. We talk about surveys happening on the ground in respect of testing poles and testing duct to ensure it is clear to install cable. We were significantly behind in doing surveys, but we have now recovered in that area. We have put more surveyors into the field and we are ahead now. It is the same with designs, where we had a challenge in getting designers onto the programme. We have now put more designers into the programme and we are now ahead there as well. Equally, we are ahead with the connections. We have more contractors trying to get more homes connected.
The building programme is, of course, the most significant part of the challenge. We have more than 1,000 people actually building the network. Concerning the issue of the impact of Covid-19 and close contacts, we have teams of between four and six people. Therefore, if one person contracts Covid-19, that has a significant impact on the programme. What we are doing to recover in that regard is that we are increasing the number of make-ready activities happening. Eir has increased its volumes since October. The intent is that it will double the capacity in respect of the number of poles it will replace annually. Eir will also increase the amount of underground duct it is going to install from 1,500 km to 2,500 km annually.
Regarding the background, we had originally planned to deliver this project with two contractors. We now have four contractors on the ground, and we are also looking to bring additional contractors on board to increase our activity and the volume of completions annually. To give some context concerning where we stand today, in the first two months of this year we will be installing enough cable every month to get from here to Paris. Those figures will increase as the number of contractors working on the project and the number of builds increase. If it may be helpful, Mr. Malone can give more detail or answer further questions.
James O'Connor (Cork East, Fianna Fail)
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What was the Department's rationale for accepting the revised figure of 60,000 premises to be passed by NBI at the end of year 2 of the contract? I would just like to flesh out the background to this aspect a little more.
Mr. Peter Hendrick:
Within the contract, there are mechanisms to deal with delays. We must provide specific evidence of what those delays are. Regarding the details in respect of surveys, design and engagement with contractors, our own auditors have been reviewing all the data we get back. We verify what is a delay not of NBI's making. We verify what is, in circumstances of relief, related to Covid-19, and then what delays are not related to a relief context. In the case where relief applies, we get time extensions. We do not get financial compensation. Our imperative, therefore, is to increase the volume of activity to try to catch up on those delays. We do not, however, get compensated in this regard. Our milestones stay as they are, and we must deliver the network to achieve subsidies.
James O'Connor (Cork East, Fianna Fail)
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I thank Mr. Hendrick.
Brian Stanley (Laois-Offaly, Sinn Fein)
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I call Deputy Carroll MacNeill.
Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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I thank Mr. Hendrick and his colleagues for coming in. As Mr. Hendrick suggested, I will direct my questions to Mr. Malone. I believe he is the head of delivery. Is that correct?
Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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I have some quick questions on this area. I think there are 227 deployment areas. Is that right?
Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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How many of those are now under construction?
Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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That is 43 to 45 out of 227. How many homes does that represent?
Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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I will work out the percentage later.
Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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Under construction?
Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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Would Mr. Malone mind repeating those figures for me? Was it 225,000?
Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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I am terribly sorry. Of the 154,000 connections under construction, some 34,000 are complete. Is that correct?
Mr. T.J. Malone:
There are roughly about 38,000 cases now where the construction activity has been completed and the contractors are off site. That is the figure now. By the end of February, we plan to have between 46,000 and 47,000 connections constructed. We are going through the final phases of completion in that regard. By the end of March, then, we plan to have the 60,000 connections constructed and for the contractors to be off site.
Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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Turning to Mr. Hendrick, he mentioned the different types of delays, including those of NBI's making and those not. I would like to go through this detail. It was well covered in a Dáil debate with the Minister of State at the Department of Public Expenditure and Reform, Deputy Ossian Smyth, on 27 January. I am sure Mr. Hendrick has had sight of that. In responding to my questions, it was interesting - and I am sure it is okay for me to quote the Official Record - that the Minister of State said that, "There has been an impact from Covid-19". The Minister of State acknowledged that context, but said it was "not the entire story". He continued by saying: "Part of the problem is the contractor's fault. Part of the delay comes simply from the natural things". He went on to say, though:
I would expect that at least a portion of the delays are the fault of NBI. It may believe it is the fault of its subcontractors and may try to attribute blame, but that does not excuse it because it is not in a position to abdicate its responsibility.
Mr. Hendrick has acknowledged that. The Minister of State continued his response by saying NBI "must take responsibility, even in a situation where it has delegated authority for some of its functions". What does Mr. Hendrick think the Minister of State meant when he said that "a portion of the delays are the fault of NBI"? Will he outline that to me?
Mr. Peter Hendrick:
Like any project, lessons are learned during the initial rolling out over the first 24 months. The original plan was to allow for a mobilisation period. Part of the reason the delay penalties would not start until 1 February 2022 was to allow for that mobilisation period. It was intended to allow for lessons to be learned from activity on the ground, bearing in mind that much of this infrastructure has never been built in these areas before. Infrastructure has not been built in some of these locations in more than 20 years. Therefore, as we are building out the network, we are learning ways to do things more efficiently. Ultimately, we must support anything we put forward as a delay with evidence. We are going through that process with the Department now in respect of the 2022 programme.
Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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Is it not the case that NBI was in charge of the design, and, indeed, of the design of the design, in the context of the companies that NBI had doing that? Was there a problem with design at the outset of the project?
Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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Yes. Right down to the low-level design-----
Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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Did NBI get the design wrong?
Mr. Peter Hendrick:
No. Low-level design only becomes apparent when we are surveying. I will give an example.
Across the country there are 1.4 million poles. We have to test all of these poles to see which ones need to be replaced. We make an assumption of how many poles need to be replaced based on evidence from the past. Take Eir's 300k network. When it was building the 300k network, it replaced faulty poles. We made an assumption of what that percentage was through engagement with Eir. As we start to roll out across more rural parts of the network, we start to see different percentages. This means we have to reassess the volumes we put forward for the programme for the year ahead. We can never understand what these issues are until we have gone down and tested the infrastructure on the ground. We will never know how many blockages we have per kilometre in terms of putting cables into ducts without doing detailed surveys.
Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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I am sorry to cut across Mr. Hendrick. Our time is limited. It is a problem we have. I appreciate that contractors cannot build or price until they have the full information. Is Mr. Hendrick comfortable he has given everything to his subcontractors in a suitably timely way?
Mr. T.J. Malone:
I will pick up a little on what Mr. Hendrick was saying about when we do the survey and design. This is an important point because it comes to the contractors. Survey and design can only garner so much information. When we get out onto the site, it becomes more difficult as different issues and problems are found.
Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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Mr. Hendrick mentioned that.
Mr. T.J. Malone:
Like everything we have been behind in the surveys and designs and we have caught them up. During this period of time, have we had delays in getting them to contractors? Absolutely, because we would have expected to have had the surveys and designs done earlier in the project than we initially got them done. In the earlier stage there were delays in getting stuff to Eir because we had not had the designs ready to give to it. There was then a knock-on effect with the contractors. In the earlier stages we were behind in the surveys and the designs.
Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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I thank Mr. Malone. I will now turn to the financial side. Obviously we have had significant inflation in the past year and close to hyperinflation this year. What is the project value having regard to this inflation?
Mr. Peter Hendrick:
A critical thing we have done not only in Covid but with regard to forward planning is that we considered not just the price but the supply and availability of materials. We have forward procured for the next three years all of the fibre and equipment required to build out the network. Our suppliers are holding stock for six months in advance but we have secured our pricing for the next three years. With our subcontractors we have continuous procurement activity. We have contracted to the end of the first half of 2023 with our subcontractors.
Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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So Mr. Hendrick is saying the prices are essentially stable and will not change.
Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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If we review it at that point, depending on the inflationary situation, we can re-assess it.
Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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Mr. Hendrick is saying it is stable for the coming period and there will not be a change to the value of the contract.
Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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There is a lot of discussion, and other colleagues will go into it, about shareholders and potential changes to shareholders. If more equity is required from shareholders, will it be available?
Mr. Peter Hendrick:
Today our shareholders have committed beyond what is required under the contract at €223 million. In any financial commitment, shareholders will have some level of reserves available if a project needs it. Absolutely the shareholders are on the hook for any additional equity that is required.
Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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There is a phrase in the opening statement I must question. This is the idea of changing the corporate structure to turn an idea into a reality. Obviously the State contracted a major serious infrastructure project. It was not an idea for the State. It is very important. Does Mr. Hendrick want to outline this? It is certainly a phrase that made me uncomfortable.
Mr. Peter Hendrick:
What I was trying to portray is that there are unquantifiable risks in this project that many would not take on board. We had the right partners to understand the detail required, whether in technology risk, construction risk or take-up and commercial risk. Really we had the right partners at that point to invest in this project where many others decided not to continue in the procurement process.
Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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I will tell Mr. Hendrick why it makes me uncomfortable. This may be unfair so I will give Mr. Hendrick an opportunity to answer it. That phrase sat aside, I read about the way in which some of the vehicles were put together quite quickly at the time the contract was being signed and in the period immediately prior to it. I do not find this concrete enough. In terms of risk, the return is 12.3%. Is that what Mr. Hendrick said?
Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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Yes. Where does Mr. Hendrick think I could get 12% on my money anywhere else in 2022?
Mr. Peter Hendrick:
This is about infrastructure projects that have commercial and construction risk. It is benchmarked against equivalent projects, whether they be wind farm projects or power or energy projects. There are equivalent projects such as the M8 public private partnership project where there is 12.3% interest.
Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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Was that not signed back in 2010? Was there not a very different investment environment at that stage?
Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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What were the interest rates in terms of equivalence? Mr. Hendrick gave that example in his opening statement and that is fair enough, but there was a very different investment environment when it was signed than there is now.
Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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But in terms of interest rates generally.
Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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This is a contract with a state to deliver a project that is needed. Where is the risk except for inflation in construction costs?
Mr. Peter Hendrick:
The obligation on NBI to ensure we drive demand and take-up. We are in a very different place today than we were two or three years ago. Two or three years ago we had many people saying the project was not needed, there was not a demand for broadband and the risk was unquantifiable. Where we sit today with hindsight, we say the world is moving towards fibre. The European Commission has committed to gigabit connectivity for every premises by 2030. The demand for high-speed broadband is there today. We are seeing the evidence with people working remotely and the demand and take-up on the NBI network. We know we have to deliver the network as quickly as possible.
Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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The demand was very obvious to the State, the Government and Deputies throughout the House. It was very clear demand and it has increased since then.
Alan Dillon (Mayo, Fine Gael)
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I welcome our witnesses and thank them for their efforts during Covid in terms of the delivery of this national project of huge importance. I want to focus on the overall figure mentioned regarding the connection of premises. The figure 554,000 was previously referenced. What is the targeted figure for premises to be connected by the end of 2022?
Mr. Peter Hendrick:
I will let Mr. Malone speak about the build programme where the numbers will be in the construction. Connection is dependent on demand. Right now we see the demand as high. We have to make sure the number of contractors we have supporting the connectivity function is available to meet the connection network. Mr. Malone will speak about the build programme.
Mr. T.J. Malone:
It is important to distinguish the difference between connected and constructed with regard to premises. A premises is connected when we physically do a connection into a house. This is only driven when a customer looks for the connection. I think Deputy is seeking the figures for construction.
Mr. T.J. Malone:
It is a figure we are working through at present. We have not finalised it exactly. We have built our delivery pattern and support on delivering somewhere between 100,000 and 130,000 with contractors finished and walked off site, with the risk eliminated and ready to hand over to the operators to connect. We are finalising it at the moment. We are in negotiations with the Department to finalise it in the coming weeks.
Alan Dillon (Mayo, Fine Gael)
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I ask Mr. Malone to repeat the figure.
Alan Dillon (Mayo, Fine Gael)
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And beyond this year?
Mr. T.J. Malone:
It varies. We do not have the full programme done out. It varies from there to 2026. Our goal is to pull it back in. We are probably running somewhere in the region of six months beyond target at present. As the Deputy is aware from other communications, we are working with our providers to pull it back in and deliver it within the same timeframe.
Alan Dillon (Mayo, Fine Gael)
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In terms of ramping up the project, how many contractors does NBI have on its books at this stage? Certainly this will have an impact in terms of what it can deliver per annum.
Mr. T.J. Malone:
From a survey and design point of view, we are well ahead on this point. Survey and design is the leading part and we have to get it done first. We are ahead of our target in this regard. We are probably 22% or 23% ahead in surveys and approximately 10% ahead in design. The key thing for us on that is that we do not get stale and we are not too far ahead.
We are fine from the point of view of contractors. In regard to construction on the ground, we break it into two parts. There is what we call the passive construction, which is building the fibre, cleaning the manholes, the blockages and so forth. We currently have four contractors employed on that part of the project and another contractor has just been added to the framework through the Department. We have gone through the process with the Department. It is quite a lengthy process. That is done now and we are in the middle of a process of trying to add another three to the framework in order that as we ramp and build, we can add them into the mix as well.
Alan Dillon (Mayo, Fine Gael)
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In regard to numbers, Mr. Malone previously mentioned 800 people.
Mr. T.J. Malone:
Yes we have somewhere in the region of about 1,200 people. We directly employ about 300 people with NBI and there are direct contractors working on this, so it is roughly 1,200 at this stage and ramping up. We see that probably topping out at around 1,800 to 2,000 contractors at our peak.
Alan Dillon (Mayo, Fine Gael)
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In the constituency I represent, I got some figures back in regard to the roll-out in County Mayo. We are probably the third largest county behind Cork and Galway in terms of the need for high-speed broadband as more than 36,758 premises are covered in the NDP deployment plan. People express frustration about how it is being rolled out around the deployment areas where a number of premises are caught between different timelines associated with it and that is causing huge frustration. There may be premises across the road from one in a separate deployment area that has a date related to 2025 or 2026 whereas across the road the premises is ready to preorder and go live. That is causing huge difficulty. For us, as public representatives it is very difficult to explain that. Is NBI doing anything to alleviate that type of concern? It is causing a huge difficulty.
Mr. T.J. Malone:
I totally understand how that could be perceived and the frustrations it would bring. If you bring it back to how we have 554,000 premises to cover in 26 counties, we have now commenced construction in all 26 counties. As Deputy Carroll MacNeill said, we have broken it into 227 different deployment areas or local exchanges and each of those is done on how far light can go down the fibre-optic cable, that is the limit as to how far we can drive it, in that particular area. We have build them around that design and demographic. There always will be an end to one deployment area and a start to another. The ideal for anybody, from a commercial point of view to go in and build a county, would be to go in and stay in that county, just complete that county as fast as possible and move on to the next one. From that perspective there would not be the long wait but to be fair to the people of Ireland, we have to bring in the 26 counties at the same time. In order to do this and to use the resource we have to spread it across the country. I acknowledge it is frustrating for a person on one road to be available for connection now while it might be a year or two before the next one is. We will come contiguously as soon as we possibly can. It has to spread to 26 counties as otherwise some of the counties will be-----
Alan Dillon (Mayo, Fine Gael)
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I understand that but when there are three deployment areas in the one townland as in this instance, outside Castlebar, it is very difficult for people to see their neighbour getting connected where it will be four years before they have an opportunity to get connected. I ask that in some instances, the design and the project team surrounding the surveys would look at townlands and deployment areas within townlands and try to minimise that level of confusion for some people who are not aware of it.
Alan Dillon (Mayo, Fine Gael)
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The first port of call is to go to the local representative and ask them to address the issue and unfortunately we have no remit to do that. In regard to the importance of getting surveys and engineering designs complete in County Mayo. Mr. Malone mentioned that Eir has now become part of the roll-out per sein terms of the use of its infrastructure. Will Mr. Malone outline what agreements are in place and how that will support the national roll-out?
Mr. Peter Hendrick:
Referring to Mr. Malone's point, building this on a national basis really is about, as we add more and more resources and teams on the ground, using existing infrastructure. If you think about the existing infrastructure, there are 1.4 million poles. When we started the project we assumed there would be about 22,500 poles per annum that we would need to repair or replace.
Alan Dillon (Mayo, Fine Gael)
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I get that but you are using the hub and spoke model, so you are coming out from the actual urban areas.
Mr. Peter Hendrick:
This is across the country. Most of the urban areas probably have infrastructure that already is fit for purposes. However in the new areas we are going into, we have doubled Eir's capacity. Over a space of nine months they are going from just over 22,000 poles to more than 44,000 poles per annum. Even with that capacity, we have to spread it across all 26 counties. If we wanted to go faster, if we want to get this ultimately done faster, there are a couple of things we need. We need to have more poles replaced, which means more subcontractors which means more poling trucks, which is plant and machinery, to do all of the make-ready work first, before we ever come along to put the cable on the poles or under the ground. The survey and design is obviously the prerequisite of that. That is what we are feeding out to Eir in terms of the make-ready. There is a capacity restraint in terms of the number of poling trucks and resources available to do all of that work. To be fair, we have agreed with Eir, we have contracted with it to increase its capacity. We are spreading that capacity across all 26 counties and are trying to do it on an equal basis.
Alan Dillon (Mayo, Fine Gael)
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My final question relates to a previous question by Deputy O'Connor in regard to the number of premises that have been passed. What is the current figure? I know that NBI is the wholesaler and a number of other retailers have signed up. How many retailers have signed up to date?
Mr. Peter Hendrick:
We have 50 retailers who have signed up to what we call our reference offer. In the region of 27 are actually proactively selling. Many of these retailers are regional so it is only when we go live in their areas that they can start proactively to sell. Others are starting to sell on a national basis. On the construction issue, Mr. Malone talked about construction where the contractors on the ground have finished all the works-----
Brian Stanley (Laois-Offaly, Sinn Fein)
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I think the question he is asking is a very direct question, that is, how many homes are passed now at this minute?
Alan Dillon (Mayo, Fine Gael)
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In regard to the national roll-out, how many premises have been passed at the minute and how many connections have the retailers connected to?
Brian Stanley (Laois-Offaly, Sinn Fein)
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To clarify for the Deputy, that is 38,000. That is 38,000 passed.
Brian Stanley (Laois-Offaly, Sinn Fein)
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How many are connected?
Alan Dillon (Mayo, Fine Gael)
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So, the numbers are 7,000 and 38,000.
Mr. Peter Hendrick:
When Mr. Malone talks about 47,000 constructed at the end of February and 60,000 constructed at the end of March, once the contractor is finished what we start to plan out is, in advance of finishing, we allow people to preorder. When the contractor finishes we allow the industry then to give connection dates, which typically have waiting times of 15 to 30 days after.
Alan Dillon (Mayo, Fine Gael)
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Two years on we have 7,000 premises connected to a retailer.
Alan Dillon (Mayo, Fine Gael)
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The cost of that for NBI per connection is €2,000 to pass-----
Alan Dillon (Mayo, Fine Gael)
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And €2,000 to connect
Brian Stanley (Laois-Offaly, Sinn Fein)
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I will let you back in for a second round of questions Deputy.
Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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I wish to check something. Did Mr. Hendrick say that Price Waterhouse Cooper, PwC, is working for NBI?
Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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Internal auditor.
Brian Stanley (Laois-Offaly, Sinn Fein)
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I call Deputy Sean Sherlock.
Seán Sherlock (Cork East, Labour)
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The articulation of all of this for Deputies like me, who represent both urban and rural constituencies, is that we have villages and townlands that are being split down the middle. The only way I can articulate my point is by giving a practical example and that is the village of Ballyhooly, in north County Cork.
Typical of every small village throughout the country, it is quite literally being split down the middle in that part of it is to be provided with broadband through the national broadband plan and the other part is to be provided for by the market. In the case of Ballyhooly, there is a housing estate that quite literally is being split down the middle in this regard. While we accept that the market is providing and that there is an entity called NBI, as public representatives who spend a lot of our time advocating on issues such as access to broadband, particularly in the current climate of remote working, we find it hard to understand why there is not a greater degree of interoperability or connectivity between NBI and the private operators to solve problems and ensure provision of services to people in villages. It is extremely frustrating.
Can Mr. Hendrick provide any reassurance to public representatives like me that people in Ballyhooly and every village like it throughout the country who want to get connected and have a right to be connected will be guaranteed access, that they will not be denied access in the times we live in?
Mr. Peter Hendrick:
Under the national broadband plan, nobody will be left behind. For anybody who does not have access to 30 Mbps today that will be addressed under the national broadband plan. While that commitment was made, probably, ahead of most other European member nations, Europe is following suit. The intent is to deliver future-proofed infrastructure across Europe. If somebody has 30 Mbps or between 30 Mbps and 100 Mbps, he or she is obviously on a commercial operator's network, whether Eir, SIRO or another provider. I would expect - we are seeing this in terms of the announcements that are being made by commercial operators - that there will be a transition to future-proof networks, those being fibre. Over the past six months, there have been a number of announcements by SIRO and Eir in terms of their continued roll-out of fibre networks. The expectation is that by 2026, over 95% of homes will be connected on fibre-based networks.
Seán Sherlock (Cork East, Labour)
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I appreciate and understand all of that. When the national broadband plan was rolled out there was an expectation - Mr. Hendrick can tell me if it is not a legitimate expectation - that there would be a more timely intervention in those areas where there are serious gaps. I refer again to Ballyhooly, because as far as I am concerned it is a ground zero for every village of a similar type. There was an expectation that there would be a realisation of the commercial realities, but also a realisation of the corporate social responsibility of ensuring that where there were gaps, right down to micro-level, NBI would be the responsible partner in ensuring that where public representatives like me make representations through our broadband officers in the local authorities or directly to NBI, there would be an understanding of that dynamic and there would be moves to fast-track or, at least, recognise the fact that there are households wherein there are two parents working remotely and a post-primary or third level student who are quite literally taking turns using the broadband such is the lack of capability.
Mr. Hendrick speaks about an offering by NBI of minimum speeds of 100 Mbps, a 1G product and a new 2G product. Is NBI guaranteeing those speeds or is it, as set out in the small print, "up to" those speeds. There is a big difference between "up to 1G" and actually guaranteeing 1G. The term "up to" could mean anything up to that level. Those are the issues that we are trying to deal with here and that, as public representatives, we are trying to navigate. We are quite literally reflecting back to NBI what we are hearing on the ground from countless numbers of citizens in the types of villages mentioned, who are deeply frustrated that there is no intervention that appears to be serving them.
Mr. Hendrick is telling me about something that is going to happen in the future, the future is now as far as those people are concerned. The pandemic has fast-tracked remote working and they want results now. What can I tell the people of Ballyhooly arising from my engagement with the witnesses today that would give them some hope that there will be an intervention to meet their needs and they will get a service?
Mr. Peter Hendrick:
For those who are in the intervention area, we are guaranteeing the speeds. It is not an "up to" service. ComReg has dealt with this in recent times. It is applying penalties where operators say they are delivering a speed or an up to speed that they are not achieving. Consumers are very frustrated that they are not achieving the speeds they are supposed to be getting and are paying for. In our network, we are guaranteeing the service and we are testing all of the retail operators to ensure they are meeting those metrics. There are consequences to them not achieving those metrics. It is something that we absolutely stand over and have contractual obligations to deliver on with the Department of Environment, Climate and Communications.
Seán Sherlock (Cork East, Labour)
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Thank you.
Brian Stanley (Laois-Offaly, Sinn Fein)
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I call Deputy Catherine Murphy.
Catherine Murphy (Kildare North, Social Democrats)
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I welcome the witnesses. As I have only ten minutes and a number of questions to ask, I will try to keep my questions brief and I would appreciate brief replies.
The two big issues are the ability to deliver and the financial stability. In his opening statement, Mr. Hendrick made the point that as the risk profile of the project evolves it is likely that some of the early-stage investors who helped to turn the NBI from an idea into a reality at a point when there was a lot of unquantifiable risk in the project will be replaced with investors who specialise in long-term investments. The early-stage investors obviously were never in it for the long term. Were they just named partners? The build-out is not a particularly lengthy contract. Have investors dropped out? Is there concern about finance? Is there stability in terms of finance? If NBI is paying high interest rates on loans that tends to suggest this is high risk. Have investors that NBI expected to remain with the project pulled out and, if so, who are they?
Mr. Peter Hendrick:
This is not about investors pulling out. It is the opposite. The risks now are quantifiable. There is no question around technology and demand of high-speed broadband. The measurable risks around construction are clear. We are active in all 26 counties. The opposite applies. We are at a stage now-----
Catherine Murphy (Kildare North, Social Democrats)
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Have people that NBI expected to stay with the project dropped out?
Catherine Murphy (Kildare North, Social Democrats)
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We are still in a very low interest rate environment. The rates of return seem very high given the risks are known now and the project is under way. For example, the loans are, I understand, unsecured. Is Mr. Hendrick confident that no risks will arise? In terms of the interest accruing, Mr. Hendrick said NBI has no plans to pay it yet. It was reported recently that €11.8 million has been paid in interest. Can Mr. Hendrick confirm that that is the case?
Mr. Peter Hendrick:
We have to accrue for our shareholder loans on an annual basis but it only gets paid upon profitability of the business where there is cash to pay those loans, which ultimately is dependent on connecting homes and the revenue that we generate out of the business. The percentage is a target, its achievement is dependent on the success and take-up on the project.
Catherine Murphy (Kildare North, Social Democrats)
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The area was mapped out and there was to be an encroachment subsidy if there was to be competition with a commercial entity. It has been reported that Eir has passed 45,000 homes within the intervention area and that is where the encroachment subsidy would arise. Has NBI engaged with the Department on an encroachment subsidy regarding those premises?
Mr. Peter Hendrick:
We have not. When we look at encroachment, we estimate a potential overbuild of 31,000 premises by Eir in the NBP area. Ultimately, the overall number of premises in the NBP area has gone up. There may be cost savings in terms of building out or not passing some of the homes, but we find that although commercial operators may have passed a home, it is a question of whether they can actually afford to connect it. Are they asking the consumer to spend thousands of euro to get the connection from wherever-----
Catherine Murphy (Kildare North, Social Democrats)
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Is Mr. Hendrick saying other providers will be less attractive in terms of people connecting?
Catherine Murphy (Kildare North, Social Democrats)
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Why would a commercial entity do what we are talking about?
Mr. Peter Hendrick:
The commercial entity will say it cannot connect the house because it has done a survey showing it has to dig up the road and put in some poles, making the cost of connecting too expensive. The entity may not actually give you a price. It may simply say it cannot connect you. For that very reason, we are not removing the premises from the intervention area or seeking an encroachment subsidy.
Catherine Murphy (Kildare North, Social Democrats)
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Of the €223 million, €227 million or whatever it is, how much was put in in hard cash?
Catherine Murphy (Kildare North, Social Democrats)
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Is that by way of shares or loans?
Catherine Murphy (Kildare North, Social Democrats)
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With regard to the recovery of the outlay, what has been recovered to date, right from tender stage?
Catherine Murphy (Kildare North, Social Democrats)
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How much?
Mr. Peter Hendrick:
The costs of the bid were just over €32 million, which would have included having 80 to 100 people working on a bid for four years, with financial, commercial, legal and technical advisers designing and planning for the network roll-out. The costs were comparable to the Department's own costs during that process.
Catherine Murphy (Kildare North, Social Democrats)
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Are there agreed targets for 2022 yet?
Catherine Murphy (Kildare North, Social Democrats)
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It is not agreed yet. We can talk to its representatives in the afternoon.
Catherine Murphy (Kildare North, Social Democrats)
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To follow up on the question Deputy Dillon asked on the numbers, the numbers appear to differ from those in Mr. Hendrick's opening statement. He stated 154,000 premises were constructed or under construction. I understand the difference between “passed”, “constructed”, “connected” and all the rest of it but believe language is often used that does not translate. There is not an appreciation of it. It appears the figures given to Deputy Dillon differ from those mentioned by Mr. Hendrick, to the effect that 150,000 premises are constructed or under construction. Am I missing something here?
Mr. Peter Hendrick:
On construction activity across 26 counties, we actually have contractors either finished or gone or in the process of constructing in respect of the 154,000 premises. That is the total number of premises where we have built and are finished, whereby they are ready for service or where we are still involved in construction. What we are trying to convey is the forward momentum of the project and that, in the original plan, we were to be at 180,000, obviously with a larger number passed and ready for service. In total, the plan before Covid was to have 180,000 either constructed or under construction at this point.
Catherine Murphy (Kildare North, Social Democrats)
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We will probably come back to the Department on that later. Are the funds committed secure? Is there a legal contract? Some of the funds look like reasonably short-term loans that are expensive and have an end date. Have they been secured or can these investors withdraw? What are the circumstances in which they can withdraw?
Mr. Peter Hendrick:
There are two forms of security around those investor funds. There are the shareholder agreements between the shareholders, which stipulate the shareholders are wholly and severally liable for the funds, and then there is the project agreement with the Minister, whereby the shareholders are contractually bound to invest the money.
Catherine Murphy (Kildare North, Social Democrats)
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So there is a legal process.
Catherine Murphy (Kildare North, Social Democrats)
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And they are signed up. What investors are ultimately acting as the guarantor?
Catherine Murphy (Kildare North, Social Democrats)
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Is that built into the risk?
Catherine Murphy (Kildare North, Social Democrats)
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This was debated at length over recent years. Before the contract was signed, the expectation was that there would be a high-level cash investment in terms of NBI, which was the only entity at the end with the only tender document. A point of criticism was that it was not possible to challenge it. I do not believe there was an expectation there would be a lot of fluidity regarding the loans and the different investors at that point. How does Mr. Hendrick understand the contract from that point of view?
Mr. Peter Hendrick:
The contract has been clear on the shareholders' investment, what was required, the gap funding requirement under the project and what the subsidy is paying for in terms of building and connecting premises. I suppose the obligation on NBI, our board and shareholders is to ensure we commercialise this network and have enough revenue to cover our costs and operations for the next 25 years.
Catherine Murphy (Kildare North, Social Democrats)
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This is a guaranteed amount by the State. Is €2.6 billion the absolute upper limit, according to Mr. Hendrick's understanding?
Imelda Munster (Louth, Sinn Fein)
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I wish to touch on the contingency fund. Am I right in saying there is €585 million for that fund?
Imelda Munster (Louth, Sinn Fein)
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Am I right in saying €100 million of that is for encroachment?
Imelda Munster (Louth, Sinn Fein)
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What is the rest for? What other blocks are there in that funding?
Mr. Barry Kelly:
There are a number of blocks within that. One covers what are effectively build assumptions. Within the financial model we would have agreed with the Minister at the outset as part of the contract, there were assumptions made about the remediation of ducts, poles etc., as Mr. Hendrick mentioned. To the extent that those assumptions are wrong, the contingency pot is eaten into. However, to the extent there are savings against that, they get clawed back 100% by the Minister. There are assumptions in respect of rates paid to Eir. ComReg obviously sets the rates for Eir. To the extent they change, the pot is eaten into up to the cap. If it goes above that, NBI swallows the excess. However, to the extent there are savings — ComReg has recently spoken about the potential to reduce some of the costs — 100% goes back to the Minister. The third pot relates to connections. As we connect up to 550,000-odd premises over the next 25 years, some will be in more easy to access areas and some will be in more difficult to access areas. The average costs will vary from premises to premises. Where there are more expensive connections, we can draw from the pot up to a certain cap. Similarly, where costs are below the average, we will put money back into the pot.
On the previous point, the subsidy is capped at €2.1 billion, plus the €500 million contingency, and it is up to NBI to bear any costs on top of that.
Imelda Munster (Louth, Sinn Fein)
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For example, if the 31,000 referenced houses that could lead to encroachment, to date, were claimed on, what portion of the €100 million would that take up?
Mr. Barry Kelly:
Ms Fisher might come in on this one. There is a concept under the contract where we have to understand the impact of that encroachment. We would have to say what the cost is to NBI, where we may have lost revenue or we may have to incur additional costs. When one thinks about how we will be covering more than 90% of the land mass of Ireland, if we will be passing those premises anyway to reach the ones very far down the road that the commercial operator might not want to get to, there will probably be very little cost difference to us. The incremental cost of passing that operator is very small.
Imelda Munster (Louth, Sinn Fein)
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Does Mr. Kelly have an estimated figure or anything?
Imelda Munster (Louth, Sinn Fein)
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Has any of the contingency fund been claimed or attempted to have been drawn down, to date?
Imelda Munster (Louth, Sinn Fein)
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Can those funds be claimed in regard to construction inflation?
Mr. Barry Kelly:
There are a couple of assumptions related to pricing. However, what we are seeing at the moment, through what Mr. Hendrick mentioned previously, is that because we have forward-contracted some of our materials, we are actually coming in below the assumed costs for the prices of cable or poles, for example, than we assumed in the initial bid. Those are some of the areas where we have given money back to the State.
Imelda Munster (Louth, Sinn Fein)
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Can Mr. Kelly tell us what the current estimates are in that regard?
Imelda Munster (Louth, Sinn Fein)
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I am referring to the costs of construction inflation.
Mr. Barry Kelly:
As Mr. Hendrick said, we have contracted out for the next two or three years in terms of pricing, so that is fixed. Thereafter, we can make assumptions. Obviously, the further out one goes, it is harder to make those assumptions. The financial model that we agreed with the Minister includes assumed inflation within it, as well as a contingency for inflation and other assumptions. The model is set up to include a number of different layers of contingency, whether it is €500 million contingent pot, assumptions around inflation and also some buffer equity that we have included, as Mr. Hendrick mentioned. Investors have guaranteed up to €223 million of equity, which is above and beyond what we foresee having to draw down, but it is available. We feel comfortable that there is lots of capacity to absorb any sort of bumps in the road, whether from Covid or inflation.
Imelda Munster (Louth, Sinn Fein)
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Has there been any issue to date regarding a commercial operator encroaching?
Imelda Munster (Louth, Sinn Fein)
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The Business Postreported that, with respect to Eir encroaching, it may result in NBI spending €245 million duplicating infrastructure. It might even seek to claim those funds. Have any discussions taken place on that?
Mr. Peter Hendrick:
There have not been discussions on that. I am not quite sure where the Business Postcame up with those numbers. As Mr. Kelly explained, we are building out this infrastructure across the country. In many cases, we are connecting homes that other commercial operators may have said that they had infrastructure close by to connect to, but they are not connecting. What we are finding is that these premises are not getting connected. Therefore, we are not duplicating infrastructure and we are not looking to seek compensation against encroachment at this time.
Imelda Munster (Louth, Sinn Fein)
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Is Mr. Hendrick saying there is no basis for that report or such a claim?
Imelda Munster (Louth, Sinn Fein)
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With regard to the infrastructure, based on NBI's most recent surveys and reports, what is the current estimated total length of fibre cable in NBI's network, upon completion?
Mr. T.J. Malone:
We have not completed all of the service or design in a low level, as of yet. From our high-level designs and from the work we have done to date, we would see for building the network itself - just the network - somewhere between 90,000 km and 96,000 km of fibre to be deployed over the period. Over the 25 year-period, we would be estimating somewhere in the region of 145,000 km, including the connections.
Imelda Munster (Louth, Sinn Fein)
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How many poles would NBI have?
Mr. T.J. Malone:
There is a combination of two kinds of poles. First, there are the poles we are utilising that Eir already has in place. It has approximately 1.466 million poles out there on its database that we are coming across. We would intend to utilise most, if not all, of those poles. Where there are gaps in the network, we will add additional poles. We originally thought that there would be a 10% requirement for new poles, approximately. As we are getting on the ground now and out there surveying, we do not think we will need as many new poles as initially envisaged. It is too early to say exactly what the number will be. Originally, we would have thought it would be a little over 100,000, but what we are seeing is a bit less than that.
Imelda Munster (Louth, Sinn Fein)
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The kilometres of underground duct network-----
Brian Stanley (Laois-Offaly, Sinn Fein)
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The Deputy has two minutes.
Imelda Munster (Louth, Sinn Fein)
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The length of underground duct network-----
Imelda Munster (Louth, Sinn Fein)
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-----for fibre cable-----
Imelda Munster (Louth, Sinn Fein)
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In kilometres?
Imelda Munster (Louth, Sinn Fein)
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Would Mr. Malone have a percentage of the project forecast as new builds?
Imelda Munster (Louth, Sinn Fein)
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Finally, does NBI intend to update those estimates? Does it foresee that they will need updating?
Mr. T.J. Malone:
We are constantly looking at it. As I said, we probably have almost 300,000 surveyed at this stage and nearly half of the network designed. It is only when we get the low-level design that we can compare it against the original estimates, and we are constantly comparing it. As I said, most of the estimates are coming in reasonably accurate. Some require a little bit more underground in certain cases and others are less. On average, when we come to poles, we are looking at fewer new poles than we initially envisaged.
Imelda Munster (Louth, Sinn Fein)
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Roughly, does Mr. Malone have any idea of when NBI will be able to update those estimates?
Mr. T.J. Malone:
Our plan is that within the next year and a half, we will have all of the low-level designs completed at that particular point in time. Once we have all of the low-level designs completed, it will be accurate. We are constantly looking at it - every three or six months. When a new batch of low-level designs are done, we compare it against what we had averaged. It will take about a year and a half to get an absolute, accurate figure.
Brian Stanley (Laois-Offaly, Sinn Fein)
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I call Deputy Colm Burke. We will break after Deputy Burke.
Colm Burke (Cork North Central, Fine Gael)
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I thank our guests for their presentations. I know some people have already touched on our existing system from Eir, and I would like to as well. I am in Cork North-Central and we have a huge number of areas that will not receive an NBI service until 2026. I have one area where the pole is physically on the person's property, but Eir is not allowed to connect because the property is in the amber area. What engagement has there been with other operators where there are properties in very close proximity to the boundary? For instance, in this case, they are connecting a house 200 yds down the road, but they are not connecting the house that is closer to the pole than the one down the road. What engagement has there been with the other providers on this issue?
Colm Burke (Cork North Central, Fine Gael)
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The point they are making to us is they are saying that they are not allowed to connect because it is under the NBP and therefore the other providers would not get the appropriate remuneration for doing that connection.
Colm Burke (Cork North Central, Fine Gael)
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Eir has advised us that it does not have capacity. On cost, the property it has connected is at a far greater distance than the property on which the pole is situated. In other words, the pole is situated at the entrance to the farmyard, but Eir will not connect the farmhouse. Yet, it can run the cable 200 yd down the road to connect another house. The argument consistently coming back to us from Eir is that because the property is in the amber area, it is not prepared to connect. We have quite a number of cases like this, where we think a significant number of properties could be immediately connected, if there was engagement between NBI and the other suppliers.
Mr. Peter Hendrick:
Of the 31,000 premises under encroachment that we talked about earlier, this is an example of the scenario whereby infrastructure is outside or passing a premises, but the cost of connecting that premises is too high. That is one side of it in respect of what is happening around encroachment. We are saying that commercial infrastructure is available to connect a home but the cost of connecting is too high.
Part of our obligation under this contract is to ensure future-proofing of the service and the network for 25 years and beyond. Notwithstanding that we have that obligation, and we are building the network to meet that contractual obligation and the demand for the future, we are engaging. We have a request for proposal, RFP, in the market at present, for which we have already received the first round of responses for a number of wholesale operators, where we could leverage their network and service. What is critical is that they connect with the speeds deemed under the national broadband plan, with the service level agreements that go with it, and the future-proofing requirements we need to give certainty to these homes when they get connected.
It is something we have under way and are keeping the Oireachtas Joint Committee on Transport and Communications informed of. We gave it an update two weeks ago and we said we would give our next updates at the end of March and the end of June. It is something we are looking at and it does make sense, where it is available. The whole premise of the NBP is to use infrastructure where it is available, but it does not take away from the fact we have to deliver the service, and the benchmarked minimum speeds, with service level agreements, SLAs, and future-proofing.
Colm Burke (Cork North Central, Fine Gael)
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To take the example I spoke about, has NBI done an assessment of the number of properties that are in that scenario? Have we an estimate? In my experience, it would appear there are quite a large number within the amber area where there is capacity from existing providers.
Mr. Peter Hendrick:
I do not have a number, but it is part of the process we have undertaken right now. As Mr. Malone described, the 154,000 premises we have under construction today are largely coming out from some of those central points. On the number we will assess, our team is currently doing that through a process, with a number of operators, where we are sharing them, in other words, these are the premises, what technology the operators can serve and whether they can meet the future demands of high-speed broadband over the next 25 years-----
Colm Burke (Cork North Central, Fine Gael)
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What is the timescale for when there will be some agreement with some of these providers?
Colm Burke (Cork North Central, Fine Gael)
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When Mr. Hendrick talks about doing a pilot, is he talking about a specific county or town? Are we talking about ten or 100 houses in a pilot scheme?
Mr. Peter Hendrick:
That will all be part of the process on which the team is working at present. I expect it will be in multiple areas, again, testing what the product and service looks like, the distance from the central point to where the infrastructure is, the service level agreements and the future-proofing. There are quite a number of parts. We have to ensure, and this is certainly the focus for the network we are building, that this will be here for future generations. We have to make sure the same applies, even if we look at alternative technologies or networks.
Colm Burke (Cork North Central, Fine Gael)
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Okay. I will move on to another issue. It relates to the workforce and the availability of people to carry out the work that needs to be carried out. Is NBI facing challenges in that area at present, in view of the fact that the whole construction industry is going at full speed and many other areas are having difficulties in getting people for jobs that are available? In looking at that over the next 12 months, has NBI set out the number of people that are required, in addition to setting out the number of people who are currently available?
Mr. T.J. Malone:
I will take that one, if that is okay. We are definitely acutely aware of the marketplace, where we are in the market at present and that the level of unemployment is dropping at all times. We have gone out to all our contractors over the past six or eight months and looked at what availability of resources they would have in the event we want to up our production levels, number one and number two, if an accelerated programme was feasible for us down the road. We have got that detail back.
In addition, to try to circumvent this and get ahead, which is no different than what we did in the procurement of materials, where we forward bought for three years and increased the stockholding at any one time, we have added another subcontractor in recent weeks and months to the panel we can choose from. That particular contractor has strong links into European countries that are possibly coming off the back of some of these projects so there is more availability of labour. We are looking at adding three more contractors to that panel at present. Again, one of those also has international links. We are constantly looking at that. The existing contractors are telling us they will be able to ramp up to meet the demands but, in order to be sure of it, we are being prudent by adding additional contractors to the list.
Brian Stanley (Laois-Offaly, Sinn Fein)
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There is one minute remaining.
Colm Burke (Cork North Central, Fine Gael)
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On meeting demands and the contractors NBI has, over the past 12 months those demands were not delivered on. Why does NBI now believe that these contractors can deliver within the time period?
Mr. T.J. Malone:
I do not think that the missing of deadlines or demands we have had over the past 12 or 18 months has been down to a lack of availability of manpower. It has been down to the operating environment due to the Covid-19 pandemic. We just could not physically get out there or could not estimate what would hit us from that perspective. From an actual manpower point of view, we believe the contractors have sufficient capacity on the ground. We are also seeing that at present.
As Mr. Hendrick said, the level of fibre we are rolling out at present is enough to go from here to Paris on a monthly basis and that has been so for the past three months. We stepped that up, as Eir has stepped up its area. Part of it is the poling capacity. If there is an area in poling capacity, that is probably our tightest pinch because that takes more time to ramp up as specialised machinery is involved that needs to be brought into the country and manufactured. That is why, when we carried out an agreement with Eir on 1 October, it was based on an incremental step between 1 October this year to 1 January next year, in different phases, which gave Eir time to seek people and machinery.
Colm Burke (Cork North Central, Fine Gael)
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Apologies. What machinery has to be brought in? We have had two years now. Surely, we should have had adequate machinery in at this stage.
Mr. T.J. Malone:
We have gone back to Eir in order to secure additional capacity to do the make-ready work on the basis of being behind at present on some targets, and to try to get ahead of ourselves and anticipate, if there is an accelerated part on that. Eir is working through that itself. It replaced the poles on our behalf as part of the Eir make-ready work. The machinery for that is specialised and there are long delivery times for it. It is either brought it in from abroad, if it is already there, or it is manufactured.
Colm Burke (Cork North Central, Fine Gael)
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Did we not have 14 months in which this could have been dealt with? Why is the problem only arising now?
Mr. T.J. Malone:
It is not that it is only arising now. On 1 October, we agreed with Eir to increase our capacity to just more than double. We had initially contracted with it for 22,500 poles per annum. To catch up and get ahead of ourselves, we have contracted to double that capacity. Although we are only just more than six months behind, we want to double it to give ourselves a chance to build contingency back into the programme. We are virtually doubling the capacity that Eir originally committed to, from 22,000 or 24,000 poles per annum, to just shy of 50,000 poles.
Brian Stanley (Laois-Offaly, Sinn Fein)
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I have several questions on the structure and ownership of NBI, so I ask our guests to keep their responses concise. Does the company ownership now differ much from the company that was conferred as the preferred bidder in May 2019? In terms of the ownership of that company, does it differ much from the company with which the contract was signed?
Brian Stanley (Laois-Offaly, Sinn Fein)
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Has the ownership of that company changed much?
Brian Stanley (Laois-Offaly, Sinn Fein)
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Okay. From the point of view of NBI, there are several investors. There are up to 20 or more. Is that correct?
Brian Stanley (Laois-Offaly, Sinn Fein)
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What share does Oak Hill have?
Brian Stanley (Laois-Offaly, Sinn Fein)
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Did it ever have 54%?
Brian Stanley (Laois-Offaly, Sinn Fein)
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Tel-le Broadband was associated with Oak Hill. Is it correct the total share between them was 54% of the funding and that there was a transfer worth €4.6 million to an unidentified beneficiary? Is Mr. Hendrick aware of that?
Mr. Peter Hendrick:
That is not an Oak Hill entity; it is a Granahan McCourt and Tetrad entity. It was never an Oak Hill entity. A bridging loan was provided during the period between contract signing in November 2019 and contract execution in January 2020. It was a repayment of a bridging loan. There was never an equity change. The equity has always been 49% of Oak Hill.
Brian Stanley (Laois-Offaly, Sinn Fein)
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Is NBI aware how much of Granahan McCourt is owned by David McCourt?
Brian Stanley (Laois-Offaly, Sinn Fein)
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I ask her to reply briefly. It is a straight question. How much of Granahan McCourt is owned by David McCourt in terms of finance?
Brian Stanley (Laois-Offaly, Sinn Fein)
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I am aware of that. My question is how much of Granahan McCourt is owned by David McCourt.
Brian Stanley (Laois-Offaly, Sinn Fein)
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What is the total investment by Granahan McCourt in the project?
Brian Stanley (Laois-Offaly, Sinn Fein)
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How much is the total investment into it?
Brian Stanley (Laois-Offaly, Sinn Fein)
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How much?
Brian Stanley (Laois-Offaly, Sinn Fein)
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How much has David McCourt paid into that?
Brian Stanley (Laois-Offaly, Sinn Fein)
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Thirteen million euro. It is not a lesser sum.
Brian Stanley (Laois-Offaly, Sinn Fein)
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Is it correct that the Minister has instructed an investigation or a review into the current ownership of NBI?
Brian Stanley (Laois-Offaly, Sinn Fein)
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Is that being reviewed by the Minister at the moment?
Brian Stanley (Laois-Offaly, Sinn Fein)
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It has been completed.
Brian Stanley (Laois-Offaly, Sinn Fein)
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Mr. Hendrick mentioned a cost of in the region of €2,000 per connection. I refer to the cost of providing the scheme. Adding together the State subsidy and the private finance and dividing that by 540,000 or 550,000 gives a figure of approximately €12,000. Is that correct? I am talking about the actual cost of the scheme. In other words, the average cost for a premise in the orange intervention area to be connected, in the context of the overall scheme, is in the region of €12,000 per premises.
Brian Stanley (Laois-Offaly, Sinn Fein)
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No. There is a particular number of households and premises in the intervention area.. We know this. We have been over it for the past five or six years. We now know there are two sums of money - one is the State or taxpayer subsidy of €2.6 billion or €2.7 billion and the other is private sector investment of approximately 9% or 10% of that figure. What has NBI calculated is the cost per premises in terms of the overall cost of the scheme? That is what will count.
Mr. Peter Hendrick:
I agree. To build the network and pass the homes, it is approximately €2,000 to pass the homes. To connect the homes, it is approximately €1,000. Those are the primary functions of the subsidy. The third bucket where the subsidy comes in is the rental of infrastructure, namely, renting the poles and ducts of Eir's infrastructure.
Brian Stanley (Laois-Offaly, Sinn Fein)
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Is Mr. Hendrick saying the rent for the infrastructure is in the region of €9 million?
Brian Stanley (Laois-Offaly, Sinn Fein)
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I do not want Mr. Hendrick to go there just now. What I am trying to ascertain is the cost of the scheme per household. That is what I am trying to figure out. Could Mr. Hendrick confirm that he or Mr. Kelly has figured this out? I refer to the cost of the overall scheme when NBI goes to service every house and premises, all 540,000, 560,000 or 570,000. What is the cost?
Brian Stanley (Laois-Offaly, Sinn Fein)
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A question has already been asked about duplication. Is NBI duplicating infrastructure that is there already? My information is that there could be in the region of between 40,000 and 50,000 homes already served with fibre by Eir in the intervention area. Is NBI overlaying that in places?
Brian Stanley (Laois-Offaly, Sinn Fein)
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My question is if NBI is overlaying any of them.
Mr. Peter Hendrick:
Today, our contractual obligation is to ensure that all homes in the intervention area get access to high-speed broadband. We have not looked to not build infrastructure or to seek compensation under the encroachment for not building infrastructure. We are building network to pass all 554,000 premises right now.
Brian Stanley (Laois-Offaly, Sinn Fein)
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Will there be places where there is duplication?
Brian Stanley (Laois-Offaly, Sinn Fein)
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Are there places in Mr. Hendrick's estimation where there is duplication? Some information from the sector says there has been duplication in 40,000 to 50,000 cases where broadband has already been provided.
Mr. Peter Hendrick:
To date, there are premises where we have gone back to the Department and said there is existing infrastructure, and those homeowners or apartment owners are being served with broadband. Therefore, we want to remove them from the map. We have removed premises from the map, but we go through a process of analysing, first, if they are guaranteed to get a service and if it is going to be a cost saving on the project by not building. There are premises that we have removed from the map, but it is a small number. We are not seeking encroachment compensation for those premises.
Brian Stanley (Laois-Offaly, Sinn Fein)
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Mr. Hendrick has clarified that. In response to a question earlier on the cost of the infrastructure, my understanding is that the Eir infrastructure is currently owned by French investors, if it has not been flipped again. Mr. Hendrick knows that it has been flipped a number of times over the years since it was privatised in 1999. NBI is renting poles and ducting from Eir. How much per pole is being paid per annum? I have got different answers.
Brian Stanley (Laois-Offaly, Sinn Fein)
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Why is it not a fixed sum?
Brian Stanley (Laois-Offaly, Sinn Fein)
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I know that it is regulated. That is fine. That is €200 in ten years and €500 over the 25 years, index-linked. I represent a rural area with some urban areas. In my travels around the countryside, I saw that an awful lot of poles were either broken or had fallen over and in a lot of cases the bushes were holding the cables up. It would be fair to say they were not in good shape. A lot of poles had to be replaced. Mr. Hendrick outlined the programme of what will be done per year. When NBI went in to do that, did it pay for the upfront costs of replacing the poles?
Brian Stanley (Laois-Offaly, Sinn Fein)
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Did Eir carry the full cost of that?
Brian Stanley (Laois-Offaly, Sinn Fein)
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What about the cost of the repair of ducting?
Brian Stanley (Laois-Offaly, Sinn Fein)
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So NBI is paying for the repair.
Brian Stanley (Laois-Offaly, Sinn Fein)
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How much will that come to in the full roll-out? I expect Mr. Malone has an estimate for that.
Brian Stanley (Laois-Offaly, Sinn Fein)
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Okay. I will revert to the other committee members.
Alan Dillon (Mayo, Fine Gael)
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My first question is on the contract milestones to date. What has NBI achieved in 2020 and 2021 to receive subsidies from the Department? Could Mr. Hendrick give a summary in terms of what targets have been achieved?
Mr. Peter Hendrick:
The milestones are broken down into M0s, M1s and M2s. The M0s are largely associated with a lot of the mobilisation activities, onboarding of retail operators, setting up the test lab, getting data centres, and getting all the infrastructure up and running in order to be able to start serving and engaging with the retail operators. They are predominantly the M0 milestones.
The M1s then are the designs after we have done the surveys. We must have done a complete survey of each deployment area. We must also have designed it from a physical network perspective. We must further have built in all of our assumptions around how many trees need to be trimmed, how many poles need to be replaced, and how many kilometres of underground duct needs to be installed. Once the Department has audited that activity, it gives us an approval to proceed, ATP. Effectively, we then issue that ATP to the independent certifier and, including on the M0 milestones, the independent certifier does an audit on all of our achievements to ensure that we have met the achievements.
Alan Dillon (Mayo, Fine Gael)
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What has the independent auditor reported to date?
Alan Dillon (Mayo, Fine Gael)
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Has Eir achieved its milestones in 2020 and 2021?
Alan Dillon (Mayo, Fine Gael)
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We are well aware of the delays caused by Covid and the original targets that had to be re-assessed. NBI is in the process of agreeing new targets for 2020. Have any concerns been expressed in the discussions with the Department around NBI's ability to ramp up in the next 12 months? Everyone understands that we need to have an acceleration plan. How is that progressing in terms of the new targets Mr. Hendrick talked about in the context of M1s and M2s? I would like to get his assessment on that.
Mr. Peter Hendrick:
From the Department's perspective, there are a number of working groups and one of those is the technical and build working group. Our teams meet regularly with the Department's teams to assess where we are in terms of all of the key enablers to build the network, whether that is local authorities on licensing, the Eir make-ready capacity increasing the number of poles and the number of kilometres of duct, the supply of materials that are involved in the procurement and certainty around supply of materials, and the approval of subcontractors into our framework. The Department is very much involved in all aspects of the programme.
Alan Dillon (Mayo, Fine Gael)
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Does NBI specifically talk about national figures versus county figures, or does it look at each of them separately?
Alan Dillon (Mayo, Fine Gael)
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Let us look at County Mayo, which I represent. Currently we have 9.1% at pre-order stage of the plan. Some 61% of premises have yet to be surveyed or even completed. I would like to get an understanding of how each area can be monitored, reviewed and assessed. That would give us better visibility on how we actually do things. To date, less than 10% is at pre-order stage in Mayo. I am trying to see how this will be ramped up over the next five years.
Alan Dillon (Mayo, Fine Gael)
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If we are only at 10% now, what will it be like in two years' time?
Mr. T.J. Malone:
From a survey point of view, and specifically to Mayo, we break this down by county and by year throughout every single county. We have a list of all the different deployment areas within that county, and the various stages from the survey to design to build commencement and build completion. In the case of Mayo, by the end of next year, we will have around 80% of the survey completed. We will be well on the way at that stage. By the end of 2023, we will have 34% of the builds, all the premises, commenced. By the end of 2024 we will have 52% commenced, and by the end of 2025 we will have about 77% of the builds commenced within the county. For builds completed, by the end of 2025 we will have between 49% and 50% of the entire county completed and about 73% completed by the end of 2026 and the remainder will be done in the balance of that timeframe.
Alan Dillon (Mayo, Fine Gael)
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Okay, I appreciate that.
Alan Dillon (Mayo, Fine Gael)
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It is important to have that level of figures to ensure we can see progress on this. At present we have 10% with survey works under way, and 17.5% with survey works planned. We need to ensure that surveys have been completed, that people are confident to say that NBI is in their area, and that they see progress. It gives us assurances that people are not being forgotten. There are areas in desperate need, which are the worst-case locations versus the areas or townlands outside urban areas. I would certainly welcome that as NBI progresses over the next months and years.
Brian Stanley (Laois-Offaly, Sinn Fein)
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There may be another opportunity for questions as some Deputies are tied up in other committees. The Joint Committee on Agriculture, Food and the Marine, and some other committees are meeting now. There may be another opportunity, depending on how many members turn up from the other committees and from the Dáil Chamber. If Deputy Sherlock or any of the other Deputies who are online wish to come in for a second time, I ask that they just signal. Meanwhile, I will bring in Deputy Catherine Murphy.
Catherine Murphy (Kildare North, Social Democrats)
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I am still intrigued by these very high interest rates. What other construction projects in this country would the witnesses compare this to, in terms of risk?
Catherine Murphy (Kildare North, Social Democrats)
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I just need a short reply. Perhaps Mr. Kelly could give me one or two projects.
Catherine Murphy (Kildare North, Social Democrats)
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When was that built?
Catherine Murphy (Kildare North, Social Democrats)
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What were the interest rates like then?
Catherine Murphy (Kildare North, Social Democrats)
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No. What were the interest rates then? They would not have been comparable to now.
Catherine Murphy (Kildare North, Social Democrats)
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There are negative interest rates at this stage, so it is incredibly low. That is where the 12.5% or somewhere close to 12%-----
Catherine Murphy (Kildare North, Social Democrats)
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The State is securing them.
Catherine Murphy (Kildare North, Social Democrats)
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There is a guarantee that there is €2.6 billion available for projects. I am looking at an academic paper on the matter. It is estimated to be €5,500 per household. That is the highest cost for this kind of project, right across the European Union, by distance.
Mr. Barry Kelly:
It is important to note what that subsidy gets applied to. Over the 25 years of the project, that subsidy can only be applied to up to 92% of the costs of the capital expenditure to build, the capital expenditure to connect, and the use of third-party infrastructure or the rental thereof. Over 25 years of the project, all of the other costs - the bid costs we spoke about, the advisory costs the Deputy asked about, all the operating costs, as well as the balance of the capital expenditure - have to be covered by NBI through either shareholder investment or through revenue generated to the extent that if there is not sufficient revenue generated, that risk stays with NBI.
Catherine Murphy (Kildare North, Social Democrats)
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Quantifiable risk would have been difficult to assess in advance of the project. Presumably, it is better known now what those risks are. Have those risks exceeded what was expected, are they at what was expected, or are they below what was expected?
Mr. Peter Hendrick:
In terms of demand, it is clear now that everybody needs high-speed broadband. The certainty around the demand of broadband is clear. Around construction, we have measured the volumes and looked at whether we can meet the volumes. A key part of this, for example, would be contracting Eir to increase the capacity, the number of poles, the number of kilometres of duct, and so on. We have measured it out. From where we sit today, with confidence in the programme going forward, we know what all the variables are and we know what the volumetrics are in order to deliver this project. It gives us much more confidence.
Catherine Murphy (Kildare North, Social Democrats)
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Mr. Hendrick would say that the quantifiable risks are probably the same or less.
Catherine Murphy (Kildare North, Social Democrats)
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If they are the same or less, it is kind of difficult to figure out why the loans are so expensive, because one can quantify the return on it.
Mr. Peter Hendrick:
It must be understood that at the moment in time when shareholders are making that investment, they put an assessment on the risk. It is a risk over the 25 years. If that risk does not materialise - and we certainly have de-risked it through our connections, our build of the network connections of homes and ultimately the revenue we generate - there is a clawback on any outperformance of the shareholder returns. That goes back to the Minister.
Catherine Murphy (Kildare North, Social Democrats)
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On the very complicated corporate structure, we know that Metallah is the key entity. My understanding is that €98 million was paid in loans from investors to Metallah, and that €11.8 million was paid in interest on those loans. Is that correct?
Catherine Murphy (Kildare North, Social Democrats)
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Okay. That money has been paid in without interest being paid to date. Out of the money that has come in from investors, €32.7 million was paid to NBI Bidco. Was that in relation to the pre-contract costs in getting to tender stage? Was that paid by the State? Did a bill come in and was it paid? How was that paid?
Catherine Murphy (Kildare North, Social Democrats)
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Section 6.3 of NBI's briefing document states:
Granahan McCourt incurred significant costs during the bid stage ... It is ordinary course for successful bidders in procurement processes to recoup bid costs as part of the implementation of the successful bid.
Is there an expectation that it will be recouped?
Catherine Murphy (Kildare North, Social Democrats)
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Is it part of the €2.6 billion?
Catherine Murphy (Kildare North, Social Democrats)
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Was that spread out across all of the investors, even new investors?
Catherine Murphy (Kildare North, Social Democrats)
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Do the new investors coming in have to carry some of that cost?
Brian Stanley (Laois-Offaly, Sinn Fein)
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Thank you, Deputy Murphy. Deputy Carthy is attending the Joint Committee on Agriculture, Food and the Marine and will be joining us very soon. Anyone else who is online can put up their hand to signal.
I will turn back to ask about the finance. Is it correct that NBI made a loss of €70 million in 2020 and would have been running at €70 million in the red?
Brian Stanley (Laois-Offaly, Sinn Fein)
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Okay. Is it correct to say that €38 million was paid out to investors?
Brian Stanley (Laois-Offaly, Sinn Fein)
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The company made a loss of almost €70 million and paid out €32.5 million to investors that year. Is that correct?
Brian Stanley (Laois-Offaly, Sinn Fein)
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Where did the €32.5 million come from?
Brian Stanley (Laois-Offaly, Sinn Fein)
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A State subsidy.
Brian Stanley (Laois-Offaly, Sinn Fein)
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Am I correct in saying that Mr. McCourt got in the region of €33 million for securing the contract and doing the preparation work?
Mr. Barry Kelly:
No. It is the same thing we are talking about. The €32.7 million was bid costs that were incurred by the investors across a four-year period. That covered between 80 and 100 people working on the bid. That included a core team that worked on it full time plus legal, financial, technical and design advisers. It got to the stage that when the bid got handed over, it was not just a folder that got delivered to the Department; a van pulled up with all the data. They had to come up with a full high-level design for the entire-----
Brian Stanley (Laois-Offaly, Sinn Fein)
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It would be unusual for a company to pay out in excess of €32 million - the figure I calculated was closer to €38 million but let it be €32.5 million - to investors in a year in which the company made a loss of more than double that figure. That would be unusual in a company.
Brian Stanley (Laois-Offaly, Sinn Fein)
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I got that.
Mr. Barry Kelly:
It would be typical in the course of a procurement process for all bidders to bear their own costs. It is also typical in a procurement process for the successful bidder to recoup those costs in the event of a successful bid. This was agreed as part of the overall financial model with the Minister.
Brian Stanley (Laois-Offaly, Sinn Fein)
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NBI had no customer income that year.
Brian Stanley (Laois-Offaly, Sinn Fein)
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What would "very small" mean?
Brian Stanley (Laois-Offaly, Sinn Fein)
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Less than €100,000. There was €32.5 million paid out to investors. The income from customers was less than €100,000 and the company was running at a loss of €70 million in the same year.
Brian Stanley (Laois-Offaly, Sinn Fein)
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I am sorry; we are going by the figures quoted here. That is a summation of what Mr. Kelly has just told me.
Mr. Barry Kelly:
When we think about the funding models, we had to agree a 25-year project with the Minister. As part of that, a financial model was put together which set out all the costs from bid costs through to survey, design, build and then all the operating and maintenance costs over 25 years.
Brian Stanley (Laois-Offaly, Sinn Fein)
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Were the members of the board concerned?
Brian Stanley (Laois-Offaly, Sinn Fein)
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No concerns. Okay.
Brian Stanley (Laois-Offaly, Sinn Fein)
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The company made a loss of €70 million in 2020. The revenue it brought in from customers was less than €100,000 and it paid out €32.5 million to investors. Those three figures are accurate.
Brian Stanley (Laois-Offaly, Sinn Fein)
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I got that.
Brian Stanley (Laois-Offaly, Sinn Fein)
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I want to ask Mr. Kelly about the interest rates. He said that 12% is not unusual. It is very high. When this scheme was being devised, loans were being offered at interest rates of 0.25% and 0.5% by the European Investment Bank, EIB, and other sources, and here the State is tied into a contract where 12% interest is being paid out. That is highly unusual. It does not sit right with me for some reason. It does not seem like a good way to be doing business. I also notice that it is compound interest, which means that in a period of just under six years, that will double because there is an accumulator on it being compound interest. That in itself would seem like an excessive sum. I looked at some other infrastructure projects that were coming at 3.2% and 3.4% interest. Here we are with 12% compound interest. This has the potential to become a much larger sum. Does Mr. Kelly not find that unusual?
Mr. Barry Kelly:
The important thing to differentiate there is between a low-cost loan. If one thinks about paying one's mortgage at 2% or 3%, they are secured loans. It is very important to differentiate between an unsecured shareholder loan and a secured bank loan. If a person goes to the bank and gives security and he or she does not pay it back, the bank will enforce that security to get its money. Here, we have shareholders who invested their money where there is no security.
Brian Stanley (Laois-Offaly, Sinn Fein)
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Okay. I take it that is unsecured. In reality, the State has ponied up for between €2.6 billion and €2.7 billion. We know that. I do not have time to go into it now but previous questions and commitments regarding milestones turned out to be very different in terms of penalties. Assurances other Deputies and I got on the floor of the Dáil got in 2018 and 2019 were about the risk. Mr. Kelly mentioned the risk in response to a number of the Deputies. He and Mr. Hendrick leaned on this a lot. I would contend that where the State has put up funding in excess of €2.6 billion, in reality there is very little risk.
Brian Stanley (Laois-Offaly, Sinn Fein)
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It is a healthy investment.
Brian Stanley (Laois-Offaly, Sinn Fein)
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I get that.
Brian Stanley (Laois-Offaly, Sinn Fein)
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It is a healthy return on an investment.
Mr. Peter Hendrick:
If we de-risk the programme and NBI is successful on delivering on Government policy, and we keep the cost down, deliver value for money and the return is 12% or greater to the shareholders, there is a clawback for the Minister. The Minister shares in that gain. That is all about the assessment of risk at the time. In other infrastructure projects, there may or may not be risk and the apportion of who is taking the risk is taken into account at the time.
Brian Stanley (Laois-Offaly, Sinn Fein)
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It is a healthy return for all those investors who have joined it now-----
Brian Stanley (Laois-Offaly, Sinn Fein)
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-----at 12% compound interest rate on a project that is underwritten by the State. Those are the facts of it.
Brian Stanley (Laois-Offaly, Sinn Fein)
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There is now though.
Brian Stanley (Laois-Offaly, Sinn Fein)
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There is a queue now on a 12% compound interest rate.
Brian Stanley (Laois-Offaly, Sinn Fein)
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Look at the number of investors.
Brian Stanley (Laois-Offaly, Sinn Fein)
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Openreach was mentioned earlier.
Brian Stanley (Laois-Offaly, Sinn Fein)
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In reality, a whole bundle of short-term investors, which some would describe as vulture funds, have seen an opportunity here underwritten by the State with a return of 12% compound interest rate. Is that not the reality?
Mr. Peter Hendrick:
If NBI delivers the network, delivers on Government policy, delivers on the cost of the network, delivers value for money and delivers an outcome to shareholders that gives them the return they have targeted, the share in that gain is shared with the Minister. While we are taking commercial risk in rolling out this network, if we actually achieve what we want to achieve, which is delivering public policy, value for money and demand on this network, we share in that gain with the Minister.
Brian Stanley (Laois-Offaly, Sinn Fein)
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There have been two different plans in terms of the roll-out schedule. Another remedial plan is coming. Covid-19 was the reason given. I understand, as will committee members, that that would cause some disruption in the real world. Telecommunications is one of the areas that continued right throughout that period. It was exempt. That is the first thing I will say to Mr. Hendrick. The next is that the third plan was 115,000 in year one. Then its status was revised downwards to 60,000. We await plan No. 3.
From what I have seen with regard to milestones, targets and penalties, I imagine the investors are very happy. They must be rubbing their hands together. Very few investors would be able to find a project as lucrative as this underwritten by a state whose finances are reasonably healthy.
Cormac Devlin (Dún Laoghaire, Fianna Fail)
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I thank the witnesses. I apologise for being delayed. If I repeat some questions, I hope I will be forgiven because I did not hear them all. I listened to the opening statements and a few things struck me. To allude to something the Cathaoirleach was just saying, at the outset of this there was much criticism and much debate as to whether the State should get involved in this at all when the private sector was not. That was clear. There needed to be some sort of mechanism to roll out broadband, particularly for rural Ireland. I will get to urban heartlands shortly. If this had not been done, where would we be now in the absence of this framework? I know it is hard to ponder that but, realistically, where would be if this was not in place?
Mr. Peter Hendrick:
The urban-rural digital divide would be wider. To put this into context, the homes we are talking about today receive speeds of less than 30 Mbps. People in urban areas of the country benefit from a benchmark product with a speed of 500 Mbps. In 2016 or 2017, the gap was not significant. We were talking about tens of megabits per second. We are now talking about hundreds. The demand for those hundreds of megabits per second is only increasing. One of the benefits we have in our job is that we see the impact our work has on businesses, homes and schools every day. That is what drives us every day to get out there and build this network. We know this is more important now than it was two years ago.
Cormac Devlin (Dún Laoghaire, Fianna Fail)
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We all saw and experienced that during the lockdowns. We saw the need for connectivity of all different types, including multiple connections per home as children were doing school activities while we were all trying to work remotely. We even took part in this committee remotely, albeit from within these buildings.
On what date is the 25-year contract due to expire? What was the start date and when is the end date?
Cormac Devlin (Dún Laoghaire, Fianna Fail)
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Is NBI to continue to manage that for those ten years?
Mr. Peter Hendrick:
NBI will continue to operate, manage and maintain the network. Our key objective is to make sure we have an efficient telecommunications operation and that the difference between the cost of operating the network and supporting homes and the revenue we generate makes us a viable entity that will be there for many generations to come.
Cormac Devlin (Dún Laoghaire, Fianna Fail)
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To turn to the opening statement, Mr. Hendrick said 475 BCPs, including some in schools, have been installed. That is obviously very welcome. He also said that 54,500 premises are currently able to place an order via their preferred retail service provider. Are the 475 points included in that 54,500 premises?
Cormac Devlin (Dún Laoghaire, Fianna Fail)
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Are those 54,500 new connections resulting from the work that started in January 2020?
Cormac Devlin (Dún Laoghaire, Fianna Fail)
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I see. That leads me onto the 154,000 premises constructed or under construction. These are also as a result of-----
Cormac Devlin (Dún Laoghaire, Fianna Fail)
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Okay, that is fine. Mr. Hendrick also referred to 1,200 people hired. How many of those are direct employees of NBI?
Mr. Peter Hendrick:
Some 300 are directly employed by NBI and then we have all of our contractors, including designers and builders. The figure does not take into account those employed indirectly in all of the logistics that go on in the background with regard to supplying material and equipment. I would say that three or four times that number are indirectly employed.
Cormac Devlin (Dún Laoghaire, Fianna Fail)
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Of course, there is always a spin-off. NBI employs 300 and then there are the contractors Mr. Hendrick mentioned. He also referred to subcontractors and listed off a good few of them. Is he saying the remaining 900 are contractors?
Cormac Devlin (Dún Laoghaire, Fianna Fail)
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Does that include subcontractors?
Cormac Devlin (Dún Laoghaire, Fianna Fail)
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All right. I just wanted to get a rough total of the number working on it. In his statement, Mr. Hendrick also mentioned NBI's co-operation and work with Eir and Enet. I commend him on his work for the islands. That is important. We are talking about rural Ireland and you cannot get much more remote than the islands. That work is essential because it will have benefits in terms of people returning to the islands and repopulating them and in sustaining communities. That is very welcome. However, there are also black spots in urban areas. Colleagues from across the House will know of black spots in towns, villages and cities in the areas they represent. There are several in my own area. I am not seeing the sense of urgency Mr. Hendrick has spoken about with regard to connections in those area. How are those issues going to be resolved? It seems that dealing with issues in urban areas would be simpler given that the services are practically outside people's doors. These providers, Eir, Enet and others, give commitments to connect these premises but it never happens. We are talking about years, long before 2020. People are losing faith. Ultimately, that is the engine of the economy. We need to ensure that there is good connectivity across cities and counties. What is going to happen there?
Mr. Peter Hendrick:
The intervention area is not just about rural premises but any home that cannot get speeds of 30 Mbps. With regard to specific urban areas in which we may not have infrastructure when passing or where connection will be quite expensive, we have to consider value for money. As part of the request for proposals, RFP, we are running at the moment, a number of bidders have given us solutions. We will engage with them over the coming months and will look at practical solutions, including the use of alternative networks, products and services to connect those homes. It is really critical that we make sure that, once these premises are connected, there will not be another digital divide and that the service they get will meet demand for the next 25 years. Working with those suppliers is critical. We have a team dedicated to and focused on that work over the coming months.
Cormac Devlin (Dún Laoghaire, Fianna Fail)
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We receive a lot of complaints about the lack of connectivity or high-speed broadband. How do we liaise with NBI to highlight those black spots? As I have said, there are plenty of them.
Mr. Peter Hendrick:
We know where they are from our surveys. As we are out surveying, we see the gaps between where we have contiguous network builds and where we have to go off on a certain route because there is a house isolated on its own, which is very expensive to do. We have already identified the premises. When end users go to our website and put in their Eircode postcode, they will get a date based on their deployment area. In parallel, we are looking at one-off houses and buildings in urban areas that are just not contiguous in terms of build. We will have to put them into a different programme. They might get done earlier as a result of that programme.
Cormac Devlin (Dún Laoghaire, Fianna Fail)
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Will Mr. Hendrick come back to us with information on the programme for those particular types of premises? That is probably the bigger issue. As a representative of an urban area, the existence of black spots is a big issue. I hope that NBI is aware of them all but, in case it is not, there needs to be a way for Members to feed in for various different reasons. I am talking about the construction of new homes and certain streets that seem to have been bypassed for the high-speed fibre roll-out. We need a way to inform NBI to ensure these are included in a work programme and that the works are ultimately done. I am still not quite clear on the timelines. I acknowledge that the timeline for each will be different because they are so sporadic but it is a matter of how they are going to be addressed and ensuring they are addressed. Mr. Hendrick said these premises may be done earlier than the projected date. I hope that is the case.
Mr. Peter Hendrick:
Anybody in the intervention area today, regardless of where they live, will see the projected date if they put their Eircode postcode into the website. If they are in an urban area, we are looking at the most economical solution to connect them.
For homes that are being constructed at the moment or that do not have 30 Mbps when the commercial operator said they would, we will get the GeoDirectory update every quarter where new homes come onto the map. Alternatively, they can write to NBI or the Department of Environment, Climate and Communications. Deputies and Senators can come to NBI or the Department and we will assess with the Department whether those premises should be in the intervention area or not.
Cormac Devlin (Dún Laoghaire, Fianna Fail)
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I thank Mr. Hendrick for the clarity.
Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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Going back to shareholders, are we talking about shareholders exiting at this point in the contract? Is that correct?
Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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Are some shareholders exiting now and is NBI looking for new partners?
Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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Does Mr. Hendrick have a sense of the proportion in terms of value?
Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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It is fair to say NBI expects some to leave and is in the market for new shareholders.
Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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Has that conversation been formally had with the Department? Is it contractually required to be had with the Department? What is the status of that?
Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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Is change of shareholders not a change of control?
Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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Has that process begun?
Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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I do not know the details of the contract. I do not know if NBI has to indicate that this is the expectation or that it is engaged in a process or talking to people or anything.
Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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So having gone through a process of finding new shareholders, NBI then gets ministerial consent for same.
Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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This sits against our conversation earlier about the return, the 12% and so on, but what are the implications, if any, of being unable to replace shareholders who exit?
Mr. Peter Hendrick:
I suppose there are no implications. The shareholders are contractually bound. If I break down some of the shareholders and take Oak Hill, it has been an investor in Ireland for many years, at scale, in the telecoms and the aviation sector. Its typical funds can range from three to seven years. Based on the risks and our understanding of the programme, it is the right time to assess if we can bring in long-term partners aligned with our existing long-term partners.
Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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The risk picture has become clearer.
Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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The risk is reduced.
Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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NBI is attracting new investors based on lower risk long-term capital
Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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What is the offer to them in terms of interest rate or return? Presumably it is different from the 12%.
Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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Is it really the case that they come in at a lower risk profile but get the same return as when it was perceived to be higher risk, which we had quite a discussion about? Can I invest?
Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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No, I get it. Okay, that is fair enough.
Alan Dillon (Mayo, Fine Gael)
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My question concerns the long-term plans for the operation and maintenance of the NBI network. While we see more homes being connected, what does that look like in terms of NBI's operational structure in each region? How will teams be deployed to maintain the network alongside subcontractors and building, surveying and engineering teams? When it becomes operational, will NBI build full-time roles into that? What will the organisation look like?
Mr. Peter Hendrick:
Today we have regional field deployment teams responsible, as deployment areas are finished, for ensuring the customer connections meet the expected SLAs and for ongoing preventative maintenance of the active and passive network. The active network is the equipment that connects homes; the passive comprises the cables and the poles. We have subcontracted with the same contractors who are doing the builds a maintenance and connection group. We have the facilities and the people to support the network and we have to meet high SLAs in terms of the contract, equivalent to what one would expect to see in an urban-based telecoms network.
Alan Dillon (Mayo, Fine Gael)
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Will it be NBI or a subcontractor?
Alan Dillon (Mayo, Fine Gael)
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What would the ratio look like?
Catherine Murphy (Kildare North, Social Democrats)
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Going back to the ownership issue, Mr. Hendrick told us Granahan McCourt owns 50.9% of the company?
Catherine Murphy (Kildare North, Social Democrats)
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The contract states it is controlled by voting rights.
Catherine Murphy (Kildare North, Social Democrats)
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The threshold is set at 30% of the contract.
Catherine Murphy (Kildare North, Social Democrats)
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The contract-----
Catherine Murphy (Kildare North, Social Democrats)
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Okay. That is determined by who holds the necessary investment or who is entitled to the percentage of dividends. We have heard Mr. McCourt has put in €13 million of his own money. I have not heard anything that tells me he owns 30% of the shares. How is that determined?
Catherine Murphy (Kildare North, Social Democrats)
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That is the company that signed the contract.
Catherine Murphy (Kildare North, Social Democrats)
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I cannot get my head around the fact that it is determined in the contract that the contract is controlled by who holds the necessary investment or is entitled to a percentage of dividend. I cannot see in the information given to us today how, if it is set at 30%, that ownership is clear.
Ms Jenny Fisher:
There is another category. When we talk about the 30% of control, it includes the category of voting rights. That is the mechanism through which Granahan McCourt controls NBI. The other thing that is important to point out is that the contract has protections so if there is a change in David McCourt's voting or ownership interest, there is no de minimisthreshold. Any change would require ministerial consent. It is separate from and in addition to the 30%. Similarly, if there was any change in shareholding at the Metalla level - that is the holding company Mr. Hendrick described - that would require ministerial consent. The 30% figure relates to the other shareholding interests.
Catherine Murphy (Kildare North, Social Democrats)
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I wonder about Oak Hill and its level of investment. It may well satisfy almost the same criteria. It does not make sense to me. It may have as much right to claim control if the level is sent at 30% of shares.
Catherine Murphy (Kildare North, Social Democrats)
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I will ask a second question but it would be useful to get some sort of descriptor on that, if the witnesses could send it to us.
Metalla paid €32.7 million to NBI Bidco. What was that for?
Ms Jenny Fisher:
I will pass to Mr. Kelly to give the detailed breakdown but it was effectively a reimbursement of the bid costs that were incurred by the investors at risk prior to contract award. That would have covered the costs for technical, financial, legal, tax and environmental advisers etc.
Catherine Murphy (Kildare North, Social Democrats)
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I am not sure where that money came from. Is this also built into the investors?
Catherine Murphy (Kildare North, Social Democrats)
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I understand that costs money.
Matt Carthy (Cavan-Monaghan, Sinn Fein)
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I apologise for being late but I was in the Chamber for Questions to the Minister for Agriculture, Food and the Marine. I am sorry if the questions I ask have already been answered and I am sure some of them will have been. I want to again clarify where we are. How many homes and businesses have been passed?
Matt Carthy (Cavan-Monaghan, Sinn Fein)
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What was the figure in December 2021 or at the end of the year?
Matt Carthy (Cavan-Monaghan, Sinn Fein)
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Is it correct that the target for the end of March is 60,000?
Mr. T.J. Malone:
Yes. That is the figure for premises constructed and built to walk off. When our contractors are finished and walk off site for built connections, the target is 60,000. We believe we will have 47,000 completed by the end of February. We are nearly halfway through February so we are tidying those up and doing the final bits and pieces. That would be 47,000 and the additional 13,000 will be finalised and under construction by the end of March.
Matt Carthy (Cavan-Monaghan, Sinn Fein)
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That is a substantial acceleration considering NBI has moved from 34,000 at the end of December to 38,500 now if that will double within the next month or so.
Mr. T.J. Malone:
It is understandable to see it that way but the vast majority of this work for the remaining 25,000 from December was completed so we would be at anything between 70% and 90%, or a little over it, of the work completed in those areas. It was just a matter of finalising and finishing the smaller pieces that were left to be done, albeit those small pieces stopped homes being categorised as being constructed or passed. The end of February and March will involve finishing out those bits and pieces. That is where a major jump will be seen, as is the case from the end of January to the end of February, which brought the target to 47,000.
Mr. Peter Hendrick:
That is why we can start to allow homes to pre-order. We can do so because we get certainty at least 12 weeks in advance of when the construction will finish. When Mr. Malone’s team finishes on site and the 60,000 premises are constructed, we then have to inform industry, which is the retail operators and we give them a notification period where they can go and sell to consumers. At that point they can give consumers exact dates on when we will install but the installations do not happen for anything between two and four weeks after that. The definition under the contract is that is when they are contractually passed, even though the construction and all the work will have been done by the end of March.
Matt Carthy (Cavan-Monaghan, Sinn Fein)
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Of those 60,000, does NBI have an estimate for who it expects to be connected? How many people or dwellings among those 60,000 will contract up to be part of it?
Mr. Peter Hendrick:
We are approaching pre-orders from 9,000 premises and we are about to connect 7,000 premises over the course of the next week to ten days. On average we are installing 150 premises per day and we are doing installation seven days per week. The demand is there, the orders are coming in and we are meeting that demand in the volume of connections on a daily basis. That rate of 150 will increase.
Matt Carthy (Cavan-Monaghan, Sinn Fein)
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What proportion of those that are passed lead to connections? That is what I am trying to get to.
Mr. Peter Hendrick:
We have measured it over time. In advance of completing the build we take pre-orders for the three months in advance of completion. We have measured Cavan, Carrigaline and areas like that and we are seeing take-up of above 30% and growing. There is a demand but equally there are consumers who may be in contract with an existing operator and so they may be coming to the end of a contract. As we build across all Twenty-six Counties and as more retailers are actively selling, we are noticing that retailers are starting to migrate their customers onto our network, even if they are in contract, because they see the opportunity to get them on board with this fibre network. To keep that customer for the long term they have to migrate them while they are already in a contract.
Matt Carthy (Cavan-Monaghan, Sinn Fein)
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Is there a turning point where NBI becomes profitable or unprofitable in terms of the number of connections?
Matt Carthy (Cavan-Monaghan, Sinn Fein)
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What is that?
Matt Carthy (Cavan-Monaghan, Sinn Fein)
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Can Mr. Hendrick even give me some ballpark figures on how many passes and connections NBI needs?
Mr. Peter Hendrick:
I will put it like this. We would assume we will get to an overall take-up of approximately 85%. Originally, when we looked at historical data cross Europe, and we were not comparing against fibre networks because at the time there was not a significant level of them being built, we assumed that it could be up to eight years after work was completed in a deployment area before that threshold of 85% take-up would be reached. We are seeing that the demand for high-speed broadband is greater, that the capacity requirements are greater and that Eir is committed to switching off the copper network, notwithstanding other retailers in the market that have TV or mobile services that are driving their customers onto this network. The achievement of 85% should happen significantly faster. If I go by Eir’s switch off of copper, Eir has committed that it wants to switch off that copper network within five years of NBI finishing in a deployment area. That brings the period down from eight years to maybe five years after completing in a deployment area.
Matt Carthy (Cavan-Monaghan, Sinn Fein)
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Five years from passing?
Matt Carthy (Cavan-Monaghan, Sinn Fein)
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I want to talk about some of the technical issues with the NBI network. Do the witnesses have an up-to-date estimated total length of fibre cable that will be in the NBI network on completion?
Mr. T.J. Malone:
I will take that one again. We said earlier that we will not fully know until we go out and complete all the surveys and designs. It is only when we have the low-level designs completed for the entire amount that we will know. With the high level we are seeing at the moment we would envisage somewhere between 90,000 km and 98,000 km in the construction of the network itself. When the additional fibre that will be required to do the connections over the next 25 years is added in, we would say there will be somewhere around 140,000 km to 145,000 km. It will only be over the next year to year and a half-----
Matt Carthy (Cavan-Monaghan, Sinn Fein)
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It will be 140,000 km all-in?
Matt Carthy (Cavan-Monaghan, Sinn Fein)
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I am only looking for up-to-date estimates. What about the number of poles?
Mr. T.J. Malone:
Eir has 1.466 million poles that we are utilising on the build and we are using many if not all of those poles where possible. When we started we thought we would need somewhere around 100,000 new additional poles.
The evidence suggests that figure will be lower, but we will not know the final figure until we have the low-level design completed, which will be approximately a year and a half from now.
Matt Carthy (Cavan-Monaghan, Sinn Fein)
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What will be the final length of the underground duct networks for fibre cable?
Mr. T.J. Malone:
The underground fibre cable tends to be about 10% of the overall network build. If we were originally looking at 90,000 km to 98,000 km in total, we envisage that somewhere around 10% of that will be underground. Somewhere in the region of 9,000 km to 10,000 km of that will be underground.
Matt Carthy (Cavan-Monaghan, Sinn Fein)
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Is the target still to have 130,000 homes passed by the end of the year?
Matt Carthy (Cavan-Monaghan, Sinn Fein)
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There is a big difference between those two numbers.
Matt Carthy (Cavan-Monaghan, Sinn Fein)
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What is Mr. Malone contemplating the milestone for the end of the year to be?
Matt Carthy (Cavan-Monaghan, Sinn Fein)
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What will be passed by the end of the year? I presume a milestone is set out in the wider contract.
Mr. T.J. Malone:
We are targeting between 100,000 and 130,000 premises. We will finalise that with the Department over the next number of weeks. By March, we will have finalised a figure with the Department but we will aim to have completed on-site construction for between 100,000 and 130,000 premises.
Matt Carthy (Cavan-Monaghan, Sinn Fein)
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How will those negotiations with the Department work? I presume NBI will bring to the Department its forecast for what it has the capacity to deliver. What would happen if the Department was to say it expected NBI to achieve a greater number?
Mr. T.J. Malone:
When we sit down to go through and agree that, we will take into account all the learnings we have had, the understandings we have put into it, etc. We can see a lot of what is on the ground at the moment. We will explain all of that and go through it with the Department. The Department lives with us pretty much every day of the week. We have interaction with the Department and all of its advisers and people on an ongoing, daily basis. The Department is familiar with what is out there. Ms Fisher might give the Deputy an understanding on that. We are not only updating the figure for what will be constructed or passed by the end of the year. There are a number of other things within that contract, including an updated intermediate remediation plan. Perhaps Ms Fisher will respond to the Deputy.
Brian Stanley (Laois-Offaly, Sinn Fein)
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I call on Ms Fisher to be brief because we are well over time.
Ms Jenny Fisher:
I will be brief. Because we have incurred delays, there is a process under the contract whereby we must go to the Department and show a root cause analysis as to why those delays occurred, what plans we are putting in place to mitigate their impact and how we are going to bring things back on track. We have been engaged in that process with the Department for the past three months or so. It is an involved process that looks at how the milestones will be recalibrated in order to adjust the delivery, recognising the impact of Covid-19 on the programme and other challenges in the mobilisation phase. That is all evidence based, which gives the Department appropriate assurance that we are taking all the steps we should be taking to ensure we are managing this in the best way possible.
Brian Stanley (Laois-Offaly, Sinn Fein)
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I will let the Deputy back in during the second round of questioning. There a couple of other members waiting to contribute. I will let the Deputy back in after that. Is Deputy Carroll MacNeill okay?
Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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I have another question but Deputy Carthy can go ahead.
Matt Carthy (Cavan-Monaghan, Sinn Fein)
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On the recalibration of the milestones, are our guests satisfied that despite whatever delays NBI has encountered or might encounter in the future, it has sufficient evidence that it will be in a position to satisfy the Department-----
Ms Jenny Fisher:
The connection with the Deputy broke up a little but I think he was asking whether we have satisfactory evidence to be able to complete that exercise with the Department. The answer is "Yes". We are going through that. Our technical advisers are reviewing it. We have a number of different working groups with the Department whereby it interrogates the information we are giving to them to make sure they have the assurances they require.
Matt Carthy (Cavan-Monaghan, Sinn Fein)
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We are dealing with a situation whereby we have a possible target that differs by almost 30% at its lowest and highest points. It is a broad target. If delivery is on the lower end of that scale or if other targets need to be amended, are our guests satisfied that, whatever the circumstances, they will be in a position to convince the Department to recalibrate the milestones?
Ms Jenny Fisher:
The target would be the baseline from which we would measure the impact of any other issues that arise in the contract. We must always demonstrate whether it is the result of something within our control or outside our control. The important thing is that we do not get paid until we actually deliver the milestones so we still have to go through the test strategy with the independent certifier, demonstrate how the network has been delivered and confirm that we have all the financial evidence in place before we receive any of the subsidies. The subsidies are only paid when we deliver.
Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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I will ask about the financial changes. We have talked about the shareholders who are exiting now. Are the incoming long-term investors paying up front to get in? Are they paying a price to come into the structure?
Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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The price the long-term investors pay to do that will allow the shorter-term investors to crystallise their gains.
Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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We talked about interest rates earlier. What is the interest rate under which the new investors are coming in? Is it a nominal rate?
Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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We are talking about 12.5% now but the price at which they pay in might reduce their overall return to, for example, 5% or 6%.
Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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The returns for the shorter-term investors and longer-term investors are extremely different. That difference could be 7% or 8%.
Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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I appreciate that.
Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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I do not have a difficulty with shareholders investing money and getting a return; it is a commercial venture. I am asking questions around the financial stability of the model. We spoke earlier about an idea becoming a reality. It seems there was a hurry to put some structures in place to get shorter-term investors in, in the first instance. That is why we are asking questions.
Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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We want this project delivered commercially and for the State. That is fine. These are important questions for us to ask.
Mr. Peter Hendrick:
I appreciate that. The shareholders in NBI today are the same shareholders and partners David McCourt has had with Granahan McCourt in other entities, Enet being one. They are not unknown entities. It was not a rush to get out. They have an investment cycle, which is typically anywhere between three and seven years. Oak Hill is a typical private equity investment fund that has an investment cycle of three to seven years. It wants to bring in the remaining long-term partner now because we are at a point where the technology and demand for high-speed broadband is clear and the construction is clear.
Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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That is a point of difference because I would not have contended it was as risky an investment as perhaps was suggested in the first instance. It seemed to me an obvious project with a State-backed contract for a major commercial opportunity. It was underpinned, as the Chairman said, very strongly. It did not have a high risk profile. That is as may be. That is a difference of opinion and that is okay; we are allowed to have that.
Brian Stanley (Laois-Offaly, Sinn Fein)
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In terms of-----
Brian Stanley (Laois-Offaly, Sinn Fein)
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The overall subsidy from the State that was mentioned at that time was much lower. It was a percentage of the final €2.6 billion or €2.7 billion.
Brian Stanley (Laois-Offaly, Sinn Fein)
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I understand that.
Brian Stanley (Laois-Offaly, Sinn Fein)
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To go back to the very start, when there were five bidders, the figure was less than one fifth of the final sum. When there were three bidders, it was approximately 40% of the final figure reached. That was what the Minister kept telling me.
Mr. Peter Hendrick:
During the process, the original intent was to provide a product that would deliver more than 30 Mbps. There was not a view on long-term future-proofing for 25 years. What happened was that when we got through to the pre-qualification stage, when we had SIRO, Eir and what is NBI, all three bidders said fibre was the long-term future for the network. I do not have this information; it is for the Department to say. Where was that range? Where were all three bidders? A bid was not received from SIRO, which involved ESB and Vodafone. My understanding was that the cost of the make-ready would have been significantly greater in terms of building the infrastructure and renting on the electricity infrastructure. Obviously, Eir put in a bid along with ourselves and then decided to exit the process. Again, it was down to risk and shareholder return. That was the reason it decided not to go forward.
Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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I thank the witnesses for the information.
Brian Stanley (Laois-Offaly, Sinn Fein)
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In September, the subsidy that had been received was €122 million. One of the witnesses today confirmed, if I heard it right, that €177 million has been received to date. Could Mr. Kelly state whether that is correct?
Brian Stanley (Laois-Offaly, Sinn Fein)
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At the end of December it was €177 million.
Brian Stanley (Laois-Offaly, Sinn Fein)
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So that information is two months old. By 31 December, €177 million in subsidies had been received.
Could I be a little parochial? I was surprised to learn from the answer to a question that Laois did not have any connections. A figure was given to me for the number of homes passed. I do not expect the witnesses to have all the information at their fingertips. What was the number of homes connected in County Laois and, separately, County Offaly? If Mr. Malone has the numbers, that is well and good.
Brian Stanley (Laois-Offaly, Sinn Fein)
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As near as possible. Most of the townlands are county-----
Brian Stanley (Laois-Offaly, Sinn Fein)
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Water divides them normally.
Mr. T.J. Malone:
Tell me about it. The first ones coming on board in Laois will be coming out of the Carlow deployment area. There are roughly 600. The Carlow one is just finishing off at the moment. The connections will be coming on line in the next number of weeks and months. There will be about 600 in Laois at that stage.
Brian Stanley (Laois-Offaly, Sinn Fein)
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Can Mr. Malone come back with the figure connected-----
Brian Stanley (Laois-Offaly, Sinn Fein)
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Could I have the figures for the homes connected and passed? I also want the year-end projection for Laois and Offaly. Could I have those three figures for the two counties? I do not expect Mr. Malone to have them at his fingertips today.
Brian Stanley (Laois-Offaly, Sinn Fein)
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I thank the witnesses for joining us this morning and the staff of NBI for the work involved in preparing for the meeting. There was a lot of preparatory work. I thank the Comptroller and Auditor General for attending and assisting this morning. We will now suspend until 1.30 p.m., when we will resume in public session to continue our examination of expenditure on the national broadband plan, with the Department of the Environment, Climate and Communications.
Brian Stanley (Laois-Offaly, Sinn Fein)
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This afternoon we engage with officials from the Department of the Environment, Climate and Communications to examine expenditure on the national broadband plan in the context of the 2020 appropriation accounts for Vote 29 - Environment, Climate and Communications. The Department has been advised that the committee may wish to examine the following matters related to the expenditure on the national broadband plan during the course of the engagement: the impact of the pandemic on delivery; NBI's financial structures; the current progress and timelines; subcontracting arrangements; and penalty clauses in the contract.
We are joined in the committee room by the following officials from the Department: Mr. Mark Griffin, secretary general, who is very welcome; Mr. Ciarán Ó hÓbáin, assistant secretary; Mr. Fergal Mulligan, national broadband plan programme manager; Mr. Patrick Neary, chief technical officer; and Ms Barbara Leeson and Ms Louise Carrigan, both of whom are principal officers in the Department. We are joined remotely from within the precincts of Leinster House by Mr. Ken Cleary, principal officer in the environment climate and communications Vote section at the Department of Public Expenditure and Reform. They are all very welcome.
When we begin to engage, I ask those who are attending remotely to mute themselves when not contributing so that we do not pick up any background noise or feedback. As usual, I remind people to have their mobile phones on silent or switched off.
Before we start, for the benefit of this afternoon's witnesses, I wish to explain the limitations to parliamentary privilege and the practice of the Houses as regards references a witness may make to other persons in their evidence. As they are within the precincts of Leinster House, they are protected by absolute privilege in respect of the presentation that they make to the committee. This means they have an absolute defence against any defamation action for anything that they may say at the meeting. However, they are expected not to abuse his privilege and it is my duty as Cathaoirleach to ensure that is not abused. Therefore, if a witness’s statement is essentially pharmacy to in relation to an identifiable person or entity, they will be directed by me to discontinue their remarks and it is imperative that they comply.
Members are again reminded of the provision of Standing Order 218 that the committee shall refrain from enquiring into the merits of a policy or policies of Government or a Minister of the Government for the merits of the objectives of such policies. Members are reminded of the long-standing parliamentary practice that they should not comment on, criticise or make charges against any person outside the House or in official either by name in such a way as to make him or her identifiable.
We are joined by Mr. Seamus McCarthy, Comptroller and Auditor General, and I now call on him for his opening statement.
Mr. Seamus McCarthy:
As the appropriation account for Vote 29 shows, the Department of the Environment, Climate and Communications incurred expenditure of €53.5 million in 2020, in respect of its subhead A3 information and communications technology programme. This represented just under 50% of the €106.8 million that was available for spending under the subhead in 2020, the majority of which was earmarked for the national broadband plan.
A note to the account states that the underspend of €53.6 million was due to the Covid-19 pandemic and its impact on the original expected roll-out of the broadband plan. Delays in the planned roll-out continued in 2021. This was reflected in the annual target set for the cumulative number of premises able to avail of the broadband service. As indicated in the Revised Estimates Volume for 2021, the target set initially was that 102,000 premises would be able to avail of service by December 2021. This target was revised down during the year to a total of 60,000 premises.
As we heard this morning, the total number of premises within the implementation area passed by the end of 2021 was just over half of that level. The target indicated in the Revised Estimates Volume for 2022 is to have a total of 130,000 premises able to avail of the broadband service by December of this year. The 2020 outturn in relation to the broadband plan expenditure was €51.4 million. This included payments to the main contractor, amounting to €42.5 million and payments for advisory services related to the contract, totalling €8.9 million. The projected total cost of payments to the main contractor, as at 31 December 2020, was €2.764 billion of which an estimated €2.72 billion was outstanding at the year end.
Brian Stanley (Laois-Offaly, Sinn Fein)
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Mr. Griffin is very welcome. As detailed in the letter of invitation, he has five minutes. There will be a reminder at four minutes.
Mr. Mark Griffin:
I thank the Chair. The national broadband plan is a transformational national project that is unparalleled and is unique in terms of its ambition, scale and complexity. It will deliver high-speed and affordable broadband initially to 550,000 homes, schools and business premises in Ireland. Over the 25 years of the contract, it is expected to serve over 600,000 premises. In line with the Government commitment, this will ensure that 100% of premises in rural Ireland, including those in the hardest to reach places, will have a broadband service that is in line with the rest of country. This will be done as part of a single programme over seven years, and it will be delivered within the budget of €2.6 billion.
2020 was the first year of the NBP contract. It saw a significant level of mobilisation activity by National Broadband Ireland, including the recruitment of personnel, procurement of materials and contractors, installation of equipment and exchanges and building IT systems to support the network. Surveys and designs were progressed to inform the build programme, resulting in the first homes being connected to the new fibre network in January 2021 in County Cork. Over the course of 2021, the project continued to build momentum. By the end of last month, almost 296,000 premises were surveyed, build works were under way in almost 120,000 premises and a further 34,500 premises were passed. Some 54,500 premises could order or preorder a service, while 469 broadband connection points, BCPs, including 200 primary schools, have been connected by NBI to date, with many of the public BCPs now supporting remote working.
Well over 1,000 people, all of them in Irish companies, are employed in the project. There have been delays to the roll-out programme compared to the targets set in the contract. Like many other construction projects, the NBP has been significantly impacted by the Covid-19 pandemic. The specific challenges for the project due to Covid and the mitigations put in place by NBI are set out in the briefing note that has been provided to the committee.
Reuse of the existing rural network, comprising about 1.5 million poles and 10,000 km of duct to lay the NBP fibre network is a condition of state aid and makes sense from a value-for-money and sustainability perspective. While it was anticipated that elements of the rural network would need to be mediated or upgraded, the extent of the remediation required, particularly the underground network, is greater than was envisaged when the contract was signed. Both Eir and NBI are addressing these issues, including the introduction by Eir at the end of last year of rapid response teams to support the timely remediation of network issues as they are identified. Eir has also increased the volume of poles and ducts to be provided under the make-ready programme, which is a positive development.
Given the reliance on the Eir network, ongoing close collaboration between NBI and Eir is essential to the successful delivery of the project. Additional resources have been brought into NBI and its subcontractors. Local authority licensing issues have been substantially revolved, following intensive engagement between the Department, the Local Government Management Agency and the County and City Management Association, working with NBI. The contract makes provision for dealing with delays to delivery of the network and provides for circumstances where subsidy will be permanently withheld where milestones have not been met. Where there are unprecedented events, such as the Covid-19 pandemic, NBI can seek what is termed "relief" under the contract and additional time to meet contract milestones without facing deductions to their subsidy payments due from the Department.
In circumstances where such relief is permitted, no sanctions would apply. In other circumstances, the contract provides that sanctioned provisions relating to delays in the delivery of the network are applicable with respect to any delays that occur from the end of contract year 2, which is from 1 February this year. Sanctions will be applied as appropriate and will be calculated and imposed in line with the contract. This places a significant pressure and incentive on NBI to speed up the delivery of milestones missed. Due to delays in rolling out the network, NBI as a commercial company is also losing out on critical revenues from customers it should have connected by now.
Regarding the ownership and financial structures of NBI, the ownership structure of NBI remains the device in the contract awarded by the Department. The Minister has rights of consent under the contract in respect of changes in ownership or control and NBI must notify the Minister in advance of any such event arising. There have been no notifications of changes to ownership or control to date.
The social, economic and environmental benefits of the national broadband plan cannot be overstated. As each home, school and business is connected, the benefits of the plan will be experienced in the daily lives of people across the country. Without the national broadband plan, the market would not deliver broadband to all citizens in all parts of the country. My Department is fully seized of the transformational nature and benefits of the national broadband plan and we are fully committed to driving the project forward. We are also fully seized of the scale of the investment the Government is making in this project and the necessity of ensuring value for money throughout. Robust governance for a project of this nature, scale and cost is paramount. There is a skilled and resourced multidisciplinary team in the Department implementing the protections and provisions drafting into the contract. The national broadband plan is supplemented by external legal, financial and technical advisers on network build and service metrics, project costs, procurement of materials and subcontractors. Corporate governance requirements are being overseen by the Department. My Department is engaging with NBI to finalise its roll-out plan for 2022. This plan will be completed by the end of March and relevant details can be provided to the committee at that stage. I look forward to assisting committee members in any questions they may have.
Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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I thank Mr. Griffin and his colleagues for coming in. It is good to see them again. There are a few things I would like to cover. We had a good discussion this morning with NBI and Deputies were able to ask questions about delivery. We now know there is a small number of connections relative to the number of passings, which is less than it might have been. We have heard about that. How is the Department going to hedge bets on the delivery challenge? There is a delivery challenge at the moment, some of which is understandably down to Covid-19. Mr. Griffin said that in his statement but the Minister of State, Deputy Ossian Smyth, went further in the Dáil and acknowledged that some of the delay, in his view, is because of NBI. NBI discussed that this morning as well with regard to difficulties bedding in and so on. What is Mr. Griffin's understanding of the source of delay beyond Covid-19?
Mr. Mark Griffin:
I will not go back over the Covid-19 issues because they are well covered in the letter I provided the committee on 17 January. I did not hear the session with NBI this morning but I understand that it covered that to a significant extent as well. The Covid-19 impacts were very significant. One of the challenges was that when the engineers went out to do the build on the ground they were seeing things that could not have been anticipated at the time that the contract was being put together, such as in the condition of the underground network. That has led to the challenges in addressing the deficiencies as identified, engaging with Eir to have them remedied and ensuring proper governance arrangements for all that work to be pulled together. As I said, good progress has been made with Eir in additional poles and duct being rehabilitated under the programme. That is a positive. It is important that both parties remain engaged to make sure that any wrinkles in the "make ready" programme are identified, escalated and addressed and that there is an appropriate governance and oversight mechanism in place to make sure that is as smooth as possible. When building on an existing network with somewhere in the region of 99 km to 146 km of fibre cable, depending on whether you are talking about premises passed or premises connected, and 10,000 km to 15,000 km of duct to be reused, you will come across those difficulties.
Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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It would be fair to say there is quite a lot of fibre in urban areas already-----
Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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-----so there is quite a lot of opportunity provided by that. I regard it as a double-edged balance and it would be useful to go through it in that way. What is the source? If the project was underestimated to that scale, to what is that attributable? Is it because of the quality of the design? Who oversaw that? What is the source of that underestimation?
Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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I do not mean to interrupt but Mr. Griffin has said that already. Was it not possible, for example, to do a random sampling exercise?
Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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The results were at variance with the random sampling exercise. Was there a difficulty with the design of the random sampling exercise? I am curious about how far divergent it appears to be. We are talking about real delays in the design, both the high-level design and, as we discussed this morning, the low-level design, that are at variance with the assessment that had been done. I am asking what that is attributable to. Why would someone do a random sampling exercise that was so at variance with the overall outcome?
Mr. Mark Griffin:
Any random sampling exercise is simply that. It is a random sample. The sample is sized and designed appropriately in accordance with what would have been best practice insofar as the design work was concerned. When you go out on the ground and are installing, surveying, designing, you come across things that would not have been anticipated at that stage.
Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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You do-----
Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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I am familiar with research methods and I know how to conduct random sample designs. Whoever designed that random sample and whoever was responsible for it designed and executed a sample that is at significant variance with the outcome, because there have been significant delays as a consequence of finding things in lots of places that were not expected.
Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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Yes, and I am asking who is responsible or to what that is attributable.
Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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That is the question I have asked several times.
Mr. Mark Griffin:
That determination will be made by the Department as part of the remedial planning process. We engage with NBI on an ongoing basis. It has come to us and said that delays have arisen and has looked for relief under the contract. Mr. Mulligan, Mr. Neary and the entire team then look at that and decide what is legitimate in terms of a claim for relief. That assessment will be made. Where the balance of responsibility lies and what relief, if any, should be afforded the contractor will be addressed as part of-----
Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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The answer to my question about what the delay is attributable to, which I asked some time ago, is that the Department will come to that when it does its review and will assess that.
Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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Has the Department had a conversation directly with Eir about the delays?
Mr. Mark Griffin:
We have spoken to Eir. The fundamental underpinning of this project is reusable infrastructure. A 25-year "make ready" programme has been agreed between Eir and NBI. Conversations have been had by NBI and Eir. The Minister of State, Deputy Smyth, facilitated a meeting before Christmas with the CEO and chair of Eir and the CEO of NBI.
Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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Yes, he updated the Dáil on that.
Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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I have two questions on that. In that meeting, was it clear that Eir and-or other contractors - I do not want to limit it to Eir - received what they needed to be able to price and build? Did they get that in a timely way?
Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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Back to the review.
Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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In terms of the Department's consideration about what other things it might do, is it engaging with other telecom operators to look at how it might deliver more quickly? Are there urban centres, for example, where I have mentioned there is already fibre there? Can they be released in any way to be delivered more quickly?
Mr. Mark Griffin:
As part of the design of the entire contract, there was a call at various stages over the course of the procurement process to identify infrastructure that could be reused. That has been identified. We are using, for example, the State-owned metropolitan area networks. We are using other private infrastructure backhaul infrastructure to use it.
Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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I have limited time. I do not mean to be rude. I do not mean to interrupt Mr. Griffin but he knows that I have limited time. My question is, is it something that the Department is considering?
Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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I am speaking specifically about the opportunity in terms of delivering more quickly, specifically where there is already fibre in place. Is it in active consideration of the Department, in the meeting that Mr. Griffin described to the committee, to release areas potentially for more quick delivery?
Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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When will that be completed?
Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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Is "very shortly" in quarter 1 or quarter 2?
Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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We will come back to it so, maybe with the review.
Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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On the funding side of things, I want to look from the committee's perspective at how this is being considered by the Department. There is clearly the opportunity to change shareholders. I note, in his statement, Mr. Griffin states that the Minister has the right of consent under the contract in respect of changes of ownership. That is something we discussed with NBI this morning. Are there circumstances in which the Department would not give consent? Has the Department considered the scenario in which new investors may not be forthcoming? They are two different questions but they are linked.
Mr. Mark Griffin:
There is a range of controls in relation to control and ownership set out in the contract. The Minister has a call over investors who may want to come in. There would be determinations around whether they are a suitable investor. There are various controls and mechanism that would be applied there. I might ask Mr. Mulligan to deal with some of the specifics around that.
Mr. Fergal Mulligan:
Under the contract, the determination is whether it is a suitable third party or an unsuitable third party. An unsuitable third party is broadly defined. Obviously, somebody who might have been involved in criminality or something like that would not be a suitable third party. The Minister would clearly veto any such change of ownership that involved those sort of parties. The contract is around are they a suitable or unsuitable third party.
Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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What I am hearing is - absent that mark of criminality-----
Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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-----or equivalent - there is no other circumstances in which they would not give consent.
Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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That is why I am asking, exactly. Essentially, what you do not want is that it is a fait accompli.
Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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With the original contractor, is there a role for the National Treasury Management Agency, NTMA, in assessing any of that or is it exclusively for the Department, or did that happen at an earlier contractual stage? Was the NTMA involved?
Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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Okay. This morning, we heard from NBI that it has as an internal auditor PricewaterhouseCoopers, PwC. They also work for the Department. Is there any concern in relation to that?
Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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Just to clarify, data with the committee show that the Department has paid PwC close to €3 million for consultancy functions.
Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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When did that cease?
Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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Has there been no crossover where we both had the same advisers?
Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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That is fine. I thank Mr. Griffin.
The other question I wanted to ask was in relation to joining up and perhaps Mr. Griffin can explain this to me in a little more detail. We are paying NBI a subvention essentially to pass the houses. Let us talk then about the connections. Clearly, it is up to the commercial operators to connect as well. I ask Mr. Griffin to talk to me about who pays the cost for that. How does that work?
Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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That €600 million is a subset of the overall.
Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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Does that go to the commercial connectors?
Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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Is that universally applied to all of the connections for the homeowners?
Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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Will they all receive a subvention of some kind, both on the laying of the fibre and the connection?
Mr. Fergal Mulligan:
To explain how that works, National Broadband Ireland must connect anyone who makes a connection unlike the commercial sector which can refuse a connection. The current standard connection charge is €100. NBI will charge Vodafone, Eir, Regional Broadband or any of the 50 operators that are selling. The retail operators, therefore, cannot charge the homeowner €1,000, €2,000 or €4,000 to connect a home, which can happen in a commercial sector. NBI is subvented to do that in rural Ireland. That is why this is non-commercial. In the majority of homes, it will cost a significant amount to put in underground ducting and new poles to a farm yard 300 yd from the road. All that sort of thing is subsidised so that the consumer will get connection.
Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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Okay. That is fine. I thank Mr. Mulligan.
I have one final question. Returning to the financial stability piece, the reason we are interested in it is because it is such a change in ownership and financial structure potentially. From the Department's perspective, does it have any guarantee? This is why I am asking about the implications of investors not coming in. What happens if it does not work? What happens if the company is not financially sustainable? Where is the State in that then?
Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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Neither do I, but it is worth asking the question.
Mr. Fergal Mulligan:
The current shareholders and investors are fully committed and they are guaranteed, and their investment is not secured. National Broadband Ireland, over 25 years, is expected to be profitable. In the event that it is not profitable, like any contract or any public private partnership, PPP, the contract allows for the Minister to step in or to terminate. There was also, back in the day, Carillion, for example, as the Deputy will remember, with the schools. In the end, the State sometimes, in extraordinary circumstances, may have to step in. We do not envisage that here, but in all commercial contracts the State has with third parties you make for these provisions - that there are termination events, step-in rates and all that sort of standard stuff.
Jennifer Carroll MacNeill (Dún Laoghaire, Fine Gael)
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So what is it then?
Mr. Fergal Mulligan:
Your first port of call might be to step in, if it was in trouble. That is where "step in" means. Your first port of call is to try and sort it out without terminating it if the business seems to be going off track. That is the first port of call, and then you can step out if the business recovers. In the worst case scenario, if you have to terminate, in the event of a termination the Minister has the option to either take over the assets or the business or both, so it all comes back to the State.
Alan Dillon (Mayo, Fine Gael)
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I welcome our guests who have joined us today. I thank them for their work to date on a hugely important project. Certainly, robust governance of a project of this scale is of huge importance. We have seen in another project costs spiral and timelines being pushed out. It is great to have the Department here to engage with the committee on this important matter.
My first question is in regards to the Department's key performance indicators that are contained within the contract and how these were monitored in 2020 and 2021. Can Mr. Griffin indicate whether NBI has met all these key performance indicators?
Mr. Mark Griffin:
I will make a couple of points on that. First of all, the Department sets out key performance indicators, KPIs. There are KPIs around deployment, design, which was mentioned by Deputy Carroll MacNeill, premises passed, deployment areas completed, broadband connection points connected and connections made.
Getting into the operations phase, minimum download and upload speeds, wholesale products and prices, time to connect, operational response times, network outages and time to repair faults form a comprehensive suite of performance indicators. They are monitored on an ongoing basis by the team in the Department.
Alan Dillon (Mayo, Fine Gael)
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Let us specifically look at deployment, survey and build. Has NBI delivered on both build and survey to date?
Mr. Mark Griffin:
Considering where we expected the build to be in absolute terms, with regard to the contract and the interim remedial plan, the answer is "No". We had expected that by the end of contract year two, by 1 February, that 60,000 premises would be passed under the interim remedial plan, as the Deputy will have seen in the documentation submitted. Approximately 34,500 premises have been passed. Pre-orders can be made at more than 50,000 premises. When one looks at it in stark terms, there is a problem and we have not reached where we need to be. There are reasons for that.
Alan Dillon (Mayo, Fine Gael)
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What was the Department's reaction to the failure to meet those KPIs? What course of action was originally agreed as per the contract?
Mr. Mark Griffin:
There are extensive governance arrangements in place. Mr. Mulligan, Mr. Neary, Ms Leeson and other members of the team are constantly engaged with NBI. There are generally no surprises with deviations in figures. There are 17 groups in place that look at a whole range of things, meet weekly with NBI, and look at what issues have arisen and how blockers are being fixed. NBI is obliged by the contract to formally notify us of delays. There was constant engagement through 2020 and 2021. The Deputy asked me about targets for premises surveyed. This is an indicator for the potential for significant progress during 2022 and 2023. By the end of quarter 1, 56% of premises in the State will have been surveyed and approximately 47% of the premises will have been designed. Approximately 50% of the BCPs will be installed - that is 42% of schools and 95% of public points.
Alan Dillon (Mayo, Fine Gael)
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Getting back to the KPIs, have penalties being imposed to date on failure to meet pre-approved delivery on the project?
Mr. Mark Griffin:
The penalties kick in, in most cases, at the end of contract year two. I understand the rationale for this is that it is expected that the first year or two of the contract is about mobilisation. There is a focus on that. At the end of contract year two, there is a delay to the milestone payment. Once that milestone is hit, there is a recalculation to determine the extent of the payment allowable. If it continues to be unmet for a period, one adjusts the net and says what the payment is.
Alan Dillon (Mayo, Fine Gael)
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For 2020 and 2021, the Department has paid full subsidies based on all milestones being achieved and KPIs being met.
Mr. Mark Griffin:
There were performance issues and issues with BCPs where penalties were applied. We have paid what is deemed permitted expenditure under the contract. It is not a case of NBI submitting a bill and the Department paying it. There is substantial due diligence to make sure that an assessment is made of every item that it submits to us to determine whether that is permitted expenditure.
Alan Dillon (Mayo, Fine Gael)
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The Department has not held back any money to date-----
Alan Dillon (Mayo, Fine Gael)
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-----for failure to deliver to 60,000 homes as previously agreed.
Mr. Ciarán Ó hÓbáin:
Ultimately, we are significantly below where we were supposed to be with the spend, because it has not delivered. In 2021, we were more than €50 million behind the projected spend on the project. NBI has not made the milestone and, therefore, the subsidy has not been paid out. Penalties will potentially arise this year and onwards if NBI does not recover on existing milestones and meet future ones. That kicks in from this year onwards. Other operational KPIs include BCPs around the country that may be out of service for a few hours when they should not be. NBI suffers penalties for that and we have imposed penalties on it for those across the country in the past 12 months. Some 6,500 premises are connected. Thousands more should be connected. NBI is losing revenue daily because it is delayed. Those are the penalties.
Alan Dillon (Mayo, Fine Gael)
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A second area I want to focus on is the contractor payments made by the Department. We see that additional payments were made to NBI. The Department's team is supplemented by external legal, financial and technical advisers. To what extent is the Department reliant on additional experts to measure work carried out by NBI? We previously talked about KPMG and EY. More than €42 million has been spent to date on external contractors. Will Mr. Griffin explain why that is the case? What will that spend look like over the next 25 years of the project? Is that part of the €2.7 billion for the original contract?
Mr. Mark Griffin:
There are a few questions. I will try to answer as comprehensively as I can. When one looks at any major infrastructure project, whether roads, public transport or water, there is reliance on external contractors. That is a given. As the Accounting Officer responsible for a budget of €2.6 billion, I need to make sure that we have a team in place to do serious due diligence on expenditure and the performance of the contractor, checking whether deployment milestones have been hit, premises have been passed and connections have been made. It also needs to check that the claims for permitted expenditure and subsidy as set out in the contract are given the required level of oversight. We have approximately 30 departmental staff.
Alan Dillon (Mayo, Fine Gael)
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Some €42 million has been spent to date on external contractors. Will that be an annual expense or is it just once-off?
Alan Dillon (Mayo, Fine Gael)
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There is expenditure of €15 million for specialised personnel, finance, procurement and advisory services from KPMG. Some €9 million has been spent on technical advisory services from Analysys Mason and €8 million has been spent on current legal advice. Are these once-off payments or will this continue over the duration of the contract?
Mr. Mark Griffin:
Those are payments over a five- to six year period. When it is averaged out, I would deem it to be the level of investment that we require to make sure that we have a fit for purpose contract and design, and that the complexity of this, which I have set out in my opening statement, was addressed as part of the procurement process. Now that we are post-procurement, that due diligence is being applied. If the Deputy is asking if we will spend to the same extent as we spent in the past, my priority is to ensure that we have controls in place in the Department-----
Alan Dillon (Mayo, Fine Gael)
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Will the Department have internal expertise? They are external and independent. How will it be managed within the Department?
Mr. Mark Griffin:
We have a team, headed by Mr. Mulligan as project director and Mr. Neary as the chief technology officer. We have technical advisers, policy advisers, governance experts and legal experts. We are building a team. Over time, I expect more of the effort to fall back into the Department, with less reliance on external consultants. It is important to say that the telecommunications sector is different from roads and water.
In the roads sector there is Transport Infrastructure Ireland, which has 293 staff. Several thousand extra staff are involved in build, operations and asset renewals. Transport Infrastructure Ireland has a local authority system beneath it so it has a huge infrastructure supporting something similar to what we run out of the Department with 30 fantastic people on our team and 20 to 25-plus consultants. We bring in the consultants to do particular things for us, so that is not necessarily a standing function within the Department. There are particular pieces of work we call for - for example, legal advice from William Fry, commercial advice from EY and technical advice from Analysys Mason - to supplement the work done by the team.
Seán Sherlock (Cork East, Labour)
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It is a nice segue that we are talking about the reliance on external advice. If I understood Mr. Griffin correctly, he is talking about 25 consultants assigned to the roll-out of the national broadband plan. I submitted a parliamentary question for written answer on 19 January of this year asking how much the Department of the Environment, Climate and Communications was spending on external consultancy services. The figure I got back was €14.3 million, of which €10.1 million, approximately, was being spent on external services for this very project.
If I break that down further - and the reply is a matter of public record - Analysys Mason received €3.9 million, EY business advisory services received €5.3 million and William Fry legal advisory services received €846,000. That adds up to approximately €10.1 million. Is it possible to give a further breakdown of the spend between the three entities I have just mentioned?
The reason I ask the question is that I perceive that in latter years Government Departments have been hollowed out and there is an increased dependency on external advice. None of us are against the idea of external advice. It needs to be procured if and when a certain skill set or a specific project needs to be delivered. That is understood. However, €10.1 million seems to me to be an extraordinary figure.
What were EY's business advisory services, for example? The consultancy, the PQ reply states, is for financial and commercial advisory services, but it amounts to €5.3 million, which is not an insignificant amount of money. Is it possible to provide the committee with a further breakdown of that cost in terms of, to use the vernacular phrase, billable hours? What is the Department getting for €5.3 million? What is it getting from Analysys Mason for €3.9 million and what is it getting from William Fry for €846,000 so far? That is only for 2021. It would be very useful if this committee had a further understanding of just how much money is being spent on consultancy services, not only for the Department of the Environment, Climate and Communications - officials from that Department are here today - but for every Department of State, for that matter.
Mr. Mark Griffin:
I will come in on that. To follow on from the conversation with Deputy Dillon, we have been tasked with overseeing the successful delivery of a once-in-a-lifetime project that is hugely complex and that will cost the State a maximum subsidy of €2.6 billion and then a bit for VAT. It would be utterly irresponsible of me if I did not ensure we had the expertise of the brilliant people I have working with us in the Department and external consultants.
Deputy Sherlock mentioned Analysys Mason. I will get Mr. Nearly and Mr. Mulligan to come in on this because they deal with the teams every day. Analysys Mason has been with us for a while. We went to tender and it came back to us. It provides services in development of the contract, technical solutions, evaluation, support in respect of the State aid, reference officer evaluation, project cost, model, compliance and robustness evaluation, mapping and monitoring of the intervention area, input to State aid issues and a whole range of work being done now, because we are in the active build and deployment phase, on supporting the overseeing of that.
I hope, with the passage of time, that more of that work will come back into the Department because Mr. Mulligan has lots of experience in the telecoms sector, as does Mr. Neary. Ms Leeson is our governance expert and Ms Carrigan is a chartered accountant. Mr. Ó hÓbáin is project sponsor. They have huge experience, but the reason Departments employ consultants is that, in the long run, there are occasions when they need to flex up and flex down in terms of the experience and capacity of a particular type needed in the organisation. I would hope, as this project enters a more mature phase and as we move beyond deployment, that the need for the extent of external expertise we have in place at the moment would diminish.
I go back to the point I made to Deputy Dillon. In the telecoms sector we do not have the core agency such as exists in the likes of Irish Water, housing agencies, the local government system or Transport Infrastructure Ireland. That simply was not there and available to us so we had to build that team. The risk for me, to be brutally honest with the Deputy, is that I would come before the Committee of Public Accounts and be accused of not having the right people in place to oversee a €2.6 billion contract.
Seán Sherlock (Cork East, Labour)
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I thank Mr. Griffin.
Seán Sherlock (Cork East, Labour)
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I have only four minutes and Mr. Griffin has taken a fair chunk of time. I am conscious he wants to develop the point but I have a limited amount of time.
Seán Sherlock (Cork East, Labour)
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I appreciate that. What I would like is a deeper understanding of the breakdown of these costs. We need that for every single line Department that relies on external services and consultancy. I am not sure we have a deep understanding of that. Certainly, I speak for myself in that regard. The question then, and Mr. Griffin can fold this all into the reply in two minutes, is do I take it from his reply that the Department will continue to require the services of external consultants for this? If the answer to that is "Yes", which I think it is, for how long more will it require them? It has spent €10.1 million so far. What does Mr. Griffin anticipate the future spend will be on external services for the lifetime of this project?
Mr. Mark Griffin:
We certainly expect to see the level of consultancy overhead dial down from when we have the deployment completed after year 7 because that is where the big overhead cost is in monitoring the project. It is not the only overhead, obviously. There will be responsibilities that will entail thereafter. If the Deputy wants me to put a figure on it for the next 25 years, I absolutely cannot do that at this point in time.
The other thing we need to consider is how the system more broadly manages big projects like this. One of the options for us is the status quowith a function in-house with less external support. That builds on the work EY did for the Department of Public Expenditure and Reform.
Seán Sherlock (Cork East, Labour)
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With respect, I have a very short time available to me. I think we all appreciate that there is a reliance on external services. We have all acknowledged that. I am merely asking at this juncture - I think Mr. Griffin was about to defer to his colleagues on the matter - about the breakdown of costs and to have sight of the breakdown of those costs. If I could come away in the short time I have with some understanding of that and a commitment that the Department will write to the committee in that regard, I would be grateful for that.
Mr. Mark Griffin:
Mr. Neary and Mr. Mulligan might provide a brief description as to what those costs are and what they are used for. We wrote to the committee on 17 January with a breakdown, but I will give the Deputy an update because that correspondence covered a particular period. I will give the Deputy a detailed update and an update on what work is being done by the consultants now that we have moved into a build rather than a procurement phase. I am happy to do that.
Does Mr. Neary want to come in?
Mr. Patrick Neary:
Regarding the technical advice, I might illustrate why we need those experts. In particular, we have advice from Analysys Mason on the oversight of the build. We would have sourced from Analysys Mason people with over 30 years experience in building large-scale infrastructural projects in the telecoms space. That is not replicable in the Civil Service. We are reliant on those experts to scrutinise and oversee the plans from NBI. For example, if it is looking to re-baseline its project plans and seek relief, we are reliant on those experts to give us advice and say that is an appropriate level of relief and the level of productivity it should be able to extract from the market, etc. On the build, that is just one section of the technical advice. Within that, we procure from Analysys Mason on-site inspections of quality of workmanship on the build works that have been completed. We have carried out a number of site visits. This involves relevant experts who would be able to inspect the quality of workmanship. We have done this in areas that have been in part completed and fully completed so we can see how progress is being administered by NBI so we are not just reliant on reports. We go out and have experts taking photographic evidence and interviewing people on site. Those are the type of activities that Analysys Mason carries out for us on the build.
In tandem with that, we also have-----
Seán Sherlock (Cork East, Labour)
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On the legal side-----
Mr. Fergal Mulligan:
It is a huge contract, coming in at nearly 3,000 pages, with 700 or 800 obligations on NBI and a number of obligations on the Minister, one of which relates to paying the subsidies. As is the case with all contracts, there are a number of areas where there might be disputes or potential disputes where we try to avoid disputes. Both parties get their legal advice on that so we defer to William Fry the odd time for advice where somebody might have a certain interpretation of a clause in a contract. There may be complaints by other operators in the industry about what NBI is doing and they might come to us looking for information around the contract. Judicial review proceedings from another operator are ongoing and this is something where we get legal advice. We get state aid advice generally and commercial law advice where, again, there might be issues around a subsidy payment such as whether it should be this or that. We get legal advice on those sort of things.
Catherine Murphy (Kildare North, Social Democrats)
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I reiterate the point that we have a very short period of time so could the witnesses make their replies as concise as possible? We were told this morning that some of the original investors' early stage investors who helped turn NBI from an idea into a reality at a point where there was a degree of unquantifiable risk in the project will be replaced with investors who specialise in long-term investments. Most of us understood that the majority of these investors were in it for the long haul, but we can see some of the investors are using loans that are relatively short term at very high interest rates. Who out of the people who formally invested in the project to begin with have dropped out? Has a large investor dropped out?
Catherine Murphy (Kildare North, Social Democrats)
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Yes.
Catherine Murphy (Kildare North, Social Democrats)
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With investors?
Catherine Murphy (Kildare North, Social Democrats)
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I do not want to go into a great amount of detail.
Catherine Murphy (Kildare North, Social Democrats)
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Essentially, it went out to the market to look for additional investors because some investors were not going to be there for the long haul. We are talking about fairly expensive money here - double digits. The only reason this is of concern is because of the stability of the funding in the future. Does the Department look at the investors who have withdrawn with as much due diligence as the ones seeking to invest?
Mr. Mark Griffin:
We have requirements. The Deputy raised two issues about why NBI is going to the market for long-term capital. That is fine. That is a matter for NBI. Our understanding is that as the network moves into a build phase albeit that we have a concern about the number of premises passed and the relatively small number of premises connected, there is a stream of work going on in terms of service design and so on, which gives us that confidence regarding 2022 and future years. The view would be that we are moving into a more stable phase of the project. The risk profile begins to reduce, which may make the project more attractive to different investors, but this is a matter entirely for-----
Catherine Murphy (Kildare North, Social Democrats)
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But investors have dropped out. NBI told us that.
Catherine Murphy (Kildare North, Social Democrats)
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The company has gone to the market to get new investors so-----
Catherine Murphy (Kildare North, Social Democrats)
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I think NBI told us that. We were told that it involved some of its early stage investors who helped turn NBI from an idea into a reality when it was an unquantifiable risk. Mr. Griffin is not aware that anyone has dropped out but they may drop out and NBI is going to the market.
Catherine Murphy (Kildare North, Social Democrats)
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Have the targets for this year been set?
Catherine Murphy (Kildare North, Social Democrats)
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When are we likely to see those discussions concluded?
Catherine Murphy (Kildare North, Social Democrats)
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In terms of Eir and the potential encroachment subsidy, Eir has been active in the intervention area. We have heard that no subsidies have been applied for or drawn down with regard to that. Was this anticipated at mapping stage? My understanding was that this was an area that was not going to be commercially viable?
Mr. Fergal Mulligan:
We sat here in 2019 and spoke in detail about encroachment, the €100 million and the circumstances under which it could be drawn down by NBI so it is something we have been through a lot in this committee and the Joint Committee on Communications, Climate Action and Environment. It is there to be drawn upon if it is required. NBI made it clear to us and, I believe, the committee that it has no intention at the moment of seeking that encroachment. NBI also made it fairly clear that it think around 31,000 premises may be passed but we are not clear if they will actually get a connection so it is a bit difficult to say whether 31,000, 20,000 or 10,000 premises will get a fibre connection from a commercial operator. That is the difficulty we have. You would have to analyse every home to see whether it would actually get a connection from a commercial operator. That is something we have not done but I think it has done it.
Mr. Patrick Neary:
There is probably some misperception about the encroachment in that the figure of 31,000 is being announced. These premises are not in a block of 10,000 premises and 5,000 premises there. They are in ones, twos and threes in urban and suburban areas. It is not like an entire cohort of the intervention area can be removed.
Catherine Murphy (Kildare North, Social Democrats)
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In order to make it attractive for people to connect, it must be financially attractive to them. Analysys Mason did a piece of work on metropolitan area networks. There was a lack of transparency regarding the people who ultimately were on the retail end. Is that built into what we are doing here with regard to national broadband? Are we going to run into the same difficulties or have the lessons regarding the price people will pay been learned?
Catherine Murphy (Kildare North, Social Democrats)
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The governance in respect of the lack of transparency was a very big bone of contention.
Mr. Fergal Mulligan:
The conditions in the contracts set out exactly what it had to publish. It had to publish all products and prices and these are all benchmarked to the regulatory product set on prices. There is a great amount of transparency. It is on its website and it holds industry forums with 50 operators at the moment. That is a requirement in its contract where it has to sit down with the operators at least once a month to explain everything to them.
Catherine Murphy (Kildare North, Social Democrats)
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Okay. There was much controversy around this at the time about the lack of the tender being really tested by virtue of the fact that there was really only one tender in the end. People entered into at the early stages but did not proceed to tender.
Looking at an academic paper by Gary Healy, Donal Palcic and Eoin Reeves, the €5,500 that we are discussing to effectively pass each house and premises is, by a distance, more expensive and while we are not probably talking like with like, it is still costing substantially more than the experience in other European jurisdictions. Has the Department looked at that issue in retrospect on the value-for-money side?
Mr. Mark Griffin:
I will make a number of comments there and then I will ask Mr. Mulligan to contribute. In the first instance, this project is fairly unique in that the State is providing for the connection costs. We are not aware that in many other jurisdictions that this is being funded. That is an important consideration. By virtue of the fact that the State is funding this, it provides a far greater opportunity for people in rural Ireland who do not have this service to get access to it at a reasonable price.
My second point is that the figure of €5,000 is the top-level cost. The average figure would be well below that.
Mr. Fergal Mulligan:
The answers that were provided there look at a 25-year cost. What is the 25-year cost of operating a hospital, taking into account any revenue? When one is benchmarking to other countries, what is probably not taken into account is what those other countries modelled. Did they model five years or 25 years? Have they taken into account that connection cost and a fibre-to-home network that is going to be future-proofed for 40-years? It is a very difficult number to benchmark. Peter Hendrick said earlier that the average costs to pass a premises is approximately €2,000 and the average cost to connect around €3,000. Those are the capital costs that we are funding over the lifetime of the project. The revenue model over time will dictate how much the average costs will be and that will be the unknown as to what will happen over the 25 years.
Catherine Murphy (Kildare North, Social Democrats)
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Okay.
Brian Stanley (Laois-Offaly, Sinn Fein)
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I call Deputy Burke now, please.
Colm Burke (Cork North Central, Fine Gael)
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I thank the Chairman and I thank our guests for their presentations. I raised an issue this morning where Eir and other operators are providing services that are very close to the areas that are designated as amber. They are then not prepared to go into the amber area because they are saying that they are being restricted and that there has been very little engagement with them in trying to deal with the boundary areas. I represent Cork North-Central and I am coming across this problem where one house has a connection but houses within a very close proximity are not being connected, even though we are being advised by Eir that there is capacity but the company is not prepared to touch a house that is within an amber area. We went through this this morning and I am not quite satisfied with the answer I am getting on this. I believe a great number of houses could be connected.
Mr. Patrick Neary:
The first thing is that there is absolutely no barrier, prohibition or reason that Eir or any other such operator should have such difficulty. They can certainly deliver services in the amber area and there is no prohibition on them from doing that. It is a decision for any company as to whether they want to deliver or it is commercially viable for them to deliver services in the amber area, which I state as a point of clarification. Without looking at the particular circumstances, I cannot speculate as to why these operators are not connecting those particular homes.
Colm Burke (Cork North Central, Fine Gael)
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The kind of conversations that are occurring are that the residents meet the people who are out on the road doing the connection to one house. I have had a number of these incidents. The standard reply that they are getting from the employees of Eir is to contact their local politician who will sort it out. We are getting on directly to Eir, which is saying that this is in the amber area and it is not prepared to connect, even though it does have capacity. Eir is saying that because the broadband scheme is costing over €5,000 per house in real terms, it feels that it is not getting anything on its contribution to connect up properties that are technically in the amber area and are the responsibility of NBI.
I am concerned about the lack of engagement that is going on between the providers in dealing with properties on what is the boundary area. I have an example of another estate, for instance, where over 120 houses have been connected to broadband and the houses that are only just across the road but which are not in the estate are all being refused a connection. In fact, some of the new houses that are across the road are also being refused the connection by Eir, even though fewer than ten houses are involved. The company will not engage or connect because these houses, which on the other side of the road from the estate, are in the amber area.
Mr. Fergal Mulligan:
I am sorry Deputy but we are hearing this in every constituency and have been for the past four or five years. That is where Mr. Neary and his team do a significant, in-depth analysis of every housing estate, road and boreen in the country to establish whether something is commercial or not and this is done in consultation with the industry.
The Deputy is correct in that this is an issue and is one across every county and townland in Ireland. The response from Eir, and not just Eir but from any commercial operator, is that there are instances where it is simply non-commercial for them to connect-----
Colm Burke (Cork North Central, Fine Gael)
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I heard that this morning. I gave the example this morning that a cable is being run from a pole 200 yd down the road yet a house which is less than 25 yd from the pole will not be connected by the operator-----
Colm Burke (Cork North Central, Fine Gael)
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-----is because the house that is closest to the pole is in the amber area and the other house is not.
Mr. Fergal Mulligan:
Again, there is very significant frustration across the country with that very example, time and time again. The issue is that where the Deputy asks the number of premises that are likely to be within that area, it amounts to thousands upon thousands in every county where there is always a premises without fibre next door to a premises which has fibre.
Colm Burke (Cork North Central, Fine Gael)
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Where there is capacity, and in a great number of cases there is capacity, why has there not been engagement in respect of trying to resolve that issue?
Mr. Fergal Mulligan:
Again, we spent three or four years engaging with the market to identify what is amber and what is not. That engagement has happened. If it is amber that is because the industry told us that it was non-commercial and that they could not make money by connecting those promises. That meant going that extra 100 or 200 yd. In some instances, when we investigate these, it can be as simple as being 100 yd but we have to dig across a road. To dig across a road-----
Colm Burke (Cork North Central, Fine Gael)
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No, that is the case here.
Mr. Fergal Mulligan:
My point is there are examples and one has to look at every single case on a case-by-case basis. That would require engineers to look at every single case to see whether it is actually a capacity point back at the exchange or whether a new pole is required that would require a licence, will that pole get planning permission, has ducting to be put in, is a private way leave required etc. There are many reasons that in the case of a customer who may look commercial to the ordinary person, the commercial operator may come back to us, as the operators have done, to say there are a number of reasons they cannot actually bring the fibre that extra 100 yd. I have no doubt but that there are instances where it probably could happen. As Mr. Neary said, if that is the case, then the commercial operator should connect them.
Mr. Mark Griffin:
The key thing to note for the Deputy is that there is no impediment in our contract that would prevent that from happening. We are looking, for instance, at a case where the Deputy is being told that this is because it is in an amber area, notwithstanding the proximity of a commercial pole, fibre and all of the rest.
If that operator makes a commercial determination that it wants to do this, it can absolutely do that and there is nothing in how we decide the contract that would prevent it from doing it.
Colm Burke (Cork North Central, Fine Gael)
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My question is whether there has been engagement with the other providers to try to resolve some of those issues. If we could get an additional 40,000 or 50,000 houses connected through that mechanism, would it not be worth going down that road of having that engagement?
Mr. Fergal Mulligan:
Yes, and we have a team of people in the Department who deal with queries every day from such Eircode postcodes. We have had meetings with not just Eir but also SIRO, Virgin Media and many other operators to ask them whether they can connect a given Eircode postcode. In the vast majority of cases, the operator comes back with reasons it cannot and will not make the connection. It is happening all the time.
Colm Burke (Cork North Central, Fine Gael)
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Moving on to the issue of hubs, it was admitted earlier that there is a delay in the roll-out in quite a number of areas. We have connected 200 schools. Because of Covid, many people now work from home. In my constituency, areas that are less than 5 miles from Cork city cannot get broadband, yet there are community facilities that, if a central hub was provided, would be of benefit to a huge number of people. Are there any plans to put additional hubs in place?
Mr. Fergal Mulligan:
The Minister for Rural and Community Development would look after the town and village renewal scheme, the platform through which much of the public money is provided to invest in the hubs.
As for getting broadband connectivity, there are two phases to that. All towns and villages have high-speed broadband, whether from Eir, SIRO, Virgin Media or whatever. For towns and villages, therefore, the broadband connectivity is there and it is a matter of getting the right building. That is where the local authority and the broadband officer, be it in Cork, Kerry, Limerick or wherever, come in. They are there to facilitate local people. If they identify a building that would be appropriate for a broadband or digital hub, they should talk to these people in the first instance, and then apply for grants through the local authority under the town and village renewal scheme-----
Colm Burke (Cork North Central, Fine Gael)
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I have been contacted in respect of three communities. In one parish, there are more than 900 children in primary school, which gives a sense of the number of people in the parish. About 50% houses in the parish do not have broadband connectivity. I am advised by Cork County Council that it has spent all the money it has received and it is not prepared to engage further in respect of providing additional hubs. A large part of this area will not get broadband until 2026 and nothing is being done by the local authority or the Departments to try to fast-track some connectivity to the area.
Colm Burke (Cork North Central, Fine Gael)
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I have sent details of the three areas to the Department and I have not got an answer. The county council has told me it is not its problem and it does not have the money.
Colm Burke (Cork North Central, Fine Gael)
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I have sent them to Mr. Mulligan's Department and I will send them to the Minister.
Colm Burke (Cork North Central, Fine Gael)
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Yes, I will. This is about trying to help areas where it will now be 2026 before they are connected. We can take action to assist families in those areas. There are 900 children in primary school in one parish, another 900 in secondary school and probably a further 300 or 400 students in third level. This is the area I am talking about where less than 50% of households have connectivity. Something needs to be done in these areas.
Brian Stanley (Laois-Offaly, Sinn Fein)
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That is a commitment for the Deputy.
Matt Carthy (Cavan-Monaghan, Sinn Fein)
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I wish to follow on from the end of my conversation with NBI earlier and get some clarification. On what basis will penalties be applied to NBI?
Mr. Mark Griffin:
I might come in on that, although Mr. Mulligan is actively dealing with the IRP. In summary terms, there can be a withholding of the subsidy, and when the milestone is met, there is a recalculation of that milestone subsidy to see whether reductions should be made, having regard to any relief to which the contractor might be entitled under the contract. There are also performance credits whereby, if certain operational requirements are not met, there can be a deduction or a withholding of subsidy. The description of the remedial planning process will probably give a good understanding of exactly what we are doing in terms of due diligence on this.
Mr. Fergal Mulligan:
The remedial planning process is where NBI, under the contract, has to notify us if it is aware of a delay. It clearly was both last year and the year before, when Covid hit it hard, so it notified us of the delay. It might say whether it is delayed by three months, six months or, in the current instance, about 12 months. If Covid had not been a factor, a significant penalty would probably apply for missed milestones this year, but Covid has been pretty prevalent. That has been a unique situation for all of us and the contract allows for that.
To return to why we have so many advisers, engineers and whatnot, we have to make a determination independently of NBI, given it will naturally push for the maximum relief possible under the contract in respect of Covid. Our job is to scrutinise that, get the engineers on the patch and say whether it was NBI's or Covid's fault it was delayed. It is a difficult determination to make because Covid impacts on everything, from top to bottom of a project, and wreaked havoc in the early parts of last year and this year. We are turning over every rock to see whether there is a systemic problem within NBI that explains the delay. If we determine the delay of, say, one, two or three months was down to NBI's project management because it got the plans wrong, we will apply penalties beginning in February this year for every milestone it misses. In the case of any milestones that have been achieved up to now, no penalties have been applied because they did not apply for the first two years.
For the next-----
Matt Carthy (Cavan-Monaghan, Sinn Fein)
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What is the milestone for 31 December 2022?
Matt Carthy (Cavan-Monaghan, Sinn Fein)
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Let me rephrase that for the purposes of clarity. What is the milestone for the number of premises passed by the end of this year?
Mr. Fergal Mulligan:
There is a target number of premises passed for each milestone and the aggregate number for the end of the year has yet to be determined. Earlier today, Mr. Malone from NBI indicated he expects between 100,000 and 130,000 premises to have been constructed. "Constructed" is different from "passed", as we all understand. A household being “passed” is what allows it to order a broadband service. We do not yet have a number for that from NBI in respect of the end of the year. We are still scrutinising that because our job is to challenge whether that is the best the operator can do. We want it to go faster and do more, and my engineers are scrutinising whether that is a credible number and whether we can get the operator to go faster. That is what we are going through at the moment and in March, we will have a number that, as Mr. Griffin said, we will share with the committee once we are satisfied it is the maximum number it can achieve by the end of the year given the conditions it is working under.
Within that, there are a number of milestones. There are milestones for all the deployment areas in Louth and Cavan. Every deployment area has a milestone attached to it. That is why this year, there could be 15 or 20 milestones we are checking along the way to see whether the operator will achieve them. There are 227 deployment areas. That figure has to be multiplied by the number of milestones and there is also a milestone for designs.
For 25 years, including from day one, there are penalties for the key performance indicators, KPIs, that apply. It is supposed to be a 24-7, 365 service, with some limited time for upgrades to systems and so on.
However, if NBI goes outside the contract, penalties will apply. For example, the contract might allow for systems to be fixed between 2 a.m. and 4 a.m, and if it goes beyond that, we will penalise NBI because customers should not have any downtime on the service. That is what is unique about the broadband network. Unlike commercial operators-----
Matt Carthy (Cavan-Monaghan, Sinn Fein)
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I want to go back to the headline figures. For clarity, although I would need to check the transcript, I think I was very clear that I was asking for the figures in respect of properties passed as opposed to properties constructed or any other figures. The initial target for the end of this year was 180,000. Today, we are being given potential figures of between 100,000 and 130,000, which seems like a huge variation that has not been fully explained. My sense of it, which I think is shared by the people who are waiting anxiously to have broadband provision passing their properties, is that NBI appears to be quite confident that any recalculation of targets or milestones will be explainable and, in so far as it is explainable, NBI is satisfied the penalties will not apply. Do the witnesses think that confidence is misplaced?
Mr. Mark Griffin:
There is a process that has to be gone through. A figure was presented to the Department by NBI as part of the interim remedial plan, which was 60,000 by the end of January 2022. Leaving aside what was provided for in the contract initially, we now know the figure was 34,454 at the end of January. We are all over that like a rash in terms of the assessment as to whether that target stands up against the root cause analysis and whether there is an entitlement to relief by the contractor. That is very much in play and there is a huge amount of due diligence being done.
Similarly, before we accept a figure from NBI for 2022, we will do a very detailed assessment ourselves to determine whether it is credible and realistic. If we sign up both parties to an updated interim remedial plan for 2022 and if those figures are not achieved rolling forward, then penalties will apply against the targets. From my perspective, there is a level of assurance when we look at the number of premises surveyed, the designs done and the premises at construction. There is a degree of momentum now that gives us a greater level of assurance. However, we will look at things very closely and do our own assessment on whatever figure NBI provides to us. As we said to Deputy Catherine Murphy, we expect that work to be completed by the end of March and we will share it with the committee.
Matt Carthy (Cavan-Monaghan, Sinn Fein)
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I want to get a sense of whether I am correct in my understanding of the whole issue of encroachment. If there are properties that were included in the original NBI contract but which have subsequently been serviced by Eir or another provider, is it the case that NBI can either continue to service them, in which case it will be paid as per the original contract, or it can seek compensation for that? Am I correct in my overview?
Matt Carthy (Cavan-Monaghan, Sinn Fein)
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I just want clarity on the principle of it. How does it work if Eir or another company has serviced a property that was originally included in the NBI contract?
Mr. Fergal Mulligan:
The contract allows NBI to build or, alternatively, it can come into us and say it is not going to build there and those premises will be left out of the plan. A third option is that where NBI thinks there is going to be a net cost for business, it can seek encroachment. In the first instance, it can elect to go there. In the second instance, it can elect not to go there and nothing changes. In the third instance, if there is a net cost to its business, it can seek some of the encroachment, up to €100 million.
Matt Carthy (Cavan-Monaghan, Sinn Fein)
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Has it sought any of that funding yet? Has it drawn down any of the €100 million?
Matt Carthy (Cavan-Monaghan, Sinn Fein)
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Is the most likely scenario that NBI will duplicate the infrastructure?
Mr. Fergal Mulligan:
It is very difficult to say at this stage until we analyse where those premises are and whether it makes sense to build a fibre network there. Ultimately, we need to make sure consumers will get a connection. I would be very loath to remove premises from the network build where it turns out they will not get a connection from a commercial operator.
Matt Carthy (Cavan-Monaghan, Sinn Fein)
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May I ask a final brief question, Chairman?
Brian Stanley (Laois-Offaly, Sinn Fein)
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Very brief, Deputy.
Matt Carthy (Cavan-Monaghan, Sinn Fein)
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In terms of an end date, what is the Department's current timeframe?
Matt Carthy (Cavan-Monaghan, Sinn Fein)
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What is the end date?
Brian Stanley (Laois-Offaly, Sinn Fein)
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Is it the end of 2025?
Matt Carthy (Cavan-Monaghan, Sinn Fein)
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I have a final question that requires either a "Yes" or "No" answer. Does Mr. Griffin see any circumstances in which the end date of 2026 would be breached and penalties would not apply?
James O'Connor (Cork East, Fianna Fail)
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I confirm that I am within the confines of the Leinster House campus. I thank the witnesses for coming before the committee. We had an interesting opportunity to engage with representatives of NBI earlier today. I have a question regarding the interaction between NBI and the Department. An issue I raised with NBI was around the knock-on impacts of the Covid pandemic on the original roll-out plan. Is the Department confident the roll-out will be on target towards the end of this year?
I also want to address the matter of construction inflation. In every sector, we have seen enormous rises in the cost of construction, including in respect of labour inputs. I am aware a fixed agreement is in place regarding the costs for installation. Does the Department have any concerns about renegotiating that agreement when it expires? When will the agreement expire?
Mr. Mark Griffin:
On the latter question, the contract provides for a capped maximum subsidy of €2.6 billion, with a small amount of VAT of top of that, and it includes contingencies. As of now, we absolutely are of the view the project will be delivered within that. In fact, NBI is on record at the Oireachtas joint committee meeting last September saying there is no question but that it will be delivered within that time period.
I ask Mr. Mulligan to come in on what we are seeing in the construction sector market, including the cost of labour and materials. One of the mitigations NBI would say is quite effective is that it now has a broad panel of contractors to do work on the ground. It has pre-procured a lot of the materials and has put in place certain steps to deal with the potential for construction inflation, which we are seeing in other sectors because of demand generally, supply constraints on international markets and so on. As a general point, Mr. Mulligan might comment on whether we are aware of anything that is of significant concern in that regard at this point.
Mr. Fergal Mulligan:
The representatives of NBI answered that point this morning and I do not disagree with their assessment.
They have hedged materials for the next two or three years, again insofar as they could. They have come below the target and saved money on those procurements, which, again, we oversaw. They have come under budget on materials so far and have good stock for the next two or three years of fibre cable, brackets, poles and everything else.
On the labour market front, they have a framework with pretty much every major contractor in the State, be it KN Circet, Secto, Actavo, Gaeltec or TLI Group. They have contracts with Vodafone, Enet and Eir. They have a very broad scale of contractors up and down the country in every county. There are currently 1,200 and there will be up to 1,800 by the end of next year and the year after working on the programme.
There will be pressure points in the market generally on construction. NBI was, I suppose, ahead of the game to be able to secure contracts and it has secured five seven-year contracts with which it can go to market. I share its confidence that it should not have a problem.
James O'Connor (Cork East, Fianna Fail)
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I apologise for interrupting but I want to make a pressing point about a concern I have. I am a rural Deputy and I grew up and live in a rural area. We are living in an intervention area and as it stands, the contractors are working in my region. A point must be made and I did so on the site visit. When it comes to telecommunications and access to broadband, phone coverage can be a major problem. Something I would like to see incorporated in some degree or fashion, now that we are well into the process of rolling out the NBP, is looking at this matter, particularly for those homes that may be waiting until the end of 2026 to be connected. That is a huge amount of time, a potential four-year wait for people to receive broadband to their homes and getting that direct connection for which the State is paying a very significant amount through State aid.
That point must be made and the Department must take it under consideration. It must decide if there is scope to work with NBI to try to deliver some degree of value for taxpayers who will not see the benefit of this intervention for up to and over four years. Is that something that could be considered? From discussions I have had with people with some degree of expertise in the area, it seems this issue could be solved for well under €1 billion.
Mr. Mark Griffin:
I might ask Mr. Neary to speak to the mobile phone issue. Much work has been done over the past few years through the mobile phone and broadband task force. One of the other areas for which our Department is responsible with ComReg is the release of spectrum. Much work has been done over the past few years to release spectrum, particularly in the bands that are very useful for rural areas and where there is a topography requiring particular types of spectrum.
Mr. Patrick Neary:
There are two points. On the release of spectrum, throughout the pandemic the Minister has temporarily released spectrum to alleviate congestion on mobile phone systems, particularly in rural areas. It has had a significant impact on the quality and performance of mobile networks outside urban areas. That was an emergency measure brought in by the Minister to help the phone networks deal with the major uptake in services in rural areas during the pandemic. The release of spectrum is clearly key to ensuring mobile phone services are delivered appropriately across the country. The regulator is very much in tune with releasing the largest blocks of spectrum shortly-----
James O'Connor (Cork East, Fianna Fail)
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Is it possible to correspond with Mr. Neary after the meeting as I am conscious of the remit of the Committee of Public Accounts?
James O'Connor (Cork East, Fianna Fail)
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I do not wish to be overly parochial but there are a couple of issues I would not mind highlighting in my area. They are important.
Mr. Patrick Neary:
That is no problem. On the national broadband plan, with the roll-out of fixed broadband services to homes, it will enable Wi-Fi within a house and we expect this can be used by a mobile phone user for mobile phone calls. The plan will dramatically increase the availability of indoor coverage for mobile phone users in rural areas. It will be a benefit.
James O'Connor (Cork East, Fianna Fail)
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I appreciate that. The point I am making, just to be crystal clear, is that many houses, taking in tens of thousands of residences in Ireland, will not get any direct broadband connection until 2026. One might assume this is probably because they are in the most difficult to reach areas and the likelihood, as witnesses are well aware, is that those areas are probably the most problematic when it comes to phone reception as well because of topography challenges.
I have a good example from Germany, where the German Government negotiated the contract before the rolling out of 5G that all areas had to be covered with sufficient 3G services at the time. It was quite a prudent move. It is clearly a much larger country with a much denser population so there would not be the same overhead costs in doing that. There have been other countries looking at the same process. I am not being critical but I just want to bring the matter to the fore because it is important. It is not something we often hear about but there are many people out there who are completely cut off. This project is costing billions of euro, and it would be a very small aspect of it to look to accelerate this over the course of the next while.
I compliment the Department. This has not been an easy process for it, and we all know and accept that. I do not want to be overcritical. I have been on-site to see the work NBI is doing. It is an enormous task and I do not underestimate the challenges faced by everybody. I appreciate everybody answering my questions. Will Mr. Neary make himself available to have a quick discussion later on about some constituency matters?
James O'Connor (Cork East, Fianna Fail)
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I would appreciate that opportunity.
Brian Stanley (Laois-Offaly, Sinn Fein)
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I ask about the overall cost of the project and the breakdown per connection. Figures of approximately €2,000 per connection have been indicated but there is a cost of servicing the overall project of €2.6 billion in State aid and there is also €270 million of investment. Figures this morning indicate almost 30% take-up. We might assume the take-up reaches 40%. If all 540,000 premises and homes take it up, it would work out at €5,000 per house or premises. If 40% take it up, we are looking at almost €12,000 per household connection. The charge to the household or premises is €100. I understand there is deployment and mobilisation etc. to be done in the first year. In the first year there was less than €100,000 brought in. Do the witnesses have concerns about that? There is an overall cost to what we are doing. I agree with subvention and I understand the process cannot be done commercially. I support the idea of a national broadband plan but the cost of this at 40% take-up from homes passed is working out at almost €12,000 per household.
Brian Stanley (Laois-Offaly, Sinn Fein)
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It would be €5,000 if everybody took it up and we can do the sums from there. This is relating to the overall cost of the project, which is €2.9 billion. We can divide that by the number of premises to be served, and we can assume 40% of premises will take it up. I hope more premises take it up. If 50% of premises take it up, the cost is €10,000 per connection. Is that excessive?
Brian Stanley (Laois-Offaly, Sinn Fein)
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It is close to 90%. That would equate to approximately €6,000 per household. Does Mr. Griffin count that as excessive? A "yes" or "no" answer is fine. It would be €6,000 per household with 90% take-up. I would say that is optimistic, but anyway.
Brian Stanley (Laois-Offaly, Sinn Fein)
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I understand that. It is a wide gap.
Mr. Ciarán Ó hÓbáin:
The gap subsidy is on the basis of a gap-funded model. That €2.6 billion is an element of the overall revenue that the company will require over a 25-year period, and that has been modelled. The rest of the revenue for that will basically come from commercial revenues when this is operating.
The Chairman referred to a 30% take-up, which is fantastic at this stage in terms of the build programme for something that has been in place for a few months. The expectation is the take-up will be significantly in advance of that.
Brian Stanley (Laois-Offaly, Sinn Fein)
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Will it be 90%?
Brian Stanley (Laois-Offaly, Sinn Fein)
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I understand that.
As regards the board of NBI, there are nine people on the board. Granahan McCourt nominates eight of those board members and the Minister, the State, the Department and the taxpayer have one board member. The Minister, the State and the taxpayer are putting up €2.6 billion, while Granahan McCourt is putting up just over €200 million. The highest figure of which I have heard in that regard is €270 million. For the first seven months, that is, up to July 2020, there was no representative on the board. Who is the representative of the taxpayer, the Department and the State on the board now? Has it been the same person the whole time?
Mr. Mark Griffin:
The Minister's representative or nominee to the board is Ms Bernie Gray. That is in the public domain. Ms Gray is a former chair of EirGrid. She is currently chair of Coillte. She has a significant amount of experience in the telecoms sector and previously worked in the sector for a long period. She is a very well-known non-executive director with a significant amount of experience. The way we look at it is that Ms Gray will bring a public sector lens and that experience to her work on the board. The bottom line under company law is that every director appointed to the board has a fiduciary duty to the company and that is something that------
Brian Stanley (Laois-Offaly, Sinn Fein)
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I understand that. Their loyalty has to be to the company but-----
Brian Stanley (Laois-Offaly, Sinn Fein)
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-----there are eight board members nominated by the investor.
Brian Stanley (Laois-Offaly, Sinn Fein)
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I welcome the clarification as to who the board member is. She has been there from the start.
Brian Stanley (Laois-Offaly, Sinn Fein)
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Does Mr. Griffin have a concern in respect of the fact that crucial decisions would have been made in the lead-up to that time but there was no one at that table representing the State?
Brian Stanley (Laois-Offaly, Sinn Fein)
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I am asking a different question. Does Mr. Griffin have concerns in respect of the fact that the one nominee of the Minister was not at that table until July 2020?
Brian Stanley (Laois-Offaly, Sinn Fein)
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Critical decisions would have been made in that period.
Mr. Mark Griffin:
The decisions that are made are made in the best interests of the company. There were two other non-executive directors appointed who will also bring that sort of independent non-executive role. They were appointed through a process as well. In terms of the Deputy's question, I do not have a concern in that regard.
Brian Stanley (Laois-Offaly, Sinn Fein)
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There is a bond of €20 million that was withheld until the end of January or February. Has that bond been released?
Brian Stanley (Laois-Offaly, Sinn Fein)
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The bond has been rolled over for 12 months. One of the questions we have tried to tease out several times relates to the reason for going with this model when the contribution from the private investor is so small, at just over 9% of the contribution by the taxpayer, which accounts for in excess of 90%. Why would the Department go with this? We have learned that the investors are getting 12% compound interest, which, of course, can accumulate significantly, doubling in nearly six years, for example. The only answer we have been given on the few occasions the matter has been raised is this issue of risk. In the context of risk, I understand there are supposed to milestones and all that and there are three tiers of those. This is a project underpinned by the State. The State has ponied up the money. It is there. From the point of view of an investor, investing in this and getting 12% annual return compound interest on an investment underwritten by the State is a sure bet. If you were a gambler looking at this, it has to be the best investment in town. People try to play the stock market but this has to be one of the surest bets around.
Mr. Mark Griffin:
I will go back to first principles in terms of the types of models at which we looked. We did look at a large number of models. The Chairman is familiar with this from his time on the committee concerned with telecoms. We looked at full State ownership, a joint venture, the concession type and the gap-funded model. All of that was done pre-2016. A Government decision was taken in 2016 that this was the best model that was available. There were reasons for that, such as the significant reuse of existing private sector infrastructure. The commercial sector will share the construction and demand risk, and there is significant such risk in the early stages of this project. The commercial sector will drive economies of scale. If a strong contract is put in place, which we have done, that will give the State the necessary protections and the State can claw back unused subsidy and share in any excess profits. That was agreed by the Government in 2016. We did a project reappraisal in 2018 when we were down to a single bidder. All the documentation relating to that is in the public domain. There is €175 million that has been put in by the investors. That money is at risk. It does command a rate of return. That would be expected in respect of any investment in a project of this nature. We looked at the rates of return that were under consideration when the contract was being finalised. We did benchmarks internationally, using KPMG, our contact in this regard, and the internal rate of return, IRR, and the interest rate referred to by the Chairman were absolutely typical for projects of this nature where there is significant demand-side risk and an uncertain market. The Chairman referred to the level of uptake so far. We are comfortable enough that we are heading in the right direction but there is significant demand uncertainty. If this was such a sure bet, the uncertainty-----
Brian Stanley (Laois-Offaly, Sinn Fein)
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The uncertainty is with the State now.
Brian Stanley (Laois-Offaly, Sinn Fein)
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The risk in respect of take-up falls back on the State. The way it is structured, all the investors have to do is to fund a very small portion of the roll-out. Where is the risk to the investors in that regard?
Brian Stanley (Laois-Offaly, Sinn Fein)
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The bigger picture is that once they pass the premises, that is their job done with the roll-out of it. That is their job done.
Brian Stanley (Laois-Offaly, Sinn Fein)
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The vast bulk of funding has been put up by the State. Well in excess of 90% of the funding had been put up by the State at that stage.
Brian Stanley (Laois-Offaly, Sinn Fein)
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A subsidy of 90%.
Brian Stanley (Laois-Offaly, Sinn Fein)
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Okay. On 16 April 2019, the then Secretary General of the Department of Public Expenditure and Reform wrote to Mr. Griffin. He opened the letter by stating "Against that background, I feel I must write to [Mr. Griffin] again in relation to the National Broadband Plan". The Secretary General continued:
Having expressed our concerns on a number of occasions at this stage in relation to the affordability and value for money of the proposed contract for the National Broadband Plan, I wish to re-emphasise one further time this Department's fundamental concerns in relation to the unprecedented risk that the State is being asked to bear in the event that the current NBP contract is recommended for approval by Government.
Any decision to approve the current contract and commit funding of up to €3 billion to this project over 25 years represents a major 'leap of faith' on the part of the Government ...
[...]
we [the Department] do not believe this CBA justifies the use of scarce public funds ...
Was the Department of Public Expenditure and Reform wrong in that regard? Does Mr. Griffin now believe that Department was wrong? Mr. Griffin has disagreed with me previously on this point.
Mr. Mark Griffin:
The letter written to me by my colleague on 16 April 2019 ran to two and a half pages. I wrote a 17-page response, which is seldom mentioned. I rebutted every point that had been made. The key thing which I think is important in this context is that the Government is the approving authority when dealing with projects valued at more than €100 million. It is the Government that approves these types of projects. I have the utmost respect for the view of my colleague and for the views as expressed in that letter-----
Brian Stanley (Laois-Offaly, Sinn Fein)
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Mr. Griffin disagreed with those views at the time. Does he still disagree with them?
Brian Stanley (Laois-Offaly, Sinn Fein)
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He does. That is okay.
Mr. Mark Griffin:
I will make one final point and this is important. This project has risk. When we look at what it is we are trying to do, which is to intervene everywhere in this country to provide high-speed broadband to every home, then there is risk. The key point is how that risk is managed by the Department at every stage in the deployment and operation of the scheme.
Brian Stanley (Laois-Offaly, Sinn Fein)
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The Department of Public Expenditure and Reform made the point in the letter:
As against this €3 billion Exchequer investment that is at risk [it turned out to be €2.6 billion or €2.7 billion] the private sector operator is only risking €175m of their own funds. I note that by 2028, the private operator is projected to have received [redacted] in dividends and interest, together with a repayment of [redacted] of the initial share capital, while the State will have spent up to €2.44 billion by that stage. In effect, the private operator will have all of their monies paid back while the Exchequer could have paid out almost €2.5 billion.
Was that wrong? That was the view of the Department of Public Expenditure and Reform at the time, as expressed in the letter from its Secretary General of 16 April 2019.
Brian Stanley (Laois-Offaly, Sinn Fein)
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I will share our perspective with Mr. Griffin. I have fundamental concerns when the Department which oversees public spending, and I am not trying to diminish the expertise in Mr. Griffin’s Department in any way-----
Brian Stanley (Laois-Offaly, Sinn Fein)
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It is horses for courses. However, the Department which has the expertise in respect of handling the money bag in respect of State spending, and which oversees that process, raised serious concerns about this project not just once but several times, according to this letter. As a public representative, it leaves a doubt in my mind regarding what the taxpayer is stumping up here and the risk in that regard. I am sure Mr. Griffin can understand that.
Mr. Mark Griffin:
I acknowledge the Chair's view, but I have two points to make in response. First, concern around value for money does not only sit within the Department of Public Expenditure and Reform. As the Accounting Officer under the Comptroller and Auditor General (Amendment) Act 1993, I am and must be concerned about value for money and the management of public moneys that flow through the Vote of my Department. All those aspects were considered.
Second, the State could have sat back and decided not to invest in allocating funding to provide high-speed broadband to every premises in rural Ireland. That was a choice. We manage risk in the Department. We have a risk management policy and a risk appetite statement, and we understand the boundaries within which we should operate. The key aspect of this context is that it is not about avoiding risk, but about understanding the impact of risk on what we are trying to do and whether those risks are being managed. In the context of all the work we have done and the protections we have built into the contract, we are satisfied that the risk is manageable.
Brian Stanley (Laois-Offaly, Sinn Fein)
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Okay.
Brian Stanley (Laois-Offaly, Sinn Fein)
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Briefly, because a couple of the Deputies have final questions.
Mr. Fergal Mulligan:
On the Department of Public Expenditure and Reform review, critical to it was its review of the cost-benefit analysis. I refer to the benefits of this project as perceived in 2017 and 2018. This project is, ultimately, all about these benefits. We talk about the costs ad nauseam, but there are also huge benefits for every citizen, home and family from the rolling out of high-speed broadband.
Brian Stanley (Laois-Offaly, Sinn Fein)
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I understand that.
Mr. Fergal Mulligan:
This context is important, and we are doing some work to update this information. Pre-pandemic, nobody thought that people would be working from home. In its review, the Department of Public Expenditure and Reform was very conservative in that regard, and rightly so, and decided to not assume that anybody would be working from home or to include that aspect as part of the benefits to be derived from this project. After the last two years, however, we all now know that everybody is working from home and many people will continue to be hybrid workers in future. I refer to the benefits of this development in respect of reduced travel and lower carbon emissions, and all those aspects. When we look at them now with the benefit of hindsight, they are far greater than were ever envisaged.
Brian Stanley (Laois-Offaly, Sinn Fein)
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Believe me, many of my constituents in Laois-Offaly are not travelling. Many of them have good broadband with commercial operators via a wireless signal. I am being told that the wireless signal has improved in quality.
Brian Stanley (Laois-Offaly, Sinn Fein)
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I ask Mr. Mulligan to just let me make this point. The improved wireless signal and improved broadband means that many people who could not work from home a few years ago can do so now. This is the case even before the NBP is rolled out to their areas. They have worked from home quite successfully.
Brian Stanley (Laois-Offaly, Sinn Fein)
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That is my point. I recognise the need for an intervention, however, and I support it. We must get high-speed broadband to every home, and I agree with that.
Brian Stanley (Laois-Offaly, Sinn Fein)
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We have a better connection today, by the way. I call Deputy Sherlock.
Seán Sherlock (Cork East, Labour)
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With respect, Mr. Mulligan should understand that we are at the front line in understanding people's needs. We are the people who run constituency offices. We understand full well the significance of the NBP. We also understand the deficit which exists in respect of the provision of the broadband service. I think that is self-evident, and I do not think we need to be reminded of it. I am, however, concerned about the standard of replies that my office receives when contact is made via the dedicated email address for representations to NBI. I would like to see a greater degree of transparency regarding the number of representations made through that email channel and how many of those representations from the offices of Deputies and Senators are actually resolved. I refer to a broadband connection ultimately being made.
Whether we like it or not, and whatever about the commercial considerations and the costs, the fact remains that an expectation was created that a service would be rolled out. The advent of the Covid-19 pandemic has increased or fast-tracked that expectation. I think we would all agree on that point. Therefore, a demand and an expectation exist for these services, which I think is a legitimate one. I refer to people in particular circumstances of which we are all aware, whether down dale or up glen, where there is an expectation of being able to work remotely. Sometimes there is a perception that people in rural Ireland have particular types of jobs and fulfil particular types of functions.
I want to remind everyone that the people in rural Ireland are the people with PhDs, MBAs, masters, and they are working remotely across pharma and academia, and that needs to be understood. They need the access; that is the bottom line. They are professional people living in these communities and they have a legitimate expectation. If there is one thing arising from today it is that the quality of engagement with Oireachtas Members should improve such that we can expect legitimately that, when we make representations on behalf of these very people whom I am talking about and there is some sort of priority give to that. Very often we are the door of last resort for these people because they have tried every other option, given they are more than capable of engaging with the commercial providers themselves and they have done so, but they are coming to us because they have no other place to go. They have a legitimate expectation of us that we would interface with representatives at nbi.ie and they would then expect, and we would expect, that we would receive some sort of a return, and a deliverable. The deliverable in this case is a connection ultimately.
That is why I was concerned by the amber map from day one. I do not profess to be an expert in; I am a layman in all of this, not a financial wizard. I have no technical knowledge in respect of networks or telephony, but I do know what the needs of my constituents are. I do not see how, in this day and age, there is not some blend of service that could be provided that is a solution for each household. I do not think there is anything that is insurmountable by way of a solution for every household given the paradigm shift that has taken place. That is where people like are coming from, quite simply. We need to get information back to this committee in respect of how many representations have been received by Oireachtas Members and how many of those have been resolved whereby a connection is made. We need some qualitative and quantitative analysis of those representations in terms of whether they are succeeding through our interventions.
My second point relates to the BCPs. How many BCPs are up and running and live as we speak?
Seán Sherlock (Cork East, Labour)
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What I raised with NBI was an outworking of this very issue. I would like Mr. Griffin to go away from this meeting understanding that there is a little village in north County Cork called Ballyhooly, and I deliberately use the example of Ballyhooly because he will remember that name. There is a new estate in Ballyhooly called Lios Ard, peopled by the professionals I am talking about from all walks of life, and one half of the village can get broadband and the half other cannot. This is why I am frustrated by this amber mapping. We all bought into it and now it seems that this amber map has become such an arbitrary tool that we are going to end up with a situation where there will be those people who will have and those who will not all because of a mapping exercise, ultimately. I do not know what can be done about that. The question is: what can I tell the people in Lios Ard, Ballyhooly, tomorrow morning? They are representative of thousands of people throughout this State. What hope can I give them tomorrow morning that they are going to be guaranteed a connection? That is the bottom line. That is ultimately what people want to hear.
Mr. Patrick Neary:
I heard the Deputy mention Ballyhooly earlier and I looked at our information. There is a number of commercial providers in that area today, and one in particular. If there are circumstances where the map information we have is incorrect, we will look at that and engage with that operator. We are happy to do that for the Deputy.
Seán Sherlock (Cork East, Labour)
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Like my colleague, Deputy O'Connor, we will be having a chat after this meeting.
Brian Stanley (Laois-Offaly, Sinn Fein)
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It has nothing to do with the fact that Mr. Neary is a Cork man.
Catherine Murphy (Kildare North, Social Democrats)
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Mr. Griffin about the number of consultants involved in the oversight and the legal and technical side of this. Is there anything within the work those consultants are doing that could be done by augmenting the Department? If so, has an application for resources been made? I know this is very different from TII and I accept all that it deals with much larger construction projects. Will Mr. Griffin give us an idea of what the oversight cost is, in regard to the staffing side within the Department? Is that different from what was anticipated? Is there a risk register for missed milestones or issues that were not anticipated? If so, what kind of issues are identified on that register? Are there any concerns that aspects of this contract cannot be fulfilled?
Finally, I refer to the ownership. I asked this of NBI representatives earlier. I am struggling to get a clear picture of who actually owns National Broadband Ireland. The contract itself states it is determined by voting rights. That in itself is determined by who holds the investment or who is entitled to the necessary percentage of dividends, but the threshold is 30%. Oak Hill owns approximately 49% and NBI owns 51%. Who is the actual owner of NBI? I am not at all clear about who owns it. The issue is further confused by the investors coming in and out but let us leave that aside. I would like to get clarity as to the beneficial owner.
Mr. Mark Griffin:
In regard to the staff and moving work from the external consultants into the staffing team in the Department, we are doing that. We have sanction to increase the staff number in the NBP team over the course of this year. For example, on Mr. Neary's side as the chief technology officer, we are putting in place two senior people at a level below him who will have the capacity to absorb some of the work that perhaps has been undertaken by Analysys Mason. We have assigned an additional principal officer to the area as well. We are actually looking at that on an ongoing basis to make sure that we are making best use of the money available to us.
With regard to the risk register, there were risks identified in the project right from the very start and worked through as part of the competitive dialogue process identified when the contract was being submitted to Government for consideration. Risks are actively managed on a daily basis on the project. I spoke earlier about the various groups that are in place in terms of governance and the contract liaison board that Mr. Mulligan leads on between the Department and NBI where risk issues, dependencies and, all of that are teased out on a regular basis. There is an active risk register within the Department that is being worked through. The usual stuff is impact probability and stuff being moved off and addressed or being elevated as a risk consideration where that risk is more evident at a particular point in time.
Catherine Murphy (Kildare North, Social Democrats)
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I there anything that was not anticipated in the stuff that is turning up on the risk register that is a real red flag?
Mr. Mark Griffin:
To be honest, the biggest unanticipated issue was the pandemic but we know all about that.
Thankfully, there were mechanisms in the contract to say that in the event of an unanticipated event, there is a way of working through that, namely, the interim remedial plan, the updated IRP, penalties and so on, which we spoke about earlier.
Catherine Murphy (Kildare North, Social Democrats)
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I presume the corporate structure and things like that would fall into the risk register and be monitored.
Mr. Mark Griffin:
Issues around funding, ownership and control are not so much a risk register, but they are part of the contract to be monitored on an ongoing basis. On the piece around ownership, I refer to the point I made at the outset that the Minister signed a contract with NBII DAC, 100% owned by Metallah Limited, 100% owned by Granahan McCourt Dublin Limited, of which 50.9% is owned by Granahan McCourt Fund Limited and 49.1% by Tel.IE Broadband Sari, which is the Oak Hill piece. I am not sure what exactly the Deputy is looking for or how many levels she would like to go up. There are other investors. I need to concern myself with the bits that I need to concern myself with.
Catherine Murphy (Kildare North, Social Democrats)
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I may well come back to Mr. Griffin on it by way of parliamentary question. In addition to the information which he has undertaken to provide to the committee on the consultants, I would appreciate it if Mr. Griffin provide a note in regard to the changes he spoke about in terms of the number of people in the Department and what has been approved such that we can get an overview of all of that.
Brian Stanley (Laois-Offaly, Sinn Fein)
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I call Deputy Carthy.
Matt Carthy (Cavan-Monaghan, Sinn Fein)
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I have two questions, one of which is a follow-up question in regard to encroachment. Has money been paid to Eir, Enet or any other company for the use of their infrastructure in terms of the roll-out of the broadband plan and, if so, how much?
Matt Carthy (Cavan-Monaghan, Sinn Fein)
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The other question is a broad question in regard to the topical issue of building and construction inflation. Will that have any impact on the cost to the State? Can the contingency be drawn on for that purpose or is there another mechanism in place for NBI in the event that construction inflation continues to spiral?
Mr. Fergal Mulligan:
At the time of the bid, the €2.6 billion would have taken into account the likely risks and issues, including inflation. That is within the €2.1 billion in the first instance. In all contracts, one assumes some level of inflation over 25 years. The €500 million contingency has catered for unanticipated events such as added inflation. The €2.6 billion is capped. On the risk to the consortium and the investors, if there is hyperinflation for longer than we think, the consortium is at risk for that and would have to put in more funding to make up any shortfalls over and above the €175 million.
Matt Carthy (Cavan-Monaghan, Sinn Fein)
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There is no mechanism by which NBI can get back any costs beyond the €2.6 billion.
Mr. Mark Griffin:
On the Deputy's earlier question, I do not have specific figures. The level of subsidy we paid out over the past couple of years, at €177 million, would have been absorbed by the design and the build of the network, mobilisation costs, payment of contracts, payment for materials, managed service payments, which would have tied in Enet who provide a service to the NBI, purchase of stock and purchase of equipment. I will come back to the Deputy with a better answer.
Matt Carthy (Cavan-Monaghan, Sinn Fein)
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I am happy for Mr. Griffin to provide a written note.
Brian Stanley (Laois-Offaly, Sinn Fein)
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I have a couple of questions for Mr. Griffin. In regard to the external consultants engaged by the Department, is the payment to them included in the overall contract of price of €2.6 billion?
Brian Stanley (Laois-Offaly, Sinn Fein)
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Okay, so it is not in addition to that.
It is reported that the lead investor is looking to sell its shares. Is the Department aware of that?
Brian Stanley (Laois-Offaly, Sinn Fein)
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Would Mr. Griffin be concerned if that was happening?
Mr. Mark Griffin:
To return to an earlier point I made, there are controls in place in terms of people exiting or other changes that would be typical of any contract. There are mechanisms for the Minister deciding in relation to that. Given the level of maturity that is coming to the project, it may well be the case, looking at the risk profile, that other investors would want to come in. There are controls and protections in place in the contract to manage all of that.
Brian Stanley (Laois-Offaly, Sinn Fein)
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There is a complex web of investors and entities involved. In total, taking into account Granahan McCourt Limited and the other funders, there are in the region of 30. In a project like this, is it unusual to have that many investors?
Brian Stanley (Laois-Offaly, Sinn Fein)
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In our earlier engagement with NBI, it confirmed that it thought these investors would be involved in the short term for, say, three to seven years. Is there any concern within the Department that these short-term investments have a high yield in terms of, as outlined earlier, a 12% compound interest rate. Would that be of concern?
Mr. Ciarán Ó hÓbáin:
The investors are tied in. They cannot leave unless we approve a replacement. If company A decides it wants to move its investment to company B, that requires our approval. Whether company A or company B, the same contractual obligations pertain. Nothing changes from our perspective. They still have to put in all the funding that is being committed because it is fully committed in contract with us.
Brian Stanley (Laois-Offaly, Sinn Fein)
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If the investors are involved in high-risk activity and a number of those companies go belly-up, what happens?
Brian Stanley (Laois-Offaly, Sinn Fein)
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No. I am asking what would happen if a couple of the significant funders became insolvent.
Brian Stanley (Laois-Offaly, Sinn Fein)
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Given the short-term nature and the high risk-----
Mr. Mark Griffin:
Insofar as the remaining equity to be invested is concerned, that is all underpinned by guarantees. We have confidence that the level of equity investment proposed, namely, the €175 million, will be delivered and that the €43 million extra by way of working capital will be delivered.
Brian Stanley (Laois-Offaly, Sinn Fein)
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I thank the witnesses.
Brian Stanley (Laois-Offaly, Sinn Fein)
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Yes.
Mr. Mark Griffin:
The answer that I gave to Deputy Carroll MacNeill around the Eir make-ready programme was a little clumsy. For the purposes of the record, what I said in my opening statement is the state of play in relation to the Eir make-ready programme. It is a key piece. We are working hard together. There is close collaboration, which is essential given that we are relying on the network to deliver. The Minister of State, Deputy Ossian Smyth, Mr. Ó hÓbáin and I met the chair and CEO of both companies. We will do that again very shortly. To ensure the level of predictability that we require looking out to 2022 and 2023, Eir's make-ready programme is a key piece. That close working relationship needs to continue. I just wanted to clarify that.
Brian Stanley (Laois-Offaly, Sinn Fein)
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I thank Mr. Griffin for that clarification. Sometimes in the back and forth, in particular in this hybrid situation, it can be a little difficult for both members and witnesses to get their point across and there can sometimes be a communication breakdown.
I thank the departmental officials and the Department of Public Expenditure and Reform official for joining. I thank department staff for the work they put into preparing for the meeting. I would also like to thank the Comptroller and Auditor General and his staff for attending and assisting the committee.
Is it agreed to seek any follow-up information and carry out any agreed actions arising from today's engagement? Agreed. Is it also agreed that we note and publish the opening statements and briefings provided for today's meeting? Agreed.
The meeting is now adjourned until 9.30 a.m. on Thursday, 17 February, when we will engage with the Department of Housing, Local Government and Heritage.