Thursday, 19 January 2017
Communications Regulation (Postal Services) (Amendment) Bill 2016: Second Stage (Resumed)
Once again I acknowledge the contributions of all Deputies to the debate last night. It is important to restate the decision to bring forward this legislation was not one which was taken lightly. There was no choice but to act swiftly on this matter if there is to be any chance of An Post being able to restructure itself and continue to operate as a viable commercial State company, providing very important services throughout the country to urban and rural areas.
An Post finds itself in a very difficult financial position, largely arising from the structural changes faced by the mails business here and internationally. In addition, and as previously mentioned, the impact of a Labour Court recommendation on pay increases for staff has put further pressure on an already delicate situation. A new CEO, David McRedmond, commenced his role in October last year. In fairness to the CEO and the chair, they brought this matter to the attention of the Minister, Deputy Naughten, as soon as the scale of the problems became apparent. The Minister requested that NewERA review the projections, and it confirmed the seriousness of the situation facing An Post.
A number of Deputies asked whether other options had been identified and I can confirm that a number of other options were considered. These included provision of a subsidy, amendment of the universal service obligations and other short-term revenue generating measures. Such measures would have implications regarding current EU rules and would necessitate discussions with the EU Commission. The bottom line is that repeal of the price cap mechanism was identified as the only measure which could be implemented quickly and which would give An Post the financial headroom to be able to bring forward restructuring proposals to put the company on a firm financial footing into the future.
The mails business is undergoing a profound structural change here and internationally and we all accept this. Electronic substitution has had a significant impact on the letters business, while also providing opportunities for growth in parcels. This trend is particularly apparent for large-volume postal customers such as banks and utility providers. A number of Deputies expressed concern the legislation will have the effect of accelerating this trend. An Post engaged Indecon consultants to look at this very question, and its findings indicate that price increases will not necessarily escalate e-substitution. The findings of this work will inform An Post's consideration of the appropriate level at which to set the revised pricing structure. The CEO has indicated the price increase will be in the range of 12% to 38%. Such an increase will bring the price in line with European norms.
There is no doubt An Post will undergo significant and necessary change. In this regard, the Government looks forward to being briefed on the findings of the McKinsey review commissioned by An Post. I understand the timeline for delivery of this report is May this year. This exercise represents a fundamental review of An Post and its operations with a view to identifying the strategic changes and restructuring necessary to maintain the company on a sound financial footing. I should point out this is a separate exercise to the Bobby Kerr report, but I have no doubt the findings of both reports will inform the future strategic direction of the company.
I appreciate that consideration of issues relating to the post office network, which has culminated in the final Bobby Kerr report, has been ongoing for some time. The position on this matter is that Bobby Kerr presented his final report to An Post on 23 December. This report contains a number of recommendations which are being considered by the board of An Post. The Government looks forward to the details of any implementation plan arising. I am sure my colleagues in the House will appreciate it would not be appropriate for me to comment further on these matters until both reports have been fully completed and considered.
The Minister is aware of the impact this measure may have on consumers and the SME sector, therefore, the Bill also provides that the Commission for Communications Regulation, ComReg, will undertake a review of the consequences of the repeal of the price cap mechanism after a two year period. In addition, and as I previously mentioned, the Minister will issue a policy direction to An Post instructing that price increases proposed following the repeal of the price cap mechanism be subject to prior consultation with ComReg and have due regard to the tariff principles set out in section 28 of the Communications Regulation (Postal Services) Act 2011.
It is important to repeat that despite the difficult financial situation, there is no threat to the mails delivery of the universal service obligation. An Post will continue to deliver post to every address on every working day. This amended approach to pricing aims to ensure An Post can continue to fulfil its obligations in this regard. As was recognised last night, An Post still has a number of strengths, such as its strong brand and nationwide reach. Any restructuring plan will build on these strengths and position the company for rapid changes in its external environment, in particularly e-substitution and the growth in the digital economy. Clearly, it will take time to restructure and turn around the company. This is why it is imperative this legislation is passed to give the company the financial headroom to do this. The consequences of not introducing this legislation cannot be underestimated.
I will go through some of the contributions made by Members. To reply to Deputy Dooley, responsibility for the post office network rests with the Department of Arts, Heritage, Rural, Regional and Gaeltacht Affairs. The Department is responsible for the implementation of the Bobby Kerr report. The final report has been presented to An Post and implementation will be tied into the findings of the McKinsey report. Many of the suggestions will be considered in the context of the Bobby Kerr report.
To reply to Deputy Stanley, given the urgent need to address the financial position of An Post a repeal of the price cap mechanism was the only viable option. ComReg will still have a role in ensuring compliance with the tariff principles enshrined in EU law, and these tariffs require prices to be affordable, cost oriented, transparent and non-discriminatory.
To reply to Deputy Ó Caoláin, the Bill is not a result of recommendations of the Bobby Kerr report. It has been brought forward following real concerns brought forward by An Post regarding its financial position. An Post needs the additional revenue to be able to implement the strategic changes required to ensure the future sustainability of the company.
To reply to Deputy Sean Sherlock, An Post engaged consultants to conduct in-depth analysis of the impact of the price increases on volume, and the findings are the price increase is still viable. On behalf of the stakeholding Ministers, NewERA has conducted detailed analysis and confirmed this position. The universal service obligation is a vital service in urban and rural areas and the Minister, Deputy Naughten, has committed to retaining this five day service.
Deputy Eamon Ryan mentioned a bank that no longer uses An Post's services.Last May, Bank of Ireland moved substantially to interacting with customers electronically. Most utility providers actively encourage and reward customers for electronic communications and this growing trend is likely to continue notwithstanding the price increases proposed.
The Minister, Deputy Naughten, has been clear with An Post this is not a panacea. An Post may also bring proposals to the table and it is expected the McKinsey report will be implemented without delay. Officials in the Department are monitoring this closely and meet An Post on a monthly basis. The impact of pay increases reflect the size of the workforce in An Post.
Bobby Kerr presented his report on 23 December. It has yet to be considered by the board of An Post. It makes a number of recommendations on the range of issues raised yesterday.
The GPO operations mentioned by Deputy Mattie McGrath will be considered as part of the McKinsey review. The Deputy mentioned cost overruns and what he deems a wastage of money in the GPO. This will be considered in the McKinsey review.
The new CEO has been in situsince late last year. He acted quickly by commencing a review to identify necessary strategic changes and restructuring.
Deputy Danny Healy-Rae mentioned the programme for Government. The Government is committed to this and the programme for Government is the template. In every Department there are regular reviews of priorities and commitments under the programme for Government and proposals regarding credit unions or the Kiwi banking proposals are being pursued under that programme. Deputy Michael Healy-Rae asked a range of questions which I am not able to answer now but I will send the answers to him. Deputies Pringle and Joan Collins mentioned the increases to wage costs. The figures provided by An Post indicates that a 1% increase equates to €4.5 million. Deputy Collins referred to the conflict involved in ensuring there is money to pay An Post workers going forward while at the same time considering the impact that postal increases can have on consumers.
Deputies Fitzpatrick and Durkan commented on a number of opportunities for savings and Deputies Nolan, Cullinane and Martin Kenny spoke of an attack on rural Ireland. All of us, including every rural Deputy, wants to ensure that An Post survives in both rural and urban Ireland and this emergency legislation ensures there is enough funding to keep it going.
A number of Deputies referred to the impact of closures and Deputy Casey mentioned Laragh post office. Some 288 post offices closed between 2005 and 2010 and there have been a number of closures since. It is regrettable whenever any post office changes and there will be an opportunity for that particular post office to undertake a review.
I thank all Deputies for a very good debate last night, which shows the importance of our postal services and our postal network. All Deputies support it and nobody wants An Post to go to the wall. There are opportunities, particularly in the parcel service, for a better and brighter future for An Post, notwithstanding the decline in mail volumes. I ask Members to support this emergency legislation to ensure An Post survives into the future. I will pass on to the Minister for Communications, Climate Action and Environment, Deputy Denis Naughten, the goodwill messages of Members yesterday.