Alan Kelly (Tipperary North, Labour) | Oireachtas source

I am pleased to introduce this legislation which deals with CIE's borrowing powers for non-capital purposes. Strengthening CIE's capacity to raise credit on a sustainable basis is a key element of a wider set of measures designed to place its finances in a healthier state for the future.

The CIE group has had to confront a very difficult financial situation. As in most business sectors in the State, the current economic environment is very challenging for public transport providers. The cause of the problem is primarily the recession which has caused a drop of over 20% in passenger numbers from the peak in 2007. This has been partly offset by fare increases, but revenue is down by over 11% from the 2008 level. The public service obligation, PSO, subvention has reduced by 21% between 2008 and 2012 and is due to fall by another 14% in the next two years. The removal of the fuel rebate is estimated to have cost the group around ¤22 million, at a time when it has had to absorb higher fuel prices. In 2006 and 2007, as a result of the CIE operating companies expanding their network of services and growth in the economy, CIE experienced an increase in passenger volumes and revenues. However, the impact of the economic downturn which started in 2008 resulted in decreases in passenger numbers in each year from 2008 to 2011. Once the expected increase in demand did not materialise as a result of the economic downturn, CIE was faced with an expanded network of services and reduced revenues which resulted in each of the operating companies incurring deficits in each of the years 2008 to 2011, with the exception of Bus Éireann which generated a small surplus in 2011. While the CIE group reported surpluses in each of the years from 2006 to 2008, 2007 was the only year in the period 2006 to 2011 in which the group generated a surplus when the gains from the disposal of fixed assets were excluded. In the past three years, 2009 to 2011, CIE suffered a total loss of over ¤137 million after exceptional items. Clearly, this level of losses cannot be sustained and must be addressed.

Since income began to fall in 2008, there has been a succession of measures to deal with the underlying problem, including cost reductions, fare increases, service efficiencies such as the network direct programme in Dublin Bus and similar rationalisations in Bus Éireann, and measures to make public transport more attractive such as the Leap card, real time passenger information, the provision of Wi-Fi, on vehicles and trains, for example. The operating companies cost recovery programmes were commenced in 2009 in an effort to eliminate these deficits. These efforts have been undermined by continuing falls in passenger numbers, reductions in the operating subvention and increases in costs such as fuel outside the control of CIE. While progress has been made in reducing costs and headcount to date, these reductions have not been sufficient to eliminate the deficits in the operating companies.

The 2011 annual report and financial statements for CIE and those of the three subsidiary companies were laid before the Houses of the Oireachtas last week.

An unqualified audit report was issued by the group's auditors on CIE's 2011 financial statements. However, the auditors have included a heading, "Emphasis of Matter", regarding the group's ability to continue as a going concern. They note that funding and trading difficulties give rise to uncertainty for the business and challenge the group's ability to continue to trade as a going concern. The board of CIE expects these uncertainties to be addressed through a range of measures, including the realisation of non-core assets; a reduction of the cost base, including payroll reductions; multi-annual fare increases and the curtailment of the own-funded capital programme. The CIE companies have been endeavouring to deliver savings which will not have an adverse an impact on services. However, it will be a struggle every year to meet the reduction in the PSO budget while maintaining services.

Both the Minister, Deputy Leo Varadkar, and I have engaged in consultations with the CIE companies. We have stressed the need to respond to the PSO subvention funding challenges through further cost savings in their activities.

A recovery in passenger numbers and further increases in fares could soften the impact of PSO subvention. All concerned in my Department and in the NTA must focus on identifying key public transport priorities in our cities and across the country. In turn, the PSO service providers will have to achieve greater efficiency and cost effectiveness in the years ahead based on a realistic assessment of the scope and level of contracted services.

Each year funding is provided for socially necessary but financially unviable public transport services. Funding for such services is made available under the Vote for my Department by way of a payment to the NTA for PSO services. Subvention paid to public transport providers is relatively low compared to the norm in other European countries. In many other countries the average subsidy-fare box ratio is about 50%, whereas in Ireland fare box revenue for our bus companies is over 60%. In recent years the total subvention paid to the three CIE subsidiaries has been reduced from a high of ¤308 million in 2008 to the ¤242 million originally earmarked for 2012. On 24 July last, the Government decided to provide additional funding of ¤36 million to CIE to ensure the companies could continue to operate for the rest of 2012. This brings the total subvention for this year to ¤278 million, higher than the subvention for 2010 and the fifth highest level of subvention ever.

At this difficult time for the public finances it was not easy to find a large amount of additional funding. It involved difficult decisions to divert funding from other worthwhile and important projects and initiatives while imposing sacrifices on others. The Minister for Transport, Tourism and Sport, Deputy Varadkar, and I met regularly with the four chairs and senior executives of the CIE companies, as well as with union representatives. While facilitating a range of measures to address the problems, we have stressed that significant progress needs to be made in the development of a realistic, sustainable and robust business plan by CIE to deal with the current economic realities, cost reductions with the CIE group and employee support for same, the sale of non-core assets and the securing of new credit facilities. These various avenues are being explored. The additional funding for this year only provides a short breathing space to CIE. It is essential that management and staff in the CIE companies use this time productively to discuss and implement proposals to cut costs that can help address the serious financial position in which the CIE group finds itself. In this regard, I am anxious that the current negotiations between management and unions at the two bus companies be concluded as soon as possible. In view of the difficult financial situation of CIE and the need to finalise its business planning for 2013, it is imperative that these discussions result in a positive outcome in the next few weeks.

CIE is progressing the preparation of a revised five-year business plan with aggressive targets that will support the reporting of trading improvements in 2013. It is intended that the business plan will address the underlying financial challenges facing CIE so that its public transport services can be provided efficiently and cost-effectively over the plan's period. The decisions taken so far by the Government and the financial provisions made for CIE were fundamental in creating a better operational environment for the organisation. There is, however, no room for complacency. CIE's future must be one of efficiency and effectiveness with due regard to what the Exchequer can afford to bear. The measures that have been taken and are planned are in the longer term interest of CIE and its employees. The resolution of CIE's financial position will involve increased borrowing facilities for non-capital purposes. CIE's current borrowing limit is set at ¤107 million and it has facilities in place with banks to that limit which expire during 2013. The purpose of the increased limit of ¤300 million is to give CIE maximum flexibility to ensure access to long-term working capital and short-term funding facilities. In no way is the proposed limit to be taken as an indication that CIE will be exposed to a massive increase in its debt position.

While it is expected that the debt position will increase beyond the existing facility of ¤107 million in 2013, CIE is undertaking an aggressive business planning process with the aim of returning to a break-even position and achieving a sustainable debt position in subsequent years. It will be judging carefully the range of credit facilities necessary, including both longer-term facilities and overdraft-type facilities, to enable it to effectively manage its cashflow and day-to-day working capital requirements.

Recent experience has necessitated a strengthening of financial management systems, and there is a need to ensure the corporate governance arrangements of the boards of CIE and its subsidiary companies are enhanced. A detailed review of the group's financial systems and treasury management arrangements has been undertaken and measures put in place to strengthen those areas in the holding company and subsidiaries.

The existing total borrowing limits for CIE for non-capital purposes are set out in the provisions of section 28 of the Transport Act 1950 and section 3 of the Transport Act 1987, which provide for borrowing up to limits of ¤50 million and ¤57 million, respectively. It is now proposed to amend the 1950 Act to provide for an increase in the borrowing ceiling to a level of ¤300 million and to streamline CIE borrowing powers into a single enabling provision for all forms of borrowing undertaken by CIE for non-capital purposes. Separately, section 130 of the Railway Safety Act 2005 already provides for a ceiling of ¤600 million for capital borrowing by CIE.

Section 1 substitutes a new section 28 into the Transport Act 1950. Section 1(1) allows the Minister and the Minister for Public Expenditure and Reform to give consent to CIE to raise or borrow money for non-capital purposes, while section 1(2) sets a ceiling of ¤300 million on such borrowing. Section 1(3) enables property to be used as security for borrowings.

Section 2 provides for a consequential amendment of section 20 of the Transport (Re-Organisation of Córas Iompair Éireann) Act 1986 to allow the board of CIE to lend money to the subsidiary companies and for the subsidiary companies to borrow money with the consent of the board of CIE, subject to the total ceiling for all borrowings of ¤300 million. It should be noted that the giving of security for borrowings will be subject to the requirements of section 67 of the Credit Institutions (Stabilisation) Act 2010. This requirement arises from the provisions of our EU and bilateral loan agreements and aims to ensure our lenders under these agreements are given equal priority on any secured borrowings undertaken by general government. While CIE is not included in general government borrowing, Irish Rail is. The proposed amended section 28(3) of the Transport Act 1950 and the amended section 20(3) of the Transport (Re-Organisation of Córas Iompair Éireann) Act 1986 refers to compliance with the requirements of section 67 of the Credit Institutions (Stabilisation) Act 2010 by the board and subsidiaries.

Section 3 repeals sections 30 and 31 of the Transport Act 1950, which provided for a State guarantee of temporary borrowings and the laying of particulars of guarantees before the Houses of the Oireachtas. It also repeals sections 3 and 4 of the Transport Act 1987, which also previously dealt with CIE borrowing powers and State guarantees of borrowings by CIE.

I intend to propose an amendment on Committee Stage to delete section 2 of the Transport Act 1955, which provided for an amendment of section 28 of the Transport Act 1950. This is no longer appropriate as borrowing for capital purposes is dealt with separately. The goal for public transport is to provide safe, accessible and integrated services that contribute to sustainable economic and regional development in an efficient manner. Despite our economic problems and the reduced sums available for capital and current expenditure, the Government will continue to prioritise the role of public transport.

The Government recognises that continued investment in transport infrastructure will play a key role in facilitating a return to economic growth in the coming years. The Department's overall strategy is to provide for the maintenance and upgrading of the transport network and ensure the delivery of public transport services with particular regard to economic competitiveness, social needs, and sustainability and safety objectives. The Department's aim is, within available resources, to maintain the capacity, quality, safety, sustainability and integration of Ireland's public transport network and public transport services and, where possible, implement improvements.

The capital programme for the next five years is determined in Infrastructure and Capital Investment 2012-2016: Medium Term Exchequer Framework, which was published by the Government in November 2011. Under the plan, a total of ¤1,363 million will be allocated toward improving public transport infrastructure between 2012 and 2016. The programme for the funding of capital projects to 2016 is also set out in the plan. Due to the overall reduction in funding for transport infrastructure, the priority to 2016 is to protect investment made to date, extract maximum value from existing assets and maintain safety standards. The limited funding available over and above this priority will be provided only for projects that are affordable, have strong business cases, meet overall transport objectives and deliver the best return in terms of economic recovery and job creation.

Moreover, the ability to operate profitably and without the need for a subsidy would also be a key consideration for any new rail project or extension. Funding is, therefore, prioritised to ensure the maintenance of existing infrastructure and advance a small number of important projects which can add value to the existing network.

Notwithstanding the reduction in the levels of funding, CIE, in particular larnród Éireann, is still receiving a significant level of funding. A total of ¤513 million is being provided under the third railway safety programme, 2009-13. In addition to safety related works, larnród Éireann is developing ticketing and associated equipment, as well as working to make the railways more competitive and attractive to passengers. The Dublin city centre re-signalling project, at a projected cost of ¤290 million, is a central element of the upgrading of commuter rail services for the greater Dublin area and is being delivered on a phased basis. This is a key project which is aimed at unlocking the major bottleneck in the city centre and which will have positive spin-off effects for DART, commuter and intercity passengers. It will provide for further capacity enhancement by upgrading signalling to accommodate an additional five train paths per direction per hour, from 12 to 17, in the critical city centre area. Work on phase 1, Howth to East Wall, is almost complete and commissioning is expected to take place this month. Design work is continuing on the next phase, Connolly to Grand Canal Dock, and due to be completed shortly.

Funding is also being provided in the 2012 to 2016 period for the purchase of replacement buses. They include 80 new buses being funded this year by the National Transport Authority as replacement buses for Dublin Bus, representing an investment of ¤26 million in its fleet replacement programme. All vehicles are low floor, wheelchair accessible and will ensure Dublin Bus will have a fully accessible fleet by the end of 2012, which is very welcome. The new buses also have a number of attractive features, including free Wi-Fi, additional CCTV cameras and centre doors to enable passengers to board and alight more efficiently. In 2011, 60 new buses were delivered to Bus Éireann at a cost to the Exchequer of ¤19 million. Funding approval in 2012 for Bus Éireann will total ¤2.5 million for fleet refurbishment, the provision of safety improvements at Capwell depot in Cork and its bus shelter programme. Funding is also being made available by my Department to the National Transport Authority for grants to local authorities for sustainable traffic management measures such as quality bus corridors, bus stop facilities, cycling and safety measures both in the greater Dublin area and the regional cities of Cork, Galway, Limerick and Waterford.

In support of the investment in public transport infrastructure the Government has committed significant funding to improve the attractiveness of public transport, including the development of the Leap card system which was launched late in 2011, the provision of real time passenger information, RTPI, and a national journey planner. The National Transport Authority has also developed the Transport for Ireland website, Transportforlreland.ie, as a one-stop-shop for up to the minute travelling and commuting information. From one's own desk, home or smartphone it is now possible to easily access door to door journey plans, real time information on bus arrival times or details on one's Leap card such as the credit remaining and details of recent trips. I encourage all Senators to visit the website and give their opinions on it. It is an excellent site.

The development of the Leap card system which was launched in late 2011 on the services of Dublin Bus, Luas and Irish Rail DART and commuter rail services is significant. Additional functionality is being introduced on an ongoing basis and the launch of the student travel card in September has added to significant growth in the number of Leap cards issued. Bus Éireann commenced pilot operations in September on its eastern regional services in the greater Dublin area. Two private bus operators, Wexford Bus and Matthews Coaches, are running pilot projects using the Leap card. Additional private bus operators will also be integrated into the scheme in the coming months. In early 2013 annual and monthly passes will be issued on the Leap card as cardholders renew passes and additional products such as multi-journey tickets will be rolled out by Dublin Bus. The scheme continues to function well, with almost 150,000 cards issued to date and 8.5 million journeys undertaken using Leap cards. In comparison with similar schemes launched in other parts of the world, the Leap card scheme is ahead of schedule. On a previous visit to this House I asked Senators to conduct a survey of how many of them had a Leap card and was using it. I would be delighted if someone updated me in that regard.

The RTPI project is being rolled out in the greater Dublin area and the four regional cities. In the greater Dublin area the project involves the installation of up to 500 on-street information signs capable of displaying the arrival times of buses. These RTPI displays are being located at selected bus stops or interchange points in the greater Dublin area. The first phase of sign deployments is now 98% complete in Dublin and Cork, with over 411 signs in place in Dublin and 45 in Cork. Much of the preparatory civil engineering works have commenced in Limerick and Waterford and Galway City Council is in the process of appointing a contractor to install 20 displays. Bus passengers across Dublin and Cork can check actual bus arrival times using the aforementioned Transport for Ireland website, the SMS text service or the Dublin Bus or Bus Éireann smartphone applications. The provision of this information transforms public transport and encourages more people to use public transport. The real time information has been available for a number of months and we are now seeing its benefits.

The Government will maintain its policy of targeted investment in and support of public transport. This must be complemented by CIE contributing to greater financial health in its operations. The Government, in charting the future for CIE, recognises the challenges facing CIE and its workforce. Through the business planning process, measures are being planned and put in place and financial targets set to turn the situation around. These targets will be demanding but are essential to restore CIE to a sustainable financial path. It is now up to management and the workforce to ensure the future success of the organisation.

In summary, I have outlined for the House the difficulties facing CIE in recent years and touched on the efforts that must be made to enhance its financial sustainability. I reiterate the commitment of the Government to continue to invest significant scarce resources in public transport. I have explained the background to the Bill and its provisions. While recognising that there are still many challenges facing the CIE and its subsidiaries, I am confident that these can be overcome. I commend the Bill to the House.