Seán Kyne (Galway West, Fine Gael) | Oireachtas source

Go raibh maith agat, a Chathaoirligh. I am very pleased to have the opportunity to address the House on the Second Stage of the Communications Regulation (Postal Services) (Amendment) Bill 2016 which was passed on 22 February by Dáil Éireann. I extend apologies on behalf of the Minister for Communications, Climate Action and Environment, Deputy Naughten, who unfortunately is unable to attend today. The Bill is a relatively short legislative proposal, the purpose of which is to repeal section 30 of the Communications Regulation (Postal Services) Act 2011, which sets out the mechanism for regulating postal pricing within universal service using a price cap mechanism.

The mails business is undergoing a profound structural change both here and internationally. Electronic substitution has had a significant impact on the letters business while also providing opportunities for growth in parcels. This development is particularly apparent in terms of large volume postal customers such as banks and utility providers. The trend, which has been evident for some years, accelerated in 2016, with An Post recording a year-on-year doubling in volume decline, resulting in a serious financial impact for the company.

In addition, the impact of a 2.5% Labour Court pay recommendation has added further pressure to an already delicate financial situation. Each 1% decline in mail volume equates to a loss of revenue for An Post of €4 million and a 1% increase in pay adds €4.5 million to payroll. The mails business still generates almost two thirds of An Post’s revenue and represents 78% of company payroll. That explains why the volume decline and Labour Court award has had such an impact on the company’s financial base.

Internationally, the mails and post office businesses are experiencing long-term structural challenges, so this is not just an issue facing An Post. One of the main elements of the postal service here in Ireland is the daily delivery of post to every address in the State. Government is extremely cognisant of the value placed on this service by communities in both rural and urban areas and recognises the importance of ensuring An Post has the capacity to continue to fulfil its obligations in this regard.

It is clear that the company is entering a period of significant change to cope with the rapidly changing environment in which it operates. In this regard, the company has started a fundamental review with a view to identifying the strategic changes and restructuring necessary to maintain the company on a sound financial footing. The Government fully supports this review, the outcome of which is expected early in quarter 2 of 2017 and accepts that the company requires some financial headroom to be able to implement the findings of the review while continuing to deliver on its universal service obligations.Consequently, the Government has agreed to introduce this Bill as a matter of priority to repeal the price cap mechanism. This is the most viable option to support An Post in the short term while a restructuring plan is being implemented. This decision was not taken lightly. NewERA has conducted an in-depth review of the company in recent months on behalf of the shareholding Ministers and has confirmed the seriousness of the situation the company is facing. The Minister, Deputy Denis Naughten, has met the chairman and CEO of An Post, officials from ComReg and representatives of the Communication Workers Union to discuss the issue in detail. Having considered all matters, the Minister acted swiftly in taking appropriate action.

The impact of the legislation will involve a substantial increase in stamp prices. Stamp prices in Ireland are currently well below the European average. It is expected that the proposed increases will bring the price in line with European norms. As we are cognisant of the impact this measure might have on consumers and on the SME sector, we have provided in the Bill that ComReg will undertake a review of the consequences of the repeal of the price cap mechanism after a two-year period. ComReg will report to the Minister on its findings within six months. The Bill also enables ComReg to undertake such consultation as it considers appropriate in carrying out this review.

The Minister has issued a policy direction to An Post instructing it that price increases introduced following the repeal of the price cap mechanism must be subject to prior consultation with ComReg and must have due regard to the tariff principles set out in section 28 of the Communications Regulation (Postal Services) Act 2011. These principles set out a number of requirements which must be complied with in the provision of a universal postal service. For example, prices must be affordable and must enable all users to avail of the services provided, prices must be cost-oriented and tariffs must be transparent and non-discriminatory. Under the 2011 Act, ComReg has a role in ensuring compliance with the tariff principles outlined in section 28.

An Post has been instructed to give due consideration to the impact any increase will have on personal customers and on the SME sector. It is important to remember that An Post provides a high-quality mail service to Irish businesses and personal customers across the country. The mail network undertakes the delivery of 2.5 million mail items to 2.1 million homes and businesses every working day and consists of 7,620 collection, processing and delivery staff, 160 local delivery units and four national mail centres. The company has a number of strengths, including its brand and nationwide reach. The post office network implementation group, chaired by Mr. Bobby Kerr, was established on foot of the publication of the final report of the post office network business development group. The implementation group worked throughout 2016 to arrive at a suite of recommendations to support the future sustainability of the post office network. These recommendations are with An Post for its consideration. It is expected that they will be considered in the context of the strategic review of the company.

An Post is a significant employer with over 9,000 staff. Its payroll costs amount to €40 million per month. This includes payments to the postmasters who run the bulk of the post office network. I want to make it clear that despite An Post's difficult financial situation, there is no threat to the delivery of mail or to the universal service obligation. An Post will continue to deliver post to every address every working day, in line with the EU requirement. The amended approach to pricing being facilitated in this legislation aims to ensure An Post can continue to fulfil this obligation.

I will outline the main provisions of the Bill. For the convenience of the House, a detailed explanatory memorandum has been published to provide a synopsis of the provisions. The Bill is relatively short and consists of three sections. Section 1 provides for the repeal of section 30 of the Communications Regulation (Postal Services) Act 2011, which provides for the price cap mechanism. The section also provides that any price cap decision within the meaning of section 30 will cease to have effect.

Section 2 provides for an amendment to section 10 of the Communications Regulation Act 2002 to enable ComReg to carry out a review of the consequences of the repeal of the price cap mechanism in section 30 of the Communications Regulation (Postal Services) Act 2011. The functions of ComReg, as set out in section 10 of the 2002 Act, as amended, are being amended in this Bill to enable it to undertake this review. This review will commence two years after the coming into operation of this legislation. ComReg will report to the Minister on its findings within six months of the commencement of the review. The Minister will lay the report prepared by ComReg before each of the House of the Oireachtas as soon as practicable. In addition, provision is made to enable ComReg to undertake such consultation as it considers appropriate in carrying out the review. Following an amendment on Report Stage in the Dáil, this Bill now provides that this consultation will be completed by ComReg within 42 days.

Section 3 contains general provisions relating to the Short Title, commencement, collective citation and construction.

Given the seriousness of the challenges facing An Post, it is considered prudent to have this legislation in place as soon as possible to allow An Post pricing freedom at the earliest opportunity.As it stands, An Post must give notice of its intention to increase prices so even after the commencement of the legislation, there will be a delay before a price increase can take effect. I look forward to hearing the views of the House on the Bill, a constructive Committee Stage debate and Senators' valuable assistance in facilitating its early passage into law. I commend the Bill to the House.