Doherty links Esat system to CIE cost overrun

An Esat group telecoms system built on Iarnrod Eireann's railway was directly linked to a signalling project on the network from its inception, an Oireachtas inquiry heard yesterday.

Cost overruns on the incomplete signalling system planned by the State company were linked by the inquiry's chairman, Mr Sean Doherty TD, to the construction of the network for Esat, then controlled by businessman Mr Denis O'Brien.

He said the system may yet cost Iarnrod Eireann £50 million (#64 million), despite an original valuation of £14 million.

Agreements between Iarnrod Eireann and Esat led to the construction after May 1997 of a 2,000 km telecoms network for Esat, which is complete.

The 900 km rail signalling network is incomplete, despite concerns about the safety of the network.

Mr Doherty said a "significant proportion" of the $1.22 billion valuation on Esat Telecom's non-mobile business, sold to British Telecom (BT) in January 2000, was attributable to its system on the railway.

Licence revenues paid for that network to CIE Group, owner of Iarnrod Eireann, amounted to £1£2 million in the years to date, he said in a preliminary statement to a sub-committee of the Oireachtas Joint Committee on Public Enterprise and Transport.

A maintenance agreement was worth £500,000 annually to CIE.

The value of payments to CIE for construction of the Esat network "cannot be readily identified" due to confusion within CIE's accounting systems, he added. That work was sub-contracted to CIE.

Esat had ownership and control of the network, which Mr Doherty described as a "very significant asset" of considerable value.

"This was obviously recognised by the US market in supporting the Esat initial public offering [on the Nasdaq exchange in 1997]. It was also clearly understood by BT in purchasing Esat."

Mr Doherty said the sub-committee would also look at CIE's links with contractors it engaged to construct the signalling systems - Dublin firm Modern Networks Ltd (MNL) and Italian firm Sasib.

Sasib was taken over in 1998 by French group Alstom, which assumed responsibility to carry out the contract.

CIE moved last month to terminate the signalling contract days after MNL went into examinership, claiming it could not meet its commitments due to disagreements with the State group.

Mr Doherty said CIE sought tenders for the signalling project, known as Mini CTC, in January 1997. MNL and Sasib were successful, although figures within Iarnrod Eireann had expressed concern about Sasib's relative lack of experience of the Irish rail network, or the British one, which is similar.

On January 23rd, 1997, a day before MNL made its tender with Sasib, CIE received a letter from MNL's then managing director, Mr Eamonn Daly.

Mr Daly raised the possibility of installing a cabling system with much greater capacity and he proposed Esat as an "eminently suitable partner".

Negotiations later were led for CIE by its then property manager, Mr Jim Gahan, and for Esat by its then acting chief executive, Mr Leslie Buckley. Mr Doherty noted: "Mr Buckley had also been an external consultant to CIE in relation to the cost improvements and is the person who produced a `cost improvement plan' for the group in late 1996."

The deal was originally conceived as a joint venture, structured 75:25 in favour of Esat. The ultimate arrangement, however, was constructed as three separate agreements: for licensing, maintenance of the network, and its construction, which was carried out by MNL.