Inquiry to ask why incomplete rail job overran by £36m

CI╔'s links with Esat Telecom will be scrutinised in an Oireachtas inquiry, beginning Monday, into a £36 million (€45.7 million) overrun on a rail signalling project. The rise in the cost of the programme - from £14 million to £50 million - led to the establishment of the inquiry.

Yet, it is the State company's connections with Esat, winner of the second mobile phone licence, that are likely to be a central part of the hearings. A subcommittee of the Oireachtas Joint Committee on Public Enterprise and Transport is believed to be very keen to pursue that strand of the inquiry.

Its chairman, Mr Sean Doherty TD, said in an opening statement six weeks ago that the electronic signalling system and a parallel telecoms network constructed on the railway for Esat were linked from the outset. He questioned why four figures linked to the signalling project left CI╔'s rail company, Iarnr≤d ╔ireann, to join one of its signalling contractors, Modern Networks Ltd (MNL). They included Iarnr≤d's head of procurement, Mr Brian Powell; the project engineer, Mr Bernard Kernan; and a solicitor, Ms Mary Hand.

In addition, a former CI╔ non-executive director, Mr Pat Lynch, became chairman of MNL when he left the transport group. At that time, he was also chairman of F┴S, the State training and jobs authority.

Once known as Murray Telecommunications, MNL went into liquidation last month. Established by Mr Jay Murray, it is central to the inquiry.

Indeed, it was an MNL executive in 1997, the late Mr Eamonn Daly, who first raised the possibility of CI╔ installing a telecoms network with the signalling system. Mr Daly suggested Esat as an "eminently suitable partner" for what he said was a "once-in-a-lifetime" opportunity to enter the telecoms business. The suggestion was made by MNL on January 23rd, 1997, a day before its tender for the signalling business was submitted.

The inquiry will ask why MNL, a privately-owned company, should have deemed it appropriate to identify such an opportunity for a State company - in the form of a link with another private firm, Esat.

Whatever the answer to that, the association proved unhappy for CI╔.

Figures central to the transport group's side of the contract were its then chairman, Mr Brian Joyce, and its then head of programmes and projects, Dr Ray Byrne. The group's chief executive in 1997, the late Mr Michael McDonnell, had proposed the Esat link as a "risk free" investment.

But the opposite proved true. In addition to the escalation in costs, the signalling system is incomplete even though the upgrade was seen as crucial to safety.

Licence revenues that CI╔ earned from the Esat system amounted to £1 million-£2 million since 1997 and a maintenance contract with the company was worth £500,000.

CI╔ prioritised the Esat project, which proceeded "long before" final agreement between the two parties was reached and before a Statutory Instrument enabling the transport group to enter the telecoms business was enacted.

When the Esat system finished, according to Mr Doherty, it proved to be a "very significant asset" for the fledgling firm controlled by the businessman Mr Denis O'Brien. He said: "This was obviously recognised by the US market in supporting the Esat initial public offering (on the Nasdaq and Easdaq exchanges in November 1997). It was also clearly understood by BT in purchasing Esat (for $3.7 billion in early 2000)." Like the Moriarty tribunal, which is investigating the award of the mobile licence, the inquiry will examine the circumstances and relationships surrounding the transfer to a private company of a lucrative State asset.

That asset, a right of access to CI╔'s railway, was secured by Esat in May 1997. The company could thus construct a land-based telecoms system on the rail network. This was crucial to Esat's development because it had been dependent on lines leased from Eircom, then Telecom ╔ireann.

But CI╔'s transfer of the right of access breached its own procurement policy because it was not subject to public tender. In addition, work on the Esat project meant the Mini-CTC initiative was left in the slow lane with costs escalating rapidly.

The transport group's only intention at the outset was to upgrade its signalling. MNL and an Italian firm, Sasib, secured the contract, although they were not initially favoured by CI╔. Indeed, MNL was one of six companies ruled out in the initial phase of the competition. Though questions were raised about its signalling expertise, a bid it submitted was re-rated in the tender process. Also, CI╔'s engineers believed Sasib was not up to the job.

Ironically, the contract to build the rail system was subject to a new procurement policy, which had been proposed in 1996 by a consultant, Mr Leslie Buckley. Soon afterwards, when Mr Buckley was acting chief executive of Esat Telecom, he and Mr O'Brien struck the deal with CI╔. That agreement breached CI╔'s newly-adopted procurement procedure, designed to cut costs.

Complex relationships lie in the backdrop and questions have been raised about the role of several key figures in the affair. Though about £13 million of signalling funding was available from the European Commission, deadlines were missed. It is conducting its own investigation.