Rail signal inquiry in jeopardy but evidence gives food for thought

AS custodian of the State's finances, Charlie McCreevy has every reason to be very troubled by events in CI╔ that were revealed by an Oireachtas inquiry into a £36 million (€46 million) overshoot on a rail signalling system.

The investigation into a financial void in the transport group was set up to find out why the cost of an incomplete rail signalling project rose to more than £50 million from £14 million. The inquiry subcommittee was nearing the end of its public sessions when the hearings were suspended indefinitely on Tuesday after a High Court ruling on an Oireachtas examination of the Abbeylara incident constrained the scope of all parliamentary inquiries.

Public transport is a major political priority for the Government, which must face voters in a general election before next June. When Mr McCreevy delivers Budget 2002 next Wednesday, the sector stands to receive £470 million from the Exchequer, between capital expenditure and on CI╔'s subvention.

Some £99.5 million was spent on the subvention in 1996, a figure which rose to £259 million this year. The increase reflects a renewed commitment to public transport by the Government, after decades of under-investment and pay increases.

As Mr McCreevy and his aides finalise the Budget this weekend, public transport and roads will account for about 25 per cent of expenditure next year. In 1995-2001, CI╔ received £734.1 million in subventions. Under the National Development Plan, it also stands to be paid £2.2 billion in the 2000-2006 period.

At the very least, that demands sound management at CI╔, with administrative and financial clarity about what goes on within the group. The signalling inquiry revealed that that was absent to a striking degree when the cost of a signalling system crucial to rail safety spiralled out of control.

The system was costed at £14 million. But design delays, increased specifications, other improvements and the construction of a telecoms system for Esat pushed the price north of £50 million. Of the £11.5 million spent so far, the inquiry heard that more than £6 million was paid to consultants, internal and external.

Evidence was heard that senior figures in CI╔ - and at the Department of Public Enterprise - were unaware of the problem until it was much too late. Internal reports were spiked, others were delayed for months, and the group's finance director, Mr Jim Cullen, claimed his job was to monitor expenditure but not costs.

Some CI╔ witnesses said they could not recall key details related to the affair. In addition, four senior CI╔ staff jumped ship to one of its contractors. CI╔'s former chairman, Mr Brian Joyce, said many in the organisation ran for cover as the overshoot emerged.

Mr Joyce's successor, Dr John Lynch, agreed with suggestions at the inquiry that normal corporate governance practice had been stood on its head. Appointed last year after Mr Joyce resigned, Dr Lynch said he would implement the recommendations contained in the inquiry's report.

But the subcommittee's chairman, Mr Seβn Doherty TD, said last Tuesday that there may be no report at all. The Supreme Court is not certain to deliver a judgment on the Abbeylara ruling before the election, he said, and the inquiry would lapse once the Oireachtas rose for the election.

Report or no report, the evidence heard in relation to the group's link with Esat was intriguing. As one CI╔ board member put it, the deal was made during a financial crisis in which the transport group was prepared to consider "anything" that would improve its position. Thus the group's directors sanctioned its departure into the telecoms business after discussing the matter for only 15 minutes.

On the CI╔ side, the Esat agreement was finalised by its then director of programmes and projects, Dr Ray Byrne, and its then chief executive, the late Mr Michael McDonnell. For Esat, the principal was Mr Leslie Buckley, a close associate of its then chairman, Mr Denis O'Brien. According to evidence heard at the inquiry, Mr Buckley worked simultaneously for Esat and as consultant to CI╔ at certain stages of the process. Dr Byrne did likewise after the deal was done.

CI╔'s solicitor, Mr Michael Carroll, claimed he was left out of the loop entirely in relation to the deal and if Esat's original proposal was accepted, the transport group would have had to "sell its soul" to a start-up firm. Esat was "leaning on" CI╔, "hammering away" at its property manager during the negotiation.

Evidence was heard that the views of the senior management and board figures at CI╔ were misrepresented in comments made by Dr Byrne. A paper he presented to the Minister for Public Enterprise, Ms O'Rourke, said the group's consultants endorsed the deal as a good one for CI╔. Ms O'Rourke's relations with CI╔ were very strained during the period. She claimed Dr Byrne's letter was the coup de grace for Ms O'Rourke, when she sought a Statutory Instrument required to activate the Esat system legally. The consultants, Norcontel, said they never endorsed the agreement.

Amid these distortions, Esat was able to construct a lucrative asset on State property. Its agreement with CI╔ was never put to public tender, in breach of the board's own policy.

In addition, CI╔ had no telecoms expertise and it hired consultants only after it decided to negotiate exclusively with Esat. Still, its senior executives repeatedly denied whether the group could have secured a better deal than the one it struck with Esat, which was winner of the State's second mobile licence.

Mr Cullen said the deal was a good one for the group, because it stood to gain more than £100 million over the course of its 20-year licence agreement with Esat. Time will tell whether the deal delivers, although Esat disputes Mr Cullen's view of this year's fee.

Whether Mr Doherty's subcommittee was inclined to concur or disagree with Mr Cullen may never be known. What is clear is the sum projected by Mr Cullen will make only a small contribution to CI╔'s funding requirements in that period. Food for thought as Mr McCreevy does his sums.