The Government is expected to move tomorrow to defuse the controversy over the possible closure of hundreds of rural post offices by letting An Post keep its contract to deliver social welfare payments.
The Government was advised by the Attorney General yesterday that it is not, after all, obliged under EU law to put the contract out to tender.
The Cabinet is expected to accept this advice at a special meeting tomorrow morning, and make an announcement later in the day.
Fianna Fail figures confirmed yesterday that the threat to small rural post offices has emerged as a significant local election issue on doorsteps in rural Ireland. The Irish Postmasters' Union warned last week that up to 1,500 of the State's 1,911 post offices could close if An Post lost the contract.
There is speculation that the Government will also shortly consider other measures to boost the income of small rural post offices.
The controversy started last week after it emerged that the Attorney General's office had initially advised the Government that it was obliged under EU law to put the delivery of social welfare payments out to tender. This was on the basis that this was a "financial service" and that EU directive 92/50/EC stated that all such public contracts over a certain value must be put out to public competition.
Last February the Department of Social, Community and Family Affairs announced its intention to put the contract out to tender in an advertisement in the official Journal of the European Communities.
However, according to Government sources, the initial advice from the Attorney General's office to the Cabinet last week also suggested that the Government could explore whether the delivery of social welfare payments could be deemed a "social service" and therefore exempt from the EU directive.
It is understood that the Attorney General's advice of yesterday said that making social welfare payments could be classed in the EU category of "other services" and thus exempted from the directive.
Ministers attending yesterday's Cabinet meeting received papers on the controversy from the Minister for Public Enterprise, Ms O'Rourke, the Minister for Social, Community and Family Affairs, Mr Ahern, and the Attorney General, Mr David Byrne.
A single memorandum for Government outlining the options for helping small post offices is to be presented to tomorrow's Cabinet meeting. This may also propose a number of measures to bring more business to the small sub-offices.
An Post has been lobbying for some time to be allowed expand the range of services it provides. In particular, it has sought to extend its Bill-pay service to allow customers pay their ESB bills through post offices.
Other proposals to give extra business to low-earning small sub-offices include allowing the public to pay car tax and parking fines through post offices. Post offices will also soon be able to sell Aer Lingus travel tickets over the counter.
The Minister for Public Enterprise met the An Post chief executive, Mr John Hynes, on Monday, at her request, to discuss the future of rural post offices. Last January Mr Hynes wrote to the Minister's Department warning that the company's Post Offices Division faced losses of £3 million in 1999, that small rural post offices faced a worsening financial crisis, and that EU law meant they could no longer be subsidised by profits made by An Post through its letter post monopoly.