The Department of Public Enterprise did not know about CI╔ plans to help Esat create the State's first independent telephone network until after the deal was struck.
A former secretary general at the Department, Mr John Loughrey, told the rail-signalling inquiry that the deal - which required CI╔ to lay underground cables for Esat along railway lines - was a "fait accompli" when he heard of it.
At the time the deal was in the form of a joint venture and Mr Loughrey said he had "misgivings" about it because CI╔ was not in a strong enough position to be exposed to the financial risks it involved.
The joint venture was later replaced with a contract for the installation of the cables and a separate lease arrangement to allow Esat access to the lines.
But the inquiry heard it still caused problems for CI╔ and may have increased delays and costs in the troubled rail-signalling system.
The signalling system, known as mini-CTC, is two years overdue and has risen in price from £14 to possibly more than £50 million.
The inquiry, by a subcommittee of the Oireachtas Committee on Public Enterprise and Transport, yesterday finished hearings on the background to the mini-CTC signalling system.
The inquiry began examining the CI╔-Esat deal.
The inquiry chairman, Mr Seβn Doherty TD, produced a document which contained a proposal for a link-up between Esat and CI╔ dating back to 1994 but all four key witnesses at yesterday's hearing said they knew nothing about it.
Mr Brian Joyce, former chairman of CI╔; Dr Ray Byrne, former head of programmes and projects at CI╔; Mr James Gahan, former CI╔ property manager, and Mr Loughrey all expressed surprise at it.
Mr Loughrey was also surprised by the minutes of a CI╔ meeting on June 4th, 1997, which said the Department had been "advised informally" of the discussions with Esat.
He said he only found out about it on July 19th that year. An EU directive on the opening up of public infrastructure had come into effect on July 1st and the Department had written to all semi-state bodies asking them what plans they had to exploit the opportunities presented by the directive.
The letter prompted a reply from CI╔ to say heads of agreement were already signed with Esat.
Mr Loughrey did not believe CI╔ planned to hide the deal from the Department but it raised the question, "how soon would we have been told?".
The inquiry heard that the two main forces pushing the CI╔-Esat deal were the need for CI╔ to generate cash and the need for speed.
Despite reservations about the way he found out about the deal, and its initial joint-venture format, Mr Loughrey approved of CI╔ taking the initiative to create income for itself.
He said the Department gave the company £400,000 a year for capital expenditure.
"It was hardly worthwhile coming across the road to collect such a small amount in terms of its overall needs."
Mr Joyce told the inquiry he believed the Esat deal would provide income to let him buy new buses or train carriages at a time when CI╔ was "chronically short of money".
He knew ESB, Bord Gβis and Cablelink were all thinking of entering the telecoms market as competition to the State monopoly, Telecom ╔ireann, and that CI╔ would have to act fast.
"Based on the size of the market and my own experience I would have said there was room for one other operator and maybe two but certainly not three or four and whoever got in there fairly quickly was likely to succeed."