Value reports on broadband plan overstated operator costs by €1bn

Major value-for-money reports on the National Broadband Plan consistently overestimated by €1 billion costs facing the operator.

The error in the cost-benefit analyses carried out by PwC was discovered only in the weeks before the Government decided to proceed with the plan.

The mistaken figure, which overestimated the costs to the operator by €1.079 billion, was discovered between February and April.

That error, coupled with repeated concerns expressed about the robustness and basis of the study, led the Department of Public Expenditure and Reform (DPER) to conclude the cost-benefit analysis was not credible.

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The €1 billion error is disclosed in the final lengthy submission the department made to Government opposing the project.

"The [cost-benefit analysis] is flawed, and the project does not represent value for money on any rigorous or objective basis," wrote secretary general Robert Watt in a note accompanying the submission.

Following concerns expressed by senior department officials that the benefits of the project had been overstated in the PwC cost-benefit analysis, the benefit was reduced by €1.13 billion.

However, the Department of Public Expenditure and Reform submission then disclosed the error which overstated the costs of the project by €1 billion.

It states: “The cost side of the CBA [cost-benefit analysis] was also changed very significantly with costs to the operator . . . being reduced by Euro 1.079 billion – apparently due to an error which had gone unspotted in all previous iterations of the analysis.

“This discovered reduction in costs fortuitously compensates for the reductions in benefits arising from our observations on the previous version of the CBA

“In summary, the CBA is not credible and it is questionable whether it is consistent with the public spending code.”

Communications response

When contacted, PwC said it did not comment on matters relating to its client affairs. A spokeswoman for the Department of Communications said: “The internal workings of draft CBA models is a matter for which has provided all the necessary assurances to the department that the final CBA provided to DPER is accurate for all known costs and benefits allowed or under the public spending code and is fully compliant with the code.”

A number of cost-benefit analysis draft reports had been prepared for the Department of Communications, all of which gave a positive assessment of the project, concluding that the value of the benefits from the project would outweigh the costs of the State investment, which will amount to almost €3 billion, including VAT and contingencies.

In all of its submissions during the cost-benefit analysis process, the Department of Public Expenditure and Reform was highly sceptical of the positive conclusions and argued it had significantly overestimated the benefits.

“(If our) concerns regarding the robustness of the CBA were taken on board, it is more likely to result in a negative net present value (for the project),” it stated in February.

The mistake in operational costs had the effect of increasing the benefit because they were lower. But even when the €1 billion downward adjustment of costs was taken into account, the Department of Public Expenditure and Reform believed the benefit from the broadband plan would be negative.

The cost-benefit analysis has been used as justification for the cost by the project's proponents, including Minister for Communications Richard Bruton and former minister Denis Naughten. Both have cited a 30 per cent benefit over costs, although the Department of Public Expenditure and Reform submission has contested that conclusion. It contended the finding should be negative.

Defenders of the analysis maintain it has taken a “conservative view” of future benefits, including no assumptions of increases in the numbers working remotely, or of increases of white-collar workers living in, and working from, these rural areas.