Annual Report of the Comptroller and Auditor General and Appropriation Accounts.

Vote 36 - Department of Defence.

Vote 37 - Army Pensions.

Mr. D. O'Callaghan (Secretary General) called and examined.

We are dealing with the 1998 Annual Report of the Comptroller and Auditor General and the Appropriation Accounts. Today we are dealing with Votes 36 and 37 - Defence and Army Pensions. Relevant documentation has been circulated, including correspondence from the Department dated 21 and 28 June, respectively.

Witnesses' attention is drawn to the provisions of the Committees of the Houses of the Oireachtas (Compellability, Privileges and Immunities of Witnesses) Act, 1997, particularly section 10 thereof. I welcome Mr. David O'Callaghan, the Secretary General of the Department of Defence. Will you introduce us to your officials?

Mr. O’Callaghan

I am accompanied by Mr. Pat Hogan, head of corporate services, Mr. Paul Kelly, principal officer in the Department in charge of litigation and compensation and Mr. Robbie Lyons, the principal officer from our finance branch.

You are all welcome. From the Department of Finance, I welcome Mr. S.O'Neill, Mr. P. Howard and Mr. P. McColgan. I ask the Comptroller and Auditor General to introduce his report on these Votes.

Mr. Purcell

There are no paragraphs on either of the Votes before the committee this morning but there are a couple of items in the accounts which I would like to bring to the attention of the committee. The first item in note 13, on page 293 of the accounts, refers to payments arising from the personal injuries claims alleging loss of hearing, a matter which the committee has considered in detail in the past. Included in today's correspondence is an update of the figures which shows that the number of compensation claims received now totals over 15,000. As of last week, 5,813 cases have been disposed of and court awards were made in 255 cases, to a total value of £3.76 million. The correspondence also shows that out of court settlements were made in 5,233 cases, to a total value of £79.2 million. The other 325 cases were either withdrawn or dismissed. Plaintiffs' costs were paid in over 4,000 cases, amounting to nearly £33 million. That leaves 9,239 cases still remaining to be dealt with, as of last week. Those are the figures but there is some light at the end of tunnel.

Since the beginning of this year the Department has established a pilot settlement scheme whereby claims can be disposed of by negotiation rather than by litigation. The early indications are favourable in that claims settled in this way are not attracting the same level of legal costs as heretofore. It also appears that, generally, the average value of awards and settlements is falling to more acceptable proportions in the year 2000. I hope this trend will be sustained. It is a little soon but early indications are good and I am sure the Accounting Officer will be able to update the committee on this new arrangement.

Referring to the second item, note one, which refers to the absence of a system in the Department capable of putting monetary values on its fixed assets, I am talking about the land, the buildings and the extensive military equipment that the Defence Forces has in stores. The Department's statement of capital assets shown at note four in the accounts is, therefore, deficient in that respect. New computer systems are being developed to address this problem, but it is my understanding that it will be at least the end of this year at the earliest before they are fully operable. That is all I have to say at this stage, Chairman.

Thank you very much. Mr. O'Callaghan, would you like to make a brief opening statement?

Mr. O’Callaghan

Perhaps I should address the two points raised by the Comptroller and Auditor General. I agree with the figures that are supplied. Regarding the Army deafness, we have paid £115 million, including awards and costs, to date. We have, over the past number of years, got the average settlement figure down from £35,000 to a current one of a £7,500 award per case. We are relatively pleased with that. Our current estimate is that, if we can maintain that line, we are facing a further bill of about £108 million. We may get out of this problem for £220 million to £250 million. I obviously can take any questions on the Army deafness later from any member of the committee.

The second point the Comptroller and Auditor General raised was the question of an inventory management system. We have such a system but, because of the size of the Defence Forces, we have a total of some 350 different stores. The system has not been rolled out to all these stores yet due to a variety of problems, mainly because of the enormity of the project and the task. We have 80,000 different store items in these 350 stores. It is a huge operation. We had to divert information technology people from the operation due to the Y2K problem. Like every other major organisation, we are suffering a haemorrhage of IT people into the commercial sector. That has delayed matters in that regard. The ongoing reorganisation of the Defence Forces has not helped matters either, but we are fairly confident that, within the next six months, we will show enormous progress on this front.

I have just done the figures on that. The 5,233 settlements out of court——

Procedurally, let us deal with the Army deafness issue first. If we dispose of it, we will not have to return to it.

——and the 255 court awards imply 325 cases were unsuccessful. On that ratio, I would feel hard done by if I were one of the 325, would I not?

Mr. O’Callaghan

Is the Deputy talking about the 265 that were withdrawn?

I am saying that 325 out of 5,813 tested have been thrown out. On that ratio, it is a bit of bad luck to be among the 325, is it not?

Mr. O’Callaghan

Yes.

It is an extraordinary mind-blowing phenomenon.

Mr. O’Callaghan

It is, yes. We have not been very successful in court. There is no question about that. Those cases we brought to court were pretty worthless. They really were the bottom of the barrel. There was no hearing loss whatsoever, by any measure. Yes, I would agree with the Deputy.

Will Mr. O'Callaghan tell us about the negotiation scheme now in place?

Mr. O’Callaghan

As soon as we got the Supreme Court endorsement of the State's case, both its measurement formula, the green book, and the tariff the State proposed - that was in December - the Minister wrote to the Law Society in the same month and we opened up negotiations with it at the end of January or the beginning of February. As I reported to the committee on a previous occasion, the three main cost drivers to the Army deafness were the sheer volume of cases we were receiving, the high awards in court and the legal fees.

We were under pressure to cut our losses on the quantum, that is, the awards. The argument was that our goose is cooked and that we should concentrate on cutting down the legal awards while paying out the £35,000 and £30,000 per case. As I reported to the committee, we thought that was too high. We have been vindicated in that. We have got that down. Now we have to concentrate on the legal fees.

For an average case of about £7,500 to £8,000 going through court, the fees would be another £8,000, effectively another 100%. We felt we had to get that down. That was the purpose of approaching the Law Society. There were two objectives: to get the relevant technical experts - engineers, etc. - out of the frame and to get a deal on the fees. That is working. We have got about a 50% discount on the fees and the average fees now are about £3,000 to £4,000.

Are the average legal fees for both sides about £3,000 to £4,000 as against awards of £7,500?

Mr. O’Callaghan

No, that is the plaintiff's costs.

The plaintiff only?

Mr. O’Callaghan

Yes.

What will be the rough total of fees now incurred per case by the State?

Mr. O’Callaghan

The costs to the Chief State Solicitor would have to be added to that and that would be another £4,000 to £5,000 on top of the case.

Even under the negotiation scheme, the system roughly works out at one to one. In other words, legal costs are roughly as much as the awards.

Mr. O’Callaghan

I would hope that there would be cost benefits in the Chief State Solicitor's office as well. We are negotiating with particular solicitors. We have cut out the barristers as well, on the State side as well as the plaintiff's side, so there would be savings there.

Of the 15,000 claims that have been received, roughly how many are from serving members of the Defence Forces?

Mr. O’Callaghan

My memory is that it is about 4,000. I was including in that the figure for the FCA. Of the outstanding 9,000 claims, 2,672 are from serving personnel, 6,000 are from non-serving and there is a category of unknown at this stage.

Have the shutters come down? Presumably it is open to anyone at any time to claim that damage has been done to them.

Mr. O’Callaghan

The shutters are down in one respect in that, post-1987, we got our act together as regards hearing protection and we have successfully defended any case from a member of the Defence Forces who joined after 1987. Cases are still coming in at the rate of about 10 to 15 a week.

Are there any major awards in those? Is the negotiation system throwing up any cases of serious injury?

Mr. O’Callaghan

No, there is no one totally deaf or anything like that. There is nothing very serious. They are all very small. The majority would be in the zero to 10% disability.

Are individual personnel still exercising their right to go to court in some cases?

Mr. O’Callaghan

It is very rare. The cases have been adjourned by the High Court until 11 July, but they are providing a window from 11 July until the end of the term for people who want to go to court and a number of them want to do so. We feel they will settle before they get into court.

We had our own hearings on this. Whatever one might think about the number of cases, clearly there is culpability on the part of the authorities. To what percentage is anybody's guess, but clearly there was negligence on the part of the authorities. Can we be assured today that we do not have a similar situation in respect of any of the activities of the Defence Forces?

Mr. O’Callaghan

I think I can give that assurance. Obviously, we have to be cautious in areas like post-traumatic stress and asbestosis. We have a very active health and safety committee and I am assured there are no other problems of this nature and scale.

It appears that the projected cost has come down considerably from what we had considered. A factor of ten was thrown around in the media at the time of our original hearings. When was the key moment when this turnaround came?

Mr. O’Callaghan

I think the key moment was the Supreme Court judgment which accepted the State's case on two fronts. One, the formula for measuring hearing loss and, two, rather unusually, the State was asked by the Supreme Court what it thought, from its experience, a fair tariff would be. A tariff was submitted which the Supreme Court endorsed more or less. I think that was the defining moment.

That was when?

Mr. O’Callaghan

December last year.

The question of morale in the Defence Forces came up and there were problems in this area as this issue built up. Now there seems to be a resolution in sight has morale improved in the Defence Forces? In relation to that, regarding the outstanding cases - Mr. O'Callaghan says there are 2,672 among serving personnel, so there are approximately 6,000 among non-serving members - where is the most inertia and resistance to coming to a resolution? Is that within serving or non-serving personnel?

Mr. O’Callaghan

I do not think there would be any inertia on the part of personnel but that there is general relief among the Defence Forces that the issue does not have the high profile it had 12 months ago. There are measures in train that have taken it out of the headlines and which are heading towards a resolution quietly and behind the scenes in a way that seems fair to everybody.

And has morale improved?

Mr. O’Callaghan

It is difficult for me to say. There is a lot input into morale, but on this matter the fact that it is low profile and not on the front pages has helped morale, there is no question about that.

In the figures Mr. O'Callaghan has given us, a table shows awards and settlements. There are 5,488 cases. Costs were paid in 4,032 cases. Particularly in the year 2000, why were there no costs paid in over 60% of cases? What was the situation there?

Mr. O’Callaghan

This is a timelag between them. We just have not got the bills in yet from the solicitors.

So you expect there will be costs involved?

Mr. O’Callaghan

There will be, yes.

We know the quantum of the settlement figure and award is coming down, but is the quantum of costs coming down? I see the percentage costs going up because the award is reducing.

Mr. O’Callaghan

This is one of the advantages of the early settlement scheme. The quantum of costs is coming down appreciably as well. The technical experts and barristers are out of the frame now and we are getting a discount from the solicitors.

In relation to the musicians, how is the number of cases there coming along? There were 103 cases of hearing loss there and 56 are still outstanding. Are those any different from the cases under army difference?

Mr. O’Callaghan

No, they are no different. There is the same level of deafness and the same settlement terms. They are no different.

What is the situation regarding cases of post-traumatic stress disorder?

Mr. O’Callaghan

The position is we have approximately 25 claims on hand. Only one has gone to court and while the award was significant - £125,000 - that is the only case to date. There is by no means a flood of post-traumatic stress claims at the moment.

So 35 have been lodged to date according to the letter of earlier this week.

Mr. O’Callaghan

There are 25 pure post-traumatic stress claims, if you like, and ten more which are linked to road traffic accidents and so on which are claiming post-traumatic stress.

And the 25 referred to are linked to?

Mr. O’Callaghan

Nothing. They are just post-traumatic stress disorder in the main.

Would it be related to service in the Lebanon?

Mr. O’Callaghan

Service in the Lebanon. The oldest one goes back to the Congo and there are other operations.

Back to the Congo?

Mr. O’Callaghan

Yes.

So that is nearly 40 years ago.

What changes have been made, if any, to deal with future claims? Is there a compensation board now in the army? We have discussed before a means of establishing a compensation system within the army that is separate from the courts.

Mr. O’Callaghan

We do not have a compensation board as such. I understand there is legislation with the parliamentary draftsman to set up a claims agency under the aegis of the National Treasury Management Agency.

I was going to ask the Department of Finance about that. Where is this State claims agency that was proposed over four years ago?

Mr. Howard

We expect the necessary legislation to be published either today or tomorrow.

What is the cause of the delay? It is not just a matter of army deafness. There is a major problem with claims against the State in all its manifestations at local and national level that has been going on for a long time. The State claims agency was proposed four or five years ago by the Joint Committee on Finance - I was chairman at the time - and it has taken that long to bring this about. Do we have any facts or figures about the total amount of claims? We have asked the Department of Finance for figures which comprehended State agencies and commercial State bodies, etc. Are there any complete figures for claims against the State?

Mr. Howard

The fact is that there are no such figures.

Has there been any attempt made to get those figures?

Mr. Howard

We wrote to the secretary of the committee on that.

You wrote on 17 April. I have the letter here. You also wrote on 12 March last year.

Mr. Howard

We also wrote this year.

Yes, on 17 April this year. We asked last year for the figures. We asked the Department of Finance to go away and compile data it did not have at that stage in relation to the total claims against the State and State agencies, including local authorities and health boards, as well as statutory bodies, per year. Are you telling me that that has not been done?

Mr. Howard

No.

So we have no way of knowing the total cost to the State.

Mr. Howard

Not the totality in the sense that you have mentioned. We do have figures on claims taken against Ministers and they have been published from time to time in response to parliamentary questions. There was a very comprehensive set of replies last year that covered 1990 to 1997. This year there was another set on behalf of all Ministers concerning 1997 to which I have drawn the committee's attention.

What is the difficulty about getting figures from State companies, local authorities, health boards, vocational education committees?

Mr. Howard

I have been dealing with this in the context of the measures necessary to establish the State claims agency. I do not have any particular function as regards claims as such but with the legislation to give effect to the Government's decision to establish a claims agency. That Bill will be published today or tomorrow. As I pointed out on earlier occasions it is not intended, in the early stages at least, that the State claims agency would deal with claims against local authorities, health boards, vocational education committees and semi-State companies, all of whom have their own arrangements either through insurance, in the case of local authorities and health boards, or otherwise.

I know, but the genesis of the idea when it was discussed at the finance committee during the last Dáil was because local authorities in particular were being ripped off at the time. There were escalating claims and awards. This also applied to health boards but to a lesser extent and also to some semi-State bodies. It is extraordinary that five years later we are getting a Bill to establish the State agency that was proposed but does not comprehend the very people that were in the front line of claims and still are in the front line of claims.

Mr. Howard

I am subject to correction but my recollection is that the finance and general services committee envisaged not a State claims agency as such, as we now talk about it, but a particular dedicated unit within the Office of the Attorney General. That is my recollection.

The two ideas went in tandem. I was the originator of the idea. I am not happy with this anyway. I want you to come back to us with figures. Would you please write this week to each State company, each local authority, each health board and other semi-State bodies and get each Department to supply information within one month for the last five years as to what amount of claims were paid by each of these and what are the legal costs.

I am going to leave it at that because we have dealt with this before. I hope the hearings the committee itself had on this question of Army deafness helped to mobilise public, media and court opinion to get at least the sort of figures we are dealing with now. Even though they are huge, they are, as Deputy Ardagh said, much smaller than they might have been. Certainly the trajectory that was facing us has——

Mr. O’Callaghan

There is no question about it, Chairman, it is very helpful.

I would like the ask the Secretary General about the FCA which he mentioned earlier. What are the numbers of claims from non-serving and serving members of the FCA? Is the average cost of the claim the same as in other cases?

Mr. O’Callaghan

There are 242 claims from serving FCA members outstanding, 632 from non-serving members and 20 FCA uncategorised yet.

And the average cost of the claim?

Mr. O’Callaghan

It is the same.

My questions are of a more general nature. Are you finished with the deafness question, Chairman?

Yes, we are going to move on. I just wanted to divert you because Mr. Howard told us the Bill is coming out today or tomorrow. To be honest, in January last year I was complaining to you that the thing was going on three years. We were told at that stage that proposals were at an advanced stage. It was during the hearings on the Attorney General's office. Here we are 18 months further down the road and the Bill is coming out. I am not happy with it and it is not good enough. The Department could be accused of lethargy in defending the public finances. Here is an area that has been of grave concern to this committee for many years. I will leave it at that and we will discuss it again when we get the replies we have now sought within one month. These are replies we sought before and did not get.

Mr. Howard

I informed the committee on a previous occasion that the decision by the Government to establish the claims agency was taken in the middle of last July. The drafting of the provisions has proved to be quite difficult and complex in, as our legal advisers would say, a unique area for legislation. There is no existing corpus of legislation on which to build. In large measure that has meant that the finalisation of the text of the Bill took much longer than we had hoped.

We are going to get these responses. Today is the 29 June so by 29 July we will have the information we have been asking for. We are going on the general questioning.

What percentage of serving personnel have lodged deafness claims? Have you worked out the precise percentage of total serving personnel?

Mr. O’Callaghan

About 26% to 30%. Yes, about 30%.

And of retired personnel?

Mr. O’Callaghan

As we said at a previous hearing the potential was 150,000. We have 15,000 claims in total so I suppose 10% is a very rough estimate.

Does this relate to all activities within the Defence Forces or does it particularly arise from claims from areas that would have constant exposure to gunfire and that type of duty?

Mr. O’Callaghan

No, it is all areas right across.

Including those that would not have regular exposure to noise?

Mr. O’Callaghan

All members of the military do their annual firing training. That is enough.

For a specific period.

What impact will the White Paper on Defence have for instance on the sale of property and land, particularly regarding Army installations in Bundoran, Lifford and Rockhill in Donegal? What impact will the White Paper have on the Naval Service? Will it mean a reduction inthe number of ships at sea at any given time? Will it mean a reduction in Navy personnel or a change in the role of Naval Service ships?

Mr. O’Callaghan

The White Paper is very specific.

I am sorry but I may not have time to wait for the answers because there is a division in the Dáil.

Sitting suspended at 10.50 a.m. and resumed at 11.04 a.m.

The committee is in resumed public session.

Mr. O’Callaghan

On the sale of barracks, the White Paper does not contain any plans to sell additional barracks. The three barracks in Donegal - Letterkenny, Rockhill and Lifford - will remain open.

The Navy is not being downgraded by any means, nor are its numbers being reduced. Price Waterhouse produced a report in which it outlined various recommendations in regard to the Navy, including a new structure and a new staff complement of 1,144. That will be the Navy's staff complement. The Navy now has an extra ship, thele Róisín, which was launched last year and a replacement for the le Deirdre will be delivered next year.

To recap, no sales of barracks will occur other than those which have already been announced and the role of the Navy has been enhanced. The Navy will now have more days at sea than ever before.

Will the ships continue to be multi-functional in regard to fishery protection, drug seizures etc.?

Mr. O’Callaghan

Yes, they will be multi-functional and multi-tasked. More than 90% of their work relates to fishery protection and that will remain their main emphasis but they will offer assistance in areas such as drug interdiction, etc.

What properties are being sold by the Department, where are they located and when are they to be sold?

Mr. O’Callaghan

The properties being sold are as follows. Devoy Barracks in Naas is located on a 22 acre site. That property is currently on the open market and tenders are due to be received by 12 July. McGee Barracks in Kildare is a 60 acre site which has been used to accommodate Kosovar refugees since May 1999 to date. In view of the urgent requirement to accommodate asylum seekers, the Government decided on 28 March to make accommodation in the form of mobile homes available at this site for a further 200 people and that is now nearing completion. Fermoy Barracks in County Cork is a 21 acre site and it is being sold to Cork County Council for the purposes of economic development in conjunction with the IDA. The agreed price was £767,000. Castleblayney Barracks in County Monaghan is being sold to the North Eastern Health Board for £600,000.

An integration plan has been drawn up for Ballincollig Barracks in County Cork, located on a 138 acre site, following a rigorous process of public consultation. The plan has been submitted to Cork County Council which, we understand, will adopt it for the county development plan later in the year. Clancy Barracks in Dublin is based on a 13 acre site which is zoned for social housing. The barracks will be evacuated later this year and it is anticipated that the property will be put on the open market next year.

The following properties are also for sale - a six acre area adjoining Collins Barracks in Cork, former married quarters on a three acre site in Limerick Barracks, ten acres in Renmore Barracks in Galway and one and a half acres in Waterford.

Clancy Barracks is due to be sold next year?

Mr. O’Callaghan

Yes.

Has a review been carried out of all the property in the Dublin area in view of the housing need which exists?

Mr. O’Callaghan

Yes. We will only have two remaining barracks in Dublin - McKee Barracks and Cathal Brugha Barracks in Rathmines, whereas we previously had Collins, Clancy and Griffith Barracks in addition to a barracks in Beggars Bush.

What about St. Bricin's Hospital?

Mr. O’Callaghan

There have been some interesting developments in that regard. Last week, the Department of Health and Children wrote to us indicating its interest in the hospital for the purposes of a sub-acute patient hospital. The Department basically wanted to know whether we would sell the property to it or give it to the relevant health board. We are considering the proposal very seriously. A review body is currently examining the entire range of medical services being provided to the Defence Forces and it will make certain recommendations in that regard. It will also make a recommendation in regard to the future of St. Bricin's Hospital. We regard the request from the Department of Health and Children as a very serious one and will look at it in a very positive light.

Thank you. The committee notes the Votes.

The witnesses withdrew.

Vote 32 - Department of Public Enterprise.

Mr. B. Tuohy (Secretary General) called and examined.

Witnesses' attention is drawn to the provisions of the Committees of the Houses of the Oireachtas (Compellability, Privileges and Immunities of Witnesses) Act, 1998, particularly section 10 thereof. I welcome Mr. Tuohy, Secretary General, Department of Public Enterprise. Perhaps you will introduce your officials.

Mr. Tuohy

I am accompanied by Mr. Dan Commane, principal officer in charge of financial services, Mr. Derek McConnon and Mr. Pat Mangan, assistant secretary in charge of public transport. Two other assistant secretaries, Mr. Eamonn Molloy and Mr. Martin Brennan, will attend later.

Mr. G. Kenny from the Department of Finance is present. Who else is present from the Department?

Mr. Byrne

My name is Paul Byrne, principal officer, public expenditure division. I am accompanied by Mr. Dermot Quigley, principal officer, public expenditure division; Mr. Tony Lynch, assistant principal, public expenditure division; Mr. Colm Lavery, administrative officer, public private partnership division and Mr. Gerry Kenny, assistant principal, vote control division.

You are all very welcome. I ask the Comptroller and Auditor General to introduce the Vote.

Mr. Purcell

Thank you, Chairman. There are no paragraphs on the Department of Public Enterprise. This is largely a policy driven Department and, as you will see from the Appropriation Accounts, most of the Department's budget for 1998 went on the subvention to CIE. Expenditure on capital costs of Dublin light rail started assuming significant proportions in that year when there was an outturn of £7.4 million. On the receipt side, the Vote acts as a vehicle for bringing surplus moneys on Aer Rianta's operations into the Exchequer. That amounted to £14 million in 1998. I should also point to an appreciable sum garnered from data provided by the Met Éireann Office amounting to £5.5 million in the year. Earlier this year I completed an examination into how Met Éireann measures its effectiveness, including its revenue earning activities. That report will come before the committee for consideration in due course.

For the past few years, the Department has prepared annual accounts on a full accrual basis, including a balance sheet. This is a praiseworthy endeavour by the Department which will undoubtedly have a valuable input into the development of new accounting systems and formats for Departments and Offices in the context of the Strategic Management Initiative.

Mr. Tuohy

The Department is primarily policy driven in relation to the CIE subvention. This policy has been continuing over the past number of years and we can discuss these issues. The LRT project is going ahead about which there was a debate in the House recently. The Aer Rianta issue is currently being debated. I will take questions on any of these issues rather than making statements.

What is the position in relation to LUAS and when will the trains be running? I have lost sight of this project.

Mr. Tuohy

The Government approved the LUAS package and in March 1998 it decided to look at the future of light rail in Dublin. The original proposal was for a light rail system from Dundrum to the city centre and back to Tallaght/city centre/Dundrum. That was switched to Sandyford/city centre, going underground at St. Stephen's Green to Broadstone and continuing on to the airport.

Will the underground section continue as far as Broadstone?

Mr. Tuohy

That was one option known as the B line. The other option was the A line running from Tallaght to Middle Abbey Street. The second section was to run from Abbey Street to Connolly Station. Inquiries were held under Mr. Justice O'Leary and reported on. Approval was given for the A line from Tallaght to Middle Abbey Street. The judge suggested to the Minister that he would not like to approve the proposal at that point for a station in Connolly Station. Instead a new C line was proposed, including a new location for the station. That inquiry will be heard around 18 or 19 September 2000. Approval has been given for the line from Tallaght to Middle Abbey Street and work is proceeding on that.

On the Sandyford to St. Stephen's Green line, we have gone through the process of the inquiry after which approval was given. The Minister recently announced in the Dáil that work on that line is going ahead. The Tallaght line is on target to come on stream in 2002 and the other line will come on stream in 2003. The Dublin Transportation Office made a submission to the Cabinet sub-committee at one of its monthly meetings. We have been considering the changing numbers in relation to the strategic planning guidelines. The numbers projected for Dublin in 2011 are much higher now than was originally projected. This raises a whole series of issues about what type of transport system should be in place to cater for these numbers.

Some of the issues about the level of underground and the idea of a metro have been debated and discussed there but they have not yet come back to Government with the proposals on that. We are talking about some sort of a meshed system involving a series of interlinking, coming from the west - from Maynooth - and from the north side - the Belfast line - and increasing capacity there so that you do not clash the suburban rail with mainline rail, and moving on from that.

Unfortunately, there is a vote in the House and I must interrupt proceedings again.

Sitting suspended at 11.21 a.m. and resumed at 11.30 a.m.

Mr. Tuohy, you were telling us about the Luas. You said that the Tallaght line will be completed by 2002. You will notice the blank look of disbelief on my face.

Mr. Tuohy

We are on target. Twenty tram cars for operation on the line have been ordered, the first of which will be delivered by the end of next year.

What work has been done? Some nibbling work is being done in Tallaght. I have not observed anything else.

Mr. Tuohy

Work is continuing on the line from Belgard to the Naas Road. There is a series of works, including the moving of utilities, which is a huge issue. They are doing this in stretches. As you know, work is being monitored by a group which reports to the Minister every six months.

Is it still envisaged that the Naas Road will be reduced to one lane from the M50 roundabout?

Mr. Tuohy

As approved.

Does that mean it will be reduced to one lane?

Mr. Tuohy

Yes. One of the issues——

Does the Government know this? Will it allow it to happen before the general election? This is crazy. We have just spent millions of pounds of public funds on widening the Naas Road to three lanes each way from Newlands Cross. It will now be funnelled into one lane a couple of hundred yards away. This makes no sense. It is the sort of thing that discredits the planning system. It makes one wonder what the planners are at.

Mr. Tuohy

As you know, the public inquiry stage has been gone through. The issue has been debated publicly, so it is not just popping out of the sky. People have been dealing with it for a number of years. The programme, as outlined, is going ahead. That is the plan and we are on target.

There is another perhaps more philosophical issue——

You are a new Secretary General. I advise you to look at this as this will cause mayhem and many political difficulties for whoever is Minister at the time. This is easily predictable. Yet, it is going ahead. You should note what I have said. From the committee's point of view, millions of pounds have been spent on widening the road to three lanes from Newlands Cross. It will now be narrowed to one lane at the M50 roundabout, 200 yards away. This is absolutely crazy. I do not see any work being done on the Naas Road.

Mr. Tuohy

I gather that they have reached the end of the Belgard Road. They are removing the utilities and doing much of the other preparatory work first. Later in the summer we will be seeking tenders on the construction side. That is when you will see major development but the utilities will have to be moved first. They are taking the opportunity to consolidate these works.

I know that your Department does not have responsibility for roads - this is an anomaly - but can you explain the rationale for widening the road to three lanes at one point and narrowing it to one lane a few hundred yards away? Is there any transport rationale?

Mr. Tuohy

From a general point of view, there is movement towards public transport. If one looks at the peak hour traffic figures for the greater Dublin area, one will see that there are about 250,000 journeys, of which about 170,000 are by car and about 80,000 are by public transport. It is projected that by 2011 there will about 500,000 peak hour journeys. It will be physically impossible to undertake all of these by car. Given the number of cars on the road, there is a limit to the number of journeys that may be undertaken by car. Everybody will agree that it is much more efficient to move people by public transport. It is also much more environmentally friendly. If one wants to move masses of people at peak hours, one has to use a mass transport system. Between Tallaght and the city centre the Luas will have much greater carrying capacity than buses.

We need more public transport. What we should be planning for is the introduction of a metro system in the next 20 years. There seems to be a philosophy that one also has to close down or narrow roads everywhere. Public anger is welling up. It does not seem to make any sense. No other city has tried to solve its transport problems in the way we seem to be attempting to solve ours. We do not use underpasses, overpasses or bridges, although we have a tunnel to the port. An underpass or overpass would greatly help at 15 to 20 key junctions in and around the city. There would also be a cost benefit but there seems to be a philosophy that we have to screw the motorist.

For its population Dublin is a very big city in terms of spread. People mostly live in houses with gardens. There are inevitable consequences for the use of the motor car. This is not being recognised. It is also not being recognised that, despite the huge increase in the numbers of motor cars on the road,per capita we do not have the same numbers of motor cars as societies on the Continent on equivalent income. This is not being taken into account. I predict that reducing the Naas Road will cause chaos and I still have not received an answer to my question. Why did we spend public money widening a road to three lanes - it was completed only in the past year or so - when we are proposing at the same time to reduce it, a few hundred yards in, to one lane? It will cause a funnel effect and chaos. Can you give me any rationale?

Mr. Tuohy

Let me give a parallel example which is the quality bus corridor from Stillorgan right into Donnybrook. There is the bus lane and one other lane and the funnel effect the Chairman talks about. The predictions on that at the time were that there would be chaos. That has not happened in the sense that the system has operated very effectively. The take-up on the quality bus corridor has been phenomenal for the simple reason that the buses are provided on time, at peak time about every 90 seconds, and they are flowing straight through the system right into the city much more effectively than the cars. I suppose the issue you raise, the roads issue, comes from the Department of the Environment and Local Government. Putting a light rail on top of that or a surface transport system as is proposed, means replacing the space that is used by cars with a proper public transport system which people will use. That has been the experience on the Lucan, Stillorgan and Malahide QBCs. In particular the Stillorgan QBC has been very effective.

None of them is equivalent to what is happening on the Naas Road. The Stillorgan road was reduced from two lanes to one or from three to two, whatever it is, whereas the Naas Road is being reduced from three to one within 300 to 400 yards. I do not know what the distance is from Newlands Cross to the M50 roundabout, but it is probably 300 or 400 yards, and it goes down to one lane between two intersections. It is crazy, and we will be spending public money doing it. That is what is of interest to this committee.

Mr. Tuohy

I take your other point about roads generally, although roads is not our area. I take the point about overpasses and underpasses. It is at junctions that many problems arise, if traffic is funnelled into a junction. I gave the population projections. You are right about the density of cars here. The ownership of cars here is still way below the European average. If we provide an alternative, a good public transport system, people will change their mode of travel from cars to a good transport system.

Of course, that is highly desirable. Everybody agrees that we should try to move more people to public transport. However, there is a limit to what can be achieved because of the spread out nature of our city. That reality is not being faced. If we are to have rapid transit, we cannot have too many stops. If there are not too many stops, there will not be the population catchment to justify the stops, and that is the consequence of low density. Reality will dawn one of these days I suppose. We are going to have the first Luas line on time in 2002?

Mr. Tuohy

That is the plan, and it is on target at the moment. We have a monitoring group which is monitoring the Luas on behalf of the Minister. It is an external group.

Is Aer Rianta going to stay in public hands?

Mr. Tuohy

The Minister has asked Aer Rianta and the board of Aer Rianta to look at the future of Aer Rianta. They commissioned a report, and they reported to the Minister who subsequently reported to the Government. Jointly we commissioned a study with the Minister for Finance. That was given to Government and published earlier this year so that we will be in a position to have a debate on the issue.

The Minister has made it clear, a number of times, that she does not envisage injecting Exchequer capital into the company. The situation is that the company needs money going forward. There is a number of ways of achieving that. It can be done through a strategic alliance. In this situation, that has been ruled out. The other way is through an IPO, an initial public offering, or by the Exchequer putting in the capital. The Minister is of the view that the Exchequer will not be doing that. The capital requirements of Aer Rianta are over £500 million. We are in discussion with them about that but, certainly, they are £300 million plus going forward.

Over what period?

Mr. Tuohy

Over the next four years to 2003. It's capital expenditure programme from 1999-2003 was £520 million - £374 million to be spend in Dublin, £85 million in Cork and £61 million in Shannon. The proposals, which we have been looking at with them, require a £300 million plus capital requirement. The recommendations from the consultants that were appointed, Warburg Dillon Read, were that we would seek an initial public offering, a minority offering in the sense that the State would still maintain majority ownership of the company at a minimum 50.1% but possibly more, depending on the markets at the time and how much we were going to float, a minimum of 30% to be floated. The Government has not decided on this. It is just the recommendations from the report. The Minister has been in discussions. There has not been a final decision on that.

Generally, it is policy issue. Let me talk about CIE, specifically Iarnród Éireann, relating to the question of Luas and rapid transit and passenger services. Where are we in relation to upgrading the railway lines, extending the Arrow service? What exactly are the plans there at the moment? What is the pace of those plans?

Mr. Tuohy

On the rail side, the Minister recently announced, on £185 million for rail, 48 extra DART cars to increase the capacity by about 40%, 60 extra suburban rail cars which will increase the capacity by about 25%, and eight new car trains, which is due to the new length, as opposed to the traditional smaller ones on the Arrow line. We have also commissioned, as part of the DTO exercise, a Dublin suburban rail study. That recommends an extra 150 DART cars at a cost of about £1.3 billion, and that is being considered as well.

One hundred and fifty DART cars?

Mr. Tuohy

One hundred and fifty extra DART cars.

What is the unit cost?

Mr. Tuohy

I would have to work it out. That is all the interconnections that we are talking about, a full package.

That is the full package?

Mr. Tuohy

Yes, with the underground.

With the underground section for Luas?

Mr. Tuohy

Yes. In this year alone, there are 26 new DART cars to be delivered by the end of 2000, with another 48 to be delivered in two years' time, 20 new suburban rail cars for delivery by this year, with another 60 in two years' time.

Where are they supplied from?

Mr. Tuohy

Spain, and Mitsui in Japan. There are 26 trams for the Luas LRT out of a total budget of £90 million for Luas in 2000, and we are talking about 26 tram cars for Luas which are included in that as well. I can give all those figures, Chairman.

The cost is £1.3 billion. What about the lines themselves? Are there any more Arrow stations planned?

Mr. Tuohy

Certainly on the Maynooth side, we are talking about a number of new stations on the Maynooth line. The locations have not been decided. We are talking about upgrading the Maynooth line.

That is the line that is only a single line at the moment.

Mr. Tuohy

Exactly, and double from Clonsilla.

When will that happen?

Mr. Tuohy

It started this year and will be completed by the end of this year. It involves doubling the existing single track between Clonsilla and Maynooth and resignalling the route. Regarding the total project, track and signalling, is about £18 million; extending the platforms is about £2.5 million; the stations themselves about £4 million; and the diesel rail cars about £21.8 million, giving a total of £46.3 million on the Maynooth line.

Is that the line Dublin Corporation are talking about, a new line at Ashtown or Pelletstown? Is that included?

Mr. Tuohy

That is the new airport one. We are looking at access to the airport as well. We have commissioned a study on that as well.

What about the line that goes out to Ballyfermot and under the Park? Will there be any more stations? From Sallins, Clondalkin——

Mr. Tuohy

That is the Kildare line. We are going to quadruple that. That is between Hazelhatch and——

Are there any stations proposed?

Mr. Tuohy

In what section?

For instance, Cabra - Carnlough Road, Quarry Road. There is also the question of Inchicore and Ballyfermot. Are there any?

Mr. Tuohy

The strategic rail study that I am talking about is an overall package looking at not just rail but at linking into the planning guidelines for Dublin. Included in that is the whole issue of density which was raised earlier.

You asked about the provision of new stations at Intel, Lucan north and south, Ashington and some new depot facilities as well included in the——

That is on the Maynooth line.

Mr. Tuohy

Yes.

I hear a lot about DART but not an awful lot about south west Dublin, the line out to Clondalkin-Hazelhatch. I would have thought that Ballyfermot with a population of 25,000 would be an obvious place for a station. There is one in Cherry Orchard in the far——

Mr. Tuohy

There is an issue here - to improve existing capacity before starting to develop new stations. The list of new carriages and so on that I outlined is partially to deal with the existing position, which has not been invested in for a number of years, and to bring it up to speed. One would then be in a position to move forward. New lines cannot be planned without track or carriages. The emphasis has been on massive investment in the infrastructure. Outside the Dublin area, there is a £650 million investment plan. Some £500 million will go to the mainline rail network, £350 million of which will be spent on railway safety over the next four years. This development will result in almost 500 kilometres of new track. About £150 million will be spent on renewal and upgrading of track, stations and rolling stock. It is a huge level of investment.

It is also a moving thing, it keeps changing; the population projections keep changing and there are many good ideas every month.

Mr. Tuohy

One of the key issues is that if one looks back at the projections and the initial planning five or ten years ago and even in the past year the projections going forward to 2011 have changed dramatically.

Does Deputy Ardagh wish to ask a question.

Yes, just one question first on a general basis. The last time I heard Mr. Touhy speak was at the public enterprise committee in relation to the national development plan and he said he was looking at it not as seven years but as 28 quarters. Two quarters have gone by. Is the programme up, behind, ahead or on target?

Mr. Tuohy

At the moment we are fairly well on target. On average we are on target. Some of the issues are slower because of the various difficulties. I explained earlier about the light rail. The Minister has an external group which produces a report every six months on that. In respect of our own investment programme, on the public transport side, we are on target. On the telecommunications side we announced a call last week for £120 million with the potential to increase it to £150 million towards advanced telecommunications infrastructure. We also did a separate one on satellite for rural areas which would give satellite access to the Internet. On the energy side we are bang on target.

Our major investment is in public transport. The Cabinet sub-committee, which meets on a monthly basis, is tracking this. As I said at the public enterprise committee our fear is that while seven years seems a long way off when it is broken down into quarters, of which two are gone, one has to start delivering in those periods. The plan was prepared at the end of last year and submitted to Brussels for approval and so on. It then takes some time to get the organisational infrastructure in place.

In our own Department you may have heard the recent announcements on changes to the whole liberalisation of public transport, which is part of the package. It is not just about investing, it also about changing the environment for the sector. The Comptroller and Auditor General said earlier we are primarily a policy Department. In some ways we are; it is about changing the competitive market for telecommunications, public transport, electricity or energy as the case may be. The investment programme is one thing but the parallel changes in the economy are probably more important because the private sector will invest in many of these areas if the market is right.

How is your agenda going specifically in relation to regulatory energy, telecommunications, public transport and all these competitive——

Aer Lingus and the ESB in particular.

Mr. Tuohy

The Aer Lingus IPO is still, as the Minister said, on target for the end of the year, possibly the beginning of the new year, depending on market conditions. We had formal discussions with the unions and the Minister met them the other day as well. That is very much on target. On the energy side, we liberalised the energy market earlier this year. On the aviation side, we had hoped - I am not sure given the current issues in the Dáil - to the take the Aviation Regulation Bill, 2000, tomorrow through to the next Stage but I gather it may be put back to the autumn. We have established a shadow aviation regulator whose office is up and running. He does not have any legal powers at present but he acts on behalf of the Minister, who still has the legal powers, particularly in regard to airport charges.

On the electricity side the Minister announced the early liberalisation of the electricity market - bringing forward not only what was required under the directive but moving beyond that. The outcome of the tripartite negotiations involving the management, unions and the Department was to buy into certain things, early liberalisation and in relation to the peat stations, the closure of some of the older type technologies and their replacement with two new peat-powered stations, and the electricity market intimately linked to the gas market because gas will be the major power going forward other than renewable energy. We would hope that the Gas (Amendment) Bill which is going through the Houses will be completed before the recess. That will allow us to continue to proceed with what has been proposed.

The electricity regulator has been given specific functions, on behalf of the Minister, on an administrative basis, as opposed to on a legal basis, in regard to competition, liberalising the gas market and deciding on who gets gas for the next electricity market. We believe there will be sufficient gas for about two new players immediately. As the new gas comes on board from the Corrib field off the west coast with the North-South interconnector and/or enhancing the east-west one into the UK, there are issues there for discussion and they are all in the melting pot.

In relation to telecommunications, we have liberalised the market. The Minister made an announcement after the Cabinet meeting on Tuesday about her proposals to go the last mile which involves the local loop in the telecommunications market. There will then be competition for the last mile with the local exchange. That is a critical element to finish the package.

At the Lisbon Summit and again at Feira where Europe was looking at its competitivenessvis-à-vis the US, bringing forward the early unbundling of the local loop was a big issue. Even though there is a debate on it the consensus is that competition is important for the economy. We have seen the impact of competition on telecommunications, we saw it in the aviation industry ten years ago. After the Government meeting the other day the Taoiseach made a point about measures to curb inflation - competition is one of the elements in that. What we have been trying to do is to move them in parallel with the infrastructural development which my colleague, Mr. Pat Mangan, is involved in the public transport side.

In relation to unbundling the local loop, will that include the fibre which NTL is putting in around Dublin? Will access to that fibre be allowed to other companies in the legislation proposed?

Mr. Tuohy

The legislation is not drafted. We have announced we will have a consultative forum with the industry. That is a huge issue. It was a huge issue in the US and is still very much a live debate there. The cable companies were licensed earlier in the year for digital. Part of the package was that they got an exclusivity for three or four years. The purpose of this was to allow them to invest upfront. The issue on the telecom side is that when one replaces a monopoly, one wants to encourage new operators to come in and one must give them some added advantage. They cannot connect into everybody, so to speak, therefore, one gives them the right to lease a line from Eircom and to connect in at that stage. This could be very positive from Eircom's point of view in that this should make available some of the new advanced technologies such as XTSL or ADSL to the home, which Eircom currently is in the process of providing but has not provided on a widescale.

The Chairman and I come from constituencies where there is a high concentration of socio-economic groupings who are not wealthy.

The Deputy put that very well.

Thank you. I am worried that a digital divide is building up between those who can afford a computer and access and those who cannot. Access to third level education in areas such as Fatima Mansions and Dolphin House is minimal. Is action being taken within this to deal with the digital divide and remove it?

Mr. Tuohy

The Minister will issue some material on this during the next 24 hours. From the points of view of the Department and the Government, we do not want an information rich/information poor divide, otherwise we will be going backwards. In the call we issued last week in conjunction with the EU, some of the key scoring criteria on this deal dealt with the social or digital divide issue. It is a major issue. It is not about only providing technology, it is about providing education and training.

The digital divide is not a uniquely Irish issue. There is another digital divide between the first world and developing world which makes what we are talking about pale into insignificance. The UN will address this at the Millennium Conference in October. We have been involved in the discussions on that because we consider it is an issue on which Ireland has a unique contribution to make. We are perceived internationally as a very successful knowledge economy, a country that has jumped a generation. We have not had the traditional factories that existed in the UK. We have jumped over that and done it very successfully.

The next challenge facing the UN, and the Government, will be to make sure such a digital divide is not created or enlarged. We are working on providing access through education through the schools. Access is also provided through public libraries. We expect responses by August to the call we issued last week for specific weighting to deal with social exclusion and the digital divide. We hope to get a response from business because we will not provide it ourselves. We will part fund the industry to do this and we have been successful in that regard in the past.

We did it before in terms of bringing the broadband to rural areas; from memory, we brought it to about 120 towns. We support it from the north-west to the south-west. Even in the Dublin area, we provided funding for cable out towards Tallaght and in places such as Clonmel and Kilkenny. In terms of Cablelink, we provided fibre optic cable from the Cablelink head-end at Terenure to a node at Belgard Road in order to serve the SMEs in Tallaght. That came under the last call. We are open on this. We have written to all the county managers and the regional authorities and asked them to consider this issue and indicated we would be prepared to work with them. The Chairman spoke earlier about the road system, but this is the road to the future.

With regard to interconnection to Britain——

Mr. Tuohy

Global Crossing?

Yes, at what stage is that at?

Mr. Tuohy

Global Crossing was a commitment by Government to increase the capacity into and out of the country. There has been a massive change in the use of technology over the past few years. The demand for voice traffic has now been surpassed by data. Data are going one way and voice is going another way. The demand for data is increasing exponentially.

E-mail and business——

Mr. Tuohy

E-mail, video clips and any of the new technologies are much more demanding of what is called bits of data capacity.

Did you say voice traffic is declining?

Mr. Tuohy

Voice traffic is declining. There is a massive increase in data as opposed to voice traffic.

Surely voice traffic is increasing as well, but not as exponentially as data?

Mr. Tuohy

No, there are replacements. The Government recognised that, as a country, we will be a knowledge based economy primarily in the next ten years. We have positioned ourselves with the IDA and the IDA considers this is a major area going forward. As grass is to agriculture, the e-commerce revolution is to industry. If one provides the band width, the industries will come. We are in competition with the Dutch, the British and the Swedes. A Government decision prior to last year's budget sanctioned approval for £60 million to be spent. We went out to tender, EU procurement and so on. The successful company was Global Crossing and we signed a deal with them last June. To use some technical terminology, there was 160 STM1s with a capability of increasing that by another 80. An STM1 is 145 megabits per second, so in one fell swoop we were increasing the capacity by about 15 times. That are 12 fibre pairs coming into the country, of which we are currently using two for this. This is what is called unlit fibre which means one can ratchet up this by putting software at either end which will enable one to increase the capacity. This gives the country direct connectivity into 36 cities in Europe, 24 initially and subsequently 36 and back into the States. With that package, the proposal is to give 16 of those STM1s to the Higher Education Authority to link in the Higher Education Authority net our research institutes. We part funded the connection between them last year to increase their capacity and to link that back into the States. We have had an agreement with the United States, as part of our ongoing liaison with them, to connect into the next generation Internet research to the National Science Foundation. We would like researchers in our third level institutes to have unlimited capacity at their desktops. They are developing the applications here and using them as part of their normal business.

One of the key elements facing a country going forward with an industry is having the appropriately qualified people. A shortage of such people would be a bottleneck to such an industry going forward. Given that all students going through the our third level system are coming out with this level of familiarity with the technology, that gives us a competitive advantage. We have witnessed that in the past year. What is called tier one level access onto the Internet is direct access onto the backbone of the Internet. The Internet is a interconnection of networks around the world in the main centred to the US, developed out of the US, through what is called "May East" and "May West" in the States, with about 60% of it going through Virginia. Our major connectivity was through the London Internet Exchange. In the past year we have five or six new companies who have given us direct access here onto the backbone of the Internet. That is the success of this, the fact that we have invested up front, got the connectivity and are using the £150 million programme to roll out that broadband to other areas around the country.

Strategically, is Global Crossing one physical thing or do we have an alternative if anything were to happen to it?

Mr. Tuohy

There are existing connectivities. We talked about this two years ago and when we talked to the various telecom operators here they said there was no business case to do this, in other words, they had enough connectivity for any demand by any customers. That was correct. In some ways, there is a philosophical issue here about the role of Government in a liberalised market. We would still take a view that, as a small country, there is still a strong role for Government to act as a pump primer. On the Global Crossing deal we invested £60 million and we are now reselling that to the operators. We hope that the saving we made by buying in bulk at a massively discounted price will be passed on directly to the operators which will reduce our telecom international connectivity to 15% or 10% of what it is at present. One can imagine the competitive advantage that would give the country going forward. That is essential to continue the developments we are talking about in the e-commerce agenda.

I would like to talk about this for a few hours, as I am sure would Deputy Ardagh.

In relation to the Global Crossing capacity, is it 160 STM1s? Mr. Tuohy said that the growth of the usage in data is exponentially increasing. At what stage will we reach and use that Global Crossing capacity? If it is increasing, it will happen sooner rather than later.

Mr. Tuohy

The 160 ST1s with an option of another 80 is only the first phase. That does not include the dark fibre.

How much dark fibre is there?

Mr. Tuohy

There are two points about the dark fibre. First, it is related to the software put on either end of it. It is pure fibre which is unlit. The capability of the technology is going up dramatically. We envisage that this year we will have approximately 500 gigabits out of the country. Within the next two or three years it will be well over a terabit. One goes from megabit to gigabit to terabit, which is one thousand each time. This is huge.

What about nanobit?

Mr. Tuohy

Nanobit is the other end. That would make us one of the highest connected countries in Europe, ahead of the Dutch. That is a necessary competitive advantage.

When will that be in place?

Mr. Tuohy

The Global Crossing will be switched on next month. We have a telehouse in Citywest. There are two alternative routes.

The strategic backup.

Mr. Tuohy

One comes in off Kilmore Quay and one comes north by Carnsore. There is approximately a 20 mile difference. They are running in two routes into Dublin to Citywest. There will be a second telehouse facility.

There is a strategic backup.

Mr. Tuohy

Yes. However, this is not the only connection. Eircom has its own connections and NTL has its connections coming in from the North. We have been working on an up to date report which we will publish later this summer and which I will make available to the committee. It shows this level of connectivity into and across the country.

It had better start with a glossary of terms so I can understand what you are saying.

Mr. Tuohy

I will do that.

As regards the electronic procurement of Government purchases generally and the need for the Government to ensure that other industries get up to speed quickly on e-commerce, are there any plans to set up an e-procurement system so that the Government and its agencies can purchase supplies?

Mr. Tuohy

I am glad you asked me that because there is a request for tenders from the Department of Finance in today's newspapers for e-procurement. The Government recently announced the e-government initiative. It is linked to a number of things. We hope the Electronic Commerce Bill will be passed in the Dáil tomorrow and then in the Seanad on Monday. That will allow people to do deals electronically and to enter into contracts.

The second element is the Reach programme in the Department of Social, Community and Family Affairs which allows people to have a number on a voluntary basis and allows them to deal with the Government electronically. That programme is up and running. We are not doing it but the Department of Social, Community and Family Affairs is linking in. The third element is Revenue On-line which will come on stream in September or October of this year. This will allow people and businesses to file taxes.

The more general issue for the Government is e-government of which e-procurement is a key element. There are technical and legal issues to be addressed. The EU e-procurement system at present can be inhibiting. Good businesses do things in real time. They can have their own marketplace for whatever products they are looking for and they can pay for it if they are big users. If they need a certain amount today, they can get the best bet today. However, it must go out to tender under the EU system. There is a conflict between the two. These issues will be discussed by the group overseeing the procurement.

People should start to deal with the Government electronically by filing returns, being able to access the websites and interacting electronically without any human interaction, while getting what they can. On the procurement side, the EU sponsored a number of initiatives in recent years to check this out in the car industry and some others. Companies, such as General Electric, Cisco and Dell deal electronically. The savings are phenomenal.

When will it be rolled out?

Mr. Tuohy

It is not our area but we are involved in it. Now that the tender has gone out today for advice, it will probably be over the next two or three years. It will come in bits; it will not come overnight. There is a real commitment in the Government. We cannot talk about being an e-commerce centre if we cannot deal with Government electronically. This goes back to the issue of social digital divide which was raised earlier. This should be for everyone.

As regards the resources and expertise to deal with this, what expertise does the Department have? What does Mr. Kenny think of this complex issue? How is the Department organised to look at many major issues at the same time?

Mr. Tuohy

We have good staff of which we are proud. We work closely with other Departments, such as the Department of Enterprise, Trade and Employment, the Department of Finance and the Department of the Taoiseach. We must move quickly. We are lucky in that we have good people who are interested in the areas. It is not just another job for them because they are keenly interested. They work closely with each other and they track what is going on in business and industry. That is the key.

There is still a strong public service ethic. This is about positioning the country and about going forward. I heard you, Chairman, talking earlier to officials from the Department of Defence about losing IT people. There is a risk that we will lose some of our best people because they are attractive to industry, whether they are the new regulated industries on the energy side or industries in telecommunications or commerce. As long as we have people who are committed to public service, we are exceptionally lucky. We are proud of this small group of people.

That is impressive. You obviously enjoy it. How do you, Mr. Kenny, cope with these big issues which are new since I was Minister ten or 15 years ago? Are you on the Vote?

I am on the Vote control and administrative side. Our mission is to facilitate the Department in providing it with the resources, the staff and the expertise todo this work. This is a new and different area of operation for us. The Department willcome to us with its requirements in terms of staffing and resourcing. We will do ourbest to provide that. The Secretary General mentioned the difficulties in acquiring expertise. There are various ways to do that. It is within our remit in the Department to allow it to do that through different methods. It is not always possible to have civil servants in the Department with the skills required but we require it to look for them. We facilitate it in these areas.

There are no barriers in the Department's way.

I would not say that. The programme side of the Department has its own involvement in these areas.

Who is the expert in technology in the Department of Finance?

Mr. Byrne

On the technological side, we have expertise from our CMOD area. They are not represented here today but the people would have specific training and knowledge in IT and the new technology developments. They advise and work closely with the Department of Public Enterprise on these matters.

I presume the Department of Enterprise, Trade and Employment and the Department of Education and Science are also included.

Mr. Byrne

Yes.

It is no harm for us to discuss this issue. Given the recent scandals, people forget that many people are involved in public service at a cost to themselves. That is why the country is successful. I appreciate what they do. The nature of this committee and audit is to highlight deficiencies but we also have a duty to recognise achievements. This is a great story and it is public service at its best. I ask the Secretary General to convey my wishes to his Department and to the Department of Finance. It is great that so many people are willing to serve their country.

Mr. Tuohy

We appreciate that very much. Under the SMI, there is an information society action plan for which funding is specifically available. We managed to get resources in terms of both staffing and money. Just like the SMI fund of which the Comptroller is aware, this is another fund dealing specially with information society matters. They do not fit neatly into any box but span all the Departments. The only way we will succeed is if we all move together on this. There is a range of issues.

Is there an effective interdepartmental forum for doing that?

Mr. Tuohy

There is a group at assistant secretary level, and the secretaries' group now meets on the SMI once a month. The Government issue is very much on the agenda. I pay tribute to the Departments of the Taoiseach and Finance which have put up a fund specifically for this. They are very good and quick to respond to proposals. We will be looking for more.

It is a great investment which is clearly yielding great dividends.

I wanted to ask Mr. Tuohy about the third generation mobile licences.

Mr. Tuohy

The UMTS, or third mobile licence, is the next generation of mobile technology. Effectively, it will mean you will have megabytes of capacity on your handset, depending on what happens with the technology. To go back a stage, Europe has been exceptionally successful in the last generation of mobile technology and the handsets we are all using on the GSM. Europe got its act together and set a standard. The US did not set a standard and was way behind. Finland is projecting 110% penetration of mobile phones over the next two or three years - that is, people having more than one mobile phone. We are close to about 50% at the moment——

We will all be Charlie Birds.

Mr. Tuohy

——which is increasing. I think there will be another dramatic increase when the third operator comes in here later this year. We have GSM technology and there is a new technology called 1800, which has twice the frequency. The existing frequency is 900 megahertz per second. Double that is 1,800, which gives a greater bandwidth to allow you do different things. It is more of an urban issue.

The next stage is gigahertz for the next generation of mobiles, the UMTS, as it is called. They have tried in Europe to agree a standard, in discussion with the Japanese and the US, so that there is a worldwide standard. The telecom regulator, Etain Doyle, has certain powers in this area, in terms of competition and so on. Our Minister signs off on the regulations and the Minister for Finance's approval is also needed. This is the normal way for any licensing. On this particular one, she is in the process of setting up a forum with the industry.

The big issue here is whether to go for a beauty contest or an auction. The last time, on the second generation mobile, we went for a beauty contest. That was the norm in Europe at the time. When one opts for a beauty contest, one looks at the business plans of the companies coming on the market, penetration rates and prices and one puts weighting in favour of that because one wants to drive penetration. At the end of the day, this is a business decision. People want a return on their investment. They either get the return up front or on the basis of high charges. There is a conflict, therefore. If one pays a massive fee on the auction, the only way to get a return on that is massive penetration and, at the same time, massive charges.

We took some criticism as a result of the beauty contest approach. I know the auction system has been criticised in Britain but it has turned out to be a treasure trove for the British Exchequer.

Mr. Tuohy

That is interesting, but there was a major drop in the value of telecom stocks post that, simply because the analysts believed the price paid for the auction fee was too high. We have been discussing this inside as well. Maybe there is something in between. No one knows what size this market will grow to. This will be a whole new market for mobile phones. Whoever owns the customer will be the key person, whether it is the telecom, bank and so on. Financial transactions and a lot more will be done on handsets. There is a big issue here. I do not think any of us can project to three or five years' time. We need to ensure that if there is a massive windfall gain for people, say post the beauty contest, the State is not left exposed, with you calling me back in three years' time and asking how that could have happened. We are looking at alternatives that might——

A percentage levy?

Mr. Tuohy

Possibly. On the cable industry, it is 4% of revenue. This is very much an issue for discussion at the moment. We have a group in the Department of Finance and ourselves looking at this, with the telecom regulator, because we will all be involved in the decision. However, it is not black and white.

The EU was very concerned about the auction approach because it felt it would stymie the development of the next generation. As a country, we would also argue that, now that BT is here through Esat, it would probably see the Irish market as an extension of the UK one. I do not know - I am just postulating as an issue that they could have common fees running between the two. I think there will be more of that in Europe generally because what we are watching is globalisation, aggregation and mergers. There will be a few big telecos in Europe, such as Vodafone. There is a debate on whether there will be a number of mobile operators or joint mobile and land line operators. The future in some ways, is possibly in the mobile industry. The money is certainly being made in the mobile industry.

We are very much open to debate either way on this. We do not have a fixed view on it.

Is any scenario planned out?

Mr. Tuohy

Yes, we are in discussions with the Department of Finance and the regulator's office. There will then be a discussion consultation, we hope. The idea is to licence this in February 2001 for roll out in the following 12 months. We are in a very tight timescale. The EU has also been looking at this issue. As I said, it does not sit easy with the auction but, on the other hand, it recognises the benefits. For example, the UK one was £20 billion, which is huge money. My personal view is that I would rather see that going to deal with the digital divide issue, which Deputy Ardagh spoke about earlier, rather than just bringing it back in, but that is not my call.

There is an issue about whether you take that money up front or over time. This could be a fantastically successful market. However, the problem is getting people to invest up front. It is a huge investment in a black box where you do not know the future.

It would be an excellent way to finance getting rid of this digital divide.

That is fascinating.

What is the state of play on the second telehouse?

Mr. Tuohy

The first one is in Citywest. It is up to Global Crossing what it wants to do with the second one. We have only committed to one and it has to set up the second one. It is looking at different options. From memory, about one million square feet of data warehousing or capacity for storing the various servers will be available in Ireland very soon, which puts us ahead of the Netherlands in terms of capacity and connectivity. However, it is its call where it locates it and we are in discussions with it at the moment. This goes back to what the Chairman said earlier - we need two alternative routes and we need to spread it throughout the country, which is part of the other package.

Another company, 360, which is Worldwide Fiber, is also laying its own cable into Clonshaugh. It is moving around the country and will have its own telehouse facility as well. What has now happened is that we have competition inthat market, which is excellent from our point of view.

Tell me about the finance function in your Department and the internal audit arrangements.

Mr. Tuohy

We have two teams, one dealing with the accrual accounting that the Comptroller spoke about earlier. We do two sets of accounts because we have always believed that the traditional Government cash accounting is not adequate. Part of the new generic model that is being talked about by the Department of Finance will go some way down the line of moving towards accrual accounting. We have a unit that deals with that as subset.

We have an internal audit function in the Department. We have an audit committee and they report directly to me. The report is submitted to the management team in the normal way throughout the year. We agree our work programme - in fact, I think we involve the Comptroller's office in it. We do work and it is very much open to the Comptroller as well. We agree the work programme with them. We have had a number of reports done, although I do not have the list in front of me.

The internal auditor is independent of the finance function.

Mr. Tuohy

Absolutely, and reports directly to another committee with two Assistant Secretaries and an external Assistant Secretary from health. We sit on the health one——

They also have direct access to you if they need——

Mr. Tuohy

Absolutely.

Have they free reign to go anywhere if they feel spot checks are warranted?

Mr. Tuohy

There are no constraints on them. The Comptroller made the point earlier that we have very little cash in the Department. It is a very different style. Most of our money would go out to CIE through grants and to the Irish Energy Centre. The cash areas would be on the road haulage licensing side. We have already done an audit of that and on the procedures. In the main, we are very much a policy Department as opposed to a sort of cash transaction one.

Are there accountants in your finance division?

Mr. Tuohy

We have an accountant who is on secondment to the Moriarty inquiry. We have brought in an accountant from outside to help us for the time being. We have a number of qualified accountants in the Department but they are used in other areas as well because a lot of the work with the semi-States is highly commercial, so we use them there.

When I became Minister, there was not a accountant in the Department. Are there other questions? That was very interesting. I envy you and would love to have your job.

I am very worried about the turn of events. It is a long time since the Chairman has paid compliments like this. Is everything okay?

I am glad you are joining me on this occasion. We note the Vote on the accounts. Keep up the good work. Thank you very much. The witnesses are discharged.

The witnesses withdrew.

The next meeting of the committee will be at 10 a.m. on Thursday, 6 July 2000. We will deal with minutes, correspondence, reports received, the work programme, recovery of State legal costs, accountability of local authorities, tax clearance, grants to community bodies and any other business.

The committee adjourned at 12.33 p.m.