COMMITTEE of PUBLIC ACCOUNTS debate -
Thursday, 7 Dec 2000

Vol. 2 No. 31

1999 Annual Report of the Comptroller and Auditor General and Appropriation Accounts.

Vote 32 - Department of Public Enterprise.

Mr. B. Tuohy (Secretary General, Department of Public Enterprise) called and examined.

Acting Chairman

Item 5 concerns the examination of the 1999 Annual Report of the Comptroller and Auditor General, and the Appropriation Accounts, Vote 32, for the Department of Public Enterprise. I wish to draw the attention of witnesses to the fact that they do not enjoy absolute privilege. I must inform you that as and from 2 August 1998, section 10 of the Committees of the Houses of the Oireachtas (Compellability, Privileges and Immunity of Witnesses) Act, 1997, grants certain rights to persons who are identified in the course of the committee's proceedings. Notwithstanding this provision in legislation, I should remind members of the long standing parliamentary practice to the effect that members should not comment on, criticise or make charges against persons outside the House, or an official, either by name or in situations which make him or her identifiable.

I would like to welcome the Secretary-General of the Department of Public Enterprise, Mr. Brendan Tuohy and I ask him to introduce his team.

Mr. Tuohy

I am joined by Mr. John Fearon, secretary in charge of corporate services; Mr. Dan Commane, personnel and principal officer; Mr. Derek McConnell, assistant principal officer; Mr. John Brown, electricity division; Mr. Matt Benville, principal officer, airports and aviation; Mr. Dermot McCarthy, public transport and Ms Orla Corrigan, public transport. The Department of Finance is represented by Mr. Paul Byrne, Mr. Tony Lynch, and Mr. Gerry Kenny. Mr. Declan Murphy is the Director of Met Éireann.

Acting Chairman

That is quite a large team. You are all welcome. We have three items to deal with - paragraph 33, for examination; the Vote and the value for money report, which we will deal with separately afterwards. I ask Mr. Purcell to introduce the accounts.

Paragraph 33 of the Report of the Comptroller and Auditor General reads:

33. The transfer of the public telecommunications system from State control to the Private Sector

Background

Control over public telecommunications, since its advent in Ireland in 1869, had, up to 1983, been vested solely in the predecessors, in title, of the Minister for Public Enterprise. Direct departmental management of the system ceased in December 1983 when the Government set up a company, Telecom Éireann Ltd, to manage and administer the public telecommunications system. The Minister for Public Enterprise retained responsibility for determining and executing policy on behalf of the Government in relation to telecommunications and was also responsible for exercising a general supervisory role over the activities of the company. The shares in the company were vested in the Minister for Finance and the Minister for Public Enterprise (The Ministers).

In December 1996, the company was re-registered as a public limited company, Bord Telecom Éireann plc (BTE). BTE was the parent company of a group of companies which provide a range of telecommunications services. In September 1999 the Company changed its corporate identity to Eircom plc.

The formation of the public limited company was the first step in a series designed to allow for the possibility of the State divesting itself of its share holding in the company and effectively ending State control of the telecommunications system.

Strategic Alliance

In December 1996, BTE entered into a strategic alliance with Comsource, an entity owned by KPN Telecom BV of The Netherlands(60%) and Telia AB of Sweden (40%). The purpose of the strategic alliance was to strengthen BTE in advance of the loss of its monopoly position in the Irish telecommunications market which would arise following the liberalisation of the telecommunications sector in the EU.

A complex set of arrangements were put in place for the strategic alliance under which Comsource was to acquire 20% of BTE with an option, exercisable before December 1999, to acquire a further 15% of the company. The agreement provided that Comsource would pay £183 million for its initial 20% and £200 million for a further 15% in the event of it exercising its option. The strategic alliance agreement also contained a clawback provision, which provided that Comsource would pay an additional amount for the shares it purchased, which broadly equated to 60% of the increase in the real value of the shares in the three years following the agreement, when account was taken of the normal rate of return which KPN and Telia would earn on their capital. Immediately prior to the public offer of the shares in July 1999, Comsource exercised its option to acquire the additional 15% share holding and, in January 2000, paid an additional £1,138 million under the clawback provision.

Under the terms of the strategic alliance agreement the State agreed to provide funding of £220 million to the company from the proceeds of the sale of the shares to Comsource.

The terms of the agreement were effected as follows:

- Ministers sold and Comsource purchased 15,869,887 shares for £33 million.

- BTE issued and Comsource purchased 72,443,181 shares for £150 million.

- BTE issued and the State acquired 33,806,818 shares for an interest bearing Promissory Note of £70 million. (This was paid in December 1998. Interest of £9 million was paid on the Note).

- State gave Comsource an option exercisable within three years to buy 66,234,800 shares for £200 million.

Under the Strategic Alliance the Government also enacted legislation to provide for the continuation of the class D modified PRSI rates to be applied to the company for all employees who commenced their employment in the company prior to 5 April 1995.

Employee Shares

As part of the framework for the part or complete privatisation of the company, the Government and the unions operating in BTE agreed, in February 1997, to the establishment of an Employee Share Ownership Plan (ESOP) which provided for 14.9% of the shares being transferred to the employees. A trust was set up to facilitate the transfer of the shares to staff - Employee Share Ownership Trust (ESOT). The transfers were to be effected as follows:

- 5% of the shares to be transferred in stages based on implementation of agreed productivity measures and changes in work practices. Two thirds of these shares were transferred to ESOT in May 1999. The remaining one third were transferred in May 2000. It is intended that the shares will be distributed to staff not later than May 2004 subject to prevailing taxation conditions.

- 9.9% to be purchased for an agreed price of £190 million which was payable to the Exchequer as follows:

£100 million paid by BTE in May 1999, in return for which staff agreed to make contributions to their pension scheme and waived rights to certain bonus arrangements.

£60 million and £30 million funded by borrowings by ESOT, were paid in May 1999 and July 2000 respectively.

Initial Public Offering

In March 1998, the Government decided that an Initial Public Offering (IPO) of the shares would take place in 1999. Initially, it had been decided that the remaining shares held by the Ministers would be offered for public subscription in a number of tranches. However, following assessment of the reaction by institutional investors and the number of individuals who, following a registration process, indicated an interest in acquiring shares in the company, it was decided to issue 48.9% of the total company shares in a single tranche under the IPO.

The remaining 1.2% of the company's shares were retained by the Ministers for distribution as a loyalty bonus, on the basis of one share for every 25 shares held, to retail investors who held their shares for a period of one year after the date of the IPO.

The final decision on the extent of the stake to be offered at the IPO was made by a Cabinet Sub-Committee and was determined by factors such as maximising the return to the Exchequer, having a wide share ownership and value for money on expenditure related to the sale.

The Government appointed joint advisers and global co-ordinators to advise in relation to the strategic and financial aspects of the execution of the flotation, to co-ordinate the offering and to ensure that the flotation was successful and that there would be investor confidence in the shares. They also gave advice as to the price at which the shares should be issued taking account of all of the factors and interests involved and on compliance with legal and International Stock Market requirements. They were selected on the basis of a competitive tendering process and their fees amounted to 1.7% of gross sales revenue.

The following legislative changes were also effected:

- The Postal and Telecommunications Services (Amendment) Act, 1999 was introduced to enable the State to lower its share holding to below 50%.

- The Companies (Amendment) (No.2) Act, 1999 was also introduced to enable price stabilisation in the immediate aftermath of the flotation. This Act was required to bring Irish legislation into line with international practice to facilitate price stabilisation on the Irish Stock Exchange.

The shares were offered to the Public in July 1999. Both Government and the Company agreed the prospectus and the price range for the shares of £2.64 to £3.27 that was set prior to the flotation.

The flotation price approved by the Cabinet following the closing date for the receipt of applications for shares was £3.07.

Costs of Flotation

The cost of the flotation was £76.9 million which is approximately 2.3% of the £3.3 billion raised in the IPO and was funded out of the Vote for Public Enterprise. An amount of £9.2 million is due from the Company in respect of their portion of the total cost of the flotation. The provision in the Estimates was originally set at £40 million but this had been calculated on the basis that the share holding would have been disposed of in tranches. A Supplementary Estimate of £40 million was required to meet the additional costs associated with the sale.

Details of the costs of the flotation are as follows:

£mJoint Advisers58.6Advertising 3.8Public Relations 3.4Printing 3.4Postal Costs 3.3Processing of Applications 1.9Legal 1.5Other 1.0Total76.9

Share Acquisitions and Amounts Paid

The following is a summary of the share acquisitions and the amounts paid.

YearPurchaserNo. of Shares AcquiredAmount PaidAverage Price per share££1996-2000Comsource772,739,342 1,520,371,976 1.971999-2000ESOP218,574,842 190,000,000 0.871999ESOP110,391,334 Nil*Nil*1999IPO1,081,490,338†3,320,175,339 3.07Total2,183,195,856‡5,030,547,315

*These shares were distributed to employees in return for agreed productivity measures which were expected to deliver payroll cost savings of £110 million over five years.

†This figure does not include the 23,810,828 shares which have been retained by the Ministers for distribution as a loyalty bonus. 16,047,305 of the bonus shares had been distributed up to 6 September 2000.

‡As at 6 September 2000 the Ministers held 8,583,532 shares, which represented 7,763,523 bonus shares which had not yet been issued or may not be required due to failure of purchasers to hold shares for the required 12 months and 820,009 shares offered for sale in the IPO which had still not been allocated.

Pension Liabilities

The Minister for Finance under the Postal and Telecommunications Services Act, 1983 (as amended) is responsible for meeting and discharging the liability in relation to the pension costs of former staff of the Department of Post and Telegraphs who retired or died before 1 January 1984, and in relation to the costs of pension entitlements, relating to reckonable service prior to 1 January 1984, of staff who transferred to BTE from the Civil Service. Up until April 2000 the Minister provided funds to meet the cost of pensions as they became due for payment. However, at the end of 1999 the Minister paid £800m into a Trust fund which was set up to discharge all his future obligations in relation to the pensions. The Board of Trustees comprises two BTE representatives, four BTE employee representatives and two civil servants. The Exchequer will be liable for any deficit in the event of there being insufficient funds to meet the liabilities. Similarly, in the event of there being surplus funds, such surplus moneys will be surrendered to the Exchequer.

Mr. Purcell

As you said, Chairman, there is just one paragraph, No. 33, to deal with. It is an information paragraph rather than any criticism because it records the financial arrangements involved in the State divesting itself of the ownership of Telecom Éireann. The process started in earnest in 1996 when 20% of the company's shares were sold as part of a strategic alliance. It ended in 1999 with the flotation of almost 50% of the shares by way of public offering. In between, an additional 15% was acquired by the strategic partner. The remaining 14.9% was transferred to staff in return for cash and other considerations. In summary, over £1.5 billion was received from the strategic partner while £3.3 billion was realised from the flotation. A further £190 million was received on foot of the share allocation staff, of which £100 million was met by Telecom itself. Therefore, the total Exchequer proceeds were over £5 billion. The cost of the flotation was almost £77 million and a breakdown of those costs is contained within the paragraph on page 85.

Another outflow of the £800 million paid into a trust fund to meet the State's liability for pension costs is associated with former staff of the Department of Posts and Telegraphs. My staff examined the arrangements for the disposal of the State's shareholding and, as a result of their work, I am satisfied that proper procedures were in place and implemented throughout the process, and that the proceeds represent good value for the Exchequer.

Acting Chairman

Would you like to make an opening statement, Mr. Tuohy?

Mr. Tuohy

No, other than to thank the Comptroller and Auditor General for the work in putting us through the hoop afterwards. As far as the Government is concerned, the IPO was very successful. It is very difficult to comprehend what happened subsequently with regard to the markets. At the time, we hit the markets almost at the peak and subsequently there was a dip in the markets. It started in the main in about March and April. The technologies dipped in January and dipped again in March subsequent to the auctions in the UK and across the Continent where the telecom stocks themselves came under pressure. In the first almost 200 days after the flotation the share price was above the flotation price, other than for 12 days. In fact, it was significantly above it at points. Since then it has dipped. If you look at the Irish Stock Exchange, the FTSI, any of the technology stocks internationally or any of the telecos internationally you will see that Eircom is pro rata still above their peers.

I will not go into detail of how Eircom is performing now having seen the interim results. We were happy with the flotation operated. We were particularly pleased with the take-up by the public. As international figures go, over 1.2 million subscribed initially for information and over 500,000 took shares in the company. That was part of the Government's objective. The overall cost we incurred on this was about 1.7% of the total proceeds, which in international terms is about 0.7% or 0.8% below our peers. In other words, we felt that we got very good value for money on it. I would like to thank everybody involved.

Acting Chairman

Thank you, Mr. Tuohy. I call Deputy Ardagh.

Deputy Ardagh

Will you explain the Department's relationship with Eircom? What are the Department's responsibilities, if any? What influence has the Department, if any, regarding the operations, governance or share price of Eircom?

Mr. Tuohy

Let me go back before the flotation. The Minister would have had three broad functions. First, a regulatory policy function, which set the regulatory framework in which all the sectors operate, including the telecom sector. The Minister would have had the overall regulation function. The individual decisions on licence was a matter for the independent regulator. That is the situation today.

The second function would have been what we would call the sectoral policy function, which is how the broad telecom sector is going forward and how it links in with the Government's overall policy. The third function was the shareholder function, which we tended to be getting out of in various companies. Eircom was an example. Aer Lingus is another example.

As we have left the shareholder function there is an interregnum where we have still some shares in Eircom but the Government's decision at the time was to exit fully from the company. There was 50.1% of the shares available for the Government just before the flotation. Having sold 14.9% of them to the staff and having sold through its strategic alliance and subsequently through the IPO a 35% stake to KPN-Telia/Comcourse, that gave us 50.1%. We had to hold a percentage of these for the bonus shares which were going to be offered 12 months subsequent to the flotation. It meant that for every 100 shares, a shareholder would get an additional four shares 12 months after the flotation. We had to take an estimate of that. People had to hold their shares for a full year for that to happen. A number would have sold in the meantime so we had to make provision for that. We still have those shares, but it is a tiny percentage - less than 1% - of the just over eight million shares.

The Government made a decision that there was no strategic reason to stay involved in Telecom Éireann - the market was liberalised and there was no reason for it to be involved. In that sense we did not retain a golden share - we would probably not have been allowed to do so by the EU. It was a Government decision not to look for it.

There was no effective control over Eircom after that in the sense that the board was established, and like any other plc and any other company listed on the stock exchange, it operates under the same rules. The Minister has an overall policy role with regard to sectoral development. She does not have a shareholder role in Eircom, but she has a regulatory policy role, which applies equally to all companies in the sector.

Deputy Ardagh

With regard to the third generation of mobile phones, confusing messages came from the ODTR and yesterday in the Budget Statement, which implied that there might be significant funds coming from the allocation of a licence. By contrast, the message from the ODTR appeared to indicate that a beauty contest scenario would apply. Do you know what will happen and when do you expect third generation licences to be issued?

Mr. Tuohy

For those who may not be aware of what the 3G issue is, let me explain. It is the third generation mobile. The first generation would have been the old analogue, 088, system. The second generation would be the GSN, which gives almost global coverage except in the United States. The third generation mobile will give much greater capacity to the handset. It will be possible to effectively browse the web and so on.

What is likely to happen with third generation mobile phones is that markets will be made on them in the sense that people will make financial transactions - they will do their banking, browse the Internet or whatever. When I referred earlier to the telecom price issue, a number of auctions were held earlier this year and a number of beauty contests have been held. Interestingly, the British and Germans went for an auction and the prices paid for the spectrum, effectively, and the licence associated with it, were quite high. I think £20 billion was taken in the UK. The stock markets have reacted to that to the effect that they do not believe the value is in the companies and we have seen the drop in telecom stocks in the past four to five months as a result.

In Italy they went for an auction. Ten companies were initially involved for four licences. At the last day they ended up with four applications. Collusion was alleged between the operators, so the auction process effectively collapsed. A similar process in Switzerland was stopped for a very similar reason. There has been a similar problem with the auction in Poland.

In our situation in this country, under the 1996 legislation setting up the telecom regulator, she has responsibility with regard to the licensing but she needs the approval of the Minister for Finance with regard to the fees to be paid. The regulator initiated a consultation process earlier this year. On foot of that a recommendation has been made that the 3G licence process should be a beauty contest. That is her call, not the Government's. However, the fees to be charged need to be agreed with the Minister for Finance. We are expecting a decision on it before Christmas. Over the next two weeks we hope to be in a position to have the papers from the regulator and that the Department of Finance and the Minister for Public Enterprise will sign off on the fees to be raised.

The issue of auction versus beauty contest is very emotive worldwide. The Scandinavian countries are the models of the information society in Europe and probably worldwide. They are the countries people are trying to emulate. They went for a beauty contest with very low entry tickets. Britain and some other countries opted for the auction. There is a need to balance the desire to make this a universal service where the facility is available to everyone at a reasonable price on the one hand, with a once-off win for the Exchequer on the other hand. That is the issue we must all face. The problem for the Government is to balance those two conflicting issues. It would be good to have a win for the Exchequer and ubiquitous availability of the service, but unfortunately, there is a price to be paid for everything.

Acting Chairman

Perhaps you might explain the beauty contest scenario.

Mr. Tuohy

It is a beauty contest between the different companies. Certain criteria are set, of which price may well be one, but generally it is a fixed amount. What is then sought is the availability of a roll-out plan by the companies and the other services that would be provided. It is about availability of roll-out and services and if they do not do that they are penalised in a heavy way. They must come in and look at their marketing plans and come back on that. In the main what one is talking about is that type of approach as opposed to an auction where one looks to see who will come in with the highest bid. One starts with the first round and then the second round and people keep being knocked out, not unlike the PR system with which members are familiar, or one might go for a straight auction, but in Britain and some other countries continuing rounds of auctions were used until they got to the requisite number. That is the difference between the two.

Deputy McCormack

A provision of £40 million was made for the cost of the flotation but it eventually cost £76.9 million. Advice from the joint advisers cost £58.6 million. What kind of advice was received?

Mr. Tuohy

The initial price that was put in the Estimates last year was based on a certain assumption at the time we were doing the Estimates, that was that we would only be selling 25% as opposed to 50% and it was based on a certain valuation of the company. When the deal and negotiations were structured with different advisers - as the Deputy can imagine, for an operation of this scale there were a number of advisers as there are financial and legal people and people who are out there selling - and when this was put together we had what were called joint global co-ordinators, Merrill Lynch and AIB, Merrill Lynch being the global people and AIB being the Irish. Then we had a whole series of banks involved in selling. All the other stockbrokers would have had an opportunity to get involved as well.

Then we had the legal advisers because again not only were we dealing with the prospectus and so on, we were dealing with a very complex strategic alliance that we had in place since 1996 and the legal issues involved in that were quite difficult. Then we had the ESOP negotiations with the staff, another set of both legal and financial advice. I can give the Deputy a breakdown of all the legal and financial people if he wishes.

The initial estimates were based on certain assumptions but subsequently we changed the assumptions as we moved along. Perhaps in hindsight it was the right decision. We played as we felt and coming close to the date of the flotation the Government decided to exit from the full company. That meant we put into play the full 50.1% of shares which meant the global co-ordinators' fees were linked to the amount of shares we were going to sell because they got a percentage of the proceeds. We got a reduction in that because we were going for a bigger amount.

When one looks at the figure for the overall advisers it turns out at about 1.7% and that again compared to figures for flotations in other countries which I have in a table showing that this turned out in the main to be very effective from a cost benefit point of view.

Deputy McCormack

Mr. Tuohy is entitled to his opinion. I do not know whether it was cost effective. Advertising and public relations jointly cost £7.2 million. One of the reasons I did not buy shares following the advertising campaign is that it was oversold. If the shares were that good, why was there a need to push them all the time? I was suspicious of that if they were such a good bargain. That aspect of the flotation was oversold. Will Mr. Tuohy comment on that?

Mr. Tuohy

Part of the Government's commitment was to broaden share ownership. We could have executed this deal by doing a transaction in institutional sales without ever going to the public. Everybody had to be given an opportunity to be told and encouraged if they wanted to do that. Throughout that process we added caveats about share prices and so on and the Minister never once told people they should buy shares.

Deputy McCormack

Every advertisement on television and in newspapers oversold the flotation and if one cannot interpret that as the Minister encouraging people to buy shares, I do not know what else it was.

Mr. Tuohy

It was giving people the opportunity which is different from encouraging them. It was giving them the facts and the information. A total of 1.2 million people sought information and about 570,000 subsequently purchased shares. In that sense the advertising campaign of getting people involved, which was part of the Government's objective in this from day one, was successful.

Deputy McCormack

How many purchased shares?

Mr. Tuohy

I think it was 574,000, off the top of my head. I will confirm that for the Deputy. By international standards——

Deputy McCormack

A good few of them were sorry they did.

Mr. Tuohy

Some people were very pleased. Some people——

Deputy McCormack

The majority of ordinary people who had nothing to do with shares previously and took the advertising campaign backed by the Government as being solid advice are sorry they took the advice. The campaign, which cost more than £7 million, was oversold in terms of value for money.

Mr. Tuohy

That is a personal view. I have a different view.

Deputy McCormack

The reason such committees are in place is that people have different views.

Mr. Tuohy

I have given the reasons the Government did what it did and the outcome of that.

Deputy McCormack

In December 1996 the board of Telecom Éireann entered into an alliance with Comcourse. Was that done in anticipation of what would happen down the line or was there another reason?

Mr. Tuohy

In 1996 the previous Government made a decision that Telecom needed a strategic partner. The telecommunications industry is one of the massively growing global industries and it was not an option not to have a strategic partner. Telecom was deemed to need some outside expertise and linkages. A process was gone through and out of that a company, Comcourse which was a mixture of KPN and Telia, the Dutch and Swedish telecos, came in and paid certain money. In addition, it brought in management expertise and provided access to Unisource which was a global player at the time, providing linkages into international markets. That was the background to the strategic alliance.

It was envisaged that there would be a flotation at some stage in the future and no date was set for that because the subsequent Government fixed the date for the Telecom flotation. In 1996, other than realising there might be a flotation in the future and the whole issue of when one was going to have that, the package was put together and linked to that was a downpayment of £180 million for the 20% and £200 million subsequently for the 35% and what was called a clawback arrangement. At the time the value of the company was about £1.2 billion but there was a disagreement over how much it was valued at and, rather than fixing the price because it was not floated at the time, it was agreed we would have this clawback arrangement whereby upon the company floating or by December 1999, depending on which came first, we would get the company independently valued or use the flotation for the valuation.

Some 60% of the difference between the value of £1.2 billion and the value at the time of the flotation would accrue to the State. That resulted in a figure of about £1.5 billion. I think the Comptroller and Auditor General referred to that earlier. They are coming in on the clawback. In addition to the £3.3 billion that came in on the flotation itself, one ended up with effectively £5 billion coming in from the flotation and the sale of the strategic alliance and then, as well, there is the £160 million that the staff paid for their 9.9% of shares.

Acting Chairman

It would not be any harm to have a note of the list of people involved. This is a precedent for further action. We would like to examine what happened and it would be helpful to have that list made available.

Mr. Tuohy

The advisers, is it?

Acting Chairman

Yes, and how it worked out financially and who received what.

Mr. Tuohy

That is all fairly well in the public domain. We have answered parliamentary questions on it.

Deputy McCormack

The public relations firms and advertising should be included.

Deputy Durkan

Like Deputy McCormack, I have views on the PR used in the flotation. There was a serious oversell, not necessarily from the point of view of Eircom but from the point of view of other potential flotations. That will be discovered from watching the market when the time comes. I can think of teenagers in schools who invested their savings in the hope that the hype as presented to them was accurate and would work in that way. It did not. I will watch carefully what happens in that area in future, especially as regards Mr. Tuohy's Department because similar situations are looming on that cloudy horizon.

What is the position of the provider of the third mobile phone service under the GSM system, with specific reference to proposals, expenditure to date and the need to provide a better service to the customer who must be the most important person in the equation?

Mr. Tuohy

I agree with the Deputy on his last sentence. The customer must be provided with the service and part of the reason for competition is to open up the market to provide additional services and have competition in that. The Deputy will be familiar with the history of it, that the third mobile phone licence should have been awarded sooner than it was. What happened was there was a court case taken by Orange. It went to the High Court and subsequently to the Supreme Court and, in the Supreme Court, the regulator's decision stood. The licence was subsequently awarded to Meteor.

It was in Meteor's interests and they very much hoped to have their own system up in place before Christmas. I gather they may have difficulties on that now, but they are very anxious to do that because obviously the Christmas market is an ideal time to launch into any new service like that.

To put it in context, the penetration rate for mobile phones for January 1997 was 7%. The penetration rate in October this year was just over 50%. What is happening is that there are now more mobile phones than there are fixed land lines in the country. Mobile phones, whether we like it or not, are going to be a key feature of the future, not just for telecoms but for business generally. Looking at Finland and Sweden, especially Finland, which would be seen as the world leader and is a country not unlike our own but more rural in the sense of the type of mountains they have there, Finland predicts a penetration rate of 110% within the next five or six years; there will be more mobile phones than people in Finland. What we are watching is people having more than one phone.

Deputy McCormack

For each ear. People will need more than two ears soon.

Mr. Tuohy

I will only give the Deputy the facts. If one is looking at criteria that would be a good judge of an information or knowledge society, one of them would be the level of mobile phone penetration.

One of the interesting things that has happened here is that the level of coverage in the urban areas has increased dramatically and, because of the capacity constraints that have come on - one can imagine the growth curves and the take up have been very high - there had to be an upgrading of the system both in the urban areas and rurally. There have been problems with the mobile phone masts around the country and I am sure some of the committees will be familiar with this.

This is an issue in infrastructure generally. There is a major trade off that people want the level of services and the infrastructure but, for that, one must actually have that infrastructure which, in this case, is masts. There is an issue. The companies have ended up in court in some situations and there have been planning objections. It is that balance between getting the level and the quality of service one wants and getting the infrastructure to do it. One of the key constraints that we are going to face going forward is possibly the resistance by communities to the erection of infrastructure to provide the service that is needed. That is an issue that will have to be dealt with both locally and nationally because it will end up that people will want the service and they will not get it unless they have the infrastructure. That is becoming a huge issue.

Deputy Durkan

While I understand and agree with that, it should be borne in mind where the provision of masts is concerned, there are places where they should and should not be provided. The health aspects, which have been vastly exaggerated, should be dealt with openly and readily. The location of masts can have an impact on the degree to which they become acceptable in an area. Locating them on top of an historic building is not suitable.

Going back to the question of investment and technology and the cost-benefit to the consumer, I happen to be one of the very early subscribers to the Eircell 088 system. I have seen it progress to the 087. We are not up to speed by a long shot with the technology available at present. One must walk up and down the corridor outside three or four times to obtain the optimum reception. That should not happen at this stage on the GSM service.

I do not know what the quality will be like with third generation phones but we were early investors in that area and we should, therefore, be ahead of the posse in most other places. We should not be competing with or referring to the Scandinavian countries because we had the opportunity to be well ahead of those people in terms of the technology which came on stream at the same time we happened to go for mobile phone services. Is Mr. Tuohy conscious at this stage of the important need to meet customer requirements? Customer requirements not being met and the fallout from the flotation can leave a nasty taste in the mouths of people who are investors and consumers by virtue of subscribing on a monthly basis to the service.

I mention to all mobile phone service providers that the cost of the service to the consumer is exorbitant given the degree to which investment is required. While there is investment in technology, the investment in terms of erecting pylons, poles and various other items which was needed before is non-existent now. Therefore, there is a huge degree to which the consumer needs to benefit from advances in technology and we have not seen it yet. It is available in other jurisdictions but not here.

Mr. Tuohy

As a country which has put its weight behind the whole idea of technology, our economy is going to be dependent on technology in the future. We have seen it in the technology companies here. We have a lot of the companies, the Motorolas, the Ericssons, the Siemens, and so on, based here. I agree totally with the Deputy on the issue that, as a country, we need to grasp this and run with it.

When one looks at the Scandinavians, Nokia would be the biggest employer in Finland. It is a huge part of the GDP there. They made a decision a number of years ago to go for wireless technology. They said that they were going to be a world leader in this. Finland has a population of five million, a little more than ourselves, and they made a decision and have become a world leader, backed by the Swedes, the home of Ericsson, so much so that Europe collectively, through a decision to set a standard for GSM, outpaced the Americans.

The Japanese came in very soon afterwards to back up the Europeans and worked with them while the Americans never got off the ground. Penetration rates in the US are under 20% and they are having major problems on the wireless side. This is an opportunity for Ireland and Europe, against the US, to take a lead. We have the technology and the companies. Many of the companies are based in Ireland, together with their research capability. There must be competition in the market, with global operators and not just local operators.

I agree fully on the matter of mobile telephone charges. Many people feel that in the past number of years we have had a classic duopoly where the prices were such as to be almost identical and that the level of services in that scenario should have been available sooner. The third operator coming on stream and the UMTS 3D licences should begin to rectify this situation. However, in this business six or 12 months is a lifetime. Therefore, as a country which is basing its future in many ways on technology, having full availability of services at the right price will encourage people to use the services and at the same time develop the other type of R&D available in this context so we can position the economy going forward and use this as a test bed. Therefore, I agree with most of what the Deputy said.

Deputy McCormack

Would Mr. Tuohy like to comment on the alleged health risks associated with mobile telephones?

Acting Chairman

Everybody is aware that the stumbling block is masts in terms of health and safety. One can get as many witnesses as one wishes to argue on both sides. In Cork we have at least one mast on our major hospital which would seem to suggest the people responsible for local health care think it is okay. However, there are professional people who argue on the other side. Deputy Durkan mentioned geographical location and I wonder if some suppliers are trying to take the easy option. Has the proposal for the sharing of masts and facilities worked out and been utilised? Are there other options? For example, as technology progressed over five or six years the difficulty with television waves and rebeaming was overcome as people came up with alternatives. Regarding masts, is it simply a question of investing extra money for alternative methods which might be more expensive but which would allow masts to be located in isolated areas? Have we learned anything from Finland in that regard?

Deputy McCormack

My question was about the alleged concern over the use of handsets. Perhaps both issues can be taken together.

Deputy Durkan

A satellite mast is the only option as it would not upset local people.

Mr. Tuohy

Regarding handsets, there are two types of radiation, namely, ionising and non-ionising. Within that there is thermal and non-thermal radiation, thermal being heat generating radiation. If one puts one's ear very close to a mobile telephone one will get thermal radiation and non-thermal radiation. In many ways some of the UK research concerned the possible dangers to young people of thermal radiation from mobile telephones. There was a debate then about the use of hands-free kits. The concern from the medical point of view was that it is an unexplored area and we may not see the implications for ten or 20 years. They were warning young people against continually using mobile telephones, as young people tend to do, and not to use them without a hands-free kit. They were not saying they were dangerous but rather that they could not predict the impact of mobile telephones for a number of years as it takes time to see the impact of these experiments.

Deputy McCormack

What is happening in terms of the use of handsets is crazy. I was at the All-Ireland final and there were young people on both sides of me talking on their mobile telephones. Some were telephoning friends to see where they were in the stands. This is crazy.

Acting Chairman

In fairness to Mr. Tuohy, I do not think he can change society that much.

Deputy Durkan

Even Members do that kind of thing.

Acting Chairman

We tend to carry mobile telephones around with us.

Mr. Tuohy

Everyone finds them very useful at one level, but it also means one is always contactable. I take on board the issue raised, but the advice as I have outlined it is what is currently available. The advice does not say that use is dangerous but that we need to exercise the precautionary principle that it may be dangerous, particularly for young people who tend to be exposed to it over longer periods.

Regarding mobile telephone masts, members will remember that the Joint Committee on Public Enterprise and Transport produced a report on this about a year and a half ago. They brought in all the various parties and came to the conclusion that at that time they did not believe them to be dangerous in the broad sense, but that they would keep a watching brief in that regard. Radiation is emitted from many sources, not least television masts. Anything with an electro-magnetic signal will emit radiation - it is all around us and we do not see it. For some reason people began to see mobile telephone masts as they were much more visible, but the radiation levels from television transmitters would be orders of magnitude more than those from mobile telephone masts.

We asked the regulator to ask the companies to audit all the different sites and for her to do a spot audit of sites to highlight if there were masts operating outside the internationally accepted limits. That system is now in place. I have seen one report - I am not sure if a second has been produced - to the regulator's office.

The frequencies at which they operate are the old GSM 1800 MHz and the newer versions of the 1800 MHz, one frequency being double the other. Doubling the frequency halves the wavelength which means it is necessary to place masts closer to each other. Therefore, to get 1800 MHz it is necessary to have masts very close to each other. We have been encouraging companies to share mast sites as we think this is the most sensible approach.

Members will remember the debate about the special exemption given in the planning regulations to allow up to 12 mobile telephone masts on the one main mast and that planning originally was not necessary in this regard. When this was first rolled out Eircom and Esat were in competition to see who could erect the most masts. They wanted to roll out the service as that was the requirement under their licence conditions, but what happened was that people tended to keep good sites to themselves. Through ourselves and the planning section in the Department of the Environment and Local Government, the Government has been trying to encourage operators to share sites.

Companies need to communicate with the local community and the idea of putting all masts on the top of beautiful mountains or scenic areas is not necessarily the solution as masts are needed in areas of population. With some of the new wireless and local loop technologies which have come on stream in the past 12 months, small boxes, which would not be recognisable as masts, are being placed on the top of buildings.

Acting Chairman

Mr. Tuohy will be aware that in our district we had a few problems with television rebeaming. Things have changed in the space of three years and I am wondering if something like that will happen with the telephone service. Is there something in the offing?

Mr. Tuohy

In the future there will be access to the service, whatever that is. Traditionally we have seen voice as the service. However, we now have more data on the networks than we have voice, a worldwide phenomenon. Our telephone network was designed in the early 1980s and we were world leaders, going from zero to state of the art technology in 1983-4. The latest Internet protocol or the IP-based systems are designed on data rather than voice which is an add-on. In a few years, people will get the voice free but will pay for the data as the future lies in data transfer, computer links, etc. People will be able to access services through the traditional telephone lines and ISDN which is a relatively old technology being rolled out by Eircom. The new technologies are known as XDSLs and ADSLs, digital and asymmetric digital subscriber lines. These will offer far greater capabilities.

The current copper wire system operates at about 28.8 kilobytes per second and that figure should increase to 56.6 if the proper technology were available. The ISDN line will increase from 64.4 kilobytes to 128.8 and the ADSL technologies will operate at two megabytes or 2,000 kilobytes. The technologies are constantly improving the band widths which relate to pipe size. The new generation of mobile phones will operate at two megabytes per second as will ADSL lines. Satellites will increase to approximately five megabytes per second. Although the distance involved creates a delay mechanism, these offer a much more powerful footprint. If I were able to predict what technologies we will have in the future, I would not be sitting here.

Acting Chairman

With that degree of technical knowledge, they might not be able to hold on to you. To return to Deputy McCormack's question on health, I would not be critical of any young people who use mobile phones. I tend to come under some pressure for failing to switch on my own phone. I believe it is grossly offensive to have a mobile phone switched on during a meeting. Advertising campaigns encourage young people to use these technologies which are something of a novelty. What is Mr. Tuohy's view of putting a health warning on mobile phones to the effect that they should not be over-used or that they should only be used for a specified period of time? A decision was made to put health warnings on cigarette packets 20 years too late.

Mr. Tuohy

Many of the dangers relate to a person's individual physical make-up in the sense that the effects of thermal radiation depend on a person's bone depths, etc. I would not be averse to phones carrying some kind of warning. It is almost impossible, however, to regulate people's behaviour through warnings. We have an interest in monitoring international scientific research in this area. Dr. Tom McManus from our own Department is a key player in that regard and is recognised as one of the world experts in this area. We will monitor developments in this area and will feed them into the system very quickly.

Acting Chairman

Reference was made to Finland and I do not see any reason Ireland should not be a world leader in this area as we are already promoting healthy living. It is no good lecturing people about mobile phones and advising them not to use them, given that they help people to keep in touch in a modern environment. We should, however, take some action to balance their use. Does Mr. Tuohy feel this is an issue which would be more properly dealt with by the Department of Health and Children?

Mr. Tuohy

We are working in conjunction with the Department of Health and Children on this issue as it concerns everyone. We know from experience that the effects of cigarette smoking and loud noises, as evidenced by the recent hearing impairment claims, are not immediately apparent. We are anxious to avoid ending up with a situation in ten or 20 years' time where this will unwittingly have had a detrimental impact on an entire generation. This is an issue which the Government in general must monitor. It is not easy, however, to regulate people's behaviour.

Acting Chairman

In hindsight, are there any things which you would have done differently in regard to the sale, launch, etc.? Are there any lessons to be learned?

Mr. Tuohy

This is like confession. We have already taken some of these issues on board in regard to the Aer Lingus flotation. In the negotiations on that flotation, we decided to do the consultancy pricing up-front and knew more about the framing of contracts, etc. Eircom was worth in the region of £8 billion on flotation but Aer Lingus will be significantly less than that. The figures indicated in the newspapers put it in the region of £500 million. The scale is very different.

On the issue of retail demand, if the demand is anything like the demand for Eircom, the supply simply will not exist. Eircom was the biggest State asset to be disposed of and any of the remaining ones will be much smaller. We will take on board the lessons learned from the Eircom sale. When one is doing something for the first time, one learns as one goes along and that can be quite difficult. The Eircom retail offer was novel by international standards.

Acting Chairman

Do you anticipate there being less hype and PR involvement in any future sales?

Mr. Tuohy

There is a balance to be struck between letting people know what is on offer and overselling something with the result that people feel it is a sure bet. Nobody involved in the Eircom sale ever indicated it was a sure bet. It was clearly stated at all times that share prices could go down as well as up. With the exception of 12 days, the share price was well above the flotation mark for the first 198 days.

Acting Chairman

I am aware that the remaining loyalty shares are few in number but do you anticipate those being sold off or will they be retained?

Mr. Tuohy

There is no strategic interest in Eircom in that sense so the State will exit at the right time. We have not put shares on the market to date because the 8.4 million shares represent approximately 0.38% of the total company. Although this is quite minuscule in terms of the company's overall size, putting the shares on the market could depress the share price in the current environment. We will notify the company when we feel the time is right and nothing will happen until such time as we discuss the matter with it. We have exited strategically and all that remains to be done is to tidy up the exit arrangements. That is unlikely to happen today or tomorrow.

Acting Chairman

On the employees' shares, has the ESOP been successful? How has it worked? Has it been a success and would you recommend the same again? Will there be changes? Approximately 5% of the shares related to changes in work practices. Did these changes take place?

Mr. Tuohy

The Government decision on the employee share ownership plans was that up to 5% would be available for changes in work practices and other transformations which were measurable and verifiable. They had to reach certain targets. There was a big blue book called the Transformation Agreement. The targets included reductions of approximately £110 million per annum after five years. The cost base of the company had to be reduced. Many technicians were brought into the company in the 1980s to do technical roll-out and so on. The company had approximately 18,000 people at one stage but just before the flotation we were down to just over 10,000. In the early 1980s little exchanges throughout the country were not manned and technicians were constantly monitoring three or four of them. As the technology changed, if a fault developed, someone came out and just swapped the unit. These exchanges were huge at the time because they were dealing with big computers. The new computers would fit in one's back pocket. As technology changed, the numbers of people with skills were no longer necessary in the company. They were operating out of the UK and doing very well. They had a very good enterprise there. As they began to scale back the numbers, they had to build up the marketing side because they did not need to market in a monopoly. One was given the service when it was ready from the company's point of view. When one ended up with a competitive environment, one ended up with an increase in marketing.

On ESOPs generally, the Government decision was that up to 5% would be granted. Depending on the company, it may not be 5%. Some companies would have a higher valuation to staff, therefore, there is a cap on it. This meant huge amounts would not be made available to individuals. The Government agreed that up to 9.9% would be available for purchase. When we sold this to the staff in March 1998, the company at the time was valued independently at between £1.8 and £2.2 billion, therefore 9.9% of the company was to be sold to the staff. This was sold to them for £190 million, of which £100 million was provided by the company because the staff were going to contribute towards their PRSI going forward. The present value of that going forward over ten or 15 years brought it back down and the company exchanged it. They borrowed over £60 million for it at the time and £30 million on the flotation. Some £190 million was exchanged. Based on the value of the company at the time, that was a fair value for the exchange. This is also the process in the other companies.

Acting Chairman

Therefore, it was a success. Are there questions on the Vote?

Deputy Durkan

I am looking at the various areas covered in the Vote. There are a number of extremely important matters such as energy conservation, radiological protection, farm electrification, thereby substitution of a draw from the national grid, and expenses associated with the BNFL case. In relation to geological surveys, what does this entail? I note the outturn was close to the Estimate.

Mr. Tuohy

The GSI is the national agency for earth science which is developing a geographic information system and geological database for its clients. The Ordnance Survey deals with the topographic maps of the country and the Geological Survey deals with what is under the ground and seabed. When carrying out construction works, environmental impact statements and environmental work such as ground water protection schemes, one needs to know the geology of the area. We thought there was no point in having 100 year old maps and databases of all that. We decided to pull the two together into a geographic information system. The maps now being produced by the Geological Survey are geographic information systems, they are GSI based maps. This means the data can be linked spatially. It carries out deep drilling tests throughout the country. It gets information from the different companies drilling holes. These samples are submitted to the GSI for storage in Sandyford where there is a wealth of data available publicly.

Deputy Durkan

Is it being processed at the same time it is found?

Mr. Tuohy

It is being put on maps and made available. There is a good relationship with the clients. All the major customers meet the director twice a year and input into his work programme.

Deputy Durkan

What about the Radiological Protection Institute? Do you deal with the whole area of radon gas? To what extent have you done something such as the geological survey with a view to providing information for the public?

Mr. Tuohy

The RPII was established in 1992 and is charged with issues of radiological safety and providing information for the public on radiological safety matters. We just got approval this year for a new grants scheme for radon protection. Radon is a naturally occurring isotope which emits gas. This gas is radioactive. We got the RPII to carry out surveys throughout the country over the last number of years to identify the areas of high concentration and begin to remedy some of these. The charge for this was approximately £15. People could apply for this test and were provided with the facilities. This is normally found where there is granite such as Galway, Wicklow and so on. The schools in these areas were targeted because children would be present for approximately eight hours.

Radon gas can be protected against very simply by putting an impervious layer between the gas and the room. One had to retrofit something like a deep polythene type of impervious layer and ventilate the gas. It was quite awkward to retrofit this into schools.

Deputy Durkan

Has this work been done?

Mr. Tuohy

It is being done at the moment. The Department of Education and Science is taking it on board. There is £1.5 million in the scheme going forward this year. The Minister will be making this available to the public and specific financial support will be provided for these tests in homes.

Deputy Durkan

There is the issue of the BNFL case and the important issue of the Commission for Electricity Regulation. This will now be of much greater importance as a result of European Union legislation, competition, deregulation and so on. I would like a comment on these two issues.

Mr. Tuohy

On the BNFL case, we are providing support for the Government decision of 1997 that there would be a package available to the County Louth residents. There is an Estimate provision of £200,000 and an outturn of £65,000 in the 1999 accounts. The discussions with the residents have been ongoing since 1998. We only pay on receipt of invoices. The Minister of State has had a number of meetings with those concerned and a committee of Ministers and Ministers of State from the Departments involved in this area has met, I think, 12 times in the past year or 18 months. The committee deals with Sellafield and the BNFL issue. To date, we have paid out £197,000 in respect of projects completed and are awaiting further receipts and information from residents. We have not had further receipts from them.

Deputy Durkan

Does that refer to technical data or legal or other advice?

Mr. Tuohy

They have a legal adviser and legal people but this is to commission technical studies. The State could not pay a legal person to sue itself.

Deputy Durkan

That would be a tricky one.

Mr. Tuohy

Studies have been approved but not the payment of legal fees.

Deputy Durkan

Regulation?

Mr. Tuohy

The Commission for Electricity Regulation was set up with an Estimate provision of £1.2 million, an out-turn of £938 million. It was set up in July 1999 to oversee competition in the market. The Government has liberalised 30% of the electricity market and it will be totally liberalised by 2005. The green market, the market for environmentally produced electricity, is totally liberalised at this point. I agree that the CER will be a critical part of the infrastructure. We set up the telecom regulator in 1997, the electricity regulator was next. The Minister has also assigned specific functions to the electricity regulator with regard to gas. The recent competition for gas allocation for power plants was run by the regulator under the functions assigned to him. At the moment electricity capacity in the country is about 4,500MW. We must make sure the capacity is more than adequately met by the generation facilities around the country and the transmission systems in place. The electricity regulator will regulate the market, the new people coming in and run the competitions. The Minister is also committed to assigning the full gas functions, as we liberalise the gas market later this year. Those full functions will be assigned to the Commission for Electricity Regulation as soon as the legislation is through the Houses. The commission's role will expand to cover broadly based energy, not just electricity. The link between the two is critically important.

The majority of the new power stations will be gas based, as opposed to coal or peat based. We have sanctioned a new 120MW peat station which opened earlier this month in Edenderry. Deputy Durkan will be familiar with it.

Deputy Durkan

I know the territory.

Mr. Tuohy

As we close down the four old ESB peat stations, two new ones will be built in Shannonbridge and Lanesboro. Peat is not normally as good as gas from an environmental or efficiency point of view but there is an issue of security of supply for a country of our type. We have a mixture of different sources of energy. We have peat, gas, coal - mainly in Moneypoint - and oil.

Acting Chairman

In 1990 I held the position of co-chair of one of the three committees of the British-Irish Interparliamentary Body. We were dealing with energy, among other items. I led a committee delegation to Sellafield to examine the situation there. One of our primary worries at the time concerned the proposal to store material under the Irish Sea. We asked about the danger of an earthquake. I am relying on memory but I am quite certain we were given a complete assurance by the Nuclear Energy Board, the predecessor of the Radiological Protection Institute, that there could be no such danger because of the geology of the area. We were assured it would be quite safe to burrow approximately 1,000 acres, which is what was proposed. Am I correct in saying we have changed our minds on that in the past couple of weeks?

Mr. Tuohy

The Sellafield issue has been a topical one between the Government and the UK Government. Earlier this year the nuclear installations inspectorate in the UK carried out a study of Sellafield and found a number of faults there. A major fault was found with the pellets being exported back to Japan and it was found that information had been falsified. The required tests were not being carried out. The inspectorate was also scathing in its criticisms of the management processes in the company. In any installation - pharmaceutical, chemical, petro-chemical but particularly a nuclear installation - management systems are absolutely critical. Ireland has always taken a firm view that Sellafield should be closed and marine discharges reduced to as low a level as possible very soon.

The Minister of State, Deputy Jacob, did a tour of certain European capitals and some of our interested neighbours in Iceland and Scandinavia earlier this year, before the OSPAR convention in Denmark in July. At the convention Ireland and Denmark put down a motion calling for the reduction of discharges into the Irish Sea. Subsequently, Britain agreed to bring forward the dates for reducing the discharges. We got tremendous support from most of our neighbours who share access to the marine environment.

Approximately 20,000 people are working in the greater Sellafield complex. It is a huge employer and there is a vested interest in maintaining it. We understand this. At the same time we feel the potential for something going wrong and the hazard for this side of the Irish Sea are too great to continue to allow the complex to continue. The Government has been very strong and the Minister of State, Deputy Jacob, has led a number of campaigns on the issue. Last September we wrote to the United Kingdom Government. There has been a consultation process on the UK strategy for radioactive discharges from 2001 to 2020 on which we have made our views known. Our view is that the reduction of discharges should be expedited, we cannot wait until 2020 and management of Sellafield must be more vigilant. It is not acceptable for Ireland to be subject to management processes which could put us at risk. There is very strong Government opinion on this.

Acting Chairman

I return to the question of the advice given to us in 1990. I am not an expert on nuclear energy. At the time I felt undermined because we were relying on the Nuclear Energy Board. We raised the issue of the transport of materials. THORP was only an idea at the time but we felt it could be a huge hazard. With every issue raised we seemed to get the message from our own people, who were giving us professional advice, that there was not a difficulty. I know this changed at some time. I do not know if the change coincided with the 1992 establishment. I feel the advice we were given was not correct. The people giving the advice were dealing with nuclear energy and seemed very far removed from reality. They may not have been aware of the real hazards. I recall the issue of the danger of an earthquake being dismissed.

Mr. Tuohy

The Nuclear Energy Board was established at the time of the proposals to build a nuclear plant at Carnsore Point. It was seen more as proactive support of the nuclear industry in a broad sense. The intergovernmental and world view at the time was that because of greenhouse gases, etc. there should be a move to nuclear energy. The only country which took this view seriously was France, where 95% of energy is produced using nuclear energy. There was an effort in Britain and other countries, but no other country took the view that seriously.

In this business you are dealing with two things: a hazard and a risk. The risk is the probability of something going wrong, while the hazard is what can happen subsequent to this. The hazard in terms of a nuclear catastrophe is huge; in other words, the probability of an earthquake might be very small but the hazard is huge. When the hazard is multiplied by the probability it could still be unacceptable. At the time people might have felt that the probability of a fault in the Irish Sea was unlikely, but one had to look at the consequences if it did happen and it shattered some of the storage systems in Sellafield. This is when the hazard becomes real.

Our view is that there are certain unacceptable levels of hazard or risk and we are not prepared to go beyond them. The change in mood can be seen from the Radiological Protection Institute which is concerned about protecting the public from radiological hazards and advising the Government to that extent. The inspectors have visited Sellafield to follow up on the NII inspections earlier this year to reassure the Minister that what is happening in the UK is acceptable.

Acting Chairman

I welcome the more responsible approach being adopted. For example, Austria built a plant which it has said it will not open. I will not go into the rights and wrongs of the provision of nuclear power, but I wish to refer to the rights and wrongs of the advice we were given, particularly in view of the reports last week that there could be an earthquake. We generally accept advice we are given by senior personnel, but people who questioned the potential dangers were brushed aside. I am glad there has been a change and we are adopting a more responsible approach.

Deputy C. Lenihan

On the electricity issue, you are liberalising 30% and hope to fully open up the market by 2005. One hears an increasing volume of reports about brownouts. Does the Department have statistics on the level of under-capacity? Even though Government policy is to decentralise and bring industry to regions other than Dublin and the eastern seaboard region, I was recently told that the IDA cannot put a plant the size of Intel into the west, midlands or Border region as the ESB does not have the physical capacity to cater for it.

Mr. Tuohy

I am not sure if the Deputy heard the figures I gave earlier. Our current capacity is 4,500MW. Moneypoint, a coal burning station, is the biggest generator with almost 1,000MW. Some of the smaller stations are located in peat areas. There are two issues involved here: the generating capacity and the transmission system to take out the power. In the past the system was focused on Dublin; in other words, all the power capacity was coming towards Dublin. There are two high voltage 220kv lines running parallel from Moneypoint to Dublin. Areas west of the Shannon are lucky to have 110kv while other areas have less than this. If you want services, you need infrastructure and if you want infrastructure, you need masts for power generation. A similar situation applies in the case of mobile phones for which you also need masts.

The Deputy referred to new industries. If I said five years ago that the new technologies would be big users of energy, you would probably have laughed at me. The requirement for a web hosting facility is over 40MW, which is bigger than a town with a population of 20,000-30,000 people. This is the demand on the system. As a country, we are positioning ourselves to increase the number of web hosting facilities. We have 1.5 million square feet of web hosting, in the main, in Dublin and we need to distribute this around the country. Part of the Government's policy is to drive industry, particularly in the BMW region and outside Dublin. However, this can only be done if the infrastructure is in place. The transmission networks must be available for this and communities must be prepared to look at putting in transmission systems. The Chairman will be familiar with the Aghada-Rapheen situation in Cork, while others will be familiar with the situations in Donegal, Waterford and other places where there are difficulties putting the proper infrastructure in place.

The regulator recently ran a competition for the allocation of gas to the new generators. Three companies were successful - Huntstown, which is Meridian-CRH, at 340MW, Dungarvan Energy, which is BGE with Rolls Royce at 107MW, and Synergen, the ESB Statoil in Ringsend, at 400MW. They will come on stream from the autumn of 2002. Bringing that capacity on stream is absolutely critical. There is no point bringing the power generation on stream without the transmission distribution system. We have been in discussion with the ESB and Eirgrid, which is being set up to manage the national grid, on the roll-out plans for the development of this infrastructure. The roll-out plans are critical if we are to do this. This brings us back to the planning issue and local environmental issues. The cycle comes full circle. If communities want to attract business, they need the infrastructure.

Deputy C. Lenihan

It is impossible to locate a plant the size of Intel in Sligo, Leitrim, Mayo or Galway.

Mr. Tuohy

Nothing is impossible——

Deputy C. Lenihan

It is difficult to get the electricity to service the site.

Mr. Tuohy

It is difficult to get the type of capacity we are talking about. Eirgrid has given us a reassurance that there will be no loss of any projects to Ireland from a lack of capability into the system. Part of this is that you can redistribute across the networks. The Deputy raised the issue of location as opposed to the country.

Deputy C. Lenihan

What I am saying is that it would be impossible to locate a plant the size of Intel in Leitrim, Donegal or Mayo.

Mr. Tuohy

The power capacity requirements may not be adequate. I would have to look at the specific locations. This raises the issue of the use of combined heat power, CHP, which is absolutely critical for these centres. Our original proposal was to allow people who generated their own requirements through CHP to sell back into the system. This was restricted under the electricity legislation. There is a general feeling across the system that maybe this should be undone to allow people to generate and use the much more environmentally friendly combined heat power and also to put it back into the system. This issue needs to be debated and will be debated under the electricity legislation next year.

Deputy C. Lenihan

I want to clarify a point. I am not declaring an interest, but as I advise Esat Digifone, I am aware of the roll-out issues in relation to telecommunications. On electricity, did the original ESB transmission network require planning permission when it was rolled-out and does the ongoing roll-out in terms of liberalisation require planning permission for these sites?

Mr. Tuohy

All the new ones too.

Deputy C. Lenihan

The original backbone or whatever network it is did not require——

Mr. Tuohy

I would not think so. The Office of Public Works and any other State agency was exempt. Telecom was exempt. If you go to the areas around Dusseldorf and Duisburg in Germany you will see huge infrastructures. These were built in advance of environmental issues. People did not see the danger in them. Any effort now to have major infrastructure, be it mobile phone masts or power generation transmission systems, will come up against environmental concerns. You must weigh up that balance. You need planning permission and an environmental impact statement but even with that, as happened in Aghada Rapheen, you still do not have the power line across the harbour. The Chairman will be familiar with the detail of that.

Deputy C. Lenihan

You are saying that communities that claim to be disadvantaged in the west in regard to industry, investment, IDA factories, and so on cannot source them because, in relation to electricity transmission systems, those communities strongly resist the building of the infrastructure, be it electricity pylons or whatever.

Mr. Tuohy

Communities must be aware of the balance between investment, industry and infrastructure. You cannot have investment and industry without infrastructure. It is very important to have encouragement for that type of infrastructure, otherwise there will be resistance to it and that in turn means you do not get the infrastructure or the industry. They must look at the balance between the two, not just in the west but around the country. However, it is more so in the west because we do not have 220kv lines.

Deputy C. Lenihan

Unless they get these lines and facilitate their arrival in their communities, such companies cannot locate there.

Mr. Tuohy

Power may not be the only issue. There are other issues to be considered when deciding where to build a plant. Power is one. If the power requirement is what I say it is then you need the infrastructure to deliver it. The question is do you put in the infrastructure in advance of demand or do you wait for the demand? The problem with the lag time waiting to see if a company will locate there is if the infrastructure is not there it will locate elsewhere. People will say the debate on the Donegal issue is that there is no demand for the type of power the ESB proposes to put in. While there may not be a demand at present because the industry is not there, if you want to bring in industry you must provide the infrastructure.

Deputy C. Lenihan

It is ironic that while many of my colleagues from the Border, western and midlands regions scream about not getting investment, they are the ones who resist this type of infrastructure. Some parts of the country seem to want investment without turning on the lights.

Acting Chairman

We will move on to the next item. I thank Mr. Tuohy and all those who contributed. Is it agreed that we note the Vote and the accounts? Agreed.