COMMITTEE of PUBLIC ACCOUNTS debate

Chairman

Witnesses should be aware they do not enjoy absolute privilege. The attention of members and witnesses is drawn to the fact that evidence from 2 August 1998 under section 10 of the Committees of the Houses of the Oireachtas (Compellability, Privilege 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 I remind members of the long standing parliamentary practice to the effect that members should not comment on, criticise or make charges against a person outside of the House or an official either by name or in such a way as to make him or her identifiable.

The Department of the Marine and Natural Resources asked to appear before the Committee on 31 May 2001. I congratulate you, Ms O'Neill, on your appointment as Secretary General of the Department of the Marine and Natural Resources. All the members of the committee also wish you well in your position. I ask you to introduce your officials.

Paragraph 23 of the Report of the Comptroller and Auditor General reads:

The Jeanie Johnston project involves the construction of a replica of a famine vessel, which transported Irish emigrants to North America in the middle of the 19th century. It was intended that the vessel would make a voyage to North America and have a permanent berth at Blennerville, Co Kerry, where it would have complemented the Blennerville Windmill Centre and the Tralee Steam Railway.

The promoters of the project are a broadly based committee whose members represent the community, business and voluntary sectors as well as local State agencies in Tralee. A company, Jeanie Johnston (Ireland) Company Ltd. (the company), was set up to deliver the project.

The project was to be financed by a combination of EU, Exchequer, local authority, semi-State and private funding together with a contribution from the International Fund for Ireland.

Work on laying out the shipyard to accommodate the building of the vessel began in April 1996 and during the remainder of 1996 and 1997 the shipyard buildings were constructed. Work on the ship itself began in January 1998.

When the project was first mooted in 1994, the cost was estimated to be in the region £2.75m to £3m but by 1998 the revised estimate was £4.5m. However, by June 2000 the projected cost to completion had risen to £8.25m and, following a request for financial support to avert a significant shortfall, the Department of Finance agreed to the provision of £2m from the Vote for the Marine and Natural Resources. On foot of this provision the Department of Marine and Natural Resources (the Department) issued advance payments, in July and August 2000, of £300,000 and £400,000 and also commissioned a due diligence report on the project. This report, which was finalised in September 2000, raised a number of issues regarding the project including the increased financial requirements to finish the vessel, the post-completion voyage to North America (which had been postponed with adverse effects on cash-flow projections) and the structure of the board of the promoting company. The report identified a potential deficit of £3m even after receipt of the £2m committed by the Department. In view of the report's findings the Department asked the promoters to submit a rescue plan which they did in December 2000. The Department's advisers considered that the plan was not viable and did not represent a sufficient basis for the release of further moneys by the Department. A revised rescue plan was submitted in March 2001, which sought additional funding of £2m. In the interim the Department had paid a further £408,000 to the company to enable it to continue to operate, which when account is taken of the Department's payments to its consultants of £17,000 brought its total payments on the project to £1,125,000 at the end of March 2001.

In April 2001 the Department sought and obtained Government approval to provide another £2m to supplement the £1.125m already paid bringing total Departmental funding committed to the project to £3.125m. The Government approval was subject to, inter alia, the putting in place of appropriate management arrangements to ensure that the vessel was completed on time and within budget, and that the 2001 voyage element of the project was properly managed. The Government also agreed to the convening of all stakeholders in order to agree a structure and terms of reference for an urgent review of the future use of the vessel, and that the Minister for the Marine and Natural Resources would bring proposals to Government for a structure and ongoing management of the project, which would maximise the value of US interest in the project with minimum ongoing State involvement.

All funds paid by the Department to the project were channelled through Kerry County Council.

In June 2001 the planned voyage to North America was cancelled by the promoters because they were unable to obtain the necessary marine certification of the vessel.

Observations of the Department of the Marine and Natural Resources

In response to my inquiries, the Accounting Officer of the Department of the Marine and Natural Resources pointed out that his Department had no role in the initiative taken by the promoters to build the Jeanie Johnston nor did the Department at any time seek to become involved in the project. The Department's role in rescuing the project followed directly from policy decisions taken by Ministers and the Government.

He informed me that the funding made available to July 2001 was £9,712,000. Details are shown in Table 1.

Table 1 Source of Funds for the Project


Source of Funds	£	Type of Funding
Department of Marine and Natural Resources	3,125,000	Exchequer Grant
Kerry County Council	2,000,000	Loan Guarantee
Kerry County Council	200,000	Deferred Creditors
Tralee UDC	400,000	Loan Guarantee
Tralee UDC	240,000	Deferred Creditors
Department of Arts Heritage Gaeltacht & the Islands	750,000	ERDF Grant
Department of Arts Heritage Gaeltacht & the Islands	50,000	Exchequer Grant
SFADCo	150,000	Convertible Loan
SFADCo	850,000	Exchequer Grant
Kerry Co. Enterprise Board	50,000	Grant
Tuatha Chiarraí (Leader Prog.)	100,000	Grant
Sub total/Public Funding	7,915,000
International Fund for Ireland	427,000
Private Funding	1,370,000
Total	9,712,000

FÁS incurred expenditure of £1.41m on allowances to participants in programmes run in conjunction with the project.

He also informed me that the expected final cost of the project (excluding FÁS input) is in the region of £11m, and it is hoped that the proceeds from the sale of the company's property in Blennerville will fund the shortfall in funding of approximately £1.3m. When the project is completed, it is expected that there will still be a deficit of approximately £2.9m in respect of the bank loan and deferred creditors.

He furnished me with the following information:

The advance payments, totalling £700,000, made prior to the completion of the due diligence report were made to tide the company over serious cash flow problems which were threatening the survival of the project.

The statutory powers giving the Minister for the Marine and Natural Resources authority to make grants to the project are provided for in Section 46 of the Merchant Shipping (Investigation of Marine Casualties) Act, 2000, which was commenced on 6 August 2000. The initial payment of £300,000 in July 2000 was made from Subhead D.3 in advance of the commencement of Section 46 on foot of sanction from the Minister for Finance and in anticipation of the new legislation.

Regarding the verification and monitoring procedures in place to ensure that Departmental moneys were expended effectively and efficiently and were properly accounted for, the Accounting Officer stated that all Departmental funding was paid through Kerry County Council which agreed to verify and certify that the moneys were expended on capital costs incurred on completion of the vessel. The £2m additional funding agreed in April 2001 was conditional on the Company putting in place appropriate management arrangements to ensure that the vessel was completed and on the appointment of consultants to deal with the requisitioning of moneys for the project. Audited Accounts had been received from the Company. Moneys were paid out by the Department on the basis of a requisitioning system designed and operated by a financial management consultant.

The failure to complete the project in July 2001 as envisaged was due to ongoing problems with the electrical systems of the vessel which had meant that the vessel was not yet ready to undertake the necessary sea trials and testing required for certification purposes. Much of the electrical work already carried out would appear not to be of an appropriate standard for a vessel of this type and rectification work was required, which it was understood would take about six weeks, and so the vessel would not be completed until sometime near the end of September 2001.

The Department has requested the Chief State Solicitor to draw up an appropriate Charge to be placed on the vessel to cover, at a minimum, the £2m funding put into the project by the Department on foot of the Government decision of 3 April 2001. The Company has agreed to the placing of this Charge in favour of the Minister.

As to the co-ordination between the different State Agencies involved in the project, and the Government conditions regarding the future use and management of the vessel, the Accounting Officer stated that since the Government decision of 3 April 2001, the Department had been conducting a consultative process involving all stakeholders to facilitate the ship's completion. Following the announcement by the Company on 26 June 2001 that it had postponed planning for a voyage to North America in 2001, a Focus Group was set up under the auspices of the Department to identify the options for the future role of the project and to report to the Minister for the Marine and Natural Resources by mid-October 2001 on a long-term strategy for the vessel. The Terms of Reference for the Focus Group require the Group to examine, in the light of the conditions attaching to the public investment to date, all possible uses and roles for the Jeanie Johnston project having regard to the:

(a) need to maintain its heritage status and value

(b) need to recognise its north/south dimension

(c) need to ensure that it does not continue to be a burden on the Exchequer,

(d) proposal that the vessel undertake a transatlantic voyage.

The Focus Group has been asked to draw up ownership and management models, based on experience elsewhere, to deliver on the above, including cost minimisation. The Minister has informed the promoters that the future of the vessel, (including any possible voyage to North America next year) will be considered by him and the Government in the light of the Focus Group's report which is due by mid-October 2001. In the meantime the Board of the Company has been directed to concentrate on the completion of the vessel as its priority and to focus on the financial management of the project with a view to expediting completion and reducing costs to a minimum.

A proportion of the Department of Arts, Heritage, Culture and the Gaeltacht European Regional Development Fund grant is refundable to the EU in the event of the project not being completed in accordance with the terms attached to the grant, which is also the case with the SFADCo grant.

Kerry County Council has provided guarantees in respect of:

(a) the £2m bank loan

(b) the £750,000 European Regional Development Fund grant received through the Department of Arts, Heritage, Gaeltacht and the Islands

(c) the £850,000 Exchequer Grant paid by SFADCo.

The Council has also agreed to underwrite the operating costs of the vessel for a certain amount of time after its completion.

Tralee UDC has guaranteed a bridging facility of £400,000 which has been drawn down by the promoters from a second bank.

These guarantees, when added to the moneys owed in relation to deferred creditors (£440,000), means there is a potential liability of the order of £3.6m to Kerry County Council and Tralee UDC. In addition, there is a potential liability to Kerry County Council, which is at this stage unquantifiable, in relation to its underwriting of the operating costs of the vessel.

There is uncertainty regarding the status of certain private funds in the event that the vessel should fail to undertake a voyage to North America.

Observations of Shannon Free Airport Development Company (SFADCo)

SFADCo informed me that in October 1995 they agreed to support the Jeanie Johnston Famine Ship Project by the provision of £150,000 by way of a convertible loan secured over the assets of the company for the purpose of the acquisition of a site for the construction of the ship. In December 1998, the Independent Management Board for Tourism Product Development in the Shannon Region (the Tourism Product Board14) approved a capital grant for £850,000 towards the Jeanie Johnston Famine Ship Project. SFADCo acts in an executive capacity to the Board. The grant was approved following a review of possible alternative projects which were considered for support under a special £1.5m Exchequer Provision made available through the Department of Tourism, Sport and Recreation in 1998.

A key influence of the decision of the Tourism Product Board to support the project was its potential to perform a unique ambassadorial/promotional role in North America with consequential substantial benefit for Irish Tourism. This was recognised through special U.S. Presidential recognition, strong media interest, the North-South dimension and the network of Organising Support Committees established by the Promoter in the major North American port cities (e.g. Boston, Washington DC, Montreal etc.)

Other factors taken into consideration included:

The previous successful track record of many of the Promoter's Board of Directors (Public and Private Sectors) in carrying out a range of substantial tourism projects in the Tralee area.

The complementarity of the completed ship when operating as a tourism attraction with the recently developed cluster of tourism facilities in the Tralee region.

Strong third party financial guarantees provided to the project by Kerry County Council which underpinned the project against any unanticipated shortfalls through the capital and/or subsequent operational phases for a ten year period.

Since the initial £150,000 investment was made in 1995, SFADCo has continued to maintain its charge on the assets of Jeanie Johnston (Ireland) Company Limited, despite requests from the Department of Arts, Heritage, Gaeltacht and the Islands to release this security in favour of their investment. Following negotiations with the Department of Arts, Heritage, Gaeltacht and the Islands, SFADCo agreed to share its security with the Department on a parri passu basis in respect of the Department's payment of £750,000 to the project.

In respect of the subsequent grant payment of £850,000, standard monitoring procedures undertaken by SFADCo in relation to tourism related grants were applied (grants inspection, annual accounts, external auditor certification, project liaison, legal). As it became apparent, however, that the project was experiencing increasing financial and organisational difficulties, additional procedures were undertaken, including the engagement in early 1999, in association with Kerry County Council, of specialist project management consultants to monitor the project.

Throughout 1999/2000, the project management consultants reported twice monthly to both organisations and recommendations for corrective action were referred to the Promoter. During this period the increasing concerns of both organisations were conveyed at a number of meetings held with the Promoter's Chairman and Directors. Later in October 2000, when it was apparent that the financial and organisational management position within the project required strong external and emergency action, SFADCo pressed for and financed the engagement by the Promoter of an Insolvency and Company Restructuring specialist. The specialist was engaged by the Promoter in the capacity of Interim Chief Operating Officer. The intensive involvement by him in all aspects of the project, his preparation of a Rescue Plan in March 2001 and his subsequent engagement by the Department of the Marine and Natural Resources has been central to maintaining a degree of confidence amongst key stakeholders and creditors which has to-date enabled the troubled project to continue to be progressed towards the completion of its development phase, thereby holding open the opportunity of realising a worthwhile return for the substantial investment which has been put into it.

In addition to obtaining security on the initial investment of £150,000, SFADCo in accordance with standard practice, obtained a Mortgage Debenture securing the £850,000 grant assistance. This represents a third charge over the assets of Jeanie Johnston (Ireland) Limited, ranking after SFADCo (for £150,000) and the Department of Arts, Heritage, Gaeltacht and the Islands (for £750,000) holding a first charge parri passu and a bank holding a second charge (for £500,000). The debenture agreement further provides:

(a) for the completion of the project as set out in its grant application and related information submitted to SFADCo

(b) for the operation of the facility as an Emigrant ship and tourist attraction for a 10 year period

(c) that the project cannot be sold or otherwise disposed of without the consent of SFADCo.

The Promoters attributed the difficulties encountered by the project to its unanticipated complexities, difficulties in sourcing raw material, the decision to sub-contract out certain elements and the longer time required to complete the ship.

Observations of Department of Arts Heritage Gaeltacht and the Islands

The Department of Arts Heritage Gaeltacht and the Islands informed me it had obtained a charge on the yard and ship, but consideration was being given by the Department and SFADCo to moving the Charge to the ship alone. The purpose of the Charge was to protect the Department's interest and to ensure that the facility was maintained for the purpose for which it received the grant.

The Department had also sought a Guarantee that all operating costs for the Jeanie Johnston Project, once completed, should be underwritten. It was standard practice for the Department to ask developers of projects being funded under the Cultural Development Incentives Scheme to secure a commitment from a public body that it would meet any operational costs that may be required to ensure the successful operation of the project. In the case of the Jeanie Johnston Project, Kerry County Council provided the commitment, for a period of 10 years.

Observations of Department of the Environment and Local Government

The Department of the Environment and Local Government informed me that it was currently gathering information from all Local Authorities in relation to their involvement in projects which are sponsored by Government Departments or State Agencies, which will be used to formulate future Departmental policy in this area.

I ask Mr. Purcell to introduce the accounts.

Mr. Purcell

I assume we are dealing with paragraph 23.

Chairman

Paragraphs 23, 24, 25 and 26 .

Mr. Purcell

Paragraph 23 sets out the financing arrangements for the Jeanie Johnston project which involved the construction of a replica ship which transported Irish emigrants to North America around the time of the Famine in the middle of the 19th century. The project was initiated and managed by a group of promoters from the Tralee region. Members will be aware that the project ran into financial difficulties along the way and had to be bailed out by the State, latterly through the medium of the Department of the Marine and Natural Resources. What started out as an estimated £3 million project in 1994 had risen to £4.5 million by 1998. The latest indications from the Department are that the final costs will be in the region of £11 million.

There are two main issues. The escalation of the cost from the estimated £4.5 million to £11 million in three years either means that the cost of the project was seriously underestimated in the first place or that the way the project was managed or mismanaged resulted in a major cost overrun - or a combination of both. Either way, there are serious implications for the public purse. Underestimation can lead to inappropriate decisions being taken. In this case, for example, while one might have been prepared to pay £4.5 million for something, it is a moot point whether the same decision would be taken if one knew it would cost a multiple of that. Once a project is under way, it is hard to walk away from it and leave it in an unfinished state when it is discovered that the costs are going through the roof because little or no value can be obtained for the significant amount of money already put into the project.

How did it arrive at this state of affairs? The general consensus from my reading of the files appears to be that the cost overruns were mainly attributable to unrealistic expectations of ship completion dates and voyage predictions, which were perhaps symptomatic of wider board and management weaknesses. It is likely that the complexity and scale of the project grew beyond the capacity of the systems and structures in place to keep all aspects of the project in focus and under control. The second point is that there were seven public bodies involved in financing the project, or eight if one includes FÁS. Of the expected final cost of £11 million, £1.3 million will, we hope, be realised from the sale of property. Some £1.8 million came from a combination of private funding and the International Fund for Ireland, leaving almost £8 million to be met in one way or another by the Exchequer. Some £5 million of this represents grants with the balance consisting of loan guarantees and deferred creditors to be met by the two local authorities concerned.

The number of State agencies concerned is a stark example of subsidy shopping, which makes it difficult to exercise proper financial control for the public purse. It is only in the past few months that a co-ordinated approach by the State has been belatedly adopted. I suggest that one of the lessons to be learned from this project is the need for one State agency to be given responsibility at the earliest possible stage for controlling the provision of State funds to projects such as this and for monitoring how they are used. In this way the risk of unnecessary overlapping and duplication of effort and the diffusion of responsibility can be minimised which will, we hope, result in better informed decision making and more effective oversight of the State's investment.

Chairman

I thank the Comptroller and Auditor General. We have received your opening statement, Ms O'Neill, for which I thank you. The committee members have studied it and they would like to ask you some questions. I call Deputy Dennehy.

Deputy Dennehy

I join with you, Chairman, in welcoming the new Secretary General, Ms O'Neill. I pay tribute to Mr. Carroll who held the position prior to Ms O'Neill. He did tremendous work in the Department.

We did not have any direct involvement in the project, as I understand it, until we were asked in June 2000 to become involved in it. The initiative at that stage came from Kerry County Council to our Minister and assistance was sought to resolve the difficulties which had arisen. There may have been some side involvement of our marine surveyor's office on a day-to-day basis which I would have to verify. However, as a Department, we did not have any involvement until that point.

It seems that looking at this project - the Comptroller and Auditor General's points are well made - there are approximately four issues we need to get our heads around. The first, as the Comptroller and Auditor General said, is the issue of cost escalation. The second is associated with that, namely, the delays in the completion of the vessel to a seaworthy standard. The third relates to the issue of planning what might happen to the vessel after completion, in the context of planning a voyage. It was envisaged that at least one significant voyage would take place. The fourth, which concerns me at this point, relates to the future of the project and what happens to it after the event.

As the Deputy has pointed out, the initial costs of the project were estimated by the project promoters as being of the order of £2.75 million and a number of stakeholders, including State stakeholders, came in at that point to support it. When we first became aware of the project - it was brought to our attention in June last year - the cost at that stage was estimated to be of the order of £8.25 million. So between 1994 and 2000 the cost had escalated to that level. It would be more appropriate for some of the other agencies represented here, Shannon Development and the Department of the Environment and Local Government - and Kerry County County which is not represented here - to comment on that aspect of it.

From our perspective, we were immediately concerned as to how robust the figures were in relation to the estimated cost of £8.25 million. The Department immediately commissioned a due diligence report to have a full examination of the costs carried out. By the time that due diligence report was completed and a rescue plan, which we felt was a robust one, had been developed, the cost had reached £11 million. In fact, we had to return to the project a second time because we were not happy with the first attempted rescue plan. That was about September last year and we have held within that cost envelope to date.

I cannot comment on the growth from £2.75 million to £8.25 million, but the gap in the meantime was largely, in our view, attributable to an incorrect estimation of what it cost to produce a vessel of this sort in seaworthy condition, capable of undertaking transatlantic voyages. It is quite different to the Dunbrody, which we might talk about in a short while.

Whenever there are delays involved in bringing a project like this to completion, costs will inevitably escalate in association with that. At one stage, those costs would have been of the order of anything up to about £100,000 per month arising from delays. A full team was in place waiting for certain work to be completed. I understand that at this stage they have been pared back to the bare minimum that is needed, essentially to mothball the project, which is somewhere in the order of £3,000 or £4,000 per week. Whenever the project is incomplete, or sitting waiting for work to be completed, there will inevitably be a cost involved. Our concern has been to see that cost reduced to the minimum necessary, over and above the cost of the work necessary to complete it.

I wish to turn to the delay in completing the project which has been a matter of serious concern to us. When we became involved in the project in June 2000, it seemed initially, based on the information that was made available to us, that only a few weeks' work was required to complete it. Every time we have engaged directly with the project it always seems to be a matter of six, seven or eight weeks work to complete it. In October 2000, shortly after the due diligence report was completed, we arranged for the deputy chief surveyor of our Department to visit the project, not in the normal role the Marine Survey Office fulfils of formally assessing a project for seaworthiness, but to see what technical advice and support he could give to the project, recognising that the project is carried out by an independent company. He immediately identified as an issue at that stage the delays in the electrical wiring of the ship. That was his primary concern. Overall, he was extremely satisfied with the quality of the workmanship. He thought it was an excellent project and still felt it could be completed within a matter of weeks, but was concerned about delays in the wiring. He hoped that would be completed and indicated that he thought it should be reasonably possible to complete it by the end of January 2001. That target held, even after his second visit to the project, which was in December 2000.

When he went back in April this year, he discovered not only that that work had not been completed, despite all the advice that had been given to the project, but also that there were real difficulties emerging in terms of the quality of the electrical work. I am loathe to say too much on this issue because the matter is now sub judice between the electrical contractor involved and the management of the company. Certainly, however, we would have grave concerns, not just about the financial management of the project but about the technical management in terms of the technical expertise being brought to bear at an early stage to ensure that this project met full seaworthiness standards.

Over and above those two issues which all relate to the time delays until now and the cost envelope of £11 million, the Department also has concerns about the estimation of what precisely is involved in mounting a voyage with a ship of this sort and whether it is possible, as projected by the developers, to do that on what is essentially a cost recoupment basis. We have issues of concern there.

Over and above that, again we have a real concern as to what happens in the long-term with the future of this project. We now have an asset which has cost £11 million, which probably has a value in real terms of £3 million to £4 million. It is, at most, £300,000 away from completion within the cost envelope we have outlined, but what do we do with it now? That is why Mr. Guilfoyle of my Department is chairing a focus group with all the stakeholders who have been brought together, to say here is an asset that is now available and we must make sure we put it to the best possible use.

Deputy Dennehy

Chairman, I have two questions for the agencies involved. Were they aware that there was any reasonable business plan in place? What knowledge did they have of how the project took off? I know the Comptroller and Auditor General is worried about the financial implications but I have encouraged this kind of interaction between agencies. I have seen the Cork-Swansea ferry service take off with help from Kerry, in particular. Does the Secretary General think the experience with the Jeanie Johnston project will cause long-term damage for that type of involvement by local authorities? Does she think it will make State agencies, including her own, wary of getting sucked into them? How does she see the situation developing?

Ms O’Neill

Ms O’Neill

From our point of view once we became involved the critical issue was to get the very thorough due diligence report, to firm up rigorously on the costings with the project promoters and to have in place tight financial control arrangements. In our case that also involved not releasing moneys until we were satisfied about how they were being expended. That is the only lesson that can be there for the future. We felt we really got a hard, firmed up cost on the project once the due diligence was out of the way and, subsequently, we had put in place a thoroughly examined rescue plan which we were satisfied stood up to objective scrutiny.

Chairman

It is hard to reconcile the fact that the Department of the Marine and Natural Resources was called in at such a late stage in this project. I find it difficult to believe that the Department of the Marine and Natural Resources did not enter into consultations or obtain the benefit of your technical expertise. It must be an additional disappointment to Mr. Lynch that, in respect of the Kilrush marina project, which was investigated by the committee some time ago, Shannon Development was exposed to the tune of £1 million.

I do not want to comment but Mr. Purcell has made one good observation, namely, that one particular body should be answerable. Will our guests comment on that? This project was modelled on a 19th century vessel, a Famine ship, that sailed to North America. The ship in question made 12 successful voyages but it seems that the taxpayer is going to be asked to pay £1 million for each voyage made by a vessel, which originally set sail in the 19th century, due to a significant cost overrun and the fact that a multiplicity of departments contributed to this project, which has not yet been finalised. An observation has been made that we must look at the long-term sustainability of this project, despite having already expended such a vast amount of money. Serious questions must be asked. The Dunbrody ship operates as an interpretative centre and the philosophy behind it is that it will eventually sail. Can our guests provide assurances that it will sail?

Ms O’Neill

It would be a very brave person who would give any specific assurances of that sort at this stage. We will go back to Government shortly with the outcome of the deliberations of the focus group which Mr. Guilfoyle is chairing in my Department. If I could just comment on the issue of the Department of the Marine and Natural Resources' involvement, this goes to the root of part of the problem with this project. It was originally conceived of very much as a heritage project, an example of what had happened in the past - as a Famine ship - and it was also seen as having a tourism dimension. So it was in receipt of fairly significant funding under the tourism operational programme on both those counts. My own sense is that those involved in the project from the outset did not recognise the very significant difference between a floating exhibition ship, which is what the Dunbrody ship was originally intended to be and now is, and a ship which is expected to sail.

I understand from my officials that there would have been some limited involvement with our Marine Survey Office, just on an ongoing basis. I refer here to the normal proofing role the Marine Survey Office would have with any ship that will need, as this one will, to have a passenger vessel licence before it can set sail. Once we became involved with the project - we were invited in and asked by the Government to essentially take over responsibility for funding - we brought, as quickly as possible, our technical expertise to bear on it. As I mentioned, we asked our deputy chief surveyor to get involved and see what support he could give. That certainly does raise questions that if there had been perhaps a more thorough look at the outset of the project - a recognition of the particular safety dimensions that arise when you are trying to develop a ship for sailing - it might have been appreciated at that point that, inevitably, this was going to be a more costly project than a boat which is to be a floating exhibition.

In terms of the future of it, there is strong commitment to having this vessel sail. It was conceived of as a vessel capable of sailing, it has been built in that way and, apart from the electrical work, I understand is to a very fine standard. However, for my part as Accounting Officer for the Department, I will want to look very rigorously at what costs and benefits will flow from sailing it before we could recommend to Government a go-ahead on that basis. One of the terms of reference of the focus group is to look at it in the context of an intention that it would sail.

Chairman

When the project was originally conceived, the ship was intended to sail to the United States. However, that had to be deferred. It was intended to tap into American goodwill and——

Ms O’Neill

The whole climate has changed.

Chairman

——the whole climate has changed. What will be its destination when it does sail? Will Mr. Guilfoyle indicate when he believes it might sail?

Mr. Guilfoyle

You are quite right, Chairman, the whole scenario has changed completely. We certainly envisage, as the Accounting Officer has said, that it will sail next year, but we were going to look at matters very closely to see if that is backed up from a financial point of view. The company, when looking at the question of sailing this year, had many difficulties about ensuring that the figures surrounding a voyage to the United States this year stood up. We in the Department are not convinced that a voyage will be viable, in terms of breaking even, this year. We will be looking closely at it in terms of next year. As has been said, the entire situation has changed considerably as to whether - I suppose this would be a matter for the organisation dealing with tourism - there is a role for the vessel in promoting tourism from the US next year. That would be a matter to be considered in the context of putting together a voyage that will have a financial/public policy return. However, it was always envisaged that the destinations of any sailing would be the US and Canada.

Deputy Bell

The Chairman and Deputy Dennehy have made an important point. In my opinion, this is the largest collection of financial blunders in the history of the State. It is even worse than the Howth harbour project, with which I was involved many years ago, when there were many promises and guarantees from the Department that it would never happen again. Not only has it happened again, but this new project has surpassed what happened at Howth Harbour. There is a similarity between the way both projects commenced; the only difference is that at least Howth Harbour is now producing something. However, it appears that the taxpayer is going to be left to pay for the most expensive project in the history of the State which is going to produce nothing. We cannot even obtain a guarantee that the ship is going to sail. We could have purchased two or three of these replica ships, privately, for less than what it is going to cost the State to complete the project. Those ships would have been brand new and we would have been able to use them, at the very least to allow tourists to take joyrides around the coast.

I do not believe it is good enough that responsibility for this should be passed around. Ten State organisations of one sort or another, led by the Department of the Marine and Natural Resources, are involved here, but all of the money provided came from taxpayers. Who is responsible for this mess? I congratulate the Secretary General of the Department of the Marine and Natural Resources who has inherited this project and I wish her luck with it. In light of the fact that men were unable to sort this matter out, perhaps a woman can do so. This matter should be sorted out and the Secretary General should be obliged to reappear before the committee and indicate who is responsible for wasting approximately £8 million of taxpayers' money, with no explanation other than a lot of gobbledegook that nobody can understand.

The C & AG summed matters up in far fewer words than the number contained in the document with which we have been presented. He made no bones about outlining the mess that was made of matters. In my view, he was, as usual, polite in selecting the words he used to describe what occurred. This is a mess and the Secretary General should be asked to return, within a reasonable period, to the committee and explain how that money was squandered on a vessel we do not yet even know to be seaworthy.

Ms O’Neill

If I may respond to that, I think I have already made clear that our Department's involvement began in June last year and clearly my main responsibility is to ensure that we are satisfied we are exercising our stewardship of the £3.125 million, which is the exposure of my Department in relation to this project at this stage, as effectively as possible. I can provide chapter and verse in relation to the steps we took, as a Department, from the moment we became involved in that project to date in terms of, first, working assiduously to get the costs under control - as I mentioned, they were already estimated at £8.25 million when we first became involved - and, second, ensuring that the necessary support is given to this project to bring it rapidly to completion. I spoke to our deputy chief surveyor this morning and we understand that the project is very close to completion and to being in a seaworthy state. It will be ready for sea trials as soon as the electrical wiring difficulty is resolved. I understand that the remaining cost involved in bringing the project to completion will be somewhere of the order of £300,000. We have held back £1 million of the grant allocation available through our Department pending being absolutely satisfied that electrical work will be undertaken correctly. In that sense I feel I can personally stand over the stewardship my Department has given to the project.

In terms of the future the committee will appreciate I have come upon this project in its current state in the last week. I am concerned, as are all the members, about how it arrived in this state and how we get out of the situation that we are in. It is extremely important in the first instance that if it is to sail we ensure it sails in such a way that it is not a further burden on the Exchequer. Second, what we have now is a very valuable asset, maybe not worth £11 million in cash terms but in terms of a quality product worth somewhere of the order of £3 million to £4 million. It is very important we ensure that is put to the best possible use in keeping with the original aims and objectives of the project but in a way that minimises the ongoing burden on the taxpayer.

I firmly believe when one is in a hole the first thing one does is stop digging. I do not want to dig a further hole in this until I am satisfied, and feel I can satisfy my Minister and the Government, that we know where we go from here. I will certainly look very closely at what comes out of the work of the focus group which Mr. Guilfoyle is chairing. Deputies understandably have been critical of the failure of State agencies to get their act together on this. My Department was the first to convene a meeting of all the stakeholders and say we have got to sit around this table and sort out where we are going with this because there are too many people who do not know where the project is going and what it is about. I am satisfied that is there.

One of the things I am very conscious of is privilege in regard to people who are outside the House and I am also conscious that this project is steered by a company that was established and limited by guarantee. The role of the State was to provide grant aid in support of the project, not to own, run or manage it and, as my colleague from Shannon Development pointed out, at various stages to look for the appropriate security in return for the support provided. I have concerns about the management of the project from the outset, both in terms of financial management and technical management. I understand and recognise that various State agencies, including Kerry County Council and Shannon Development, at various stages along the way tried to cry halt and get a more up-to-date estimate of what was involved.

I have not seen any papers to that effect in our Department. I do not know from where that would have come. Our Department gave a grant to this project in 1995 under the cultural development incentive scheme, which had an open application and assessment process. We got approximately 300 projects under that, which was under the operational programme for tourism. Some 38 projects were granted money and the Jeanie Johnston was one of those. We provided a grant in principle of £750,000 to the project based on the £2.75 million project. The remainder of it was underwritten by Kerry County Council, which also gave an underwriting for the current and operational aspects of the project once it was completed. The Department, which would be normal in these type of situations, took out a charge against both the shipyard at Blennerville and also the ship to protect the State's investment at that stage.

Chairman

The Department of Arts, Heritage, Gaeltacht and the Islands did not indicate the project was not viable.

Mr. Lynam

That is correct.

Deputy Durkan

The worrying part, as other members have indicated, is that this is not the first time we have examined such a project. While the initial idea may have been worthy from a cultural, commemorative and training point of view, surely someone somewhere should have had a meeting and discussed the possibilities before the project got off the ground? I find it difficult to accept that no one did that. The committee cannot come to any conclusion on this matter unless and until we have the minutes of the meetings where this project was conceived. Otherwise, we do not know the thinking behind it. It is one thing if the thinking was that this will be a fine cultural project, although money will be lost on it, but it is another thing if the project seemed like a good idea at the time but when it ran into financial difficulties people were called in to help bail it out. If that was replicated in a number of other agencies, we would have serious problems.

It appears the Department of the Marine and Natural Resources should have been the first to be informed of what was happening and should have chaired the first meeting. It should have been involved from the beginning or it should have indicated, in the event of an approach being made, that it could not get involved unless it had some power which it could exercise. The list shows a figure for the Department of the Marine and Natural Resources, through an Exchequer grant, of £3.125 million. The question must be asked whether it was wise to become involved at that stage. I am not criticising anyone here, but the wisdom of that allocation, given the history of the project, must be questioned.

The figures for Kerry County Council are £2 million by way of loan guarantee and £200,000 deferred creditors. What has happened to the deferred creditors? I presume they have been paid or are they blowing in the wind or sailing in rough waters? The figures for Tralee UDC are £400,000 by way of loan guarantee and £240,000 deferred creditors. The figure for the Department of Arts, Heritage, Gaeltacht and the Islands is a £750,000 European Regional Development Fund grant which will be repayable to the EU in the event of failure to complete the project to a satisfactory degree. If it is not completed in accordance with the terms of the award of the grant, it must be refunded and that will cause a further problem. Another figure for the Department of Arts, Heritage, Gaeltacht and the Islands is a £50,000 Exchequer grant. The figure for SFADCo is a £150,000 convertible loan. To what is it convertible and on what basis? Another figure for SFADCo is a £850,000 Exchequer grant. There is a grant of £100,000 under the Leader programme. The sub-total of public funding is £7.915 million. The International Fund for Ireland represents £427,000 and private funding represents £1.370 million. However, it is still approximately £3 million short.

There were too many diverse bodies involved in a project which should have been dealt with by a single co-ordinator and authority. It was not possible to monitor expenditure on an ongoing basis. However, I am worried that we are still £3 million short. We have a vessel which is worth approximately £3 million and a site which is worth £1.3 million, which we can sell. However, we do not know if the vessel will be seaworthy because its wiring is still outstanding. This project has not gone well to date. I know that issue is sub judice so I cannot say much about it. However, we do not have a guarantee about the outcome.

I would be reluctant to get into the detail of Kerry County Council's involvement because the Department would seek to maintain the democratic independence of the local authority in so far as it can. Our Department has not put any money directly into the project. The local authorities concerned would not have been required to come to our Department at any stage in respect of decisions they have taken in relation to this development. Indeed, under local government legislation, they have specific power to give guarantees of this nature off its own bat. The Minister's approval is not necessary for this.

I have already stated there is no question that it may have been acting. The Secretary General of the Department of the Marine and Natural Resources has confirmed that the council is acting as agents and that the Department is channelling all the funding through Kerry. We need to get this straight and we need to get it right. I do not wish to get angry, but the situation is confused enough.

Chairman

I am unhappy that we have been presented with a picture of many State agencies being involved. Mr. Fitzgerald, there is a certain amount of obfuscation as regards information. The Comptroller and Auditor General has presented his report and he has been factual in his analysis. From the point of view of members of the committee who are accountable to the public for public spending, of which there is a significant amount involved in this case, we want to get all the questions out of the way today. As far as we are concerned we will have a specific deadline in mind, and I will rely on the members in that regard. We will want information regarding minutes of meetings and so on so the committee can analyse the matter further. We will return to this subject as we will have opportunities to call in the various Departments again. I wish to call on the comptroller at this stage.

Mr. Purcell

Chairman, most of my concerns have been aired and I would not wish to add to my earlier comments as that would be superfluous. It is fairly clear that this project was badly managed. The concept may have been laudable, but, as the Accounting Officer said, there is a need to carry out a fairly rigorous cost benefit exercise before one gets into these matters as invariably, and we have seen in other cases, the State ends up bailing out these projects for, should I say, political reasons sometimes, rather than good economic reasons. That is why it is important that the information is available to enable good, properly based decisions to be made.

There are a number of lessons to be learned from this case. While this forum is primarily concerned with accountability, we should not lose sight of the fact that there will be other projects and places. As well as being negative in that sense, we should try to think of what positive aspects come from this, what lessons can be learned and see that they are put in place in some kind of guidelines or procedures which are undertaken in the case of what initially appear to be small modest projects, and where they go from there.

Deputy M. Ahern

I congratulate the Secretary General on her appointment and wish her every success during her term of office. I note from the Comptroller and Auditor General's report that there is uncertainty regarding the status of certain private funds in the event that the vessel would not undertake a voyage to North America. Is anyone aware of the level of those funds?

Ms O’Neill

When we spoke at the outset of whether or not the vessel might sail, one of the points I meant to mention was that in arriving at that decision, one of the issues on which we would have to be clear would be the financial implications in terms of the possible refunds to private contributors or various agencies if we fail to meet the basis on which the funding was committed in the first place. I think the total of private funding is about £1.4 million. We do not know how much of this might be at risk if the vessel failed to sail, but that is one of the issues we are clarifying. Some of this funding might have been given in the expectation that the vessel would turn up at certain harbours in the United States and we need to be satisfied on that point before we arrive at final decisions.

We will now move on to paragraph 24 of the Report of the Comptroller and Auditor General which reads:

The Dunbrody Project was an initiative taken by the John F Kennedy Trust (the Trust) to build a full-scale replica of the famine ship "Dunbrody". The Trust was established as a company, limited by guarantee, in 1988 whose objectives concerned the long-term economic, cultural and environmental development of New Ross. The concept was initially to restore old quayside buildings as an interpretative centre with a restored schooner alongside. Following the assessment of the initial grant application under the Operational Programme for Tourism 1994-1999, it was decided to build a replica ship, with an interpretative centre on board.

In December 1996, the European Regional Development Fund Management Board for Product Development-Bord Fáilte Area approved a grant of £1,599,778 for the project under the Operational Programme for Tourism 1994-1999. The total cost of the project was to be not less than £2,525,000, matching funds of not less than £925,222 were to be provided, and New Ross Urban District Council was to underwrite any operational losses.

By November 1999 the company was in financial difficulty and construction work had ceased. The Minister for Tourism, Sport and Recreation brought the matter to cabinet, and sought Government approval to allocate additional funding to the project of £1.7 million. The Government decided that the matter should be deferred pending the carrying out of a due diligence examination by the Minister for the Marine and Natural Resources.

In December 1999 the Department of the Marine and Natural Resources (the Department) appointed consultants to conduct the due diligence examination. They reported in February 2000 and stated that the Trust was insolvent and would require an additional £2.054 million in State funding to complete the project.

In February 2000 the Department obtained Government approval to allocate a sum of £2.054 million to the project.

In March 2000 the Department entered into an agreement with the John F Kennedy Trust to loan the Trust £1.975 million to finance the completion of the project. The loan is repayable on demand and interest may be charged at the discretion of the Minister for the Marine and Natural Resources.

The Department paid £1,267,699 to the project promoters in 2000 and a further £657,035 in 2001. In addition it also paid £62,734 to its consultants in 2000 and £31,685 in 2001. The amount of £50,000 provided for in the loan facility by way of bridging finance was not required by the Trust and was therefore not drawn down.

Observations of the Department of the Marine and Natural Resources

In response to my inquiries, the Accounting Officer at the Department of the Marine and Natural Resources pointed out that his Department had no role in the initiative taken by the promoters to build the Dunbrody nor did the Department at any time seek to become involved in the project. The Department's role in rescuing the project followed directly from policy decisions taken by Ministers and the Government.

He furnished me with the following information:

£3.4 million had been invested in the project at the time of the due diligence examination in January 2000. The total estimated cost of completing the project, including the onshore facilities, is £4.9 million.

Table 31 Details of Funding received to July 2001


Organisations	£
Department of the Marine and Natural Resources	1,925,000
Bord Fáilte	1,600,000
Wexford County Council	200,000
American Ireland Fund	100,000
Private and Community Funding	1,075,000
Total	4,900,000

FÁS incurred expenditure of £1.04 million on allowances to participants in programmes run in conjunction with the project.

The Dunbrody has been completed as an Exhibition Ship with necessary onshore facilities to support her in that role. The project opened for business on 1 May 2001 and was officially opened on 20 July 2001. The Financial Controller has reported to the Minister that he is satisfied, based on the documentation received from the Company and visits to the project premises, that the project is, effectively, completed in line with the conditions set by the Department.

In relation to the steps put in place by the Department to ensure that the project was well managed and that Departmental funds were properly expended and adequately accounted for, the Accounting Officer stated that funding had been allocated to the project by way of a Loan Facility which was to be used strictly to complete the vessel as a Floating Exhibition Ship to be permanently moored at New Ross. The loan was also conditional on an independent Financial Controller being appointed to liaise with the Trust and monitor the expenditure of the funds, and on the appointment of new nominees, acceptable to the Minister, to the Board of Directors of the Trust with appropriate expertise and experience. The loan was also secured by a fixed and floating debenture in favour of the Minister over all the assets of the Trust and subject to the Trust's compliance with the terms and conditions of the facility letter.

The loan facility was made available on a phased basis on production of requisitions which were fully supported with the appropriate certificates and vouchers for expenditure and work done. This supporting documentation was presented by the Trust to the Financial Controller for review and certification, and payment by the Department was only made following certification by the Financial Controller. Audited Accounts were also submitted by the Trust.

The statutory powers giving the Minister for the Marine and Natural Resources authority to make grants to this project are provided for in Section 46 of the Merchant Shipping (Investigation of Marine Casualties) Act, 2000, which was commenced on 6 August 2000. £700,000 was paid from Subhead D.3 of the Department's Vote in advance of the commencement of the Section on foot of the Government decision in anticipation of the new legislation.

In relation to the extent of potential liabilities to the State or its agents arising from guarantees, EU grant conditions, or ongoing commitments, the Accounting Officer stated that the project has now been completed largely due to the State funding received. The John F Kennedy Trust has undertaken to maintain the asset, subject to the charges in favour of the Minister for Marine and Natural Resources and Bord Fáilte, in good repair and condition, and to operate it as a Floating Exhibition Ship only.

The Department understood that the New Ross Urban District Council had agreed to underwrite any operating losses for a period of 10 years. Apart from this guarantee, and assuming that the project operated satisfactorily into the future, there would be no outstanding liabilities to the State or its agencies. However, in the event of the project not proceeding as envisaged, the question of recoupment of certain EU grants could arise. The State's exposure would depend on the circumstances which then prevailed.

In relation to the viability of the project as a tourist attraction, the Accounting Officer stated that the John F Kennedy Trust had prepared a Strategic Plan, which envisaged that 46,000 visitors were needed annually for the project to be sustained as a viable tourist attraction. While there may be minor operating losses in the start up years, the advice available was that the project had the potential to become viable and sustainable as a visitor centre and tourist attraction over the medium term. Preliminary results to date for the first year of operation showed visitor numbers running at 40% above projected estimates, which was encouraging.

Observations of Bord Fáilte Éireann

Bord Fáilte Éireann (BFE) informed me that:

In the period December 1996 to December 1998, £1,540,560 was paid out. The balance of £59,912 was paid in July 2001. Payments were made on foot of accountants' certification of eligible expenditure and following site visits. Site visits were concerned with establishing that there was evidence on the ground of work completed. There was no evidence for any misgivings about making grant payments until after BFE found out about the project's cost overruns in 1998. The promoter's project managers were not required to be present for the site visits.

The cost overrun was established by BFE in January 1999 to have been due to a number of construction factors related to an objective by the Trust of completing a vessel capable of re-enacting the transatlantic sailings of the original Dunbrody.

The initial non-discovery of the cost overruns on the project, was attributed by BFE to the fact that site visits by staff were not specifically concerned with an audit of the financial plan, and the project manager was not present during the visits. Future protocols would call for the project manager always being present during such visits.

Observations of The Department of the Environment and Local Government

The Department of the Environment and Local Government informed me that it was currently gathering information from all local authorities in relation to their involvement in projects that are sponsored by Government Departments or State Agencies, which would be used to formulate future Departmental policy in this area.

Mr. Purcell

Just to show that you cannot have too much of a good thing, the south-east also had a project which involved the building of a full-scale replica of a famine ship, in this case the Dunbrody, which was primarily intended to serve as a floating exhibition vessel, permanently moored at New Ross. Unfortunately, it shared some of the financial management characteristics of the Jeanie Johnston, in this case a cost escalation from £2.5 million to £4.9 million and ultimate financial rescue by the State. Bord Fáilte was initially involved in grant-aiding the project to the tune of £1.5 million but, despite site visits to substantiate the grant claims, no early warning signs of impending cost overruns were detected. The escalating costs were attributed by Bord Fáilte to factors relating to making the ship seaworthy so it could re-enact the transatlantic sailings of the original Dunbrody.

I have seen contradictory evidence as to whether this ambitious objective of the promoters was part of a plan underpinning the grant application. Obviously if it was, it would have serious cost repercussions. As a result of its experience in this case, Bord Fáilte has revised its procedures for site visits to provide for discussions with the project manager during the visits. In this way, it is hoped that potential cost overruns could be detected at an early stage and the necessary remedial action taken before the problems get worse.

As in the case of the Jeanie Johnston, the Department of the Marine and Natural Resources drew the short straw and was used as a vehicle for channelling the rescue package to the project. In this case, it took the form of a £2 million soft loan to the project promoters. Overall, the Exchequer and the EU provided the bulk of the £4.9 million for the project.

Most of my critical comments on the previous paragraph apply in this case, Chairman, so I do not believe there is any need to revisit them.

Chairman

Thank you, Mr. Purcell.

Deputy Dennehy

The Dunbrody project may be lucky to get off so lightly, considering that the costs relating to it only doubled. There is another lesson here for us, namely, that when a multiplicity of agencies are involved, there is a temptation, when funding is available, to go for broke. I am concerned about that. On an encouraging note, however, the Dunbrody is, at least, in operation and the visitor numbers for the project are running at more than 40% above the projected estimate and this, hopefully, is a good sign for the future.

In my opinion, we should seek, as a matter of course, the original submission relating to this project. We should seek it on the basis that we do not want it to become standard that people submit business plans in the knowledge that, regardless of how matters turn out, the tab will be picked up by the State. As already stated, the overrun on this project is less than the previous one with which we dealt but costs did increase from £2.525 million to £4.9 million.

I turn to the Dunbrody. First, like the previous case, we first became involved in this project in November 1999 when the Department of Tourism, Sport and Recreation put a proposal to Government in relation to the project identifying the shortfall. I ask if my colleague from Bord Fáilte might answer some of the questions raised about the origins of the project. When my Department became involved, what greatly concerned us was that a project which had been conceived and funded on the basis that it was to be a floating exhibition had developed and grown into a project intended, like the Jeanie Johnston, to be capable of sailing. As we have seen from the previous case, there is a world of difference in terms of the quality of workmanship, the standards and the seaworthiness criteria that need to be met in this day and age to have a replica vessel of this sort, a tall ship, capable of sailing.

When we became involved in the project from November 1999 onwards we were lucky that it had stopped at that stage. Work had ground to a halt. The trust that was involved in steering the project was insolvent and the estimated value of the carcass of the ship at that stage was of the order of only £300,000. We were facing something where the investment to date, including the very important European Regional Development Fund grant, would have been virtually completely wasted. We were able to move in that case and have a thorough due diligence examination carried out and identify very clearly and precisely what was required to bring the project to completion as a floating exhibition.

We, on that basis, estimated that the project would cost just over £2 million to bring to completion, including bridging finance and the costs associated with the financial controller who carried out the due diligence. Having received Government approval on that basis, we gave a very detailed agreement to the trust involved in terms of the terms and conditions upon which the repayable loan would be made available and I am quite happy to make that available to the committee. It was very detailed and thorough in terms of setting down very clear criteria about the purpose to which the vessel would be put and the basis on which it was to be completed.

When did that audit take place?

Mr. Tuite

At the outset, I said I was unclear about the terms under which the original grant of £1.5 million was given by Bord Fáilte. I said that because going back to the project report and recommendation to the development management board, the project was described as a reconstruction of the 110 ft. barque Dunbrody, acting as a floating visitor attraction, housing the "Spirit of Ireland" experience. I will quote from that report and the recommendation to the development management board:

It is expected that the ship will be open for a ten-month period. It is proposed that the reconstructed ship will be seaworthy and have the ability to sail to any destination. The use of the ship during off-peak months - as a floating advertisement and promotion for the attraction, New Ross and Ireland - is being considered with the possibility of her sailing to ports in Britain and the Continent, thus attracting enormous attention. It is important that this activity should, if followed through, be considered by all literature and promotion of the attraction based at New Ross from the initial stage of the development.

That was the original recommendation in May 1996 to the development management board. Going on to what was approved, it says the purpose of the grant is to enable you to develop a heritage project incorporating the reproduction of the barque Dunbrody to house the "Spirit of Ireland" experience. Looking through that, however, I do not see any requirement that it should be purely a floating exhibition. As I saw it, going through it, there was a certain ambivalence about this. I have Bord Fáilte site visit reports, dated 9 October 1998 and 12 November 1998. The project description is mentioned in that report, which includes an internal memo from Bord Fáilte. It is described as a reconstruction of the 110 ft Dunbrody acting as a floating visitor attraction based in New Ross, but with the seaworthiness to sail to any destination. That is why I was somewhat confused as to whether the basis on which the grant was given was purely as a floating exhibition, because even towards the end of 1998 the project was being described as one which would enable the ship to sail. I have heard nothing about that during this discussion, but that was the cause of the doubt in my mind.

Deputy Dennehy

The Secretary General said earlier that if one was to try to make the ship seaworthy it would be another Jeanie Johnston. Is that correct?

Chairman

Is it going to be an interpretative centre?

Ms O’Neill

From the point of view of the Department of the Marine and Natural Resources the major concern was that there is a huge difference in cost between a seaworthy vessel and one which is a floating exhibition in terms of the quality of the materials required to complete it and the standards of electrical and other work. When we made our loan available we did so on the strict condition that the facility be used to complete the Dunbrody as a floating exhibition ship only, to be permanently moored at New Ross. No part of the facility was to be used to upgrade the vessel beyond that required for that purpose and, in particular, the vessel should not be classified as a passenger boat or ship for the purposes of the Merchant Shipping Acts. However, this was after a full exploration of three or four possible alternatives for taking the project forward from the crisis which existed. Our view was that the only cost efficient way of resolving the difficulty at that stage was to make the allocation strictly conditional on it being a floating exhibition ship. Unfortunately I cannot go back beyond that date in terms of the issues raised.

Deputy Dennehy

Taking Mr. Purcell's comments on board, in the context of the professional information we now have and looking at a previous example, I said at the outset that this was not quite as bad as the Jeanie Johnston, but in fact it is as bad as we presumed a floating exhibition centre was being built for half the cost. If a seaworthy vessel costs double or treble that figure, and the ship was originally intended to be seaworthy and capable of going anywhere in Europe, it seems we are back to a trebling of the price for a floating museum. We got another bad deal on this project. Taking the advice that to make the ship seaworthy, which would have been examined in the business plan, people would have been aware of the difference in cost of a seaworthy vessel and a floating exhibition centre which would cost quite a bit less.

Mr. Tuite

The Comptroller and Auditor General has noted a certain question mark over the intentions with regard to the seaworthiness and sea travel of this vessel at the outset. I should preface my remarks by saying that this predated my involvement in this area in Bord Fáilte so I am totally dependent on files as is the committee. I took over responsibility for this area at the end of 1998 at the time certain matters came to light.

I wish to deal with the question mark about what the possibility of being seaworthy implied and the consequences of same. The fact that there was an intention, or it might be better to describe it as the desire not to close off such an option on the part of the promoters, was it seems advised at the outset. However, the approval was based on the vessel being an exhibition ship.

Subsequent to the approval in terms of the expenditure, and certain elements of additional expenditure being incurred with this objective of facilitating a possible future role as a sailing ship, it is clear to all concerned that this was the major factor in the expenditure overrun which occurred during late 1997 and 1998. I wish to strongly emphasise that at the end of 1998, having first commissioned an audit report to establish the reality of the additional expenditure, we then commissioned an options report which firmly closed off the possibility of the ship taking on an immediate role as a potential transatlantic or long distance sailing ship. It was this report which we commissioned at that point which firmly closed off that possibility and ensured that the project was delivered as per the core of the original intention and without any well intentioned additions being facilitated or tolerated.

It is important to emphasise that it was firm action on our part in getting that report and that set of options commissioned which was then acted upon by the Department of Tourism, Sport and Recreation with the Department of the Marine and Natural Resources which ensured that the project delivered the good, viable attraction which now exists.

Deputy Dennehy

There is a certain question mark over the Comptroller's comments. The issue is plain. People made a submission and looked for £2.5 million and put up a project which was going to float, to sail and go around Europe. Whatever happened subsequently is by the way and a good job was done rescuing the project. However, the project was submitted on this basis and that is what we must examine. I am not suggesting there was a con job, but that people put a project to the Department, they received funding of over £2.5 million on the basis that the ship would be an exhibition centre for six, seven or ten months and they would advertise New Ross and, hopefully, the rest of the State. That was the intention. I know things change but, in the context of value for money, what we put up and what we submit and how people should make submissions for funding, the bottom line is that the story was put up and altered later. It was proposed. Had we taken this in the same context as the Jeanie Johnston it would not have been value for money at double the price.

Much of this is water under the bridge but we should not allow the procedures to be weakened just because the project was salvaged by the Department. The original submission was for a vessel which would float which would have cost double the price to make seaworthy as against a floating marina or exhibition centre. We should keep this in mind rather than acknowledging that we changed it half way through.

Mr. Fitzgerald

I understand the local authority is underwriting the operational costs involved in this case. I wish to set out the Department's position regarding projects such as this. In the context of local government autonomy, we would not see ourselves as having a responsibility for reporting detail on specific projects and I understand this may have caused some difficulty for the committee. If it manifested itself in the guise of obfuscation may I assure the committee that there was no intention in that regard and I apologise if that is how it appeared in discussing the previous item.

I was disappointed when reading about the Dunbrody and Jeanie Johnston where there is strong marine emphasis, that your expertise was not tapped into initially. If that expertise had been tapped into initially, the project may not have taken place or if it did take place there would have been a proper financial quantification. I accept the community was enthusiastic, that quite often happens. We now have a situation - particularly with the Jeanie Johnston - where subsidies are being sought from different Departments. I accept that the Departments of Marine and Natural Resources, and the Environment and Local Government and Bord Fáilte have learned lessons from this and that things will change in the future.

Deputy Dennehy requested the original project proposal for the Dunbrody. I am sure the representatives from Bord Fáilte can make that available. Deputy Bell requested the original contract for the project. Perhaps that could be made available to the members before the end of the month. We will hear a submission from Bord Fáilte on 12 February and we look forward to meeting representatives from the Department of the Environment and Local Government on the issues raised today and its Vote.

We now move on to deal with coastal management. Paragraph 25 reads:

Background

The Irish coastline measures some 3,200km of which approximately 2,800km falls within the jurisdiction of the Republic of Ireland. Of this about 600 kms to 750 kms could be classified as sandy dune coast. It is this soft coastline, which is mainly located on the east coast that is most susceptible to erosion from natural causes or human usage. The bulk of the coastal protection effort is concentrated in this area.

The Irish coastline is considered to be one the most important sand dune systems in Europe, containing many unique habitats and areas of conservation. In addition, it is important for geology and geomorphological related activities as well as for cultural heritage, including marine and terrestrial archaeology. The coastal zone includes many of the State's largest towns and cities, with an estimated 80% of the State's population residing within 50km of the sea.

In general, coastal erosion occurs over a period of time as a result of exposure to everyday abrasive wave action. Although expensive coastal protection schemes will slow, and temporarily impede this erosion process, the risk of land loss remains. Research indicates that the erosion of Irish coastlines varies from about 0.5 to 2 metres per annum and causes an approximate loss of land area of between 160 and 300 hectares each year. About 300 localities are involved, mainly on the east coast.

There are three options for dealing with coastal erosion:

(a) Protect with hard works, such as sea walls, dykes or rock revetments

(b) mitigate specific impacts through soft works, which consist of such measures as beach and dune nourishment, use of vegetation or fencing to encourage accretion, and alleviation of adverse factors such as human pressure and grazing

(c) accept natural shoreline changes and accommodate the problems they cause.

It is generally accepted that soft solutions have a lower capital cost than the traditional hard defences, have fewer adverse effects on adjacent parts of the coast and are usually more environmentally friendly. However there is a need to maintain such defences on a more regular basis. Soft works is the option usually chosen by the Department of the Marine and Natural Resources (the Department).

Audit Objectives and Scope

The objectives of the audit were to ascertain and evaluate:

(a) the systems in place for determining, planning, delivering and monitoring Coastal Protection and management works

(b) the administrative, accounting and financial control procedures followed in carrying out such works

(c) the systems in place within the Department to measure the effectiveness and adequacy of the coastal protection programme.

The procedures followed by the Department in determining the objectives of the programme, the work to be carried out and the funding provided were reviewed. The monitoring of projects to ensure satisfactory completion was also reviewed. Visits were made to Bray, Co. Wicklow; Bundoran, Co. Donegal and Quilty, Co. Clare to review coastal protection projects completed in 2001. Files and records were examined to verify

(a) the existence of tendering documentation for contractors/consultants employed

(b) consultants’/engineers’ reports

(c) payment requests submitted to the Department.

The systems in place to evaluate the effectiveness of works completed and to measure the usefulness of the programmes were also reviewed. Discussions were held with personnel from the Department and Local Authorities.

Audit Findings

Legislation

Statutory provision to undertake works to protect the coastline is made in the 1963 Coastal Protection Act. This Act assigned responsibility for carrying out coastal protection work to the Office of Public Works (OPW) and the Local Authorities. In 1990 the coastal protection functions being performed by Office of Public Works were transferred to the Department.

Because the provisions of the Act were found to have been impractical and unworkable, the legislation fell into disuse and has not been operated for many years. Schemes to protect coastal areas are now operated on a non-statutory basis in accordance with rules and procedures drawn up by Office of Public Works, (up to 1990) the Department (after 1990) and the Department of Finance.

The Foreshore Acts, 1933 and 1992 are also relevant to the programme. These Acts give the Minister for the Marine and Natural Resources comprehensive powers to combat damage, whether caused knowingly or unwittingly to beaches, sand dunes and seashore eco-systems. The Minister is also empowered to regulate use of the foreshore, including the granting of leases to allow exclusive use of the foreshore to individuals or groups (e.g. construction and operation of a marina) and licences to allow use of the foreshore for specific purposes or for specified periods (e.g. horse racing, sea-weed collection). Prohibitory Orders and Notices may be issued to prevent access to, or any specified activity on, the foreshore. The most common use of such Orders and Notices is to prevent the removal of sand and gravel.

Management and Administration

The Department is responsible at central Government level for managing coastal protection. Local Authorities also have significant responsibilities for the function. The procedures in place have been determined by Office of Public Works, the Department and the Department of Finance.

These procedures place primary responsibility for monitoring the coastline, and determining the coastal protection works which are necessary and which should be carried out, on the Local Authorities in whose jurisdictions the coastlines are located. Coastal Protection projects are submitted annually to the Department, which having assessed and evaluated them selects those that should be proceeded with.

It is the responsibility of the Local Authorities to carry out the works and to provide 25% of the funding. The balance of the funding is provided by the Department.

The respective roles and functions of the Local Authorities and the Department, funding to be provided by them, criteria to be applied in selecting coastal protection projects, rules on procuring services and contractors, and reporting requirements on programmes and their implementation have not been set down in writing.

Planning and Setting of Budgets

The funding committed to coastal protection was included in the Operational Programme for Environmental Services for the years 1994 to 1999, and in the Economic and Social Infrastructure Operational Programme for the years 2000 to 2006. The amounts provided were £8m and £41m respectively. These were determined by the Department and the Department of Finance without consultation with the Local Authorities. While documents were available detailing a number of projects which are intended to be proceeded with during the course of the 2000 to 2006 plan, no costings were available to show the basis for the amount of funding provided, which represents a major increase over previous years. The Department pointed out that managerial and administrative capacity would not exist within Local Authorities or the Department to increase expenditure at a faster rate, even if this was felt to be necessary. The amount sought was approved without amendment by the Department of Finance.

In relation to planning the focus is on the short-term with little emphasis being given to the medium and long-term. Local Authorities are required to submit, each year, details of projects which they would wish to carry out and to rank them in order of priority. The Department evaluates and reviews the projects submitted. They then notify the Local Authorities of the projects which may proceed, as well as the level of funding approved and the expenditure which may be incurred. It is a condition of the approval that the approved expenditure must be incurred within the calendar year. Any expenditure incurred in the following year on previously approved projects must be submitted for fresh approval and charged to the following year's budget. Local Authorities are not required to submit three or five year plans.

Evaluation of Projects

Because the level of expenditure in earlier years was so low, particularly prior to 1995, only work of an urgent nature was carried out where there was a serious risk to important public infrastructure. However with the increased level of resources being provided, there is likely to be an increasing number of projects competing for funding. As a consequence procedures for evaluating and selecting projects will assume greater importance. According to the Department the criteria used in evaluating projects are urgency and the perceived value of the work, in terms of protecting public safety and infrastructure, tourist amenities and areas of environmental or heritage significance, and the degree to which they support economic development and avert the need for costly remedial works at a later stage. Difficulties in proceeding with the work because of statutory constraints or possible objections from affected parties would also be taken into account. Projects are not scored on a points system but are ranked in order of priority as judged by Departmental officials.

Policies and Strategies

Prior to 1995 minimal coastal protection work was carried out, but since then there appears to be a recognition that more needs to be done as indicated by the increased level of funding provided. Heretofore there has been no national plan or strategy driving the programme and the level of work carried out has been largely dependent on the views and policies of individual Local Authorities in whose areas the coastlines are located. Since it is the case that works carried out in one area may impact on another area, it is important that an integrated approach is adopted in relation to the programme.

The Department has not carried out a national survey to determine the areas of the coastline under threat and the kinds of remedial action which might be necessary or appropriate. A survey carried out in 1992 by the National Coastal Erosion Committee of the County and City Engineers Association and the Institute of Engineers of Ireland, identified 1,500km of coastline at risk from erosion, of which 490km required immediate attention. The Committee estimated costs of £125m to protect some 287 sites at risk.

A research programme initiated by the Department in 2001 provides for the carrying out of a coastal survey and the setting up of a national coastal data bank from the information collected.

Local Authorities fund 25% of the cost of projects. Accordingly projects cannot proceed, even if considered worthwhile by the Department, without the agreement of the Local Authority to provide its share of the funding.

Lack of Integrated Coastal Management

Programme

There are a wide variety of industries located in the coastal zones such as fishing, oil, gas and minerals, transport, recreation and tourism. The Irish coastal zone also contains many sensitive ecosystems and areas of interest to geologists and archaeologists.

The management of the coastal zone is rather fragmented at present with different functions falling within the jurisdiction of different Government agencies. Physical planning is the responsibility of Local Authorities, Department of the Environment and Local Government and Bord Pleanála. Ecology and heritage are the responsibility of Duchas and the Department of Arts, Heritage, Gaeltacht and the Islands while coastal protection, fisheries management, and administration of the foreshore is the responsibility of the Department. At present a fully comprehensive system does not exist to ensure that these different agencies consult in relation to the possible adverse impacts of actions taken by one agency, on the functions of other agencies within the coastal zone.

In relation to coastal protection there would be varying degrees of interaction with some of these Government agencies, in particular Duchas in relation to ecosystems and heritage.

Two Reports15 published in the 1990s recommended the establishment of a National Coastal Authority to oversee the management of all of the various functions in the Coastal Zone.

Monitoring of Programme

It is the responsibility of the Local Authorities to carry out all coastal protection work in the geographic area within which they have jurisdiction. Major projects are carried out on behalf of the Local Authorities by the Department as it has the greater technical expertise and experience. Smaller projects are carried out by the Local Authorities. The monitoring of projects seemed to be deficient in so far as there was no Departmental system in place in relation to inspection of projects, submission of progress and completion reports and evaluations as to whether or not projects were achieving their intended objectives.

Payments and Expenditure

Table 32 shows expenditure incurred by the Department under the programme in the years 1994 to 2000. The figures represent 75% of the gross expenditure with the Local Authorities providing the 25% balance. The Department attribute the under spend in 1999 and 2000 to a lack of capacity in the Department to manage and process a greater number of projects, and slower than expected progress by Local Authorities in completing projects due, inter alia, to planning delays.

Brady Shipman Martin in association with HR Wallingford Natural Environmental Consultants Ltd, - Coastal Zone Management: A draft policy for Ireland - Main Report.

Table 32 Departmental Expenditure in £ million


Year	1994	1995	1996	1997	1998	1999	2000	Total
Budget	0.50	0.77	0.89	0.89	0.91	3.85	7.10	14.91
Actual	0.51	0.67	0.85	0.79	0.94	2.45	4.73	10.94

Local Authorities are fully responsible for the management and execution of projects which they carry out directly, including the hiring of contractors, procurement of services, design and supervision of work. The Department reimburses Local Authorities on the basis of claims confirming completion of the work. All claims must be submitted within the calendar year in which the project was approved. A selection of claims and payments to Local Authorities were examined during the audit with satisfactory results. A number of payments and contracts relating to projects carried out by the Department on behalf of Local Authorities were also examined and found to be satisfactory.

Research

Given the long-term nature and complexity of a programme such as Coastal Protection, and the different approaches and options possible, knowledge in relation to both the scale of the problem and the corrective actions possible are essential if the programme is to be successful. Research is vital in this regard. While the Department has long recognised the need for research, the funding provided did not allow for any significant research to be undertaken. However, in the period 2000-2006, funding of £5.4m has been provided for research.

A sum of £2.4m has been provided to fund a National Coastal Database and Needs Study. This will provide, for each segment of the coast, current and historic information on the nature of the coast, details of its vulnerability to erosion and the nature of the hinterland in terms of economic and environmental assets. £2 m has been allocated to a number of technical studies related to broad coastal dynamics, and £1m has been allocated to basic research on fundamental topics such as the basic hydrodynamic processes of turbulence and wave breaking, and the process of sediment transport. Statistical work is also planned in relation to sea level rise and the probability of extreme events.

Conclusions

It would appear that up to recently the resources allocated to the function were not commensurate with its importance. However the increased level of funding provided in the current plan, the commissioning of research and the planned carrying out of a needs analysis indicate that a more serious and structured approach to the issue is now planned.

There has been insufficient emphasis in the past on determining an overall national policy in relation to coastal protection, determining long-term goals and formulating plans to achieve them. It is important if the plan is to be successful that the National Database and Needs Study as provided for in the current plan be implemented and plans drawn up as to the actions and strategies which need to be pursued in the long-term. Local Authorities should be consulted to ensure a uniform approach.

The present requirement on Local Authorities to complete projects within the year in which they are approved may lead to projects being completed in too hurried a fashion and insufficient time being allowed to do the most cost effective job possible. Consideration should be given to providing more certainty on funding to Local Authorities so that they have the necessary time to plan and carry out their programmes in a more ordered and structured way.

The failure to spend a significant proportion of the funds provided for the programme in 1999 and 2000 is disappointing. The necessary administrative resources and planning systems should be put in place to ensure that all of the funding provided for the programme can be expended efficiently and effectively.

The 25% funding contribution required of Local Authorities may need to be reviewed, as there is the possibility that if Local Authorities are unwilling or unable to provide its share of the funding, important projects may be delayed or not proceeded with.

The respective roles and functions of the Local Authorities and the Department, including the funding to be provided by them, the criteria to be used in selecting coastal protection projects, the rules relating to the procurement of services, and reporting requirements on the implementation of the programme should be set out in writing, to ensure best practice is followed. A scoring system should be considered for use in selecting and ranking projects submitted for funding.

Projects should be inspected to ensure satisfactory completion, reviewed to evaluate the effectiveness of the work, and the results recorded.

The carrying out by the different Government agencies of their functions in the Coastal Zone in an integrated and co-ordinated way is important and serious consideration should be given to the issue as highlighted in the two studies referred to in the report.

The position in relation to the falling into disuse of the existing legislation on Coastal Protection, and the operation of the current programme outside of a legislative framework is unsatisfactory and should be regularised by the introduction of appropriate amending legislation, to provide a sound statutory basis for the programme.

Observations of the Department of the Marine and Natural Resources

A procedures manual was being prepared which would set down criteria in relation to the selection of projects, as well as reporting requirements and rules on the procurement of services and the engagement of contractors.

In relation to the monitoring of projects, new procedures were introduced in 2001 whereby quarterly progress reports are required from Local Authorities, and the Engineering Division of the Department prepares monthly progress reports on projects undertaken by it on behalf of Local Authorities. The Department intends to initiate comprehensive project monitoring and an inspection system of coastal protection works.

In relation to its integrated coastal zone management, the Department's strategy statement notes that growing development pressures in the marine coastal zone underline the need for a comprehensive integrated framework for the sustainable management and development of this area. Accordingly, the Department is committed to developing, as a priority, in cooperation with other relevant Departments, an integrated coastal zone management strategy and legislative framework.

Mr. Purcell

Paragraph 25 reports the results of an examination carried out by my staff of the coastal protection and management programme operated by the Department in conjunction with local authorities. Each year, local authorities and counties affected by coastal erosion submit a schedule of proposed capital works which is reviewed by the Department which approves specific projects and the associated level of funding for the year. Local authorities are charged with the responsibility of carrying out the work and receive 75% of the approved expenditure from the Department.

In practice, major projects are undertaken by the Department on behalf of the local authorities as it has the greater technical expertise and experience. Smaller jobs are carried out by the authorities. The committee will note from the conclusions of my report that the programme was very much in the nature of a token gesture until 1999 when the level of funding being made available increased dramatically. While £8 million was provided for the programme for the five years 1994-99, £41 million is earmarked for the programme to the year 2006. This significant boost in resources means that a much more structured and strategic approach needs to be applied to the work if we are to ensure the money is used to best effect.

The Department has been a bit slow out of the blocks in this regard as evidenced by the under-spends in 1999 and 2000. There are positive signs that it is developing its approach along the right lines. For example, a significant body of research is planned which if successful should result in a more coherent and focused programme as against a rather fragmented approach which has been the norm up to a few years ago. Again, the move earlier this year to introduce project monitoring and an inspection system of coastal protection works is encouraging in this regard. I hope my report will be of some assistance to the Department in the development of its strategy and systems in this area.

Deputy Dennehy

I have a number of questions. This is, I suppose, a mixed bag of good and not so good news. This programme is very important because of the threat from global warning. I am glad to see increased funding in this area. The Department of the Environment and Local Government has changed its funding process to one of bi-annual budgets. This committee had to make strong recommendations that that system be changed. People were balancing figures to ensure money was spent on time and were not sometimes doing so within the rules.

Will the Secretary General say if there should be a change in current policy? The Comptroller and Auditor General has raised the point regarding a 25% local contribution. This is a critical issue given the new levels of expenditure in this area. A small council, geographically located in the wrong place, could be faced with a bill because of their inability to meet the 25% local contribution. That requirement was introduced at a time when we spent £500,000 a year on coastal erosion throughout the country. Does the Secretary General consider that to be a fair charge or should it be waived or lowered? Do difficulties arise between the Office of Public Works, the Department of Finance and the local authorities in this regard or is there clear leadership in this area? My reading of this information is that local authorities carry responsibility for this. How does that work?

One of the primary reasons given for under-spend is that certain councils will not or cannot take up the finance available. The east coast is mentioned as having the greatest problem because of sandy soil. Many councils, such as Kerry County Council, are screaming for funds. There have been huge collapses of coastal areas in parts of Kerry. West Cork is experiencing the same kind of difficulties. Is any level of flexibility built into this so that funding could be transferred from one authority to another?

I welcome the extra allocations - made with or without consultation with the Department of Finance - in this area.

Chairman

Tell us about vanishing Ireland, Ms O'Neill.

Ms O’Neill

Rapidly vanishing Ireland - I welcome the Comptroller and Auditor General's report on this issue which is very timely from the Department's point of view coming as it does at a time when we have a larger budget available to us and an opportunity, coupled with the research programme, to take a much more planned approach to this area. Up to now we were managing a very small budget and responding to the most urgent priorities that surfaced. We now have an opportunity to stand back and look at the most critical needs and to look at the most effective way of using the budget available, £41 million plus an additional £5.4 million for research over the life of the national development plan.

Deputy Dennehy raised the issue of the appropriateness of a multi-annual type approach to this. I could not agree more. It is something we would be very keen to move towards because there is a certain artificiality about trying to fund what are essentially capital type activities from current budgets. We will certainly be looking at how we can get a programmed approach over a period of time where we can get proposals regarding what projects will be undertaken over a period of time and we can then prioritise the spend in any particular year.

That would help considerably with the issue of under-spends on that budget. The difficulty is that if a particular local authority wants to get its project on the table, wants to have a certainty about receiving the money in a particular year, it will be inclined to tell us up and until 20 December that they still hope to spend the money and we then discover too late that it cannot be spent. We would very much favour a multi-annual approach and we are looking at how that might be developed.

Yes. We have a facility, in the context of the current budget, to transfer unexpended funds from one local authority to another. The difficulty which we can run into when we are budgeting on an annual basis is that we might discover very late in the year that funds are not going to be taken up. It is then too late to reallocate them. That can be resolved in the context of a multi-annual approach.

Deputy Dennehy's final point related to the multiplicity of agencies involved. That does not give rise to problems in relation to this scheme but it is an issue in the wider area of coastal zone management. As Deputy Dennehy is probably aware, there is a policy agenda to examine the whole area of how better to manage the coastal zone to ensure the most integrated approach of the agencies involved.

Deputy Dennehy

I have a final point. I was going to raise it when we came to the Vote but perhaps I can do so now. People were alarmed at the mention of introducing foreshore licences. I have been told a carpark in Carrigaline in County Cork cannot be constructed because a bridge was built at the tip of the estuary where the carpark would have been located. This is the kind of problem that we in Ireland should be ridding ourselves of in this day and age. I will come back to this point at a later stage as it is, perhaps, unfair to raise it under this heading.

Deputy Bell

We do not share notes on this committee but very often, because of our background, we raise the same questions.

I have found over the years - I hope the new Secretary General will not mind receiving advice from somebody who spent a great deal of time around local authorities and who is a former chairman of a port authority - that once the Department of the Marine - it is now the Department of the Environment and Local Government - and local government got together on a project there was total chaos because neither would accept responsibility. Much of the legislation in this area straddles the two. For example, small projects of coastal erosion requiring a 25% local contribution could be managed. If one now wishes to do the job necessary in the context of the £41 million programme for the next five years, one would be talking about a local authority coming up with £1 million. There is very low priority in County Louth - which has a great deal of marine activity - as far as the marine is concerned. I know that applies in every other county also. The provision for repair of small harbours would rank about eleventh or twelfth in order of priority if there were only 12 subjects.

You might say to me, and you would be right, that is a political problem. Political problems can best be solved if we can convince the officials in the Department about what we are saying. As spokesperson on the marine, I welcome the increase to £41 million in the budget for this area. Your observations on the Department of the Marine and Natural Resources at page 75 refers to a procedures manual. I welcome that but I do not think it should come under observations, it should be a very definite proposal. It is the first time I have seen parameters or guidelines set down in any document from the Department of the Marine and Natural Resources. It is good that we can refer to this manual when we raise parliamentary questions or meet officials of the Department of the Environment and Local Government. Every good army has a good set of manuals. There is a manual on every weapon in the Army setting down how the machine operates. That point should be developed in a very practical way. This committee and all other organisations dealing with the marine and local government should be able to refer to the rules as they stand. If one does not like them we can seek to have them changed. I would welcome such a move.

The 25% local contribution is a ridiculous figure in the context of the £41 million to be spent in this area. One will end up getting most of the money back because local authorities will not spend it because the Department of the Environment and Local Government will not allow them to do so.

Ms O’Neill

First, let me correct something I said earlier. The figure is £35 million for the programme in terms of coastal protection with an additional £5.4 million for research bringing us to a total of £41 million.

There are two separate issues here. Deputy Dennehy raised the issue of the multiplicity of agencies involved. As one who came from the outside into the Department of the Marine and Natural Resources one of the questions I found myself asking was why as a Department are we at central level involved in licensing the foreshore which is very much a local issue. Having looked at it, it is clear to me that there are issues of national importance as opposed to local importance in relation to the foreshore and the coastal zone is a very important national asset and needs to be managed as such. Clearly, there is a role for a Department like ours which has its own unique expertise regarding marine issues and the protection of the marine and the coastal environment. That expertise has to be brought to bear on decisions that have a strong influence at local level. In the context of developing policies on coastal zone management and of looking at the future role of the Department of the Marine and Natural Resources, we need to determine the most appropriate location for responsibility for decisions of this sort, what is best decided at local level and what is best decided at national level. That will get us into the area of legislation and where foreshore licensing legislation overlaps with planning legislation. I know this gives rise to unusual issues such as the carpark which ended up at a foreshore.

Our main concern is to ensure that wherever decisions are taken, there is a co-ordinated approach between the Department of the Marine and Natural Resources and the relevant local authorities. This will come into sharp focus when we begin to develop clear policies about the management of the coastal zone and clearly delineating the responsibilities of the agencies involved. There is a local level issue about good integrated management and decision making at a local level involving all the players. There is then the bigger picture of whether there is a better way of doing things in the long run. There are national issues of which we should not lose sight regarding the foreshore.

I could not agree more with Deputy Bell regarding his second point. This is very important, particularly where there is capital spend involved. It is a standard requirement of national development plan moneys that there be clearly laid down requirements and procedures for the allocation of funding. That is something we are anxious to do across a range of our programmes. We are certainly keen to do it in this area because it acts as very good guidance for local authorities in terms of developing proposals and it acts as clear guidance for the specialists in our Department who evaluate and make decisions on those proposals. I would be very happy to make those procedures available to the committee when they have been drawn up.

Deputy Dennehy

I would also like to correct something I said earlier. I mentioned that I was not representing a constituency with coastal erosion problems. The people of Ringaskiddy, Crosshaven and Rocky Bay might not be too happy with me for saying that.

Chairman

We move on to paragraph 26 which reads:

The Department of the Marine and Natural Resources is empowered by law to administer EU based aid schemes relating to the Forestry and Marine sectors. The EU contribution to such schemes are funded from the European Agricultural Guidance and Guarantee Fund (FEOGA).

European Council Regulation 2080/92, relates to the afforestation of agricultural land. Article 2(1)(c) of the Regulation provides for the payment of afforestation premia to compensate for the loss of income arising from the transfer of land from agriculture to forestry use, which may be paid to farmers and any other private-law, natural or legal person. The Department commenced operating the scheme in Ireland in 1993.

Following the passing of the Forestry Act 1988, Coillte was registered under the Companies Acts as a private limited company, and was regarded by the Department as being a private-law, natural or legal person and entitled to receive premia when it applied for them in 1993.

In August 1999 the European Commission, following an audit which it had carried out of FEOGA expenditure administered by the Department, informed the Department that in its opinion Coillte was not eligible to receive the premia, as it did not consider that Coillte was a private-law, natural or legal person as defined in the Regulation. The proposal to disallow such payments was approved by the Commission in July 2000. The disallowance decision applied to EU funded expenditure of £3.8m in respect of the two FEOGA financial years October 1996 - October 1998.

The Department decided to suspend further payment of the grants to Coillte in September 1999 and in September 2000 lodged an appeal against the Commission disallowance decision in the European Court of Justice. The case is expected to be heard sometime in 2002. The Department also refunded the £3.8m to the Commission in October 2000.

Under its planned plantation programme Coillte had expected to receive further grants of approximately £33m in the years 2000 to 2013 which it will not now receive if the Commission decision is upheld by the Court of Justice.

In response to my enquiries the Accounting Officer informed me that:

Legal advice had not been obtained at the time the decision was first made to pay the grants in question to Coillte, as there was no reason to believe that Coillte were ineligible for such payments. In 1992, there had been discussions with the Commission at which it was indicated that the Commission took a positive attitude in relation to the eligibility of Coillte under Regulation 2080/92. At the Commission's request, written clarification of the legal status of Coillte was provided in January 1993. No response to the written clarification was made by the Commission, which subsequently approved the afforestation programme under which the payments in question were made. The Commission was aware that payments were made to Coillte in the following years but did not raise any questions on them until the discussions leading up to the disallowance proposal of August 1999. It appears that the Commission raised the issue then arising from a decision by the European Court of Justice (C-306/97) on a separate case in 1997 which declared that Coillte was a Public Authority for the purposes of the EU Procurement Directives.

The Commission's view, as indicated as late as June 1998 in reply to a question in the European Parliament, was that payment of premia associated with afforestation by semi-state companies was not in breach of the provision of EC Regulation 2080/92.

The Department's position is that Coillte is eligible to receive the premia and that the Commission was incorrect in disallowing the expenditure but that it is the European Court of Justice which will decide the issue.

The September 1999 decision to suspend payments to Coillte was based on legal advice. At that time, grants totalling £2.8m had been made to Coillte in respect of the FEOGA financial year which commenced in October 1998. The Department has been notified of the Commission's intention to disallow such payments but, as of 6 September 2001, no formal decision had been received from the Commission.

At the time of the July 2000 disallowance decision, the FEOGA accounts for the years prior to 1996 had been closed and payments made prior to 1996 were therefore excluded from the scope of the decision. Premium payments to Coillte in the period prior to October 1996 totalled £2.54m.

Mr. Purcell

Paragraph 26 refers to the uncertainties surrounding the eligibility of Coillte to receive EU financed afforestation premia to compensate for the loss of income arising from the transfer of land from agriculture to forestry use. The EU contribution rate was 75% although I believe this is being reduced to 50% from 2000 onwards. The matter was discussed briefly with the former accounting officer when he was before the committee last May. Just to recap on the position.

In July 2000, the EU Commission disallowed these premia for 1996-97 and 1997-98 on the grounds that Coillte could not be considered as a private law natural or legal person. That is the terminology used in the directive. The amount involved was £3.8 million representing the EU portion of the premium payments and it was refunded by the Department to the Commission about one year ago. It is recorded in the Vote as such for the year 2000.

Following the Commission's disallowance decision, the Department suspended the payment of the premia to Coillte for the EU year 1998-99. A sum of £2.8 million in EU moneys had already been paid for that year and the Commission has notified the Department of its intention to disallow these payments also. The Department has lodged an appeal against the disallowance in the European Court of Justice and the case is expected to be heard some time next year. The Department's position is set down in summary in the paragraph. Failure to win the appeal would have serious financial repercussions for Coillte and the Exchequer as under its plantation programme, the company expected to receive further grants of approximately £30 million or more in the years from 2000-13. There is a great deal riding on the court's decision.

Deputy Dennehy

A potential loss of £30 million has been mentioned. There is no point arguing about decisions until we get them. It is a great deal of money to lose. It is important that we have been notified of this matter.

Deputy Bell

My concern is that we have extensive legislation regarding safety at sea, but we might have to cope with potent external factors.

I thank the witnesses for their time. We will not note paragraphs 23 and 24 dealing with the Jeanie Johnston and the Dunbrody. We will return to the subject of the Jeanie Johnston and are awaiting specific information from Bord Fáilte on the Dunbrody. We note paragraphs 25 and 26 regarding coastal protection and Coillte.

The witnesses withdrew.

Chairman

Our next meeting will be on Tuesday, 16 October. We will go into private session at 2 p.m. At 2.15 p.m. we will deal with the year 2000 annual report of the Comptroller and Auditor General and Appropriation Accounts for the Department of Arts, Heritage, Gaeltacht and the Islands and An Chomhairle Ealaíon and, at3 p.m., for the Shannon Free Airport Development Company Limited.

COMMITTEE of PUBLIC ACCOUNTS debate - Tuesday, 9 Oct 2001

2000 Annual Report of the Comptroller and Auditor General and Appropriation Accounts.

Vote 30 - Department of the Marine and Natural Resources.

Ms O’Neill

Mr. John Sadlier

Mr. John Fitzgerald

Mr. Séamus Lynam

Mr. Ciarán Tuite

Mr. Brendan Lynch

Mr. Jim Caddle

Mr. Purcell

Mr. Purcell

Ms O’Neill

Ms O’Neill

Ms O’Neill

Ms O’Neill

Ms O’Neill

Mr. Lynch

Mr. Lynch

Ms O’Neill

Ms O’Neill

Ms O’Neill

Mr. Guilfoyle

Ms O’Neill

Ms O’Neill

Ms O’Neill

Ms O’Neill

Mr. Lynch

Mr. Lynch

Mr. Lynch

Ms O’Neill

Mr. Lynam

Mr. Lynam

Mr. Fitzgerald

Mr. Fitzgerald

Mr. Fitzgerald

Mr. Fitzgerald

Mr. Fitzgerald

Mr. Fitzgerald

Mr. Fitzgerald

Mr. Fitzgerald

Ms O’Neill

Mr. Fitzgerald

Mr. Fitzgerald

Mr. Fitzgerald

Mr. Fitzgerald

Mr. Fitzgerald

Mr. Purcell

Ms O’Neill

Ms O’Neill

Ms O’Neill

Ms O’Neill

Mr. Purcell

Mr. Purcell

Mr. Purcell

Mr. Purcell

Ms O’Neill

Ms O’Neill

Mr. Tuite

Mr. Tuite

Mr. Tuite

Mr. Tuite

Mr. Tuite

Ms O’Neill

Mr. Tuite

Mr. Tuite

COMMITTEE of PUBLIC ACCOUNTS debate -
Tuesday, 9 Oct 2001