COMMITTEE of PUBLIC ACCOUNTS debate -
Tuesday, 16 Oct 2001

Vol. 3 No. 20

Shannon Free Airport Development Company

Chairman

We now come to the annual financial statements of Shannon Free Airport Development Company Limited for 1998, 1999 and 2000. You last appeared before the committee in respect of the examination of your financial statements, 29 April 1999.

I remind you of the standard procedure with regard to privilege. Members' and witnesses' attention is drawn to the fact that as and from 2 August 1998, 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 committee proceedings. Notwithstanding this provision in legislation, 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 the House or an official either by name or in such a way as to make him or her identifiable. Mr. Thompstone, will you introduce your officials please?

Mr. Kevin Thompstone

I am chief executive. I am accompanied by Brendan Lynch, manager of our tourism product development division; John King, director of our heritage and tourism activity and a member of our executive committee; John Dillon, manager of our investments activity and high potential start-ups at the innovation centre; and Sean Fitzgibbon, director of corporate development responsible for our financial affairs and corporate activities and a member of the executive committee.

Chairman

We also have officials of the Department of Enterprise, Trade and Employment in attendance and I ask them to identify themselves.

Mr. Ronald Long

I am assistant secretary at the Department. I am accompanied by Brendan McCormack, who looks after Shannon Development affairs in the Department.

Chairman

I call on Mr. Purcell to introduce the accounts.

Mr. Purcell

The annual accounts of Shannon Development for the years 1998, 1999 and 2000 are before the committee for its consideration today. For the first two of those years, I was in a position to give a clear audit report, but for 2000 there was an issue which, in my opinion, merited a public accountability on the part of Shannon Development. This is referred to in the supplement to my audit report for the year 2000.

Most people instinctively feel that owning a pub these days is as close as it is possible to get to having a licence to print money, particularly when the pub is purpose-built and located in a city, which in common with most other cities is reaping the benefit of our economic progress in recent years. As the report shows, to quote the song, "It ain't necessarily so".

Shannon Development spent £1.9 million on building and fitting out a pub, or tavern, as part of the development of the King John's Castle area of Limerick city. It opened for business in 1998 and was operated by a subsidiary of Shannon Development. However, by the end of 1999, it was clear that the volume of business being done at the pub was not sufficient to cover expenses and overheads. Following a review of operations a decision was taken in early 2000 to lease the pub as a going concern. The pub stayed open for business while efforts to lease it were going on. However, two attempts to lease the pub on a satisfactory basis were unsuccessful and eventually in February 2001 the pub was closed. By the time it closed, accumulated losses of about £500,000 had accrued.

In the supplement to my report, it can be seen that Shannon Development attributes the failure of the pub to live up to expectations to a number of factors, including its location which militated against passing trade and posed access and other difficulties. The chief executive suggests the fundamental reason is that the complementary development of the surrounding area needed to be addressed before the pub could trade profitably. Shannon Development in co-operation with Limerick Corporation and other partners set up a project team earlier this year to push ahead with the requisite action and I am sure the chief executive will be able to bring the committee up to date with the current state of play in that regard.

Chairman

Thank you very much, Mr. Purcell. Mr. Thompstone, the Clerk to the committee wrote to you on 3 October inviting you to this committee meeting and also requesting an opening statement. Whereas it is not obligatory to give an opening statement, it has been a matter of procedure with this committee that to speed up the discussions, an opening statement is submitted. That simplifies matters for the membership of the committee because it gives us an opportunity to assess the opening statement. In the absence of that opening statement, we will go directly to questions by members of the committee.

Deputy Durkan

I am intrigued by this matter because by accident I had referred to it - not to this project - in the previous discussion. I am amazed, in the present climate, at the extent to which the project lost money, an average loss of £160,000 a year over a period of years. In view of the fact that it was a lead project, a Temple Bar type development in that area, what was the real cause of the problem? If a development is to take the lead in the redevelopment of an area, it should be state-of-the-art, it should work well, it should be profit orientated and it should be costed in such a way as to at least avert the kind of problems that arose.

Chairman

I compliment you, Mr. Thompstone, on your recent appointment as chief executive and wish you well in your position.

Mr. Thompstone

Thank you, Chairman. I appreciate your good wishes and congratulations and I look forward to continuing the proud history of the company in achieving pioneering regional development throughout the Shannon region. As you know, Chairman, that involves undertaking risks to achieve that development.

Chairman

Tell us about that risk, Mr. Thompstone.

Mr. Thompstone

The origins of the project, the Castle Lane project to which the Comptroller and Auditor General referred, go back to ourselves, Limerick Corporation and other key parties in the King's Island area of Limerick getting together at the end of the 1980s and early 1990s and deciding that this is a deprived area of Limerick, that there is a proud history and tradition associated with the area and that it must be possible to do something, building on the comparative advantage of that area, to achieve economic development. The first phase of the project involved, as you will know, Chairman, coming from Limerick, the removal of housing from within the confines of the castle walls, and over a period of years we were able to see the development and refurbishment of King John's Castle. That was in the early 1990s.

The next phase of the project was to see the Nicholas Street area around Limerick developed. The private sector was not willing to get involved in that area for a variety of reasons and Shannon Development, in line with our policy of responding to market failure, decided we would develop a new street beside King John's Castle. This was a Castle Lane development. That comprised location for the Limerick City Museum and also the Castle Lane Tavern.

As the Comptroller and Auditor General pointed out, £1.9 million was spent on the Castle Lane development. Unfortunately, while we prepared detailed business plans at the beginning of the process, as Deputy Durkan correctly indicated we should have done, what actually happened in practice was that it took longer. The loss period, which was running at about £160,000 per annum, went on for longer than anticipated. Essentially, what we ran up against were issues such as the perception of the area. There were considered to be security risks, difficulties around parking and various other issues and we found that the private sector did not respond as quickly as we would have anticipated. However, rather than just sitting on our hands and letting the losses continue, we took what we considered to be a responsible decision, tried to lease the operation on a couple of occasions, were unable to come to a satisfactory agreement with proposed private sector lessees and decided, on that basis, to close the operation as a day to day operating pub. That was in February of this year.

During the summer period, we had run night-time entertainment on a pre-booked business basis but our overall conclusion is that this operation will come good once we have continued the work and brought to completion the work we are doing with the traders in the area, our partners, Limerick Corporation, and generated greater confidence. For example, in the coming tourist season there will be maps of the medieval area of Limerick. We have seen considerable success in the surrounding area with the likes of the Hunt Museum, the recently launched Limerick navigation project and hotels applying for planning permission in the area. Over time, therefore, we believe that the business will come to the area and we will be more than happy at that stage to let the private sector come in and run the catering and pub business which we do not see ourselves getting back into.

Deputy Durkan

As a matter of interest - this may relate to my earlier question - who built the glass case around the castle?

Mr. Thompstone

That was built and developed by Shannon Development. The Deputy is talking about the interpretative portion of King John's Castle.

Deputy Durkan

It is a woeful eyesore. I have never seen anything like it. If it is intended to convey to the public or cause the public to reflect in some way on the historical element of the castle, it does not do that. It is an awful sight. It is totally incompatible with the castle. It screams at one when one passes by and the first time I saw it I thought somebody had erected it without planning permission. I am not being critical for the sake of being critical, but it is an awful eyesore.

Chairman

In fairness, Deputy Durkan, Mr. Thompstone was not aware that the issue of King John's Castle would come up today.

Deputy Durkan

No.

Chairman

He raised with the Department of Arts, Heritage, Gaeltacht and the Islands his general thesis with regard to what was of historical significance and that sometimes the modern modification distorts the historical significance of a project. He raised King John's Castle earlier as a classic example of that.

Mr. Thompstone

Chairman, it is an issue on which there are varying and very strong opinions, some of which would accord with Deputy Durkan's view. I point out, however, that the reason that particular structure was built was precisely to protect the archaeology that was discovered under the foundations for the original castle walls. Our original proposal at the time the castle was being developed was to recreate the original castle ramparts on that site but the archaeology dig and the advice that we got was that we cannot build on top of that, and the architects at the time came up with the solution of coming up essentially with a building that would be suspended over the archaeology, a modern structure that would allow the archaeology to be interpreted on site. I am very much aware of the views that are held on the style of the building but it has a strong function and in recent years we put in place the banners of which you will be aware, Chairman, from driving up and down that area, to soften the effect of the building.

Deputy Durkan

I have viewed that aspect of the development also. I am sorry, Chairman, for passing so close to your constituency. I assure you it was en route to other quarters.

Chairman

Were you dallying there?

Deputy Durkan

I was not dallying there, Chairman. I am aware there will be opposing views but that is my opinion of it. I think it is a woeful sight. I have not seen it done anywhere else. The only thing with which I can compare it is an incinerator in Helsinki, which looked similar. That is true, but I will not go on. Those are my views on it.

Mr. Thompstone

As part of the medieval Limerick project that the Comptroller and Auditor General referred to in his introduction, this is one of the issues we are looking at with our partners, the traders and residents in the area who also have strong views on the issue. We certainly have our ears open to the different views that are expressed on this and we hope, over time, to get to a situation with our partners where more positive views would be expressed on the whole development.

Chairman

Who originally said this project was a good idea?

Mr. Thompstone

The King John's Castle project?

Chairman

No, the Castle Lane tavern project.

Mr. Thompstone

I do not know or could not say who the individual was but it arose from recognising that the King John's Castle development was not intended to be an island on its own. It was always intended to be the first phase in bringing business to a socially deprived area of Limerick. We had a day visitor attraction with 55,000 visitors to the castle. The next logical step seemed to be to provide night-time entertainment, like Bunratty where we have been very successful and, in turn, bring people and business to the area that would generate a lot of private sector activity, such as craft shops and night-time entertainment in the form of restaurants. I doubt if any one individual had the original idea. It is the nature of these things to brainstorm, both in the company and with partners.

Chairman

Is it not the case that somebody would say involvement with a project of this kind is desirable because it is compatible with King John's Castle? Is it similar to the Jeanie Johnston famine ship, discussed by the committee last week, where eight or nine different agencies were involved in different phases? The problem confronting the committee with that project was to ascertain who made what decisions. We decided to defer final consideration of the Vote on it because we sought much more documentation.

This project had an initial budget of £1.9 million, yet following discussions with officials the Comptroller and Auditor General found that the factors militating against the successful trading of the tavern revolved around its location in Limerick city. You mentioned the perception of the area. It was probably not referred to in any feasibility study but you would have become aware of it from speaking to people. Related issues include parking, access infrastructure, signage, security, little passing trade, the concerns of local residents and issues of general perception among potential customers. If a private individual was to make a decision on spending his money on a project of this kind it is likely that having considered a feasibility study highlighting these factors he would not proceed with it. In this instance public money was involved.

You have assured the committee that this project will prove beneficial. In the meantime it will be a drain on the resources of the principal interest, Shannon heritage, which, overall, is a successful entity. You say that £2,500 per month is being expended on security and other aspects on an ongoing basis. We are, therefore, surprised at the amount of funding involved. I will be asking the Department of Enterprise, Trade and Employment for its observations on the project, including its views on whether a State company should get involved in a pub, which is the kind of business that usually involves commercial interests. If so, there is a need to undertake a feasibility study to ascertain if the investment is worth proceeding with and sustaining.

Officials from the Department of Arts, Heritage, Gaeltacht and the Islands attended the committee earlier and conceded that things were wrong with accounting procedures. I would prefer if Shannon Development admitted that errors have been made with this project but that like the Jeanie Johnston, it must be continued with to the point where it is completed.

Mr. Thompstone

I would be happy to endorse your last words and what you said at the outset. In a moment I would like to ask my colleague John King, who is responsible for the Shannon heritage company to which you referred, to pick up on some of the detailed points.

You are right to say the private sector would not become involved in this project, which is why we did so. We knew up front what were the risks and, perhaps naively, we considered they could be overcome much more quickly than has proved to be the case. It has proved much more complex to deliver the project and achieve the kind of impact we set out to achieve in the timeframe we expected.

We are involved not because we want to run pubs, we do not want that. Our experience is that State companies are not good at running pubs. We have different systems and ways of doing business. We are a development company. That is our ultimate aim. Our philosophy is to do something if there is a market failure where an opportunity or a threat arises but to withdraw when the private sector or any other entity becomes involved.

Deputy Dennehy

I would be more complimentary than previous speakers on the work that has been done. I occasionally visit the area and I see how it has been revitalised around the docks and the River Shannon. Buildings have been turned around. If preserved buildings do not have a functional purpose they are a waste of time. Developments were needed at King John's Castle and excellent work has been done there.

This pub business is a disaster. In fairness to Mr. Lynch, he bailed out the project. The chief executive officer has said private enterprise would not become involved. The factors militating against the project were basic. Running a pub is a specialised business. Factors such as parking and access, local residents and passing trade must be addressed. It is not good enough to say that because no sane publican would become involved it was decided to invest public money in the project. While there is a need for encouragement, support and innovation, this was an inappropriate use of public money. The Comptroller and Auditor General pointed out that a pub is a licence to print money. This has been especially the case in the past five years. If money has not been made in that period there is a need to get out of the business. In view of this you should acknowledge that your involvement in this was a disaster and you should move on to something else.

However, I would not like to throw the baby out with the bath water. Tremendous work has been done in this area and on the River Shannon. Much of it is innovative and I hope it will continue.

I was not politically involved in 1959 but I am aware of some of the historical reasons for the establishment of SFADCo. Is there still a justification for its continuing existence or is its work duplicated by other bodies, such as Bord Fáilte or IDA Ireland? If not, and its work standards are so high, should they not be replicated in other deprived areas throughout the country? I exclude the Cork region in this, which has done very well. Is there still a justification for one particular area getting such an input of funding? I hope to get a response to that question and that there will be no need to go to the public.

Chairman

Many points have been raised that require a response. I know Mr. Thompstone is the new chief executive and will probably be redefining the parameters within. I am interested to know the lessons he has learned from a project of this nature. We will suspend the sitting for a few minutes in order that Deputy Dennehy and I can vote. We will be back shortly.

Sitting suspended at 16.20 p.m. and resumed at 16.35 p.m.

Mr. Thompstone

The basic point made by the Chairman and members of the committee is that, rather than saying everything was perfect and went right, lessons have been learned from this project. I am happy to say and acknowledge as chief executive officer of the organisation that it was not a project on which everything was perfect or went right. The key question is what lessons have we learned from it. The lessons we have learned are as follows.

For a development company, especially a public sector development company, there is a difference between development and operations. There are certain activities that lend themselves more correctly to the private sector than to the public sector, of which one, certainly, is running pubs. You will not see us in the business of developing or running pubs in the future.

This project was part of an overall strategic goal to see a particular part of Limerick developed. We had certain matters to bring to the table. Part of our armoury as a company is our willingness to get stuck in, roll up the sleeves and do what needs to be done. Looking back, a lesson learned is that perhaps we dived in and did all those things without paying enough attention to making sure everyone was doing all the things that needed to be done to achieve the vision. I say that not to pass the blame elsewhere, but in the spirit of saying that, if we are going to champion and run a project, we have got to make sure all parties at the table are delivering. It is our responsibility to make sure that is done.

The other lesson is that our expertise and core competence are identifying and researching an opportunity, conceiving the project, assembling the components, making sure it is delivered and putting in place the infrastructural elements, and that we should leave its running and operation to third parties which have professional expertise in the area, for example, as we have done recently with the Doonbeg golf resort project where we assembled the components, put everything together, worked with the local community and the private sector, but left it to the private sector to get on and develop the project.

Having said all that, the need, strategic intent and goal of developing the King's Island area of Limerick still remain. If you are agreeable, Chairman, I would like to ask my colleague, Mr. John King, who is responsible for the Shannon Heritage Company and our tourism activity, to fill you in on the things we are now doing going forward to achieve this strategic intent.

Chairman

We have focused on the Castle Tavern. I recognise that a great deal of good work has been done in the area. Bunratty Castle and folk park are one such success story. As a public accounts committee, we have to feature this aspect as our concern is that public money is being spent on a project of this nature.

Mr. Thompstone

Absolutely. I will come back to that point after Mr. King has spoken and would like to pick up on Deputy Dennehy's question about the value we bring.

Mr. King

What is happening today is a continuation of the planning and thinking that went into this project from the start. Back in the mid to late 1980s the first phase of the King John's Castle project was put in place. It was a tremendous achievement to bring the heritage of the city of Limerick to life as a public amenity and visitor attraction. It involved a lot of work between State and local organisations to make things happen. When in place it was recognised that it was not the complete article. There was a huge amount of history and heritage associated with that part of the city of Limerick and there was a chance to bring in a lot more visitors to see what was available and enjoy the experience.

In the early 1990s, building on the King John's Castle experience, a strategic plan was put together which set out a number of objectives to be achieved for Limerick city in terms of ordinary tourism. The plan included a night time entertainment and food facility, which has been called a pub here, but it was only one aspect of the business. It ended up as a day-to-day pub, but was also envisaged as an evening entertainment project and a food service available to tourists to that part of Limerick. The plan also identified a number of other projects, for example, the development of streetscapes, the navigation and Hunt Museum projects, the majority of which have been completed. The effort put into them should be considered.

I know the job of the committee is to consider the operational success of the tavern end of the street, but many good things were done with the whole development from 1994 through to 1998 and it would be a pity to lose sight of them. We have the new Castle Lane development, which is actually a brand new street linking Nicholas Street with the river, and used every day of the week. We also have the City Museum which accounts for part of the £1.9 million mentioned. There are new developments in the castle. A new interpretative facility has been installed which receives 55,000 visitors each year. A lot of good things have been done.

For the evening entertainment side of the project we tried to take the Bunratty mediaeval banquet model to see if it would work within the city. In the two years we had it running it was not really a success. That is where the losses arose. We had some success, but not enough to cover the summer series that we ran. Some of the costs we built up arose from the fact that we had to enter into contracts with singers, entertainers and so on. We did not deliver the business into the entertainment side we thought we could. That was our failure. We can look at how we can improve on this.

The navigation centre was done. The streets have been redeveloped and there is a committee in that part of the city. From 1985 to 1990 we had King John's Castle phase 1 and from 1992 to 1999 King John's Castle phase 2. We are now in phase 3. Work is ongoing looking at ways of making that whole part of the city an exciting tourism project. A number of components are already in place and all those up and running are working well.

The tavern at the back end of Castle Lane has had lots of difficulties. It has been mentioned that a pub in the city centre is a licence to print money. If it was on the high street in the city centre, it might be, but it was not. It was in a part of the city that did not have much night time traffic. We saw it as a business night time product for the first couple of years. It did not succeed as that and that is when the difficulties started. We knew that the day time passing trade and ordinary pub trade would be only a small part of the business. We tried to replicate the Bunratty model, but it did not succeed in the time we were there.

We have the good will of our partners to bring the project to phase 3 which would see us building on the 55,000 visitors to the castle each year and working on how to get more and more visitors to it. Another 30,000 visitors come to the Hunt Museum. We will work on how to get them to filter through the city. We have local developments along Nicholas Street, George's Quay and Mary Street. We have also started work with the corporation around a block of houses known as the alms houses which are very close to the tavern and did cause issues as residential units. They are being looked at, in the wider plans for King's Island, as possibilities for craft centres and cafeterias and could be used as part of a Temple Bar type concept in Limerick city.

What is also happening now is that the private sector is coming in around it. There have been two or three applications for hotel and leisure developments in and around the area about which we are talking. The only reason they are in place is that the work we have put into the area has brought that part of the city to a level where the private sector is now prepared to chance its money and invest. The whole thing is starting to come together. We have photographs that show that part of the city in 1988 or 1989 and the changes the developments that have taken place have brought to it in the last ten to 12 years. If we project forward to 2012 and look back to a photograph taken in 2001, I am sure we will see another giant leap in beneficial developments in that part of the city.

While there have been some operational difficulties with a night time facility at one end of Castle Lane, we should not let them cloud the tremendous work done in the last ten or 12 years. There is potential if we can keep the strategic thinking going. We already see the private sector taking a firmer role in making things happen. That is where we stand. It is an exciting time and shows the role that a company such as Shannon Development can play when it puts money into projects such as this.

Chairman

I accept what you are saying, but Limerick city has seen the development of super pubs in recent times. In regard to a tourism base, therefore, one needs to be cognisant of international developments and developments in the State. Your projections may go a little haywire and you may reach the point where you will have to decide it is time to cut your losses on this project and sell the pub to a private operator. Is there any indication as to what it would be worth on the open market if that eventuality happened?

Mr. King

We actually looked at that late last year. Our timeframe for getting someone into the pub is fairly immediate. In terms of food and beverage operations across the Shannon heritage company, we are in the marketplace looking at bringing in new catering contractors for a range of activities that we run within the Shannon area of operations. Our objective is that the tavern would be open for business early in the new year, either as a pub-restaurant or an evening entertainment project.

Mr. Thompstone

But it would be run by the private sector.

Mr. King

Yes.

Chairman

This is a public accounts committee and you talk of the future. If the Comptroller and Auditor General is reporting on Shannon Development next year, there will still probably be something about the Castle Tavern losing money. Our concern is that in the future you may have to face the decision to cut your losses.

Mr. King

We did get prices on it. Pubs are valued in different ways. Very good ones seem to be valued on a price multiplied by turnover. A very good pub may be priced at two or three times the turnover and a lesser pub at one or one and a half times the turnover. Our turnover runs to about £500,000 to £600,000. If we got twice that amount, we would get about £1.2 million which would be in or around construction costs at the time. We decided not to sell because there was no guarantee that we would get that price in the marketplace. We also needed to think through the original intention of putting the whole project and complex in place. It made sense for us to put together a series of plans, build on the good work done in the past ten years, and have an outside contractor open the tavern for business within four months.

Chairman

The Comptroller and Auditor General made the valid observation that the layout of the premises is a drawback because they are long and narrow, creating operational difficulties and limiting the numbers attending functions. Someone had a say in the original design. Was it that the place lent itself to be being long and narrow?

Mr. King

The design is a bit long and narrow, but that is a minor point. It has a capacity for functions, upstairs and downstairs. These limitations did not contribute to our problems. We did not have enough business through the front door. That is what led to our financial difficulties.

Chairman

Does Mr. Thompstone have any further observations?

Mr. Thompstone

Neither I nor my colleagues have difficulty with any project in which we are engaged being subject to the kind of scrutiny we receive from the Comptroller and Auditor General and the Committee of Public Accounts. We need external review to keep us on our toes and ensure we maintain high standards. I tell our people that it is like going to the Olympics where the standards are constantly being raised. The only world record that is relevant is next year's. That is the spirit in which we come here today and engage in further projects.

Deputy Dennehy is right that Shannon Development must move forward. There is no justification for us being here unless we solve a problem that our shareholder needs solved, and we must add a value that no one else brings to its resolution. In recent months we went through an exercise to give us the answer. Being from the region the Chairman will know that success lies in industrial development. The Shannon free zone is home to 130 companies employing 8,000 people. The National Technological Park at the University of Limerick has built on this. We are criticised because this is good for the region's core, but does little for places like west Limerick, Kerry, Tipperary or south Offaly.

Chairman

Like Newcastle West.

Mr. Thompstone

Exactly. We have decided that regional competitiveness is a critical issue for our shareholder which we must address. Our core business is pioneering regional development and the challenge is to deal with what is on the Government's agenda which in the 1960s was to bring Ireland from the agricultural to the industrial age. Today, it is how to move from the industrial to the knowledge age in a way that benefits places like Newcastle West. Using the resources generated from projects like the Shannon free zone and asset disposals, leaving the private sector to do office developments, we buy land for new business development, as we did recently, with the Chairman's assistance, in Newcastle West from Limerick County Council, or establish projects such as Kerry Technology Park with the Institute of Technology, Tralee. We take the lead in infrastructural development and, when the private sector is ready, let it come on board and develop it.

We take a similar approach in tourism. The Doonbeg golf resort, mentioned earlier, arose from market research we did in 1995 which identified the product which would bring people from around the world to the region. Working with the local community we put together an option on approximately 400 acres of land, drew up a prospectus and went to the international marketplace to find someone with expertise in developing and running a world class golf complex. We passed on the option to the developers and left them to do what they do best - run the business. What we do best is engage in research, conceive and put together complex projects of scale that take time to deliver, but which have a long-term impact. That is our way forward. Around the core of Shannon-Ennis-Limerick there will be technology parks in places like Tralee, Tipperary, Thurles, Birr, Newcastle West and Kilrush. That is our vision which responds to the shareholder's needs in a value added way.

Chairman

Can you tell us how many factory units are lying idle and their location?

Mr. Thompstone

Our occupancy rate is about 85%. There are vacant units in the Shannon free zone where some older units are located. We are dealing with this by not investing in the facilities' refurbishment or the construction of new facilities, but in finding a client company and a private sector developer to refurbish the space. An example is a company located in the old Lanaknit building. Lanaknit was a textile company, one of the original companies to come to Shannon, but left in the 1980s. Another is the Rippen piano factory, which subsequently housed the Bombardier bus factory, and now houses Enterasys, previously Cabletron. All these older buildings were refurbished by the private sector. Most of the space is occupied, although we project that the next few years will be difficult. We expect an economic environment like that of the late 1980s and early 1990s because of the technology downturn and the aviation crisis.

Chairman

Newcastle West has a few idle factories due to Giro moving to a smaller unit where it only has marketing and administration divisions. I am concerned about the BMW region, and the reduced opportunities for areas such as counties Limerick and Kerry, because of the situation in America. You have already said that there will be difficulties in filling those factories.

Mr. Thompstone

It will be difficult. We cannot take the attitude that we can leave a factory empty because a client will come along. Ireland is moving up the value chain in terms of the businesses it is attracting. Current investors want office space, or office standard space because they tend to be involved in knowledge based activity. That does not necessarily mean that they are involved with information and communications technology, but in research and development in healthcare, biotechnology as well as ICT. Our experience is that if one wants to bring that kind of business into areas, one must take older units and leave them for another use such as letting the private sector take them on for warehousing or distribution. Otherwise, they should be refurbished to the required standard or sold on, using the proceeds to develop today's knowledge age business. If one takes a town like Tralee, looking back over the past ten years, the employment charts show a decline. There was very little happening in terms of new inward investment and a decline in the traditional industrial base. Now we find that, with our intervention in new high quality, modern facilities and buildings, we are getting modern age business. Happily these are Irish businesses, including those set up by Irish graduates coming back from abroad. That is the future we see.

Coming back to the point made by Deputy Dennehy, we feel that, through pioneering regional development, we can show the way to do this work. If we can show that it works in our region, there is no reason the same approach cannot be taken in other parts of Ireland or Europe.

Deputy Dennehy

I am trying to be unbiased and look at the matter globally. Is there an advantage with one region over the rest in other designated areas? We are looking at the west and other areas. Has one area got a head start for tourism, investment or anything else? I would love to see local companies getting extra assistance. If it is so successful, it can be replicated to deal with outside investment and to encourage people. Around 1989 I questioned this and got the impression from the Department of Industry and Commerce that it was a dead duck. However, it seems to be stronger than ever. I am glad to say that in one way, but at the same time it is not a level playing pitch. Perhaps I can be convinced otherwise. I would like to hear the Department's views on it at this stage because we are supposed to give a fair entitlement to all areas. I am allowing fully for the fact that we have designated areas and the need to help certain areas, both urban and rural.

When I was in San José and New York in 1983 or 1984 I visited a Bord Fáilte office operating close to SFADCo. Both were promoting the region, but one was promoting more locally than the other. It was my money that was being used in both cases and I want to know if anything has changed. I do not want to condemn anything that has been done, but there should be a level playing pitch. I would appreciate the Department's view on the issue. I do not want to be negative and do not have an axe to grind. Investment should go where it is needed, be it Donegal or Cork. However, an imbalance remains.

Mr. Long

We, in the Department of Enterprise, Trade and Employment, agree entirely with what the Comptroller and Auditor General had to say on the Castle Tavern project. Perhaps we would prefer if his suggestion that a pub licence is a licence to print money was not the case because we would like to see all businesses on a level playing field, and no business having a Government imposed restriction on access which would give rise to monopoly or oligopoly profits in the sector. With the exception of that remark, we are in agreement with him.

This was, however, a decision of the board of Shannon Development under its legal powers. We have bi-monthly liaison meetings with our colleagues in Shannon. When the Castle Lane project was brought to our attention we made our views known. To sum them up, we consider this to be an unfortunate investment decision. I have the most serious reservations about a State agency getting into the pub trade. It is not the sort of thing it should be doing. I say this with a bias. I am from the industry and business development end, but Shannon Development is in a lot of areas broader than that. It is in the tourism development area in a big way.

Deputy Dennehy has raised a number of serious issues, including the integrated approach of Shannon and whether it should be capable of replication. It deserves thinking about, but needs a lot more management than a dedicated agency with a sharp and clear focus. We have tried to manage this by having liaison meetings. Our colleagues in Bord Fáilte have liaison meetings with Shannon Development, as do our colleagues in the Department of Tourism, Sport and Recreation. These meetings are to ensure the management of this complex function of Shannon Development is kept in tune with the perceptions, policies and directions of Government offices. It is a deep question which is difficult to answer more satisfactorily than that. It is clear that the investment in Castle Lane has been an expensive one and our hope now is that Shannon Development can manage the affair in order that it can get out of it at the lowest possible cost and with the best return for the State.

The Chairman has raised the issue of looking back at the project. We will take it up with our colleagues in Shannon Development. There are lessons to be learned from looking back at how projects were handled - I do not mean that we should have a witchhunt - and how decisions were made at various stages. I hope that at an early liaison meeting we might pursue this with our colleagues in Shannon to see what can be learned from the processes in which we were involved when decisions were taken or recommendations put to the board of Shannon Development and how it was handled from the original decision. The Chairman has covered many of the issues which should, with hindsight, have been material to the decision-making process. The process ought to be reviewed to see just how it proceeded and to learn from that. We should not start a witchhunt, but should try to learn from the experience in order that we do not end up doing this again.

Deputy Dennehy has raised other issues. A lot has changed since the 1980s regarding overseas promotion. We have tried to streamline the process to the maximum extent possible; for example, for inward investment type projects for which the IDA is now the responsible agency.

It makes more sense to organise it in a streamlined way as it reduces overheads and costs, but most of all it reduces the confusion of potential clients in terms of having individuals from different Government organisations calling and asking them to do business with them. We believe that having simpler, better focused remits for organisations helps management and gets better results. It gives efficiency and clarity about what money is being used for and gives a better chance of measuring success in the use of funds to attain those ends.

As regards different regions of the country, both the Chairman and Deputy Dennehy will be well aware of how important it is for policy to be dispersed regionally. Left to themselves the investors in business would probably concentrate investments around the centres where they have traditionally clustered, which means the cities. Renewed emphasis has to be placed on getting an equitable regional spread of investments, and the structures that are in place attempt to do that. Some 50% of the new greenfield projects from the mobile international investments are a target for the BMW region but that does not mean that it is the only region. It is a very difficult thing to achieve because more and more we are getting into higher value added, higher intelligence input type industry, and people want to be close to populations where, for example, they can find a certain proportion of engineers with a certain disciplinary specialisation. Notwithstanding that we are still concentrating on getting regional spread so that other centres will develop.

The work of the agencies is not the only aspect of this. There is also the development of the national spatial strategy which encourages investment both by big investors and small micro-enterprise investors, but we are also looking at clusters of specialists that will assist the investment.

I am not in a position to say how the regions are doing on tourism because that is a separate area of which I have no knowledge. The Chairman referred to idle factory units and perhaps he will recall that we were before this committee two years ago with the Comptroller and Auditor General's report on the property interests of all our agencies. We have been acting on that report which was very useful and helpful to us. Shannon Development and IDA Ireland will probably not be able to achieve the efficiency in property management which a commercial operator can achieve. They will have vacant premises precisely because they must lead the investors to places where the speculative investor will not put property. That is part of the regional remit and the strategy for the management of this is not to over-extend yourself but try to achieve a middle ground between best practice in the commercial sector and the sort of missionary role that we are trying to play.

Deputy Dennehy

With perhaps the exception of the Jeanie Johnston project and the tavern, this report is a success story and it is important to recognise that. We have been trying to change the way the State did things in the past. We have just finished a year and a half of testing with the integrated services project which on the social economy side brought together all the State agencies, including An Post. Four parishes participated in that and it has now developed into RAPID which is an urban-based programme covering 25 areas. The thinking is the same in that all the agencies in an area are put working together. The RAPID programme is based very much on the social aspect but I wonder if the same is done with commerce, tourism and so on. At present there is duplication but worse still is the lack of co-ordination - one wastes money while the other simply destroys future effort. Are there lessons to be learned from the activities of SFADCo?

We are operating in a programmed way in these 25 urban areas and it would be helpful if we could learn further lessons from the work that has been done. There will be slip-ups which we can try to avoid. I think the approach is correct and there is much to be learned from it. The drive is certainly there at present, as has been proven with this new programme which I hope will work. I do not want to be overly critical, but the public felt that State agencies worked in total isolation and now this programme is managing to harness the strengths of uniting people.

Mr. Thompstone

The central thrust of Deputy Dennehy's comments is that there should be co-operation and interlinking across regional boundaries. We must forget about administrative boundaries when it comes to the day to day world of making development happen. I assure the Deputy that this is part and parcel of the philosophy of Shannon Development. Staff members in the organisation would relate that the philosophy I am pushing is one where Shannon Development would operate on the basis of open rather than proprietary systems. By that I mean that instead of us coming up with ideas and not telling anyone else about them what we are doing is acting as a regional laboratory on behalf of the State, thinking up new and innovative ideas, testing them out and, if they work, sharing our experience with others.

The Western Development Commission is probably at a stage where Shannon Development was in its founding years in the early 1960s. My colleague, John Dillon, who was the person responsible for setting up our investment activity in the mid-1990s has spent much time with the Western Development Commission advising it on exactly what we have been through, the lessons we learned, the mistakes we made and the issues to look out for if you have a fund to manage to generate business activity. In these days of crisis that we are facing in Shannon Airport one will not promote business in a region served by the likes of Shannon Airport just by focusing on the counties for which we are responsible, Clare, Limerick, north Tipperary, south Offaly and north Kerry.

If we take the golf product, it makes sense to work with golf operators in Kerry and Cork, and that is what we do. Similarly, in regard to conference and incentive business we work with operators in Galway, Cork, Kerry and Clare. Where it makes sense we work together. We have worked closely with the South West Regional Authority in trying to promote awareness of and action around the information society in the region. We hold the view that if there is one restaurant in a street, that restaurant might be half full whereas if there were ten restaurants on the street they would compete with one another but they would also create an aura and an atmosphere that would bring in more business and everyone wins. That would be our approach.

Deputy Dennehy

Kinsale was a prototype of that approach. The people made it work there and fair play to them. We have to give themcredit for that.

Mr. Thompstone

Absolutely, and we would learn lessons from Kinsale.

Chairman

You have heard the caveat put forward by Mr. Long and his officials in relation to Castle Lane Tavern projects. You have conceded that you would not get involved in the pub business. If there is one lesson to be learned from the Comptroller and Auditor General's report it is on the Castle Lane Tavern project. I am sure you will be working on that.

Mr. Thompstone

Absolutely, we will continue on the strategic goals and intent around Limerick's medieval quarter. That goal still stands. Chairman, we have noted your comments, those of your colleagues, those of the Comptroller and Auditor General and those of our colleagues from the Department of Enterprise, Trade and Employment, and we will take on board fully the lessons learned from the experience.

Mr. Purcell

Clearly it is outside my remit to comment on what, if any, the future role of SFADCo should be. That is something that is proper to Government and I know it occupies its mind from time to time. I would be aware unofficially of these things. I was glad the tone of the debate was positive rather than negative. My reports, by their nature, are negative because they are critical and are exceptions. That can be unfortunate. Agencies such as SFADCo have to act as drivers, innovators, risk takers, and they should not be beaten with a stick for taking risks. When you are taking risks you have to manage those risks and try to minimise the exposure of the State as a result of taking those risks. It is in that context that I would have commented on this matter in relation to the year 2000. One of the lessons that probably came out last week and to a lesser extent this week is that sometimes when you are wedded to a project you can over-estimate the level of support you will get and the timing of the support from the private sector in your enthusiasm for the project. Even allowing for agencies such as SFADCo having to go in where the private sector feared to tread, we should look at what they are prepared to put their money into. It is not invariably right but sometimes it is a good indicator. Perhaps that is something we learned from the two famine ships last week and also in other matters that are referred to in my report both this year and in previous years.

Chairman

Thank you. Before concluding I thank Mr. Thompstone and his officials and Mr. Long and Mr. McCormack. We have had a healthy discussion on the whole issue. I thank my colleague, Deputy Dennehy, for remaining to the end and I apologise that some of our colleagues had to leave for votes and other committee meetings. The lack of numbers has not inhibited discussion. We note the annual financial statements for 1998, 1999 and 2000 for Shannon Free Airport Development Company Limited.

The witnesses withdrew.

The committee adjourned at 5.25 p.m.