BIM 2000 Accounts, Supplementary Report, and 2001 Accounts.

Mr. P. Keogh (Chief Executive, Bord Iascaigh Mhara) called and examined.

I remind witnesses that they do not enjoy absolute privilege. As and from 2 August 1998, section 10 of the Committees of the Houses of the Oireachtas (Compellability, Privileges and Immunities of Witnesses) Act 1997 grants certain rights to persons identified in the course of the committee's proceedings. These rights include the right to give evidence; the right to produce or send documents to the committee; the right to appear before the committee, either in person or through a representative; the right to make a written and oral submission; the right to request the committee to direct the attendance of witnesses and the production of documents and the right to cross-examine witnesses. For the most part, these rights may be exercised only with the consent of the committee. Persons invited to appear before the committee are made aware of these rights and any person identified in the course of proceedings who are not present may have to be made aware of them and provided with a transcript of the relevant part of the committee's proceedings if the committee considers it appropriate in the interests of justice.

Notwithstanding this provision in legislation, I remind members of the long-standing parliamentary practice to the effect that they 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. They are also reminded of the provision within Standing Order 156 that the committee shall refrain from inquiring into the merits of a policy or policies of the Government, or a Minister of the Government, or the merits of the objectives of such policy or policies.

I invite Mr. Keogh, chief executive, BordIascaigh Mhara, to introduce his officials.

Mr. Pat Keogh

I am accompanied by Mr. Jim Morrissey, secretary-financial manager. I am also accompanied by Ms Josephine Kelly, principal officer, and Mr. Denis Maher, assistant principal, Department of Communications, Marine and Natural Resources.

I now ask the Comptroller and Auditor General to introduce the accounts.

Mr. Purcell

I will introduce the supplement to the audit report on the 2000 accounts. The annual accounts for BIM for the two years 2000 and 2001 are before the committee for examination today. For each of the two years I gave an audit report in the standard format attesting to the accuracy of the accounts. However, as the committee will appreciate, a financial audit in the public sector is about more than issuing a company style audit report and covers, on an exceptional basis, reporting on adherence with public financial procedures and the proper conduct of public business. Concerns in the first of these areas gave rise to the audit supplement under consideration.

To exert financial control over the issue of voted moneys from the Exchequer to fund the activities of State-sponsored bodies, a mechanism called grant-in-aid is used. This involves issuing instalments of the grant throughout the year at regular intervals in line with the organisation's cash flow requirements. The underlying principle is that money should only be released to the extent that it is needed to finance expenditure in the particular year as envisaged in the annual Estimates. Any unused moneys issued from the grant-in-aid are not returned to the Exchequer via the Department at year end. That is how it differs from a grant which must be refunded. If, for any reason, an organisation is unable to live within its grant-in-aid provision, it is open to the Dáil to pass a Supplementary Estimate. This may occur because of Government decisions to fund additional activities during the year.

In December 2000 a Supplementary Estimate was passed for the marine and natural resources Vote that included an amount of £6.5 million. I will stick with Irish pounds as we are dealing with 2000. This was to cover additional aid measures in respect of the fishing and aquaculture industries which were going through a difficult period at the time. Funds were earmarked for three separate measures: £3 million for a fish quality assurance scheme; £1 million for a fuel efficiency scheme, and £2.5 million in aid to the shellfish industry.

On 12 December 2000 BIM confirmed that the funds were required to meet expenditure incurred and committed in that year. During the closure of the audit of the 2000 accounts we noted that BIM had £9 million in the bank at year end and that only £1.4 million of the £6.5 million supplementary moneys granted had been spent by the end of the following June. Clearly, the degree of urgency that purported to justify the release of the additional funds was not as represented at the time. It is interesting to note how the earmarked funds were ultimately disposed of. Some £3.5 million was used for the purposes intended. A further £1.5 million was transferred in November 2001 as aid for a mussel fishery. The remaining £1.5 million was, in effect, paid to the Department by netting off the State grant drawn down in December 2001 - a year after the funds had been sought and paid to BIM.

While at one level this can be viewed as a technical breach of public financial procedures, I see it as an example of a serious breakdown of financial control over the issue of Exchequer moneys. Effectively, funds were sought by a State-sponsored body without having the assistance schemes in place to disburse the funds during the year of account and in an amount far in excess of what was needed.

Mr. Keogh

First, the board and management of BIM take very seriously their obligation to produce annual accounts and reports quickly each year. I wish to deal very briefly with the 2000 annual accounts. As the Comptroller and Auditor General pointed out, the main delay in 2000 was occasioned by the queries that surrounded BIM's drawdown of £6.5 million in emergency aid. BIM had submitted draft accounts on 2 March 2001 and the contract auditors had more or less completed their work by the end of May. It took quite a bit of time to deal with the queries raised by the Comptroller and Auditor General on 10 July. The auditors' reports were eventually signed by him on 17 October.

To turn very briefly to the emergency aid schemes, the subject of the supplement to the audit report, I will not repeat what was mentioned except to say that on 5 December the then Minister for the Marine and Natural Resources, Deputy Fahey, and the then Minister of State at that Department, former Deputy Hugh Byrne, announced by way of a Supplementary Estimate a package of £4 million for the fishing industry and £2.5 million for the farmed shellfish industry.

BIM was asked to implement the aid programmes, the objective of which was to deliver once-off, urgent and emergency support to the fishing and aquaculture industries. I would like to brief the committee on the basis for them. The essential cause of the problem that year was that, in the case of the fishing industry, the price of marine diesel had increased from something like 14 pence per litre in 1999 to more than 30 pence per litre in 2000. At one point in the autumn of 2000 it went as high as 33 pence and 34 pence. Depending on the type of vessel used and fishing activity engaged in, marine diesel can account for between 50% and 80% of operating costs. Quite clearly, therefore, we had an emergency affecting the fishing industry in terms of its viability. A lot of vessels were not able to put to sea and were tied up in port.

In the case of the shellfish farming industry, we should be clear on the nature of the problem. There had been a period of closure for up to ten months in a number of the main growing areas and somewhat longer for some individual farms due to a naturally occurring problem caused by bio toxins in the water. This threatened the industry's survival because, without harvesting mussels, there is no income.

On 5 December we were asked by the then Minister and Minister of State, on foot of a Supplementary Estimate, to commence urgently to implement the two schemes in question. It was against this background that BIM moved to give effect to the emergency aid programmes and drew down the allocation of £6.5 million. We commenced immediately to announce the first part of the schemes, a white fish quality training initiative. We advertised in the national and local media on 7 December, giving details of training programmes at six regional venues around the coast for skipper owners of boats longer than 12 metres. A total of 1,754 fishermen from 384 vessels attended the courses. A second phase of the programme was initiated for small boats less than 12 metres in length.

Payments under the relevant scheme were made once BIM had established compliance with a number of criteria, including validation of RSI or PPS numbers with the Department of Social, Community and Family Affairs. We did not make payments in December. There was an expectation substantial payments could be made but we did not believe it was possible and good practice to do so because of these requirements which we insisted upon being in place. Proper processing and checking of the applications required that payments be delayed until January and February of the following year.

Under the scheme £947,848 was paid out, mainly in the three month period, January to March 2001. More than 85% of liabilities were incurred in December 2000, in other words, the payments related to the training programmes we had put in place in that month but we did not see fit to issue such payments because of insisting that strict criteria be applied to the applications.

To move on quickly, in 2001 the situation regarding international oil prices changed substantially. The price of marine diesel came down considerably and the remaining elements of the aid package for the fishing industry, that is, the figure of £4 million in relation to fuel efficiency, etc. were not put into effect. There was no way in which we, in BIM, could have foreseen that the serious requirement for emergency aid support would not have continued into the following year. In effect, the need for the scheme was removed by the reduction in oil prices.

On the aid package for the rope mussel industry, we moved immediately to put a comprehensive scheme in place in early December. The speed of implementation was affected by the impact of the foot and mouth disease restrictions in March 2001 because staff were not in a position to carry out site inspections as had been planned. The scheme in relation to farmed shellfish was certainly delayed by the impact of the foot and mouth disease outbreak. However, a total pay-out of £2.48 million was made in 2001 out of the total allocation of £2.5 million.

The key reference period for the assessment of liabilities under the remedial aid package for the rope mussel industry was part of the year 2000 - 1 May to 31 December, the period during which the problems had occurred on the basis of which all calculations and assessments of payments were made for the farmed shellfish industry. As mentioned, we received sanction, on foot of a Government decision, for the transfer of £1.5 million from the unspent aid package to aid the Castlemaine mussel fishery which was similarly affected by a biotoxicity problem. The remaining £1.5 million was repaid to the Department in December 2001.

BIM, in conjunction with the then Department of the Marine and Natural Resources, acted with urgency and in good faith to give immediate effect to a Government policy decision on an emergency affecting the fishing and aquaculture industries. Because of the practical difficulties, not least the obligation on BIM and the Department to adhere to rigorous criteria, it did not prove possible to make payments under the scheme in December 2000. However, they were eventually made in 2001 related, in the main, to liabilities generated in 2000. That, essentially, is our opening statement on the emergency aid programme.

Thank you. I have a question for the Department which should obtain cash flow statements from the grantees before deciding on issues and checking on accuracy but that does not appear to have happened. Why did BIM draw down a grant of £6.5 million from the then Department of the Marine and Natural Resources in December 2000 when its bank balance stood at £9 million? In terms of justification for the allocation, was there supporting documentation?

The request for the sum of £6.5 million was made by BIM in exceptional circumstances. There was recognition of a very urgent situation for fishermen and fish farmers. The Department and BIM responded urgently to commitments given by the Government to take immediate action. On the Chairman's specific question, the Department's understanding was that the money would be needed in 2001 to deliver on the commitments given to the industry.

As at June 2001, expenditure by BIM on the schemes amounted to only £1.4 million.

Correct.

Accordingly, the allocation was £5 million in excess of what was needed.

There was a range of circumstances. To understand the basis for the number of schemes involved it is necessary to go into some detail. First, there was a fish quality assurance scheme, the first part of which, as BIM has just outlined, was administered in December 2000, involving a training programme. The second part, which involved a training programme for small fishermen, was undertaken in the early part of 2001 when the moneys were paid out.

Second, there was a fuel efficiency scheme, the drafting and implementation of which proved more difficult than had been anticipated. By the time an appropriate scheme had been drawn up, it had become clear there was no longer an emergency of the same nature as previously as the price of fuel had dropped. In the circumstances it was determined that a scheme in that form was not necessary. At the time, we were also putting in place a fleet modernisation scheme to assist vessel owners to effect improvements. Since there was no longer an emergency, it was not considered necessary to have a specific scheme but vessel owners who wished to avail of grant aid for modernisation purposes could do so under the regular fleet modernisation scheme.

In effect, the shellfish package was delivered in the early part of 2001. There was a delay in implementation because of the foot and mouth disease restrictions which applied at the time. Accordingly, when one examines each aspect of the matter, there is a rational basis for the overall level of draw-down in that regard.

It appears that the schemes were being front-loaded with funds. Was there not an awareness of a breach of Government accounting procedures with regard to drawing down grant-in-aid? Did BIM offer to return the remainder to the Exchequer?

Mr. Keogh

Yes. We were aware that this was an exceptional emergency measure. We had a serious emergency——

Is there not a contradiction in that context? If there had been an emergency, the fund would have been spent. Reasons have been given in relation to the foot and mouth disease outbreak and so on, even if there was a demand for the scheme. Having regard to the funds in BIM's bank account and the additional funds on which cheques could not be drawn because the relevant paperwork had not been done and the programmes advertised, there was £6.5 million in BIM's account which did not have to be drawn down for, perhaps, one year afterwards.

Mr. Keogh

Our expectations, genuinely, at 5 December, were on the basis that we had been told the schemes were to be implemented with urgency in the following weeks. As the Chairman has pointed out quite correctly, it would have been exceptional for BIM to have implemented the schemes and expended £6.5 million within such a short time. However, we envisaged that a significant part of the package would be implemented in December and further tranches would follow in the early part of the following year. That was our understanding in what was an exceptional situation. We adhere very strictly to the requirements.

Has BIM had funding of this nature previously or since?

Mr. Keogh

No. To my recollection, there has not been any other situation in which moneys of that nature have been allocated on foot of an emergency at such short notice. The expectation at that stage was that we would proceed with immediate implementation and payment. We did move - our records show that all of the actions we took were very immediate and urgent but the situation changed substantially in the new year when oil prices came back down.

As Accounting Officer for the Department, were you not concerned that funds had been transferred by the Department to BIM but not disbursed to applicants in grant aid with the result that the funds remained on deposit in BIM's account? The Comptroller and Auditor General has stated in his report that this is not normal procedure.

Mr. Keogh

I agree it is not normal procedure and not the way we operate in terms of draw-downs from the Department across all our activities. We operate and comply with the requirements for drawing down moneys that represent mature liabilities. I mentioned that the basis on which the schemes were drawn up and the basis for the support related to 2000.

It was based on the fact that only £1.4 million was drawn down in June 2001.

Mr. Keogh

Yes but we were not in a position to carry out site inspections as a consequence of the outbreak of foot and mouth disease. It would have been wrong of us to make payments to applicants without having made the necessary site inspections to check the validity of the applications.

If BIM found that it was unable to spend the funds, why were they not returned to the Accounting Officer in the Department?

Mr. Keogh

We spent the entire allocation for the farm shellfish industry. The figure of £1.4 million in July became £2.4 million by December. We envisaged in 2001 that the full amount would be paid in respect of the farmed shellfish scheme. I accept that £1 million of the £4 million for the fishing industry was paid and that the remainder was not invoked because conditions changed in the spring of 2001.

Are you saying the total of £6.5 million initially identified in the programmes was not spent?

Mr. Keogh

It was not all spent. I have mentioned that £3 million of the total of £4 million allocated to the fishing sector was not spent. Some £1 million was spent on the quality training programme. A serious problem in relation to the bottom mussel fishery sector at Cromane was brought to the attention of the Department and BIM during 2001. That was always on our mind. The Government decided during 2001 to allocate £1.5 million of the balance of £3 million to that sector and the remaining £1.5 million was paid back.

Was that money paid back to the Department?

Mr. Keogh

Yes.

I remember that period of the history of our fisheries extremely well. Many fishermen were irked by the fact that a sum of £1.5 million voted to them in the Dáil for the relief of certain problems never reached them. Fishermen will say to this day that they were short-changed at the time, as they did not receive what the Dáil had voted.

Does the Deputy wish to receive a reply on that issue or make other comments?

I have a few other queries. Fishermen were going through a desperate time. Cavalcades of lorry drivers and owners were evident as a consequence of the huge increase in the price of diesel oil. The Government gave some help to lorry drivers at the time, although I forget exactly how it was done. The fishing fraternity genuinely believed at the time that it was in a worse position. All the matters under discussion happened against this backdrop. I will return to the issue of the millions not given to fishermen.

Can Mr. Keogh indicate, in terms of the expenditure of the sums spent and the time period in which they were spent, what was meant by the question of quality training for whitefish? The figures I have seen indicate that a tranche of funding was made available near Christmas of that year. We appreciate the importance of the reasons it had to be expedited. Can you give the committee an idea of how the dispersal of the funds was organised? Almost 1,800 fishermen took part in a training initiative at very short notice. What did it consist of? What draw-down of money was made available as a result of their attendance at the seminars and meetings? I will ask two or three other questions.

Mr. Keogh

The sum of £1.5 million was not distributed for the reasons mentioned. BIM and its parent Department felt that the basis and the need for making additional payments had changed because marine diesel prices had recovered. That was the essential point.

Let me ask about the fleet modernisation scheme, which Ms Kelly mentioned. Many fishermen have told me during the years that they find it difficult to receive the kind of funding they think they should be given. Can I take it that they were compensated via the fleet modernisation fund? Could it be that the sum of £1.5 million disappeared from the balance sheet and may have been given to another sector of the community?

Mr. Keogh

The only sum handed back that did not remain in the combined fishing and aquaculture industry was the £1.5 million mentioned. The rest of the £6.5 million fund, a sum of £5 million, was spent on emergency aid relief for the farm shellfish and fishing industries. The Deputy is quite right to suggest that a sum of £1.5 million found its way back from BIM through the Department to the public coffers. The rest of the total was paid out to the industry.

Let me suggest that it was quite remarkable, at a time when the fishing industry was underfunded to a great extent, that a sum of money voted by Dáil Éireann to the industry could not be spent. I will not elaborate in any great detail on the fact that the industry has continuing needs but I find it hard to understand. Given that the funding allocated to the Department of Communications, Marine and Natural Resources and BIM has fallen, I would have thought that all available moneys would have been used for the benefit of the fishing industry. I am sure BIM finds it quite hard to receive money from the Department of Finance for marine projects but when it was successful, it could not spend it. It decided to hand it back. Is that not ironic?

Mr. Keogh

The schemes drawn up, the assessments carried out and the submissions made by the industry dealt with the large increase in the price of diesel which, as I said——

I am not worried about diesel, as your comments in that regard are correct.

Mr. Keogh

Yes.

We cannot argue with the fact that the price dropped back, about which we were all delighted. Given that Exchequer funding of £1.5 million was earmarked for the fishing industry, surely it was possible to come up with an imaginative economic scheme. Were fishing co-ops in places like Castletownbere and Killybegs involved in the matter? I do not imagine that they would not have had plans to spend that sort of money on projects discussed for many years.

Mr. Keogh

It would be difficult to come up with such a scheme. Although moneys are voted by Dáil Éireann in a Supplementary Estimate, BIM and the Department would have to comply with other requirements such as EU state aid regulations. There are certain conditions under which emergency assistance can be given outside of the normal development support provided for the construction of new vessels and the usual grant aid allocated for modernisation, which was and continues to be given.

Mr. Keogh

The conditions under which one can reallocate funds for emergency assistance are very circumscribed and our room for manoeuvre very limited.

What was involved in the quality training programme?

Mr. Keogh

Training programmes were organised at six venues around the coast, during two separate periods, for crewmen and skippers of vessels. It involved two components. The main portion related to the care of the catch, the quality of fish landed and how to handle fish.

Was X amount of money available for those who attended?

Mr. Keogh

I am coming to that. People were paid a subsistence allowance to attend. If one is running a scheme in Galway, as we did, those who have to come from the Aran Islands or outlying areas, in some cases, may have to stay overnight. We paid an amount based on assessment of the application but not until much later, as the Deputy heard. In the case of the vessels in question, we would have paid approximately €500 per crew person who participated.

In other words, everybody who turned up at the meeting or seminar received in the region of €500.

Mr. Keogh

Not everyone. We had to carefully appraise those who turned up, their RSI numbers and applications. Payment was not made on the basis of attendance but on completing the programme. It was made subsequently after we had checked RSI and PPS numbers. Other criteria also applied.

I wish to raise a general matter of moneys not expended in the year in which they should be drawn down. I notice that the Comptroller and Auditor General said the bank balance of BIM was £9 million. This matter relates to a parallel question. It appears BIM did well out of the problem that arose due to the high cost of diesel. It appears to have fared better than the fishing industry.

Mr. Keogh

BIM accounted for every penny it received and either paid it back to the Exchequer or to the fishing and shellfish industries. Some £6.5 million of the sum of £9 million was for emergency aid which was separately accounted for and kept separate from the rest of our funds. The balance was £2.5 million. At the end of the year we would have owed creditors in the order of £1.6 million. BIM does not operate an overdraft or borrow money; it has to have money in hand. The sum of £6.5 million was not used for any other purpose other than that for which it was intended.

Not even for an investment?

Mr. Keogh

No.

BIM did not earn any bank interest on the money. What did it do with it?

Mr. Keogh

I will tell the Deputy. We put the money into Government paper. The Government got the money back indirectly.

The money was not kept in BIM's bank account.

Mr. Keogh

No, we invested it in Government——

Mr. Keogh

Yes, Government bonds. Therefore, the Government had use of it.

You will have to bear with me because I am not as well up on the industry as my colleague. I want to piece this matter together to understand it fully. You are saying that in 1999 and 2000 the fishing industry was going through a bad time, primarily because the price of fuel had gone up drastically. It had more than doubled in price from 14p per litre to 30p per litre. BIM then took a responsible role and decided that it had better address the issue. I presume it was being lobbied by fishing organisations and so forth and eventually came up with a project to address the issue. Am I right so far?

Mr. Keogh

BIM was not lobbied directly. The then Minister, Minister of State and the Department were lobbied by the industry's organisations. We were not looking for this allocation. The pressure for it came from the industry's representative organisations.

Fishermen then lobbied politicians and, ultimately, the then Minister and the Department made the funding available to BIM. Did BIM have any input into the size of the funding allocated before it received it? How did it know on what to spend it? Did it have a programme in place?

Mr. Keogh

There would have been informal consultations, probably in the week prior to 5 December, but we would not have been told in advance of that date what the amounts were because such matters are kept confidential from us.

You are saying that on 5 December BIM was suddenly given £6.5 million to fix the problem.

Mr. Keogh

Correct.

Are you telling me that only at that point in time did BIM decide on what to spend the £6.5 million?

Mr. Keogh

Yes, there would have been consultations during the week prior to that date, in particular, on what assistance and support might be given by the Department to us but we would not have known the precise amounts, although various figures would have been mentioned.

How did the Department decide on the figure of £6.5 million? Was that the amount it could afford or the amount required to sort out the problem? I am a little slow in that I have not grasped this matter. I am a little lost as to who decided on the figure of £6.5 million and what was to be done with it. It is easy to look back on history but——

Ms Kelly might be able to answer the question.

The nature of the problems affecting the shellfish and fishing industries became known to the Department and the then Minister in autumn 2000. The matter was brought to our attention by the industries' representatives and we carried out a detailed assessment. In respect of the shellfish and sea fishing industries, it was clear to us that there was a genuine problem that would undermine both sectors fundamentally unless action was taken immediately to support them in the short-term. It was not as though overnight we suddenly decided to throw money at the problem. During the autumn there were intensive discussions, examinations, analysis of the issues and their impact and an assessment of the level of funds necessary to address the problem.

On the shellfish sector, £2.5 million was the figure assessed as being required at the time. On the sea fishing industry, the assessment was that £3 million was needed to support the quality initiative for the sector and that £1 million was needed in respect of the fuel efficiency scheme. On that basis, discussions were held with the Department of Finance and the overall package agreed with it. The case was then made and a Supplementary Estimate voted through the Dáil. At the time the elements of the package considered necessary were clear. The industry had its views on the type of package that should be put in place but, as Mr. Keogh said, in the fisheries sector we have strict and stringent EU laws governing what we can and cannot do.

I appreciate that fully. The Department then worked out all the figures and approached BIM with an allocation of £6.5 million and indicated the programmes on which it was to be spent. Am I understanding the matter correctly?

No, it was not quite as simple as that - life is never that simple. The Department accepted that there was a need for the package and then talked to BIM about what might or might not be done to address a real need and what might or might not be acceptable under EU guidelines. On the basis of these detailed discussions, the package about which we are talking was identified.

Did BIM suggest to the Department programmes worth £6.5 million?

I do not believe it did. There were discussions. It was a joint approach.

To clarify, there was an agreement between BIM and the Department that specific work would be done by BIM in return for the £6.5 million in funding it received and that it would not go into a grey area but specifics. This was the position, as you stated, at the outset when the price of fuel had increased. Given that fuel costs account for so much of overall costs, obviously the poor fishermen were losing money. Do I have that straight?

One of the key parts of the expenditure was the whitefish quality training programme. While I know nothing about fishing, I presume whitefish, by their nature, are probably more valuable. Is that correct?

Mr. Keogh

Yes. They are mainly caught by small to medium-sized boats, as distinct from pelagic fish, oily fish such as mackerel, which are caught by much larger vessels. Even though fuel costs also increased for such vessels, the scheme did not apply to the better off and bigger pelagic tank boat vessels.

BIM then got going quickly and advertised the main course within a week of receiving the money. Without considering the big picture, let us look at the issue in detail. Bearing in mind that fishermen had come through a bad patch for a considerable period, of which BIM was aware, and were taking part in the course in the run-up to Christmas, one would expect that the provision of a PPS number would not have held up their payments by a couple of months. This amounted to undue hardship on a group who had been suffering for a considerable time. PPS numbers have become part of daily life as they are required for everything and should, therefore, have been readily available when participants commenced the course. Greater efforts should have been made to make the payments prior to Christmas, bearing in mind Ms Kelly's point that the fishermen in question had been going through considerable hardship for a long period. Of the liabilities, 85% related to December but were not paid for a long time after that month. This was bad management. The human side, namely, those involved in the industry and their families, could have been given greater consideration.

Mr. Keogh

On the processing of the payment, it was not possible to pay it in December. We had huge contact with the Department of Social, Community and Family Affairs. If there were people for whom we could not vouch, we used all our local area officers and the Department's fishery officers. We wanted to be absolutely satisfied with regard to certain people and could not take the risk of paying State funds without certain criteria having been met. We started making payments on 17 January.

Did BIM adopt a policy that unless everyone could be paid, no one would be paid?

Mr. Keogh

No. We started making payments on 17 January to those for whom we had sufficient detail and information and met the requirements. In the case of those who did not meet requirements or for whom we could not get RSI numbers - a small number did not receive any payment because we did not believe they met the requirements - we proceeded with payments in batches as the requirements were met.

Would it not have been possible to have made payments to the individuals concerned before Christmas?

Mr. Keogh

Absolutely not. In the circumstances, it was not possible. When one considers the scheme, the training programme recommenced on 12 December and lasted for one week until 15 or 16 December. We were working flat out, even in the run-up to Christmas.

The price of oil then began to reduce and as far as BIM was concerned, the crisis was over. I assume, therefore, that it did not spend the rest of the money and abandoned its plan.

Mr. Keogh

That would apply only to the fishing industry side. We did not abandon plans. We monitored the situation on an ongoing basis. Part of the problem with an international oil crisis is that one does not know. Apart from the increase in the oil price, the dollar had appreciated significantly. That was the extra problem——

The reason BIM introduced the package was to increase the earnings of fishermen to compensate for more expensive oil. Why did it not continue to do this, or was it afraid the fishermen would make too large a salary or profit? Why not continue the course if it was for the betterment of fishermen and the industry, irrespective of what was happening globally?

Mr. Keogh

As I said, the situation that affected the operating conditions of the individual fisherman was the basis on which the scheme was brought forward. We were in discussions with the Department as we proceeded. Another factor was that other criteria involving EU state aid clearance also had to be met for the other components of the scheme. The reality was the situation changed. The conditions, namely, very high marine diesel prices, dictated the package. These conditions changed in 2001. Therefore, the need for the package, which was not just a decision for BIM but one which would be taken in conjunction with our parent Department in particular, was no longer apparent to the same extent in 2001.

If the package had been fully implemented, would it have further benefited the fishing industry?

Mr. Keogh

BIM is a development agency. We like to achieve development with the moneys spent in everything we do. That is our mission and objective. We were spending and have spent substantial amounts of money, Exchequer and European Union funding, on renewing the fishing fleet. Substantial numbers of new vessels have resulted. A substantial amount of modernisation has taken place. A major programme of development has taken place during this period, an issue I have not discussed today.

I wish to qualify a point I made when asked whether we knew what was the specific sum allocated. We did not know the final amount until the Estimates were announced. There were, however, as Ms Kelly mentioned, many discussions about the packages and the need. Everyone in BIM was conscious of the problems the industry was going through. There were many consultations about the nature of the scheme that might be implemented. However, the final amount would have been first conveyed to us when the Estimate was announced. That is my clarification.

Mr. Purcell

I want to follow on from Deputy Curran's comment and perhaps provide some clarification, or possibly even muddy the waters further. I am not sure which I will do, it will be up to members to decide. Of the £6.5 million package, £2.5 million was eventually received by the shellfish industry as was intended. That was fine, although perhaps not in timing and so on.

When we examine the components of the other £4 million, we find a fuel efficiency scheme accounted for £1 million of this sum. I am citing here the response provided by BIM which is incorporated in the audit supplement. The cost of the scheme in question was estimated at £1 million. As we heard, the necessity for this element was obviated in the light of the fall in the price of diesel. We then have a sum of £3 million for the fish quality assurance scheme which took place in two phases. The sum of £1 million was used to cover the extensive training initiative mentioned.

With regard to the second phase of the initiative, the report states the second phase of the scheme involved on board training for skippers and crews in tandem with a quality assurance protocol and monitoring of the quality of catches over a two month period. It further states arrangements were to be made to deliver this element in late summer, early autumn 2001. It estimates the cost of this phase at £2 million and states it was intended to complete payments before the end of 2001.

From what I have heard today, the second phase of training did not take place. To broaden the matter a little, in the context of a discussion on value for money, what happened was that a fish quality assurance scheme was introduced, the first phase of which was implemented at a cost of £1 million, and, apparently, the second part was not bothered with.

What I and Deputies Connaughton and Curran have been trying to get at is whether the initiative was well thought out. Is this the way we are committing Exchequer funding and are we serious about it? This is the kind of serious issue about which we are talking. If I have muddied the waters, this is what I was told by BIM and I incorporated its response into the audit supplement. Matters obviously changed in the interim but perhaps the point needs to be explained.

I thank the Comptroller and Auditor General for his clarification. It begs the question, however, as to the reason the sum of £1.5 million was sent back. After phase 1 had been completed, who made the decision not to carry out phase 2? Was it deemed unnecessary? Was value for money obtained from the first £1 million? Would Mr. Keogh like to respond to these points?

Mr. Keogh

BIM believes the courses and training programmes put in place were effective. There is potential and a need to increase the unit price of fish through better quality and handling. On other parts of the programme, we received EU state aid clearance for the mussel programme, the value of which amounted to £2.48 million. The process of securing state aid clearance from the European Union did get under way in respect of the fuel efficiency scheme but we did not secure it.

Did you look for it?

We should not lose sight of what the Comptroller and Auditor General has stated in respect of quality assurance. Why was phase 2 not implemented? It would have copperfastened the work done with the sum of £1 million spent initially. One must ask if it was spent correctly on phase 1 given that phase 2 was not implemented.

Mr. Keogh

The moneys were spent onphase 1——

Was phase 2 unnecessary?

Mr. Keogh

Phases 1 and 2 of the scheme were devised against a background of an emergency pertaining to earnings in the industry and the high price of fuel oil.

That has not changed. The debate today has been concerned with the cost of oil but there is a lot more to fishing than this.

Mr. Keogh

I accept that.

The difficulties experienced by the industry have been mentioned ten or 15 times, including the quality of the product, marketability, training and the capability of fishermen. Surely phase 1 training did not deal with the price of oil.

Mr. Keogh

It dealt with the price of fish and tried to improve quality and returns through better handling. That was the objective——

We are asking the reason phase 2 was not proceeded with and who decided this.

Mr. Keogh

On foot of consultations with the Department, we did not proceed with phase 2. I have already outlined the reason.

I find this absolutely extraordinary. I am beginning to understand how the issue arose and appreciate that you put the programme in place but all of a sudden, when the order price dropped, you abandoned phase 2. Not knowing the industry, I do not know if the phase 1 project can be of benefit without the implementation of phase 2, which was to be carried out on vessels. When you became aware of the change in the price in oil, you must have been concerned that it might increase again and considered the possibility of having to start again. Surely the purpose of the package was to increase earning potential and improve the industry, irrespective of the value of the dollar or euro. I have not heard a satisfactory explanation as to the reason phase 2 was not completed. Either it was not necessary from the beginning or, if it was, it should have been completed. The fact that it has not been implemented forces me to ask if we got a quantifiable result from phase 1.

Mr. Keogh

A result was achieved through the training programme directly. The other result was that fishermen received payments for attending the course.

That was not the point. If it was, fishermen could have been given a subsidy cheque in the post. From my understanding, the purpose was to improve the earning potential of fishermen through their achieving a higher unit price for their fish. Am I wrong in this regard?

Mr. Keogh

The Deputy is correct in so far as the programme was designed to achieve a development objective, namely, to improve earnings and increase the unit price of fish received by fishermen.

Has it achieved this?

Mr. Keogh

It is achieving it. We are following through on other programmes but not through the emergency aid programme. We have quality programmes for the fishing industry and specialists trying to improve practices on board fishing vessels. The programmes do not relate solely to training - there is a modernisation programme for existing vessels and a grant aid programme for new vessels. The programmes, through emphasising better temperature control, better grading on board, etc., are geared towards producing fish products of a much better quality. The cumulative effect of the scheme, with other programmes we are putting in place, including marketing programmes, is to improve the price fishermen get for their catch.

I do not believe we have made progress on the central question.

May I shed some light on the matter? The decision to support a training initiative was taken by the Department and BIM. Our understanding was that the state aid clearance we had received covered any such initiative and that there was no need for specific state aid clearance. Throughout Europe at the time there were many difficulties being experienced by the industry and some member states were giving it subsidies directly which were considered to be in breach of state aid guidelines. This led to concern at EU level that a subsidy was being given to the industry in Ireland. The European Commission stated it wanted us to submit a specific application under state aid guidelines for the quality assurance programme after we had completed the first phase. The doubt as to whether there would be state aid approval for the second phase led to our postponing the implementation of that phase. Negotiations with the Commission have proved extremely difficult.

Did it refuse the application?

We were not refused, although the matter has been the subject of much correspondence. The last letter sent to the Commission outlining our explanation was forwarded in August 2002. It has not been responded to. Because of the time-bound nature of state aid approval, we might obtain it by default. We were fully satisfied that the schemes were fully in compliance with state aid rules and they were devised as such. However, because other member states were not abiding by the rules, the Commission adopted a conservative approach to the issue. Therefore, we believed it would not be prudent to proceed with phase 2. As Mr. Keogh stated, we had a comprehensive five year training programme in place under the National Development Plan 2000-2006 which placed much emphasis on quality improvement. We believed we were not abandoning or walking away from our commitment to quality and building up that side of the industry and that what had been done in December 2000 could be supported and facilitated under BIM's regular programme provided at centres throughout the country.

I am much wiser now as some details have been supplied. I would have thought that when the emergency aid package was approved by the Dáil, it was meant to be compensation for loss of earnings. I have never seen a vote on a Supplementary Estimate in the Dáil to cover the potential loss of future earnings. If it was a compensation package, all the subsequent factors mentioned by Mr. Keogh are irrelevant such as the future price of oil and currency variations. I presume there was lobbying on behalf of the fishing industry for compensation for losses suffered and that this was the reason the package was put together. I also presume there was an expectation the amount involved should have been spent - I have not heard otherwise.

I want to clarify that compensation for loss of earnings is not allowed under state aid rules for fisheries. There was no intention to provide compensation for the sector. What was taken was a much more sophisticated approach to addressing the crisis to improve the profitability of operations to allow fishermen to become more efficient and retain crews. The system operated on fishing boats is unusual. The crew are not paid a salary or wage but get a share of the catch. If an operation is not successful, one cannot get a crew. At the time when profitability was affected because of fuel costs, it was impossible to get crews. We took a sophisticated approach to building up profitability of the industry without breaching state aid rules.

I can understand the reason a mechanism was devised to achieve sustainable levels of income, a problem which had not been addressed. There is the Common Fisheries Policy and things the Government can and cannot do but the reality was that the fishing industry had suffered and the Government had come up with a response. I would have thought the response was devised in such a way as to meet the objectives of those who had lobbied for it. The figures mentioned seem strange. I presume the variation between the sums of £4 million and £2.5 million is due to the worth of both sectors, the whitefish and shellfish sectors.

Mr. Keogh

In the case of the farm shellfish industry, the nature of the problem was very different, it was not related to the cost of marine diesel but to the problem of toxicity, which meant that the sector was completely closed and that fishermen involved could not harvest their mussels. This problem arose in the main producing areas. It was extremely acute and the nature of the response very different. As Ms Kelly mentioned, the objective very much was to restore the productive capacity of the industry. The moneys were related to restocking and putting in place the structures which would ensure the industry would continue to produce mussels. That is what happened. The industry got through an extremely difficult time, managed to survive, is restored to profitability and doing very well. Production has gone back up, to a level higher than what it was prior to the crisis.

Of the sum of £6.5 million, £1.5 million was given back to the Department, £1 million was used to fund part of the cost of the quality scheme and £4 million was given to the shellfish industry, including a special allocation of £1.5 million to Castlemaine mussels fishery, the allocation of which I have not yet heard placed in context. Can you explain the reason?

Mr. Keogh

While the Castlemaine fishery was also affected by the biotoxin problem, it is very different from those included in the other programme. The programme costing £2.5 milion related to the suspended culture of mussels, namely, mussels grown on long lines suspended in the water column. Castlemaine is a bottom mussel fishery. Those involved were not in a position to harvest product and move seed mussels into the harvesting area. There was also a problem with predation. If mussels are not moved within a certain period, they are likely to be subject to predation by green crab and other predators. There was a combination of problems in the fishery which were unique.

The quality scheme was restricted to skipper owners and crews of vessels less than 12 metres in length. That is the second phase.

Mr. Keogh

Yes.

Was there a similar restriction under the first programme? I take it did not matter what type or size of boat those involved were working on.

Mr. Keogh

It did matter. The Deputy may not have been present when I said vessels engaged in pelagic fisheries, for example, the mackerel tank boat fleet, were not eligible to apply under the scheme because it was not deemed they were economically affected in the same way as the whitefish fleet. In the main the scheme was restricted to vessels in the polyvalent category, mainly whitefish vessels, and was open not only to owners but also to crewmen. In general, the pay of crewmen is linked to the value of the catch, less operating costs, which is divided using a share system. If one gets a low price and one's costs are too high, the crewmen can receive nothing or very low remuneration.

What proportion of the fishing fleet or those involved in the industry would have been affected if the second phase had been put through? There was a reference to vessels less than 12 metres in length.

Mr. Keogh

There is probably in the order of 900 to 1,000 vessels less than 12 metres in length.

For what proportion of the fishing fleet does that number account?

Mr. Keogh

The bulk but in terms of the overall catch it would be smaller. Boats over 12 metres in length which number around 400 account for the bulk of the catch.

How effective have you found the promotion by Bord Iascaigh Mhara of the food guide recipes in the promotion of fish in supermarkets, hotels and restaurants? What plans do you have to develop this area?

Mr. Keogh

We have measured carefully the impact of our promotional activities. In respect of the earlier promotion, "Fish - it's as simple as that", we measured carefully in selected retail outlets the impact on sales, etc. From our assessment it has been very successful. Our view is that the main emphasis should be on promoting quality Irish seafood produced in accordance with agreed and externally validated quality assurance schemes. The next phase on which we are embarking and for which we are planning is the launch of a quality Irish seafood logo-emblem to be attached to packaging and which will correspond and blend in with new requirements for the labelling of fish to be issued by the Department, the preparation of which is at an advanced stage, which will require fish to be labelled as being farmed or wild with its origin.

As a retailer, I am aware of public health concerns and that the promotion of fish is in the interests of good public health. The promotion of fresh fish in supermarkets is not well done. It may be done in certain select markets but the potential for sales in outlets around the country is something about which BIM should be doing much more. The labelling of different species in the range of fish available and educating the public about them are of crucial importance. The growth in the market for fresh fish has not been dealt with effectively.

Mr. Keogh

The opportunity to do what you suggest is now available with the introduction of labelling regulations. We do not want to spend taxpayer's money promoting generic "fresh fish" if it is being imported. The new regulations, when they become law, alongside our approach to a new quality Irish seafood logo, will be the main thrust of our activity in conjunction with the trade which will contribute towards the cost of the promotion. Our principal approach has been that, if BIM puts up a certain amount of money to promote fish in retail outlets, we expect supermarket chains and suppliers to contribute towards the cost. They have been doing so in recent years, not least because our allocation for promotion has been reduced in recent years.

I am glad to hear it as this is a joint venture with vested interests in the trade. The promotion of a healthy diet through local radio and so on is important. There is a huge untapped market. For an island nation, we have not developed the potential of fish on the home market to any large extent because the industry is more focused on the trawler range for export. There is huge potential on the home market.

Mr. Purcell

Some of the key issues were teased out by members. Deputy Boyle succinctly put the matter about the seeking of the money involved and the granting of the Supplementary Estimate. It might not be in the national interest to take it any further. It is fairly clear. I appreciate the situation in which BIM was placed. In a sense, both it and the Department were involved in the development of an emergency package. In terms of the timing and year of account and so on, there was a lack of realism about what could be achieved within the year in question. Normally, I would allow some latitude in incurring expenditure and in terms of the money not being spent until the following year and so on but with the magnitude of the amounts involved here ultimately unspent, I believed it was a matter which should be brought to the attention of the committee.

I thank the Comptroller and Auditor General for an excellent report which has clearly established a precedent for spending a voted allocation of funding. I thank Ms Kelly from the Department of Communications,Marine and Natural Resources and Mr. Keogh from BIM and their officials. This has been a good debate. We will note the BIM 2000 and 2001 accounts and the supplement to the audited report for the 2000 accounts. Is that agreed? Agreed.

The witnesses withdrew.

The committee adjourned at 3.45 p.m. until11 a.m. on 24 July 2003.