COMMITTEE OF PUBLIC ACCOUNTS debate -
Tuesday, 16 Dec 2003

Vol. 1 No. 37

Horse Racing Ireland - Financial Statements 2002.

Mr. John Malone (Secretary General, Department of Agriculture and Food) called and examined.

Mr. Brian Kavanagh (Chief Executive, Horse Racing Ireland) called and examined.

Chairman

We are dealing with the appropriation accounts of the Department of Agriculture and Food. Specifically, we are resuming our discussion of chapter 9.1 of the report of the Comptroller and Auditor General which concerns the exhibition and show centre at Punchestown. We are also dealing with the financial statements of Horse Racing Ireland for 2002.

Witnesses should be aware 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 granted certain rights to persons who are identified in the course of the committee's proceedings. These rights include the right to give evidence, produce or send documents to the committee, appear before the committee either in person or through a representative, make a written and oral submission, 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 can be exercised only with the consent of the committee. Persons invited before the committee are made aware of these rights and any person identified in the course of proceedings who is not present may have to be made aware of them and provided with the transcript of the relevant part of the committee's proceedings if the committee considers it appropriate in the interests of justice.

Notwithstanding that 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. Members are also reminded of the provision under 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 policies.

I welcome Mr. Malone and ask him to introduce his officials.

Mr. John Malone

I introduce Mr. Aidan O'Driscoll, Mr. Jim Beecher and Mr. Denis Byrne, all of whom are assistant secretaries in the Department of Agriculture and Food.

Chairman

I welcome Mr. Brian Kavanagh of Horse Racing Ireland to the committee for the first time.

Mr. Brian Kavanagh

Thank you, Chairman. I am accompanied by Ms Margaret Davin, chief financial officer, and Mr Raymond Horan, company secretary, of Horse Racing Ireland.

Chairman

The Department of Arts, Sport and Tourism is represented.

Mr. Con Haugh

I am Con Haugh, assistant secretary in the Department of Arts, Sport and Tourism. I am accompanied by Mr. Seán McCartan, assistant principal officer in the Department.

Chairman

The Department of Finance is also represented.

Mr. Robert Carey

I am Robert Carey, principal officer, of the Department of Finance and I am accompanied by Mr. Brendan Ellison, assistant principal officer, of the Department.

Chairman

I ask Mr. Purcell to introduce the 2002 accounts. We will resume on chapter 9.1 which reads:

Exhibition and Show Centre at Punchestown

The Initial Proposal

In November 1999 the Minister for Agriculture and Food (the Minister) received a proposal from the trustees and executives of Punchestown Racecourse (Punchestown) seeking funding for a development project. The project comprised an indoor exhibition facility, an entrance complex, a new stabling block, as well as additional car parking and landscaping. It was to be known as the National Agricultural and Eventing Exhibition and International Show Centre.

Punchestown indicated that on the basis of an exercise carried out by its Quantity Surveyors, costs would be €6.9m. The level of State support sought was not indicated.

On 19 January 2000 Departmental officials recommended to the Minister that funding of €6.9m should be given to Punchestown representing 100% of the anticipated construction costs. The Minister accepted the recommendation and on 20 January requested the Minister for Finance to provide additional funds of €6.9m in the Departments Estimates for 2000 to finance the proposal. The Minister for Finance acceded to the request on 27 January 2000.

The Revised Proposal

On 6 April 2000 Punchestown informed the Department of Agriculture and Food (the Department) of proposed changes to the project which would impact on costs, and on 2 June 2000 submitted a revised proposal costing €12.8m. The Minister accepted the revised proposal and on 23 June 2000 wrote to the Minister for Finance requesting additional funding of up to €6.4m for the project. The Minister for Finance agreed to the request for additional funding on 7 July 2000.

Table 9.1 compares the costs of the original and revised proposals.

Element	Nov. 1999	June 2000
	€	€
Exhibition and Event Centre	3,174,000	6,488,000
New Stables Enclosure (147 stables + 7 rooms + toilets)	1,270,000	2,013,000
Entrance Complex-incorporating Entrance Canopy, Garda Rooms, communications/press room and Creche	1,143,000	1,130,000
Landscaping - incorporating grass arenas and all-weather cross country course	126,974	317,435
Allowance for Drainage and Site Services	63,487	126,974
General Hardstanding Parking	63,487	-
Roads, Access etc	.-	520,593
Sandstone to Parade Ring	-	188,556
Client Direct Items	-	126,974
Contingency Allowance and Inflation	317,435	507,895
Design Team Fees	761,843	1,363,937
Total (Excluding VAT)	6,920,226	12,783,364

The main changes to the first proposal were:

An increase in costs of the centre from €3.17m to €6.49m

A reduction in the area of the centre from 10,000 square metres to 7,535 square metres (due mainly to the removal of interior building supports)

An increase in cost of stabling by €743,000 due to the provision of additional parking

The addition of an access road costing €520,593.

Consulting the European Commission

On 26 April 2000 the Department wrote to the European Commission seeking its opinion on whether the Departments proposed financing of the centre constituted State Aid within the meaning of Article 87(1) of the Treaty of Rome. The Department said the proposed financing should not be considered a State Aid because:

The project promoter was a non-profit making trust which holds the lands at Punchestown for the benefit of the farming community as a whole and would be required to operate the proposed centre on the same basis.

The Centre would

Be available to all farm and farm related organisations on a non-discriminatory basis as part of the public infrastructure for the sector

Most likely operate in a breakeven situation and was unlikely to ever generate profits

Not operate in a competitive market situation either at national or international level

Funding would only be provided in respect of the establishment costs of the Centre.

The development could be viewed as a public good.

On 10 May 2000 the Commission said it was satisfied that State Aid was not involved.

Agreement and Conditions

An agreement was made with Punchestown on 9 August 2000 by way of an exchange of letters. The agreement provided that:

The money would be repayable if the Event Centre was sold, leased, or its uses altered significantly without the prior written approval of the Department.

The Centre would be used for:

Horse and Cattle Fairs/Shows

Eventing and other Competitions

Breed Congresses

General Agricultural and Machinery Exhibitions and Displays

Special Pedigree Cattle Sales

Other purposes agreed from time to time by the Department.

There would be no call on Exchequer funding for:

Construction costs in excess of €13.3m

The costs of running the centre.

Any profits made must be re-invested in the centre.

The centre must be:

held for the benefit of the farming community as a whole

available to all farm and farm related organisations on a non-discriminatory basis.

The Department could require repayment of the grant in whole or in part if the grant conditions were not met.

Further Contributions to Finalise the Project

In October 2001 Punchestown sought a further €1.5m mainly for works to satisfy the planning requirements of Kildare County Council. This was sanctioned by the Minister for Finance on 31 January 2002 bringing total State funding for the project to €14.8m.

Audit Concerns

The audit established that proper tendering procedures were observed in connection with the placing of contracts, and that the Department had satisfactory controls in place in relation the processing of payment claims in terms of on-site inspections and detailed administrative checks. However, I did have concerns as to the adequacy of the evaluation carried out by the Department on the project, and some apparent weaknesses in the agreement from the point of view of adequately protecting the States interests.

Evaluation of Project

My concerns in relation to the evaluation of the project centred on whether the project had been comprehensively evaluated from a cost/benefit viewpoint prior to its approval - in particular if it met the criteria set down in the guidelines issued by the Department of Finance for the evaluation of major capital projects. The fact that the scale of the development changed soon after its initial approval lent weight to my concerns. Accordingly, I sought the views of the Accounting Officer in relation to these and other associated matters.

In response to my enquiries the Accounting Officer informed me that the project was considered worthy of support because for many years the Department had been aware of the need for a facility of international standard for the holding of agricultural shows and displays which could attract significant agricultural events to Ireland. Such a facility would be part of the infrastructure of the industry. The project put forward by Punchestown fully met the Departments objectives and in view of its benefits to the agricultural sector it was, in effect, a national facility and as such was considered worthy of 100% funding.

The 100% level of support given to the project (apart from the site) was agreed because the Department was aware that the Centre would require a considerable amount of finance to meet running costs such as maintenance, insurance, reinvestment etc. As Punchestown was obliged to operate the facility as an Event Centre indefinitely and were operating in an area where profits were difficult and as they were not allowed to dispose of the property, the running costs would be a constant liability on the organisation. In the circumstances the arrangement whereby the Department would fund the construction costs and Punchestown would use its own resources and considerable expertise to run the project was considered a good partnership arrangement, and one from which the agricultural industry as a whole would benefit. The Department was further satisfied that anything less than full funding for the construction of the facility would mean that the project would not proceed and the potential benefits to the agriculture sector and the country, in terms of attracting certain prestigious equine events in particular, would be lost.

In relation to the decision to accept the more expensive second proposal the Accounting Officer stated that the Department had for some time been aware of the need for a centre for agricultural events. The evaluation of the two Punchestown proposals had focused on the extent to which the proposals met the Departments needs. Under both proposals Punchestown would provide the site and would run the Centre thereafter. The initial proposal was the one which Punchestown were at the time prepared to apply their resources and expertise to running. Having given the project due consideration it was decided that as it met the Departments basic requirements financial support was justified.

Having obtained approval in principle, the promoters set about progressing their proposals. They subsequently indicated that following more detailed consideration of the needs of the proposed Centre which included inspection by the design team of similar facilities in the UK, Continental Europe and North America they proposed to make some structural and costly changes to the design of the main building in particular. The finalised proposal provided for the holding of a wider range of activities and made the centre more user friendly. Its clear span interior made it suitable for the holding of a wider range of machinery shows than could be accommodated in the first proposal and the general specification was also upgraded to cope with internal climate control. The finalised proposal was the Departments preferred option if funding could be made available.

The Department did not accept that the evaluation of the first proposal was not as thorough as it should have been. In the event that funding could not be made available for the revised more costly proposal the Department would have funded the original proposal as it met its basic need for a centre.

As to why the Department did not obtain independent technical advice on the proposals, the Accounting Officer stated that his Department was aware, and had sight of, the architectural and engineering advice obtained by Punchestown and all their plans. The Department had applied its own considerable experience and expertise to evaluating that advice and did not consider it necessary to acquire and pay for further independent advice. The Department had also ensured that proper procurement procedures were undertaken by Punchestown as the project progressed to ensure that the best value for money was obtained.

In relation to research carried out by the Department on the need for the facility the Accounting Officer stated that the Department was keenly aware, through its on-going interaction with societies such as the Pedigree Breed Societies and with the Irish Cattle Breeders Federation (ICBF), of the need for a facility such as the Event and Exhibition Centre for non-equestrian events. It was also aware that most of the Pedigree Cattle Breed Societies were linked to and participated in annual international and world congresses, fora, shows, competitions and sales, some of which it felt could be attracted to Ireland at reasonable intervals if the facilities were available at a suitable venue. It was further aware of the work being done through ICBF and other breed societies using Exchequer and EU co-financed Structural Funds to improve and market quality cattle breeding, and was anxious to complement that work by having the appropriate international status facilities in Ireland to promote the end products.

He stated that in the equine eventing area Ireland had been the lead stud book in the World Breeding Federation evaluations for many years, and in this context it was considered important to underpin this success with a suitable modern eventing facility in Ireland.

Formal research had not been carried out by the Department as it was considered that it already had sufficient information on these issues. The larger organisations had been informally consulted, they supported the venture and indicated that they would use the facility when it became available, and Punchestown had carried out research in relation to the Centres equestrian activities and undertook a feasibility study on the tourism aspect.

In relation to the non-submission by the promoters of projections of costs and revenues for the Centre, the Accounting Officer stated that the principal issue for the Department was the provision of a national agricultural eventing and exhibition centre for the farming sector. While the Department was naturally concerned about its long-term viability it was satisfied that this could best be achieved as part of the wider Punchestown complex.

As to whether any attempt was made to quantify the financial benefits of the project to the farming community and the economy generally, the Accounting Officer stated that the Centre was envisaged as a public utility for the use and benefit of the agricultural industry. It was seen therefore as a public good development, the benefits of which were long-term, reputational, and marketing through standards and presentation, and could not readily be measured in immediate and direct financial terms.

On the question of why no enquires had been made by the Department as to whether there may have been other promoters willing to provide such facilities at a possibly lower cost to the Exchequer, the Accounting Officer stated that the central and accessible location of Punchestown, its spacious setting, the synergies to be derived from the racecourse, its proven expertise in eventing shown through its successful hosting of a 3 day Eventing Competition since 1968 uniquely made Punchestown the ideal location for the Centre. Ireland had lost out in bringing the prestigious World Equestrian Games here in 1999 and an application had already been submitted to stage the 2003 European Eventing championships. As Punchestown was recognised as the premier location for a National Eventing Centre it would have been unthinkable to have located it anywhere else. No other promoter had made an approach to the Department to provide such facilities, which was understandable in the context of the scale of the facilities required, many of which were already available at Punchestown.

The Accounting Officer stated that the Department operates a number of capital grant schemes under the National Development Plan. Applications under these schemes were subject to a thorough assessment and evaluation process. Detailed procedures manuals were in place for each scheme, and he stated that he was satisfied that the processes and procedures within the Department for processing capital grant applications were thorough. The Punchestown project was very much a - once off and not part of any particular scheme, and the project work and all grant payments relating to it had been subjected to particular and intense scrutiny.

He also stated that all of the capital works relating to the project had been completed and that the centre had commenced operating. While it was still early days, demand for the Centre had been reasonably good, and feedback received by Punchestown had been positive. In its first 10 months of operation to the end of September 2003 the centre would have hosted an average of one event per month, the majority of which were agricultural in nature. Demand for the centre was expected to increase as it became established, and in September the highly prestigious European Eventing Championships which came around every 3 years, and the Endurance Championships would be held there.

In view of the fact that the Department was required by Government Financial Control Procedures to obtain the approval of the Department of Finance for the funding it provided for the project, I asked the Accounting Officer of the Department of Finance whether his Department was satisfied that the project proposal had been adequately evaluated by the Department and that the guidelines laid down by his Department on the evaluation of capital projects had been followed, and whether the withdrawal by the Department of its first proposal for funding of €6.9m and its replacement by a proposal for funding of almost double the original amount, raised any concerns within his Department on this question.

The Accounting Officer of the Department of Finance stated that it was the responsibility of the Department of Agriculture and Food to formulate, evaluate and deliver on projects such as Punchestown, and to ensure that proper procedures were in place to do so in a transparent, responsible, and accountable manner. In doing this they were assisted by and must have regard to appropriate guidelines (including the 1994 Capital Appraisal Guidelines), the formulation and dissemination of which were the responsibility of his Department.

The Agreement

My concerns in relation to the agreement centred on the fact that the conditions governing the States financial support were covered only by an exchange of letters and had not been referred to the Departments legal advisers to ensure that they were properly constructed and legally sound. I also noted that the funding had not been made conditional on a certain minimum number of agricultural and equestrian related events being held there and that the agreement was silent as to a minimum length of time for which the Centre must operate. Moreover, the agreement did not cover the matter of payment by the racecourse company for use of the facilities of the centre including the stables and entrance complex. I also felt that the wording in the agreement left some doubt as to whether the Department had the power to prevent the holding of events of a non-agricultural and non-equestrian nature, as intended, if it so wished.

The Accounting Officer stated that any concerns which the Department had with the holding of non-agricultural and non-equestrian events were mainly to ensure that they did not prevent, from a timing or structural viewpoint, the holding of the type of events for which the Centre was funded. The Department was satisfied that should it wish to do so, it could prevent the holding of certain types of events.

He also stated that as the Department considered it had the power to veto non-core events it was not considered necessary to seek an agreement as to number and type of events in the Centre. With regard to the minimum period during which the facility must be operated, he cited the Food Industry where the Department has operated a capital grant system for many years, and where beneficiaries are required to have the grant-aided facilities operated for the purpose for which they were funded for a period of at least eight years. However in the case of the Centre at Punchestown it was decided to be more restrictive and by not imposing a limit the requirement was left open ended, which meant that the facilities must be made available indefinitely for the purpose for which funded, and that this reflected the 100% grant paid.

The Accounting Officer informed me that, although not incorporated in the agreement, arrangements had been put in place to cover payment for use of the centres facilities by companies in the Punchestown group.

However the Accounting Officer also informed me that in the light of my concerns on possible deficiencies in the agreement, he had referred it to the Legal Services Division of the Department for legal consideration. He understood that a new agreement may be considered which would where possible, address my concerns, and that Punchestown had indicated that they were willing to enter into a new agreement if the earlier one was found to be deficient and that the new agreement would be completed by one or all of the three companies within the Punchestown organisation, if required.

Mr. John Purcell

As the committee will be aware, it last considered chapter 9.1 of my report in public at its meeting on 6 November. Since then, the committee has visited the event centre at Punchestown and discussed the issues arising with the management of the centre. The committee has also received additional documentation pertaining to the centre and has addressed the matter in private session.

The committee is familiar with the facts surrounding the development of the event centre and I will not go over that ground again. The main public accountability issues arising from the committee's examination to date appear to be the extent and quality of the business case made for the centre and the evaluation of the proposal ultimately adopted; the extent to which the centre is being used for the purposes for which it was funded; whether the State's interest in the development is adequately protected and whether the conditions in the agreement are being complied with; the extent, if any, to which the event centre is subsidising the operation of the racecourse; and whether the State is getting good value for its 100% funding of the centre.

In the context of the broader operation of Punchestown, the committee was interested in the level of State funding that had been provided in recent years to the racecourse. Over and above the financing of the event centre, €8.2 million has been given to Punchestown since 1997 in capital development grants through Horse Racing Ireland or its predecessor, the Irish Horseracing Authority, together with a loan of €1.65 million. As I understand it, there is also a €2.5 million loan on the table from Horse Racing Ireland since November 2002.

Although agreement has been reached with Punchestown about the necessary revised corporate arrangements, I am not sure and perhaps Mr. Kavanagh will clarify whether the agreement has been ratified yet. The committee will be aware that the agreement provides for settlement with the company which made an investment in Punchestown under the so-called passports for sale scheme.

On Horse Racing Ireland's accounts for 2002, the body was established on 18 December 2001 under the Horse and Greyhound Racing Act 2001. It replaced the Irish Horseracing Authority as the statutory body with responsibility for horse racing in Ireland. During 2002, Horse Racing Ireland also took over certain functions from the Turf Club. Governmental responsibility for the new organisation moved from the Department of Agriculture and Food to the Department of Arts, Sport and Tourism in June 2002. As committee members will see from the accounts, Horse Racing Ireland's remit is quite wide. As well as overseeing the development of the horse racing product through the improvement of racecourse facilities, the provision of significant contributions to prize money and the planning of the fixture list, the group has subsidiaries that operate the Tote and promote the Irish thoroughbred horse.

It also owns the racecourses at Leopardstown, Navan and Tipperary and the land at Cork. These are also run through subsidiaries. The group accounts and those of the subsidiaries are subject to audit by me, and under the 2001 Act, they come within the terms of reference of this committee. Horse Racing Ireland's annual subvention from the State is channelled through the horse and greyhound fund. The fund is financed from Vote moneys to an amount broadly equivalent to the excise duty paid on off-course betting. Some 80% is allocated to horse racing and 20% to greyhound racing.

In the period under review, which is slightly longer than a year, Horse Racing Ireland received €56 million from this source. Prize money totalled €43.5 million, of which €26.5 million was funded by Horse Racing Ireland, with the balance of €17 million met by owners and sponsors. The committee will see from the balance sheet that the group is in a strong financial position. This is mainly due to the transfer of land in 2001 to Dún Laoghaire-Rathdown County Council for the Southern Cross motorway. The deal with the Irish Horseracing Authority involved a cash amount of almost €30 million and a transfer of land valued at €7 million from the council to the authority. As I understand it, the proceeds are earmarked mainly for the redevelopment of Leopardstown racecourse.

Mr. Malone

I do not have a formal opening statement. The committee will recall that I made an opening statement on the previous day. I do not know whether I am permitted to make a few brief points——

Chairman

Yes, by all means.

Mr. Malone

Some of them are a repetition of the points I made the previous day but it is important that they are repeated. This project should be seen in the context of filling a gap in the infrastructure for the wider agriculture sector. Punchestown was the only realistic location in terms of its access, facilities and availability of a substantial amount of land. I hope I made this point clearly the previous day. It is also important to note that no other sponsor or alternative proposal has come forward either before or since. Another important consideration is the nature of Punchestown. The committee is familiar with the fact that it is a trust, which is important.

There was much discussion the previous day on the dates and sequence of events, but I emphasise that the project was carefully considered in the Department of Agriculture and Food. It was a different project in the sense that it was not strictly commercial. In that context we had nothing against which to evaluate it and had to apply different criteria to those that would apply in a normal commercial project. It is important to emphasise that Punchestown has taken on responsibility for the management and running of the project and the events centre. The harsh reality is that, unless there was a 100% grant, this project would not exist.

It may be helpful to clear up one or two points of detail. There appeared to be some confusion about equestrian eventing and showjumping. I do not want to get into technicalities but it is important to understand that eventing covers a number of disciplines, including showjumping, dressage and cross-country riding. Thus, substantial amounts of land are needed, and it is in that context that Punchestown is such an ideal facility. Equestrian eventing benefits the Irish sport horse industry in which about 10,000 people are involved. It is not a massively profitable enterprise for anybody and there is a big difference between sport horses and thoroughbreds. This is not the type of event that carries substantial prize money.

To repeat another point I made the previous day, the choices we had were total rejection and no funding; accepting the first project, which we went through in detail the previous day; or accepting the second project, which was more elaborate and more expensive. We went for the second option. I know issues have come up that we must reflect on, but with the benefit of hindsight I still feel that we made the right basic decision. Mr. Purcell has touched upon issues in regard to the legal agreement, and I indicated the previous day that we are taking that point on board. We are in discussions with Punchestown and have sent them the heads of an agreement. We will finalise that in the weeks ahead, so we are taking that point on board and have noted it carefully.

Mr. Kavanagh

I will deal with Punchestown at the end of my statement. The Comptroller and Auditor General has said a great deal of what I am going to say. Since 1945, the horse racing industry has always been the responsibility of a semi-State body. First it was the responsibility of the Racing Board and, since 1995, of the Irish Horseracing Authority.

Legislation was enacted in 2001 to restructure the way in which racing is administered and financed. Horse Racing Ireland was established to replace the Irish Horseracing Authority, and a number of the activities previously carried out by the Turf Club in the administration of racing were transferred to this new organisation. The board of Horse Racing Ireland comprises 14 members representing all the constituent elements of the industry, including Northern Ireland. Racing and breeding have always been administered together as a 32-county sport. All foals born in Northern Ireland are deemed to be Irish-bred and carry the IRE suffix after their names.

The board members are democratically elected by the various representative associations within the industry, principally racecourses, bookmakers, owners, trainers, breeders and persons employed in the industry. The Turf Club remains as an independent body with responsibility for regulating the sport. It is responsible under legislation for ensuring that the rules of racing are adhered to and that the integrity of the betting product is maintained.

Most significantly, the new legislation provided security of funding for horse and greyhound racing, which had not previously existed, by way of the establishment of the horse and greyhound racing fund which is financed principally by the excise duty raised on off-course betting. Such a funding arrangement is consistent with the principle applied worldwide, namely, that betting finances racing. This security of funding has enabled both industries to develop long-term strategic plans to ensure sustained employment, economic activity and growth.

As Mr. Purcell has pointed out, we were established on 18 December 2001, so the accounts before the committee cover a 54-week period and are the first set of accounts produced by our organisation. The busy Christmas racing period, including the festival meetings at Leopardstown and Limerick, are therefore included twice, which has an obvious impact on the accounts of the Tote subsidiary and the racecourse division in particular.

In addition to its core activities, Horse Racing Ireland has three principle subsidiary companies: HRI Racecourses, which owns Leopardstown, Navan, Cork and Tipperary racecourses; Tote Ireland Limited, which operates the on-course and off-course Tote system; and Irish Thoroughbred Marketing, an independent company responsible for developing and exploiting export markets for thoroughbreds. In recent years all the key economic indicators for horse racing have shown sustained growth, and the security of funding has enabled capital infrastructure projects which were neglected for so long to be put in place.

Irish horses, trainers and riders have distinguished themselves on the world stage and, in recent years, racing has probably been our most consistently successful international sport. Backing up the sporting and social aspect of racing, however, is a substantial industry which generates significant employment and economic activity. It is an industry in which Ireland has genuine claims to being a world leader.

The industry employs 11,000 people full-time and, when part-time employees and full-time staff in associated industries are taken into account, approximately 25,000 people earn their income from racing, betting and breeding. It is also important to consider that many of these jobs are largely based on indigenous skills, are environmentally friendly and are located in rural areas.

In a generally declining agricultural sector, bloodstock breeding has in recent years been the fastest growing element of agricultural output to the extent that Ireland is now the third largest producer of thoroughbreds in the world, accounting for more than 40% of EU output. Ireland produces more foals than Britain and France combined. Only Australia and the United States produce more thoroughbreds and, when the quality and performance of the horses being produced is considered, we are a genuine contender for the number one position. This has led to significant exports and, perhaps more importantly, to substantial inward investment in the economy by major international owners and breeders.

Last year was a successful one for Irish racing and I am pleased to report that 2003 has shown further growth on all indicators. Almost 1.3 million people attended the 258 fixtures held in the Republic last year, giving an average of just under 5,000 per meeting. This figure compares favourably with corresponding figures in Britain, France and Australia. The number of horses in training and the new owners registered reached an all time high, and on-course betting, between the Tote and bookmakers combined, amounted to €208 million. Off-course betting in betting shops totalled €1.6 billion 2002 and is expected be close to €2 billion this year.

Last year was also a transition year for Horse Racing Ireland as a completely new executive team was put together and the organisation relocated from Leopardstown to Kildare. This relocation is reflected in the establishment and reorganisation costs shown in the accounts before the committee.

The principal expenditures for the organisation in the year were prize money, racecourse capital development grants, including a much needed health and safety scheme, loan repayment on previous racecourse development schemes, and payments to industry bodies such as the Racing Academy and Centre of Education in Kildare which is responsible for the training of staff and riders for the industry, the Irish Equine Centre in Johnstown for research work to maintain our disease free status, the Order of Malta and the Blue Cross for the provision of medical and veterinary facilities at race meetings, and the Turf Club for the provision of integrity services at race meetings. A breakdown of these payment figures is provided on page 26 of the accounts.

On the issue of Punchestown, towards the end of 2002, Horse Racing Ireland proposed a rescue package, which was accepted by the owners of Punchestown, which would see a joint venture company established and owned 50% each by Horse Racing Ireland and the Kildare Hunt Club to run the racecourse and event centre for the next 15 years. In that period the hunt club would have the opportunity to repay all outstanding funding which had been provided to resume full ownership of the lands at Punchestown. Failure to do so would see full ownership of the approximately 250 acres comprising the racecourse and the event centre transfer to Horse Racing Ireland.

This company, which is called Punchestown Holdings Limited, has been established and ten directors have been appointed - five from Horse Racing Ireland and five from the Kildare Hunt Club. It is now operating the racecourse and event centre on foot of a management services agreement signed by all parties.

In the period since that proposal was accepted, Horse Racing Ireland has appointed a manager, Mr. Dick O'Sullivan, to run Punchestown and it has seen an improvement in its fortunes this year. The festival meeting held there last April was the most successful ever with record crowds and betting figures. I understand that a profit of approximately €150,000 is forecast for the entire operation at Punchestown this year of which approximately one third will derive from the event centre.

In March of this year, Horse Racing Ireland published a new five year plan for the industry to bring it through to 2007 and we are on target to achieve all the forecasts included for year one of that plan. We are in the process of updating the plan to provide the rolling five year figures required under legislation in accordance with the Government's strategic management initiative. I hope I can be of assistance to the committee.

Chairman

What is the name of the company formally known as Newco?

Mr. Kavanagh

Punchestown Holdings Limited.

Chairman

Was the agreement involving the advancement by Horse Racing Ireland of €12.3 million and the latter loan of €2.5 million conditional on the agreement being signed?

Mr. Kavanagh

Yes, it was. The agreement was ratified at a meeting of the Kildare Hunt Club late last year and was ratified again at a meeting held about three weeks ago after the Committee of Public Accounts had visited Punchestown. The funding was conditional on that and on getting Revenue clearance for the structures that are in place in Punchestown. That process is under way at present.

Chairman

Has the €2.5 million been advanced?

Mr. Kavanagh

Not yet.

Chairman

Of the €12.3 million, has €10 million in effect been advanced by Horse Racing Ireland to the holding company?

Mr. Kavanagh

Some €8.2 million in grants for the Punchestown development was advanced by the Irish Horseracing Authority between 1995 and 1999, which is consistent with the capital developments that were taking place on all racecourses in that period. A loan of €1.65 million was advanced in 2001 when, as the committee may be aware, Punchestown lost its festival meeting due to a problem with the drainage of the track. That problem precipitated a financial crisis and the Irish Horseracing Authority advanced a loan of €1.65 million. However, the €2.5 million has not been advanced yet.

Chairman

The amount outstanding is a loan. Is it an interest bearing loan?

Mr. Kavanagh

Yes, it is bearing interest at the average EURIBOR rate.

Chairman

If one takes the investment in the centre plus Horse Racing Ireland's own loan of €10 million, it would appear that €25 million has been provided.

Mr. Kavanagh

Yes, the €10 million relates specifically to the racecourse element of it but, between the two, that would be the figure.

Chairman

Is the repayment in 2016 for the €12 million?

Mr. Kavanagh

No, it is the repayment of the loan of €1.65 million plus the future funding of €2.5 million that may be advanced. It is the repayment of €4 million. The €8.2 million or £6.4 million was capital grants provided by the Irish Horseracing Authority to Punchestown to build up its racecourse facilities. They become repayable only in the event that racing ceases. If racing continues for 15 years, these funds do not become repayable. This same policy is applied to all racecourses.

Chairman

On the point about the Kildare Hunt Club, how much of a redemption is involved?

Mr. Kavanagh

It is a total of €4.1 million.

Chairman

It is disappointing that this agreement, which was discussed at the previous meeting, has not yet been signed. What is the reason for the delay?

Mr. Kavanagh

We have been deliberately prudent in not putting in money until we were satisfied with the structures. As the committee may be aware, there has been disagreement among the members of the hunt club about the authority which the trustees may have had to enter into certain agreements. That has been resolved and there has been agreement to modify the lease structure. We have said that we will not provide money until the leases are modified and Revenue is happy with the structure. In fairness to the Punchestown people, they have survived without that money so far by careful management of their finances.

The hunt club has agreed to the transfer. We have identified the lands. The principle of the restructuring put in place was that the lands used for horse racing and the event centre would be separately identified from the 466 odd acres of land and would go into this new joint venture company which would be owned 50:50. The rest of the land would remain with the Kildare Hunt Club. That land has been identified. The main reason the transfer has not taken place is because we have said we are not prepared to provide the money until these issues are resolved.

Chairman

On the structure, the Kildare Hunt Club owns the lands at Punchestown. It carries on its business through three operating companies in which the hunt has 100% of the share capital. It has leased its land bank for 250 years to Punchestown Development Company which owns the racing facilities at Punchestown. A sister company, Blackhall Racing Company, manages the events which take place at the racecourse. A third company, Punchestown Enterprise Company Limited, owns and operates the centre. Mr. Kavanagh is now indicating that a new company is being formed.

Mr. Kavanagh

It will be an overarching holding company which will own the shareholdings of the three subsidiary companies. They set up that structure so that they have one company to develop the racecourse, one to develop the event centre and one to run the race meetings. Punchestown Holdings will take over the shareholdings of those companies.

Chairman

On the clear title of that deal that will be signed, is there any doubt about the agreement and what that company can effectively manage when one takes account of the myriad of companies involved?

Mr. Kavanagh

No, we have held off on putting any money in until the title to the land is clarified and the Revenue clearance is received.

Chairman

Do you see any difficulty in that area?

Mr. Kavanagh

No, we have been working closely with the people in the Kildare hunt. The club has ratified it twice and effectively sees Horse Racing Ireland as a partner in this. We have been running the racecourse on its behalf for the past year and the effect seems to be positive. I do not see any problems with that.

Deputy Ardagh

The first noticeable aspect is the importance of the horse racing and bloodstock industries generally to the economy. I congratulate everybody involved to date on the huge success that is horse racing in Ireland. That includes not only Horse Racing Ireland, which is new to the game, but the Irish Horse Racing Authority and all the civil servants and organisations involved. Obviously there are a huge number of volunteers with a great interest in racing without whose help and input the system would not work. No matter what we say, it is a fabulous success story and helps the economy greatly.

One question which arises regularly is that of the tax-exempt status of stud fees. Is it reasonable that this status should continue?

Mr. Kavanagh

It is not for me to decide whether a tax-free status should continue.

Deputy Ardagh

I ask from the point of view of horse racing rather than from an economic or political perspective.

Mr. Kavanagh

Undoubtedly it gives us a competitive edge in the area of horse breeding and would be looked upon with envy by a number of other breeding countries throughout the world. I mentioned earlier that our foal population is greater than that of France and Britain. That was not always the case. France had a thriving breeding industry back in the early 1980s until it changed its method of funding. It had a similar taxation arrangement to ours now but changed it. Whether it can be directly associated with this or not I cannot say, but there has been a decline in the French breeding industry. The top three stallions in France this year in terms of results on the racecourse were all Irish stallions based here. Undoubtedly it gives us a competitive advantage.

Deputy Ardagh

Returning to Punchestown, Mr. Malone said that the heads of agreement are in place. That is normally an early stage of developing an agreement, and any agreement now will obviously be with Punchestown Holdings Limited. Is that so?

Mr. Malone

By way of clarification, we sent a letter to Punchestown containing 17 different conditions which Punchestown accepted.

Deputy Ardagh

I have that.

Mr. Malone

However, the Comptroller and Auditor General expressed concern about the robustness of that arrangement so we have initiated a process whereby we will have a formal two-way legal agreement. As of now, we envisage that the agreement would be with all three companies so that there is no doubt. If Punchestown Holdings Limited is established and up and running in time, we will also have an agreement with it. We will leave nothing to chance in this regard.

I emphasise that there never has been a disagreement with Punchestown on this issue. It has never said that it does not accept the responsibilities. Copies of the accounts of Punchestown were forwarded to the committee since I last appeared, and they contain a reference to its liabilities for the events centre. Punchestown has recognised this in its accounts.

Deputy Ardagh

That is contingent liability.

Mr. Malone

Yes.

Deputy Ardagh

Most of the 17 points to which Mr. Malone referred are now redundant because the centre is up and running. They refer to what will happen while the centre is being built. Which of the points will come into play? Points one to ten no longer apply while 11 would probably stand.

Mr. Malone

The Deputy is correct in that many of the conditions set out in our letter of August 2000 related to the project and its completion, proper processes and responsibilities, planning permission and various issues such as that. Mr. Purcell acknowledged that aspect in his report and I do not think he had any difficulties with it.

What we envisage in the agreement is looking to the future and being clear with whom exactly we have the agreement because that was the main point of concern. We will bring clarity to that issue. We will also deal with the situation of something going wrong, for example, and whether we can get our money back.

An issue that has arisen is what happens if this facility is massively profitable. I explained that I did not think it would be, but let us assume that it was and Punchestown generated huge profits from the centre. We had always envisaged that whatever profits were made would go into the centre, but if profits were made way above what was envisaged, we would want a share of them.

We are looking to the future, making it clear with whom we have the agreement and covering different situations in the event of something going wrong. I emphasise that we are at the initial stages of the process and there will be a certain amount of toing and froing before it is finally signed off.

Deputy Ardagh

It appears that the horse has bolted and that there is now a new company. I do not know whether Mr. Kavanagh would be that willing to share the bucks when so many other racecourses need development. They are crying out for more prize money in Tramore, and I know they would like some more prize money in Wexford. Why should HRI agree to these new terms being considered?

Mr. Malone

The HRI involvement strengthens our hand. HRI is a State body funded by the taxpayer.

Deputy Ardagh

That is right.

Mr. Malone

We see the HRI as giving us a double protection. As Mr. Kavanagh has explained, HRI will, in effect, own 50% of this company, which gives double protection to the taxpayer. If the argument develops as to whose interests come first and a State body is involved, the interests of the taxpayer and the Exchequer must come first. I see that as a benefit rather than a problem.

Deputy Ardagh

Obviously Mr. Kavanagh will have different priorities for any money made. Will he sign whatever is put in front of him?

Mr. Kavanagh

As Deputies will have seen when they visited the events centre, it is separate from the racecourse and away from the parade ring. The restructuring that we put in place deliberately incorporated the land, including the racecourse and the events centre, specifically to provide security for the State's investment. If the events centre turns out to be profitable, and the figures to date indicate that over the past three years it has made an average of €7,000 per year, the priority would be to invest the money in the events centre which needs to be maintained, repaired, promoted and marketed.

If the events centre starts to generate substantial money, I do not see the racecourse wanting to keep that. The principle that the events centre should operate on a break even basis is accepted by us and, I believe, by the Kildare Hunt Club.

Deputy Ardagh

Looking at it from a managerial point of view, I see somewhere or other that a €50,000 profit is projected in the events centre in 2003 on the basis of a minimal number of events. Does Mr. Kavanagh project that in the next five years substantial profits will be generated by the events centre?

Mr. Kavanagh

I do not think so for two reasons. First, as I outlined, it will cost money to keep, maintain and repair and we are in a honeymoon period in that respect in the short-term. Second, while there is scope for more events, if one looks at the schedule of events, the time involved in setting up and de-rigging for each event could involve a week either side of an event which might only take a week in itself. If 15 or 16 events are booked for next year, its capacity to double or treble that number of events is somewhat limited.

Deputy Ardagh

Are 15 or 16 events scheduled for next year?

Mr. Kavanagh

I am now told by my colleague that there are 20.

Deputy Ardagh

I take it that Mr. Kavanagh therefore does not think Mr. Malone should include significant figures from Punchestown in his appropriations account?

Mr. Kavanagh

I do not believe so. It would be a nice problem if it happened.

Deputy Ardagh

I am delighted that Mr. Kavanagh's organisation has an involvement in Punchestown because the management expertise in HRI will help Punchestown and its participation in it will help racing in Ireland. I read some literature we received. Could Mr. Kavanagh explain whatever he knows about Blackhall Racing, GT Equinus, the Getty family and the connection with the repayment of redeemable preference shares?

Mr. Kavanagh

I came to this situation late. As the Comptroller and Auditor General explained, it was a passport for investment scheme which involved redeemable preference share funding. When the Irish Horse Racing Authority developed racecourses throughout the country in the late 1990s, it was on a basis of matching funding. Racecourses were required to achieve 50% matching funding and all achieved that.

Deputy Ardagh

Was that for capital purposes?

Mr. Kavanagh

It was capital for the development of stands and infrastructure. As I understand it, there was an investment, as the Comptroller and Auditor General has outlined, which was repayable on certain terms.

Punchestown's problems arose because its festival meeting, which really accounts for 90% of its annual income, was cancelled in 2001. A drainage job was done on the track which simply did not work and the track was not safe for racing. That was a terrible blow which precipitated a financial crisis and, as part of that, they have negotiated revised terms of repayment with GT Equinus. That is as much as I know about the investment.

Deputy Ardagh

A couple of questions arise.

Mr. Kavanagh

On GT Equinus, we have read the minutes of the Kildare Hunt Club. They question——

Deputy Ardagh

I am still questioning Mr. Kavanagh on this. If Deputy Batt O'Keeffe will allow me continue, I will come to that as well.

I am sure that when Horse Racing Ireland entered into this joint venture, it undertook an evaluation and business plan. From the profit generated in year one, it looks good.

On the passports for sale, my understanding is that the funds are not repayable to the extent where somebody can demand repayment. Obviously there was some agreement containing a clause or condition which would allow for repayment, but that seems to go against the spirit of the passports for sale scheme as I understand it. Would Mr. Robert Carey of the Department of Finance explain that system as it applied in this case?

Mr. Carey

I am afraid I cannot. I am not an expert on the passport for sale scheme, nor was this area within my bailiwick. Certainly I can have a note on it sent to the Deputy.

Deputy Ardagh

At the end of the day, is it not the case that Horse Racing Ireland is investing money in tranches which are equivalent to the money being repaid to the Getty family through GT Equinus?

Mr. Kavanagh

I would not say so. It is not equivalent to it. It is the funding that is necessary for Punchestown to continue to operate and trade its way out of its difficulties. I suppose the difficulty we faced when Punchestown found itself in financial difficulties was that the home of national hunt racing, in which the Irish Horseracing Authority had made a significant investment, was teetering on the brink. We felt we had to put a rescue package to them which would enable it to trade its way out of its difficulties and that is the reason for the 15 year trading period up to 2016 because we had to take a long view.

While Deputy Ardagh stated that the outlook is good, we are conscious that this year has been a positive one for racing, principally due to the simple fact that we have enjoyed excellent weather for all our good meetings at Galway and Punchestown throughout the year. It is a tough task to trade its way out of it.

Deputy Ardagh

Effectively, Getty invested money to match the funds for the capital and there was a family row in Punchestown between the Gettys and others. Is it true that there was threatened liquidation and possible mothballing of all the facilities involving the €25 million referred to?

Mr. Kavanagh

Yes.

Deputy Ardagh

Therefore Mr. Kavanagh's organisation came in at that stage and the misfortune of Punchestown was a good opportunity for that organisation.

Mr. Kavanagh

I would not describe it as an opportunity. It was something on which we had to take action. Punchestown has developed and, with the instigation of the racing authorities, has developed into a credible rematch for Cheltenham, if I may put it that way. It comes four weeks after Cheltenham and Punchestown has developed its festival to a standard where it can now match that festival. It is the pinnacle of the national hunt season in Ireland. It would be unthinkable for us, as the racing authority, not to do something to protect its status, and that is what we have been doing. That is all we have been doing.

Deputy Ardagh

I am delighted that Horse Racing Ireland is involved. This note from a minute states that all HRI debts are to be placed on a schedule where the HRI had offered €3.8 million over ten years, that is, the €1.6 million it has already provided and another €2.2 million, although €2.5 million was mentioned, and that it is hoped GT Equinus would defer repayment to the same schedule.

If I had a company, was in debt to Revenue and sought a loan from a bank to pay off Revenue, the bank would be reluctant to give me the loan. The effect is that the HRI loan is perceived as the moneys that can be used to pay off GT Equinus. Is that correct?

Mr. Kavanagh

As I said, it has enabled Punchestown to trade its way out of difficulty. I do not have the agreement in front of me, but what we would have found when we went to Punchestown was an agreement with GT Equinus where the first repayment was due as long ago as 1998 or 1999. Therefore it has been deferred in that respect.

Deputy Ardagh

There is talk somewhere of payments to GT Equinus of €600,000, €550,000 and two more payments of €500,000. Is Mr. Kavanagh aware of these figures? Do the amounts being invested in Punchestown by HRI match the timing or the amounts involved?

Mr. Kavanagh

No. Punchestown has managed to continue trading for a year on foot of careful management of its finances, but the funding we have put in would not match the timing of that.

Deputy Ardagh

The Punchestown Enterprise Company accounts prepared are comprehensive and, as Mr. Malone stated, include in the contingent liabilities the matter of the contingent liability to the State of the €14 million. That would be questionable without agreements in place but obviously they will be in place and will be signed.

In addition, under the plan, the €3.18 million owing to the Blackhall Racing Company, holders of the redeemable preferred shares, may be satisfied in full by the payment of €2.15 million in four instalments. This has yet to be formally agreed by the shareholders. Has HRI agreed to that schedule?

Mr. Kavanagh

Yes, we are aware of the schedule.

Deputy Ardagh

Does Horse Racing Ireland intend agreeing to it?

Mr. Kavanagh

Yes, it was part of the rescue plan put forward last year.

Deputy Ardagh

There is an indication that the taxation contingent liability, an issue which permeates much of the literature in my possession, may be substantial. Has Horse Racing Ireland had discussions with Revenue about it?

Mr. Kavanagh

No, we certainly have not gone further than instructing Punchestown, as the Kildare Hunt Club, that we want Revenue clearance for this structure. We would not, however, get involved in talking to Revenue about the matter.

Deputy Ardagh

Has Horse Racing Ireland discussed a ballpark figure? I presume it conducted a due diligence examination of the company.

Mr. Kavanagh

Yes.

Deputy Ardagh

Did the question of the contingent liability not arise during the due diligence examination?

Mr. Kavanagh

As I stated earlier, there are different views as to what should be the tax treatment of the structure. What we have said is that we want the company to get clearance from Revenue as to what it is doing.

Deputy Ardagh

If Mr. Kavanagh believes further questioning would prejudice his case, which I do not wish to do, I would have no problem accommodating him.

Mr. Kavanagh

I feel somewhat uncomfortable talking about the specifics of the case other than to say that we have instructed that Revenue clearance should be sought.

Deputy Ardagh

I accept that.

Deputy J. Higgins

I will first address some questions to Mr. Malone. The key question here is not whether the exhibition centre at Punchestown is a good thing, but the appropriateness of the procedures which led to the sanctioning of significant amounts of taxpayers' funds to build the event centre. The additional funding came on stream at different times. When did building begin?

Mr. Malone

The construction of the building began at the end of 2000.

Deputy J. Higgins

When was it finished?

Mr. Malone

It was completed in 2002. Our involvement, as the Deputy will be aware, was mainly in payments, approvals and various matters.

Deputy J. Higgins

I wish to run through the sequence again briefly. In November 1999, Punchestown management approached the then Department of Agriculture, Food and the Marine with ideas for a national agricultural and eventing exhibition and international show centre. On 19 January 2000, Department officials recommended to the Minister that Punchestown management should receive a grant for this purpose. The following day, the grant was approved by the Minister for Agriculture, Food and Marine, who issued a request to the Minister for Finance for 100% funding, to which he agreed on 27 January 2000. Clearly, the approval process moved at a lightning pace. Was a proper evaluation of the need and business case for the centre carried out and, if so, of what did it consist?

Mr. Malone

The dates the Deputy quotes are correct and not in dispute. The Department had been aware for a number of years that there was a gap in the infrastructure, much of which arose from the changed role of the RDS. The Deputy will be familiar with the spring show formerly held at the RDS and the venue's inability to accommodate large-scale agricultural events because of various developments on the site, traffic and other reasons. As a result, our view for some time was that there was a gap in the infrastructure.

We received the request from Punchestown on 16 November, which we evaluated and considered in the Department, judging it against a number of criteria, including the suitability of Punchestown, whether alternative sites could be used and the likely events which would take place. I have mentioned on a number of occasions the importance to the country of what is known as three-day eventing. We also have in-house knowledge of agricultural shows and exhibitions, breed societies and so forth. We formulated a view that the project was worthy of support. As I stated, we could have made the choice that it was not worthy of support.

As to the question of giving a percentage grant, which I am aware the Deputy has not raised, the reality was that funding had to be either 100% or nothing. To answer the Deputy's question, the project was considered and reviewed in the Department. We followed the normal procedure in making a submission to the Minister and receiving ministerial approval. The next step was a submission to the Minister for Finance. That would be the normal——

Deputy J. Higgins

How many personnel were involved in the evaluation? Is there a paper trail for the evaluation?

Mr. Malone

There is definitely a paper trail. Those involved in the evaluation are personnel in the Department who have responsibility in this area. Two or three people would generally be involved on an issue such as this and I also feature in the paper trail. There are clear lines of communication leading to a decision on the matter and normal procedures were followed.

Deputy J. Higgins

What did those undertaking the evaluation do? Did they study all the possible events which could be held in a two or three year period, the amount of income the centre could generate as opposed to its costs and so forth? Was all this done?

Mr. Malone

We first asked ourselves whether there was a need for the centre and formed the view that there was. We then asked what kind of events the centre would accommodate and considered this issue. We also asked whether it would help the agriculture industry and concluded that it would from the point of view of our standing internationally.

I emphasise the importance of three-day eventing because it has the potential to bring a significant amount of money into the country. For example, the European championships, which were held in Punchestown last September, probably brought a sum of the order of €10 million into the country when all aspects are added up.

Where we are open to criticism, and we acknowledged this at our previous meeting, is on the question of whether a business plan was prepared, to which I indicated at that meeting that we did not receive a business plan from Punchestown. I understand the reason was that the project was seen as part of the overall infrastructure of the country. This was not just a question of providing a normal grant for a project for which one runs a scheme in which one has a choice of between five or six different projects. We examined the proposal in the context of infrastructure and asked whether we needed to fill the gap. We concluded that we did.

Deputy J. Higgins

Mr. Malone's response is very general. I could take any need in society, in health or another area, and argue that a certain facility was required on the basis that it would be used. That is hardly an adequate and accountable reason for giving taxpayers' funds to Punchestown. The Accounting Officer of the Department of Finance told the Comptroller and Auditor General that it was the responsibility of the Department of Agriculture and Food to formulate, evaluate and deliver on projects such as Punchestown and to ensure that proper procedures were in place to do this in a transparent, responsible and accountable manner. That was not done in this case, was it?

Mr. Malone

I think it was. There was openness and transparency on the project. All the procedures were followed. There were a number of tenders and the point has been acknowledged that there was no——

Deputy J. Higgins

We are talking about the pre-tender stage.

Mr. Malone

To return to that point, the Deputy stated that it is not adequate, either for the State or for the taxpayer, to say that there is a need for a facility, to look at it in generality and to take a positive decision. I would argue that situations like that arise from time to time. They have arisen in the past and will arise again. We have to take a decision. One cannot judge this against the normal criteria of a grant for a factory or a food processing plant. This was something entirely different and we had to judge it. We had to take the broad view. We had to take a view as to whether this decision would be vindicated into the future. I think this decision will be.

Deputy J. Higgins

On 6 April 2002, Punchestown informed the Department of Agriculture and Food of changes to the project that would cost a great deal more money and, on 2 June, Punchestown submitted revised proposals costing €12.8 million. Three weeks later, on 23 June, the Minister for Agriculture and Food wrote to the Minister for Finance requesting additional funding of €6.4 million and, on 7 July, the Minister for Finance agreed. In August, the Department of Agriculture and Food approved the grant totalling €13.3 million and we have sight of that letter putting a cap of €13.3 million on the amount that would be given. Did the fact that Punchestown applied for what was essentially a new project or a huge extension of costs cause Mr. Malone concern?

Mr. Malone

Initially, we were surprised.

Deputy J. Higgins

Is it a vindication of my previous point, that no serious work went into the approval of phase one?

Mr. Malone

No, with respect I do not think it is. What was put to us in the second approach was that they had a different project. They had looked at facilities in other member states and, I think, in the United States.

Deputy J. Higgins

Should that have been done before the first proposal?

Mr. Malone

Maybe it should but, with the benefit of deeper analysis and when they got into the process, they decided that they could put forward a bigger and better project which gave more functionality and which, for instance, allowed the centre to hold a bigger and wider range of events. That entailed changes to the construction involving the single span construction - the committee has seen the building - and that pushed up the cost. That was our choice: either to go with that proposal or to go back to the original proposal. The view we formed was that, if the funding could be provided, the second proposal was better. Facilities in other countries tend to be owned by local authorities. Rarely are these facilities privately owned.

Deputy J. Higgins

What was the involvement of the Minister for Agriculture and Food in the approval or seeking of approval for the second proposal?

Mr. Malone

There was a letter from the Minister, to which Deputy Joe Higgins has referred, on 23 June seeking the approval of the Minister for Finance for the additional funding. Again, the normal processes and procedures were followed.

Deputy J. Higgins

The Department received the proposal on 2 June and, within three weeks, the Minister for Agriculture and Food was writing to the Minister for Finance seeking the additional funding. What happened in that short time span of three weeks?

Mr. Malone

The approach to the Department from Punchestown about the second project took place in April. Therefore, we had knowledge of it prior to the formal submission of the letter on 2 June that Punchestown was considering a more elaborate project. It is not fair to say that we got a letter on 2 June, forwarded it on 23 June, and that was the only consideration of the second proposal. It had been going on for a period of weeks and months.

Deputy J. Higgins

When was it decided to go with the second proposal?

Mr. Malone

It was decided internally when we got knowledge in April to evaluate or consider the second proposal. It was decided then to make a submission to the Minister to get either ministerial approval or rejection of the proposal. The Minister agreed to the second proposal and forwarded it to the Minister for Finance.

Deputy J. Higgins

Is it true that the Minister and the Department had agreed before Punchestown ever made the formal submission on 2 June?

Mr. Malone

No, because we could not do that.

Deputy J. Higgins

When did the Department do it then? Can Mr. Malone give a date?

Mr. Malone

First, we get ministerial agreement and follow the normal procedure. We process the application and go through the different aspects of it. That took place. That does not mean that we decide on a particular minute on a particular day that we are approving that. We put it through the normal procedure. The critical aspects would be the acceptance by the Minister on 23 June, which I would argue strongly is the normal process, and a submission to and approval from the Minister for Finance. If we did not get those two approvals, our views——

Deputy J. Higgins

If Mr. Malone says that he was seriously going through all the procedures and consulting his Minister, and he received this formal submission on 2 June, why were the members told at a meeting of the Kildare Hunt Club four days later that the development of the centre would be 100% funded by the Government and that the money would be drawn down in two tranches?

Mr. Malone

I cannot answer for the Kildare Hunt Club. I have no hand, act or part in the club. I have never seen those minutes.

Deputy J. Higgins

The minutes are here.

Mr. Malone

I am not contradicting the Deputy.

Deputy J. Higgins

They are from a body that has serious agreements with the State and a serious allocation of taxpayers' funding for its benefit. They say that, at a meeting four days later, the money was in place and the deal was done.

Chairman

Those minutes have not been circulated to witnesses. They have only been circulated to members.

Deputy J. Higgins

That is what the minutes state and I want an explanation.

Mr. Malone

Regardless of what the minutes state, I cannot be asked to explain what the Kildare Hunt Club stated. What I can say is that it was always understood that there would be a 100% grant. That was clear from the beginning, whether for the first or second project. The normal procedure would be that one would draw down grants in two tranches. That tends to be the way grants are drawn down. I would not read anything——

Deputy J. Higgins

I would. It is treatment of taxpayers with the utmost contempt that, at a private meeting of a blood sports organisation, the disposition of taxpayers was set out before, according to Mr. Malone, the decision was even made. Is it not the case that the real evaluation of this was obviously made in conversations between the Ministers, Deputies McCreevy and Walsh, and their buddies in the horse racing world?

Mr. Malone

No, I do not accept that. The second point is that there was a letter. Punchestown already had approval for the first project. I repeat the point that it was clear that there would be 100% funding, and we would have told them, probably at an early stage, of the payment in two tranches. That is the way payments are normally made.

Deputy J. Higgins

The date line given in the minutes conflicts with the alleged procedure gone through. Regarding paragraph 13 of the letter of August 2000 in which the Department put a cap of €13.3 million on the amount that would be given to the Punchestown development, why was that cap subsequently broken and how?

Mr. Malone

The reason for it is fairly straightforward. The approval for the development was obviously subject to planning approval from Kildare County Council and, in granting planning permission, it attached two conditions: first, additional car parking requirements and, second, a sewage treatment plant. These two conditions were not anticipated because there were considerable car parking facilities in Punchestown in any event and we did not envisage the sewage treatment requirement.

Deputy J. Higgins

This would seem to contradict the earlier point Mr. Malone made here and in his document that the expertise of the Department had been brought fully to bear on an evaluation of the project and the plans. How did Mr. Malone miss that?

Mr. Malone

No, I do not think so. These things happen all the time, where approval is given for a particular project and then planning permission comes subsequently. Additional planning conditions are not unusual.

We had a clear choice of funding or not funding the additional requirement. It broke the cap. There is no argument or question about that. I am not disputing that point. The reality, however, is that if we had not funded it, Punchestown did not have the wherewithal to fund it.

Deputy J. Higgins

What was the interaction between the Department of Finance and the Department of Agriculture and Food on the breaking of the cap?

Mr. Malone

We made a submission to the Department of Finance and got formal approval from it. A letter was sent on 23 January 2002 to the Minister for Finance and he granted the necessary approval.

Deputy J. Higgins

Was there an evaluation of the perilous state of the finances and management of Punchestown when the Department of Agriculture and Food recommended these grants?

Mr. Malone

The situation in Punchestown emerged in 2002. This sequence of events started in 1999. I do not think anybody was aware of it nor was it an issue in either 1999, 2000 or for a long period in 2001.

Deputy J. Higgins

Were the accounts of Punchestown seriously examined before approval was given for the grants?

Mr. Malone

We had the accounts of Punchestown. The difficult situation came to light because there was a more detailed evaluation of the financial situation in the centre. I am speaking from memory and maybe I am open to correction, but some time in 2002——

Deputy J. Higgins

There were ructions inside the Kildare Hunt Club in 2001 because of the state of the organisation's finances.

Mr. Malone

No, Mr. Kavanagh has explained the difficulties. Had the Punchestown festival taken place as normal in 2001, the situation would be different. It did not take place, they lost 90% of their income flow which caused a financial problem for them and brought certain issues to light. These were not issues in 1999 or 2000. With the benefit of hindsight certain matters become evident, but——

Deputy J. Higgins

Is it not the case that the running of the affairs of Punchestown and its finances was not seriously examined?

Mr. Malone

It was not an issue. There were no questions. Punchestown has been around for——

Deputy J. Higgins

In committing €13 million in funding, should the Department not at least have ascertained that it was not to be committed to an organisation that could have gone down the plughole?

Mr. Malone

Yes, that is a fair comment but the books in 1999 and 2000 indicated that this was an organisation which was not about to go down the plughole.

Deputy J. Higgins

On the trading companies now running Punchestown, the agreement is that, if all loans are repaid by 2016, ownership will revert to the Kildare Hunt Club. Am I correct?

Mr. Kavanagh

That is correct.

Deputy J. Higgins

Does that include the event and exhibition centre?

Mr. Kavanagh

That is correct.

Deputy J. Higgins

Where does that leave the €15 million in taxpayers' funding?

Mr. Kavanagh

I suppose it leaves it no different from when it was invested. The total acreage at Punchestown is 466 acres. We have identified approximately 250 acres of that land as being necessary to run the racecourse, associated car parks, lands, etc., and the event centre. That land will be put into the company, Punchestown Holdings Limited. The rest of the land will remain with the Kildare Hunt Club. If all its liabilities are settled by 2016, ownership of that 250 acres will revert to the Kildare Hunt Club in the same fashion as the remaining land which still remains owned by it in the interim period.

Deputy J. Higgins

Is there no provision for a repayment to the taxpayer of the grants?

Mr. Kavanagh

Does the Deputy mean in the case of the events centre?

Deputy J. Higgins

Yes.

Mr. Kavanagh

No, there is not.

Deputy J. Higgins

If that happens in 2016, would Mr. Kavanagh agree that this private entity of Punchestown and the Kildare Hunt Club will be in possession of a massively valuable asset?

Mr. Kavanagh

It would depend on the view one takes. Is the Deputy talking about the land or the centre?

Deputy J. Higgins

I am talking about the asset that would be there in 2016.

Mr. Kavanagh

Does the Deputy mean the land?

Deputy J. Higgins

I mean the land and the event centre that has been facilitated by taxpayers' funds.

Mr. Kavanagh

The land has been in the ownership of Punchestown or the Kildare Hunt Club since the start of the last century. It was left in trust for it by the La Touche family for the development of equestrian activities and horse racing in particular, and that has remained the way for 100 years. Due to this new development arising from the financial crisis that was caused in 2001 by the loss of the festival, in 2016 this new company set up either will own the 250 acres which incorporates the racecourse and the events centre, or will trade its way out of its current difficulties and the racecourse and the events centre will revert to their pre-2001 situation.

Deputy J. Higgins

Irrespective of the profitability of events which might take place, is there no provision for taxpayers to recoup any of the €15 million of their funds so generously provided for the event centre?

Mr. Kavanagh

There is no such provision. As I said, it would revert to the situation which applied before 2001 when Punchestown lost its festival and ran into financial difficulties. Our involvement is to allow it the time and space to trade its way out of its difficulties.

Deputy J. Higgins

Would Mr. Kavanagh agree that it is an extraordinary gift from the taxpayer to a private entity?

Mr. Kavanagh

That is not for me to say.

Deputy J. Higgins

Has the centre been in operation for a full year?

Mr. Kavanagh

I am open to correction but I believe the first event was held in May of last year.

Deputy J. Higgins

A point arose as to the adequacy of the centre for major international equestrian events in terms of whether its longitude and latitude would satisfy international criteria. Can Mr. Kavanagh say anything on that?

Mr. Kavanagh

I am not expert on equestrian events. As Mr. Malone mentioned earlier, there is a significant difference between horse racing and equestrian events. All I know is that the figures which have been quoted for equestrian events are for an Olympics-size event. I believe there is a capacity to stage showjumping. If that were desired in the event centre, it would mean restricted spectator numbers. The event centre was used as part of the European three-day event championships which were held there in September. The showjumping was held outdoors.

Deputy J. Higgins

Could the design and the area of the event centre cater for an international event under the rules of international equestrian events?

Mr. Kavanagh

I am not expert on it. I understand that the event centre is larger in dimension than the Odyssey Arena in Belfast where showjumping was held, but I stress it is not my area of expertise.

Chairman

On Deputy Joe Higgins's point, it was clarified that it was not suitable for international competitions.

Mr. Malone

Perhaps I could help on this issue. We never envisaged grant assisting this facility for showjumping because there are already adequate facilities for showjumping in the RDS and various other places around the country. One could hold a major showjumping event there if one wanted to but that was never the consideration.

Chairman

The point about it not being suitable was clarified at a meeting of the committee. From the safety point of view, the crowd would have to be restricted too much.

Mr. Malone

Major international showjumping competitions have been held in small arenas. That is all I am saying, no more or less.

Chairman

It is important to clarify this point because it has been well-established. The Irish Show Association has clearly put on the record that the venue was not suitable for an international jumping competition.

Mr. Malone

It was never a consideration. That is the point I am anxious to elaborate for the committee.

Chairman

There is no point giving an impression that it could be used for showjumping. It was not designed for it.

Mr. Malone

No, it was not and it was never a consideration.

Chairman

I just wanted to clarify that point.

Deputy J. Higgins

Is it not extraordinary that the Department is providing all this investment for various reasons and did not consider that the opportunity or need might arise for it to be used and, for the sake of a few metres more, did not change the design?

Mr. Malone

No, it is not extraordinary. In fairness, there is the RDS and Millstreet. There is another showjumping facility in Kildare itself. In our mind, it was clear that we did not really see this facility as designed for showjumping competitions. I do not want to get bogged down in the technical details. We were more interested in three-day eventing which has different requirements. That is the only point I am anxious to make.

Deputy J. Higgins

A figure I have seen shows that about one third of the activities would be related to agriculture. Would that be true?

Mr. Malone

It is hard to judge on the first year, but it would be about one third to a half. It will vary from one year to the next.

Deputy J. Higgins

Is that satisfactory?

Mr. Malone

The short answer is "Yes".

Deputy J. Higgins

Santa's Kingdom is there for 70 days according to one report.

Mr. Malone

I do not know how many days it will be there, but allied to that is an event called Agri Aware which is held by an organisation which attempts to bridge the urban-rural divide.

Deputy J. Higgins

Does Mr. Malone know if the management of Santa's Kingdom invited the Ministers, Deputies Walsh and McCreevy, to do a stint playing Santa at Punchestown this Christmas? Mr. Malone would agree that they would not need to be auditioned having such expertise in delivering free gifts to Punchestown already.

Mr. Malone

The important aspect from our point of view is that this facility is available for agriculture related events that are important to the sector and internationally. I mentioned the European eventing championships that were held there last September. They could not have been held without this facility. There are other such competitions.

There are also show societies. The Farm Machinery and Tractor Association used the facilities. If the facility is used for other purposes and it does not prevent the facilities being made available for the purposes for which it was grant assisted, then we have no great problem with that.

The other point relates back to an earlier question which the Deputy put to Mr. Kavanagh. Punchestown has taken on a considerable liability with this facility. It has an event centre worth €14 million but it will have to manage and run it. That brings a considerable amount of responsibility and cost. The view we have formed is that this facility will work roughly on a break even basis and nothing has emerged to disprove this. We looked at it in that context. We made a choice. It is important that it is looked on in that context.

Deputy J. Higgins

There was a suggestion that the major music promotions company, MCD, struck a deal in late 2001, advanced money to Punchestown which was in trouble, and received a favourable deal into the future on the rent for future events. Can Mr. Malone cast any light on that?

Mr. Malone

Yes, we have checked that out. That has nothing to do with the event centre. A music company has done a deal with Punchestown but it relates to the race track. It has nothing to do with the event centre. As far as I understand it, the event centre is not suitable for musical events because of acoustics and other reasons. The agreement, as far as I understand it, specifically excludes the event centre.

Deputy J. Higgins

There was threatened or actual litigation within the Kildare Hunt Club involving High Court injunctions, one of which, if I understood correctly, prevented a meeting of the club taking place in February 2002. At a meeting of the club it was said that Horse Racing Ireland would meet the costs of that litigation. Can Mr. Kavanagh throw any light on that?

Mr. Kavanagh

No. Horse Racing Ireland is not meeting any costs of the litigation in Punchestown. An action was taken in February 2002, as I understand it, to prevent a meeting of the hunt taking place until certain financial information was available. At that point the situation at Punchestown was getting serious and we started to get involved. As I stated earlier, our rescue package was put to the annual general meeting of the hunt in November 2002, but HRI has provided no funding for that legal action.

Deputy J. Higgins

Will Mr. Kavanagh clarify that? He attended the meeting on 4 November 2002.

Mr. Kavanagh

Yes.

Deputy J. Higgins

A member of the club, referring to the litigation, asked who would bear the costs of it and Mr. Kavanagh allegedly replied that Horse Racing Ireland would bear the costs.

Mr. Kavanagh

I have not seen the record to which the Deputy is referring but I can confirm that Horse Racing Ireland has not paid the costs. As I understand it, the costs have been borne through the trading companies in Punchestown. I am not totally familiar with the case but I think there was an issue in Punchestown that, if people were——

Chairman

Deputy Joe Higgins should not put those minutes on the record.

Deputy J. Higgins

I am elucidating and seeking clarification.

Chairman

The witnesses have not seen the minutes.

Deputy J. Higgins

They do not have to see the minutes. I am asking for clarification.

Mr. Kavanagh

There was a debate at the time. An action was taken against certain members of the hunt in their capacity as directors of the companies and they got a legal view that, on the basis that the action concerned was taken, the companies would pay the legal fees, but not Horse Racing Ireland. Without seeing those minutes, I cannot clarify it for the Deputy.

Deputy J. Higgins

Mr. Kavanagh did not say that Horse Racing Ireland would bear the litigation costs of internal matters to the Kildare Hunt Club.

Mr. Kavanagh

No. I can confirm that we have not done that.

Deputy J. Higgins

What potential or actual benefit, financially or economically, is Punchestown to the Kildare Hunt Club?

Mr. Kavanagh

To the members of the hunt club?

Deputy J. Higgins

Or to the hunt club as an entity.

Mr. Kavanagh

In its current status, it is of no benefit in that it is held in a trust which was agreed in 1904 for the development of equestrian sports and horse racing. There is no individual benefit to any members of the hunt club from that land. It is an extensive tract of land.

Deputy J. Higgins

I do not mean to individual members but to the activities of the Kildare Hunt Club.

Mr. Kavanagh

What benefit is it?

Deputy J. Higgins

Is it possible that in the future, profits from the activities at Punchestown will accrue to the benefit of the Kildare Hunt Club?

Mr. Kavanagh

No. My understanding of the trust is that, if profits are generated, they will be reinvested in the facilities in Punchestown.

Deputy J. Higgins

So, for example, there would be no question of the assistance taxpayers have given being used to support or subsidise blood hunting.

Mr. Kavanagh

Not that I am aware of.

Chairman

Is there any restriction on the sale of the grounds in the trust in future?

Mr. Kavanagh

I understand there is a restriction. There are 466 acres plus 12 acres of development land which were purchased subsequently by Punchestown in the early 1990s. Obviously, that can be developed and sold for development land. There are restrictions on the land put into the trust in 1904 in terms of whether it can be sold. It is all zoned agricultural land.

Deputy Connaughton

I welcome Mr. Kavanagh and wish his industry well. It is important that Horse Racing Ireland does well. I have no intention of going over all the ground covered. I was one of those who visited Punchestown at its invitation. There are a number of technical matters about which I want to talk to Mr. Kavanagh and Mr. Malone that arose from that visit. By any standards, it is an impressive building and it will enhance Punchestown.

Like Deputy Joe Higgins, I went to the trouble of reading the minutes of Kildare Hunt Club, which I will not quote publicly. I was struck by the fact that the organisation appeared to have considerable internal problems, especially at the time the Government decided to provide grant aid to the tune of approximately €14 million. If ever there was a vehicle which was unable to take that type of business on board, it was the Kildare Hunt Club.

If one looks at the minutes which it put at our disposal, one will see that it had some hairy meetings. This committee is responsible for ensuring value for money and its remit is to ensure moneys made available by the Exchequer are provided in a transparent way and that we protect the taxpayer. For all our sakes, I hope this project works and I have no reason to believe it will not. However, there are considerable question marks over it. We were told at Punchestown that all the officers of the Kildare Hunt Club were replaced last year. Is that correct?

Mr. Kavanagh

When the Deputy says "officers"——

Deputy Connaughton

I mean the officers and the manager. It appears the slate was wiped clean.

Mr. Kavanagh

There was a change of management.

Deputy Connaughton

Did many of the officers of the club resign?

Mr. Kavanagh

There were changes in personnel.

Deputy Connaughton

Were there huge changes in personnel?

Mr. Kavanagh

I would not say huge changes. I do not disagree with what the Deputy said in that Punchestown set itself as a racecourse, leaving aside the event centre, an ambitious plan when the Irish Horseracing Authority initiated its capital development scheme in 1995. Some members may remember Punchestown before it was developed. It was a relatively small racecourse with a festival which was popular in Kildare but not a major international event. It set itself a strategy to develop Punchestown into a world class racing facility and racecourse which, as I said earlier, could compete with the Cheltenhams of this world and offer a tangible follow-on from Cheltenham to generate the return match feeling of the Irish horses taking on the English horses.

It achieved that and its festival in 2000 was spectacularly successful in that respect. There were 85 runners from the UK bringing with them significant numbers of racegoers and tourists. Everything was fine. However, in summer 2000, it did a major mole drainage job on the course which did not work. Horses fell at the first meeting which took place in autumn 2000. Horses put their feet in holes and it was deemed to be unsafe. Winter, which is the main time for Punchestown races, proceeded with no racing. There was still a hope that racing could take place at its festival meeting in April, which accounts for 90% of its revenue.

I worked in the Turf Club at that time and was responsible for calling off the festival because our inspector of courses felt the track was not safe and was not prepared to sanction it for racing. That precipitated the crisis to which the Deputy referred. The fact that Punchestown had grown so quickly and was so dependent on one meeting, which it lost, precipitated the type of internal strife to which the Deputy referred. That is the situation Horse Racing Ireland has been trying to address.

Deputy Connaughton

I will come to that. Superimposed on that structure was this huge investment of €14 million.

Mr. Kavanagh

It was not superimposed. It commenced before that. The Deputy has read the minutes. That strife arose particularly from the loss of the festival in April-May 2001. Throughout the rest of 2001——

Deputy Connaughton

Is it fair to say all that strife took place while the investment was being made and the centre being built?

Mr. Kavanagh

No, I would not say that.

Deputy Connaughton

Did Mr. Malone not say it was finished in 2002?

Mr. Kavanagh

He did. However, from observing it closely, everything was fine internally in Punchestown as the racecourse developed. When it lost its festival meeting, that pulled the rug completely from under it and precipitated a problem.

Deputy Connaughton

While I have no problem with the complex and believe it will work eventually, is Mr. Kavanagh aware that there is a genuine suspicion among the public that the €14 million was another aid to Punchestown to help it overcome whatever difficulties existed? For example, are the stables more advantageous to Punchestown racecourse than to the exhibition complex?

Mr. Kavanagh

They are advantageous to both, about which there is no doubt. There are a lot of synergies or complementaries between the two. It works both ways.

Deputy Connaughton

Are they used on occasions when the complex is being used for agricultural shows? I was told they had not yet been used. Is that correct?

Mr. Kavanagh

I would be surprised by that.

Deputy Connaughton

I stand corrected on that.

Mr. Kavanagh

Any shows held in the event centre involving livestock, in particular the European equestrian three day events, used the stables. A charge is being levied on the racing company in Punchestown by the event centre company there when the stables are used on race days.

I mentioned earlier that there are synergies. There are synergies in reverse as well in that I am aware that at a farm trade machinery show held earlier in the year, the conference suites in Punchestown racecourse were used and complemented the activity going on in the event centre. There are definitely synergies.

Deputy Connaughton

From that point of view, and given his involvement with Punchestown, can Mr. Kavanagh elaborate on the €15 million or so Exchequer funding? How has that benefited the racecourse financially? How much of that money went to the racecourse or did any of it go to it?

Mr. Kavanagh

Very little. Looking at the Comptroller and Auditor General's list of costs, landscaping work or work on driveways is necessary for the event centre and is shared. There is undoubtedly a benefit there. I explained to the Deputy the situation regarding the stable yard. In my experience, and from a purely racing perspective, the fact it is taking up much of the time of the racecourse management is the main issue.

Deputy Connaughton

To go back to the agreement, I took it from Mr. Kavanagh's opening statement that, at the end of 2016, Punchestown racecourse will give Horse Racing Ireland €4.1 million.

Mr. Kavanagh

That is correct. It will be able to repay all its loans.

Deputy Connaughton

It will get back its deeds.

Mr. Kavanagh

That is correct.

Deputy Connaughton

Will that happen if, for instance, half or three quarters of the money is repaid? What is in the agreement to protect Horse Racing Ireland? Does all the money have to be paid back?

Mr. Kavanagh

If it is not all repaid, ownership will transfer to Horse Racing Ireland.

Deputy Connaughton

Is that specifically stated?

Mr. Kavanagh

Yes.

Deputy Connaughton

Unless that €4.1 million is paid up on that date——

Mr. Kavanagh

Yes. I imagine that if some of the money had to be repaid and a balance was outstanding as the deadline approached, it would be up to the owners of Punchestown to raise money to clear the outstanding debt, either through fund-raising or from its own resources. The agreement is black and white. If the money is repaid, the situation reverts to the way it was before we became involved. If the money is not repaid, we will take over the running of the racecourse.

Deputy Connaughton

I refer to the passports for sale, the Getty family and where that matter stands at present. When I spoke about the Kildare Hunt Club, it appeared to me that a substantial number, or at least some, members of that club were not aware of whether it had to be repaid. In fact, it is contained in the minutes that some members of that club believed that, if the passports for sale matter did not go through as envisaged, the Kildare Hunt Club would have to pay back the money. Can Mr. Kavanagh throw any light on that? Given the amount of money involved, everybody in the club should have known where it stood.

Mr. Kavanagh

It is black and white. In the agreement we put before the members at the meeting last November, to which Deputy Joe Higgins referred, there is a clear commitment to repay the funding.

Deputy Connaughton

How much was that funding?

Mr. Kavanagh

It was £3 million. The club has negotiated repayment of €2.1 million in settlement.

Deputy Connaughton

It stood at £3 million.

Mr. Kavanagh

Yes.

Deputy Connaughton

That was the initial amount.

Mr. Kavanagh

Yes. It was some €3.8 million.

Deputy Connaughton

To go back to the evaluation of this project about which we have spoken and which received a considerable airing on the previous day, another matter with which a significant number of people have problems is the speed with which all this was done. Many people and small communities who hope to build an extension, such as an additional room to a local school, or community centre must have plans, hire architects and so on in the preceding 12 months to two years, yet this project was wrapped up in a few months. This may be an unfair question to Mr. Kavanagh and, if it is, perhaps Mr. Malone will respond to it. Given the apparent problems in Punchestown at the time, did it find itself in an unusual business arrangement?

Mr. Kavanagh

Punchestown is most unusual in that no other hunt or other type of club in the country would probably own an asset of that size or scale, that is, 466 acres of land. That is an unusual situation. It was one in which we, as the racing authority, had to get involved. I askMr. Malone to take the question on the event centre.

Deputy Connaughton

Before Mr. Malone responds, I have another question for Mr.Kavanagh. In so far as the title and the areaof ground is concerned, when I visitedPunchestown I mistakenly believed the entire property had gone into this mix. However,I now understand it is 466 acres. Is thatcorrect?

Mr. Kavanagh

The entire property is 466 acres plus 21 acres of development land which was purchased in the early 1990s.

Deputy Connaughton

Did Mr. Kavanagh not say there were 250 acres?

Mr. Kavanagh

The essence of our proposal was that we did not have any real interest in land which is not used for racing or for the event centre. We have identified the lands which comprise the racecourse, the area in the centre of the racecourse where banks races are staged at the festival meeting, the car parks, the stands, the enclosures, the event centre and associated lands. That comprises 250 acres of the 466 acres. That is the racecourse. The rest of the land is extra and is used for pony trials, pony camp and those types of activities the club carries on.

Deputy Connaughton

To go back to the speed with which this happened, my understanding on the previous day was that this project was not initiated at executive level in the Department of Agriculture and Food but by the Minister. Is that true?

Mr. Malone

It is not true in the sense that we got a proposal from Punchestown. The letter was quoted on the previous day and it referred to the fact Punchestown had had a meeting with the Minister.

Deputy Connaughton

With two Ministers.

Mr. Malone

With one Minister.

Deputy Connaughton

Was a letter received from the Minister for Finance on the subject to the effect that he supported——

Mr. Malone

No.

Deputy Connaughton

Was there a letter from the Minister for Agriculture and Food to the Minister for Finance?

Mr. Malone

The Minister for Agriculture and Food got a letter from Punchestown acquainting him of the proposal, referring to a meeting it had with the Minister for Finance and basically submitting the proposal to the Department. That was the letter dated 16 November. I think Mr. Purcell quoted from the letter on the previous day. That letter arrived in the Department on 16 November. I am clear that the proposal came from Punchestown and that the genesis of the proposal——

Deputy Connaughton

That would have been after Punchestown spoke to the Minister for Finance.

Mr. Malone

As I understand, Punchestown had a meeting with the Minister for Finance in his constituency clinic. I see nothing in the correspondence to that effect but I read subsequently in the newspapers that there was a meeting with the Minister for Finance. We received no correspondence from the Minister for Finance. We analysed the proposal and submitted it to the Minister who subsequently submitted it to the Minister for Finance.

A number of points must be made about the dates. This was a once-off proposal and did not require us, as we have been on a number of occasions, to set up a new scheme or a series of measures to support a particular sector, for example, grants for the food industry, with which the Deputy will be familiar. This was a once-off proposal from Punchestown. We knew who they were. We knew where Punchestown was. We knew what in essence they were putting to us.

Deputy Connaughton

Did the Department know at that stage the trouble Punchestown was in?

Mr. Malone

No, we did not know the trouble it was in. This was 1999. It is important to understand that, in essence, Punchestown's troubles developed after the failure to hold the festival in 2001. Normally the Punchestown festival takes place in the spring.

Deputy Connaughton

As a matter of interest, I am only an occasional racegoer. For a place as large as Punchestown, does it not appear that huge importance was placed on one festival? Even if it had had a good festival that year, would it have still had some trouble?

Mr. Malone

That may well have been the case.

Deputy Connaughton

Considering all the loans, etc., it would not appear that the sun was going to shine too brightly for it even if it had a good festival.

Mr. Malone

No, its troubles began with the festival. There is no argument or question about that. As has been described and as Mr. Kavanagh will confirm, Punchestown holds 18 race days per annum. It is a racetrack and the racing normally takes place during the winter. It has grown in importance and has acquired an international status. As far as we were concerned, there were no problems. I do not think there were problems until 2001 when its balance sheet changed dramatically.

Deputy Connaughton

Is it the case that the money had not been paid to it at that stage?

Mr. Malone

Some money would have been. The project was well under way at that stage.

Deputy Connaughton

A reasonable tranche of money had been paid to it by the Department when things were not going well there.

Mr. Malone

At that stage, they were involved in finishing the event centre. We were not doing either ourselves or anybody else a service by having an event centre half finished or three quarters finished. It was well under way at that stage. At that stage also, by the time we made the last payment, Horse Racing Ireland had taken a hand in the situation.

Deputy Connaughton

Mr. Malone spoke of the evaluation, such as it was, and that it was a once-off project, etc. Many people would find it difficult to understand why it could not have been evaluated against other projects in other countries, but that is the way it happened. The straw that appeared to break the camel's back was the third application for Exchequer funding which was for the sewerage scheme. Was that for €1.6 million?

Mr. Malone

Yes, it was of that order.

Deputy Connaughton

This is an architectural and engineering matter. Even people trying to build their own home for the first time must be particular about the septic tank. As Mr. Malone will know well, this is a huge cost in house building. Was it not remarkable that someone did not realise that this was likely to happen? Many members of the public would see that obtaining the €1.6 million was straightforward. The deal was done, a telephone call was made and, all of a sudden, they were told they would get the additional funding as well. Does that not seem a little haphazard?

Mr. Malone

No, I do not think it is haphazard. I myself asked the same question. Could this have been anticipated? In the case of the car park, Punchestown would have considerable car parking facilities anyway. They might not have tarmacadam on them but there would be a considerable amount of land and space around the entry to the racecourse where cars could be parked. Kildare County Council took a particular view. As I understand it, there was a discussion between Punchestown and Kildare County Council.

On the sewerage facilities, again all this is with the benefit of hindsight. It is an open question as to whether it could have been anticipated.

Deputy Connaughton

It is not.

Mr. Malone

Yes it is. I would have a different view.

Deputy Connaughton

It should have been written into the script from day one.

Mr. Malone

No, that is said with the benefit of hindsight.

Deputy Connaughton

I put it to Mr. Malone that, in any project of any size I have seen, the sewerage system has been an integral part of it.

Mr. Malone

Yes, but one must bear in mind what exists in Punchestown, namely, a facility that is used for a limited number of days. If the sewerage issue was to be a problem, it should always have been a problem and Kildare County Council took a particular view on it.

We were left with a choice. The Deputy is correct in his analysis that this was the last piece of the jigsaw and the choice was either to pay or not to pay it. If it was not paid, it was evident at that stage that Punchestown did not have the wherewithal and resources to pay it. If all had gone well in 2001, it would have been a different discussion.

Deputy Connaughton

It is fortunate that someone did not decide to cover the car park or there would have been another bill if this trend had continued. I sincerely hope that the taxpayers' investment in this pays off. I wish the project well for everyone's sake because it has the ability to work. However, many questions have been asked about how the evaluation was carried out.

Deputy Noonan

The Comptroller and Auditor General, in his preliminary remarks, indicated that there were five areas on which we needed clarification. The first, the evaluation of the project, has been gone through in great detail, especially by Deputy Higgins. On the evaluation, is it correct that no business plan was produced for the Department of Agriculture and Food by Punchestown, even though it might have had one itself?

Mr. Malone

That is correct.

Deputy Noonan

The Department neither considered nor opted to appoint outside consultants. All evaluation was done internally in the Department.

Mr. Malone

That is correct. We discussed that on the previous occasion.

Deputy Noonan

The position of the Department of Finance was that it was the Department of Agriculture and Food's job to evaluate and therefore it did not assist or hinder in any way the evaluation.

Mr. Malone

That is fair comment also.

Deputy Noonan

The first proposal was evaluated over the Christmas period between late November 1999 and mid-January, a busy time in the Department and a short period. I am not saying it could not have been done. Would it be correct to say that it was given priority within the Department?

Mr. Malone

That time of the year is busy in the Department and there were many other issues going on, but it is possible to do a proper evaluation in a four or five week period. It fell into a clear area of responsibility.

Deputy Noonan

I do not suggest it was not possible to do it. I am saying it was possible to do it if it was prioritised. Was it given priority to ensure that the result of the evaluation was issued quickly in early January during what was a holiday period and also a busy period as the Department was dealing with the end of its financial year?

Mr. Malone

I never got the sense that I or the Minister ever said to officials that this had to be dealt with and gave them a timeframe within which to deal with it. That did not happen.

Deputy Noonan

Am I correct in assuming that the bottom line was that Mr. Malone regarded it as an essential piece of infrastructure for agri-business in Ireland and that was the controlling factor in the decision?

Mr. Malone

Yes.

Deputy Noonan

Was that still the controlling factor when the price doubled?

Mr. Malone

By and large, yes, except that we had to look at what extra we were getting when the price doubled. We were getting a facility that gave more options and that, in particular, accommodated the farm machinery aspect more efficiently. From that point of view, the Deputy is correct. Our basic position was there was a gap in the infrastructure.

Deputy Noonan

The impression I have from Mr. Malone during this and the previous meeting, and there is nothing wrong with it either, is that the Department was committed to providing this piece of infrastructure and felt that the first proposal, when it was submitted, was an answer to something the Department may have had in mind for a long time. When the second proposal was submitted, the Department thought this was even better, even though it cost more, and there was no real attempt in the second evaluation to match value for money with the original policy position of wanting the facility. Am I wrong in that?

Mr. Malone

When the second proposal came in, we had not been anticipating it. We got the first proposal and felt that was it. As has been indicated, Punchestown came to us in April 2000 indicating that they had looked around a bit more and had a better proposal.

We looked at the second proposal. If the cost of any project doubles, then one asks oneself why it is doubling and what extra one is getting. We formed the considered view that the second proposal was a better one. It was then contingent on the money being made available and that required the support of the Minister, for a start, and then the support of the Department and the Minister for Finance.

Deputy Noonan

There appears to be no doubt that it was a better proposal, but was it a better proposal for the money concerned? Did the Department evaluate that?

Mr. Malone

Yes, we did. I think it is a better proposal for the money concerned. What one is getting for the extra €6 million is a project that is probably more than twice as good as the first project.

Deputy Noonan

In terms of the accountingfor the project, in what Vote of the Department is it?

Mr. Malone

It is in a particular subhead which we opened, subhead E3. It was a stand-alone subhead.

Deputy Noonan

The project ran from the first submission by Punchestown in November 1999, and Mr. Malone stated that construction commenced in 2000 and was completed in 2002. Is that correct?

Mr. Malone

Roughly speaking, yes. We made payments in 2000, 2001 and 2002 and a small residual payment in 2003.

Deputy Noonan

When did subhead E3 first appear in the Book of Estimates?

Mr. Malone

Subhead E3 appeared in the Revised Book of Estimates in 2000.

Deputy Noonan

Therefore it would not have gone into the pre-budget Book of Estimates.

Mr. Malone

We did not have the approval at that stage.

Deputy Noonan

Yes, so it would have been included in the post-budget Book of Estimates.

Mr. Malone

We would have put it into the revised one.

Deputy Noonan

At that time budgets took place in January or did they still take place in December?

Mr. Malone

They took place in December, but the project would not have been in the Book of Estimates for 2000 that was published in 1999. It was, however, as I recall, published in the Revised Estimates in 2000 which, as the Deputy will be aware, appear generally around late January or February. It was put into the Book of Estimates at that stage.

Deputy Noonan

What figure was included?

Mr. Malone

I can get the figure for the Deputy.

Deputy Noonan

What is the approximate figure?

Mr. Malone

The figure of £5.5 million was put in at that stage.

Deputy Noonan

Regarding the minutes of the Kildare Hunt Club and the approval given on 3 June, is it the case that no formal approval was given to the first proposal?

Mr. Malone

No, we never wrote to Punchestown but they knew that there was ministerial agreement. The inclusion in the Revised Book of Estimates was a clear indication of formal approval. Clearly one could not include a provision in the Revised Book of Estimates if one did not have the approval of the Minister for Finance.

Deputy Noonan

Was the budget held in December of 1999?

Mr. Malone

The budget was held in December of 1999 but I am talking about the Book of Estimates.

Deputy Noonan

I know. As I understand it, there is the pre-budget Book of Estimates, with which we are all familiar and about which there is all the fuss and debate in the House, and then the Revised Book of Estimates is published after the budget. The reason for this is to reflect changes made in the budget, not new decisions made by Departments. They would be in the original Book of Estimates. Whether it is formal or informal, my point is that the fact that the Department had a new subhead - E3 - in the Revised Book of Estimates in January of 2000 means that approval was given, one way or another, six months previously. The documentary evidence states the approval was given in June or July of 2000.

Mr. Malone

One cannot draw that conclusion. The process is that there is a Budget Statement by the Minister for Finance, there is a Book of Estimates which is normally published in December of the previous year and there is a Revised Book of Estimates which is generally published in late January or early February of the following year. We would feel that opening a specific budget line brought transparency and openness to this. There were other options had we wanted to be less than transparent.

Deputy Noonan

I do not suggest that.

Mr. Malone

On the second point, that a change in the Revised Book of Estimates implies a policy decision taken five or six months previously, that is not the way the system works. The way it works is that the Revised Book of Estimates takes account of adjustments that have been made, and this was an adjustment that was made and we accommodated it in the Revised Book of Estimates. I would argue the contrary. There has been total openness and transparency on this.

Deputy Noonan

We are all familiar with how the systems work, whether we are on the political or official side, and how the Estimate is built up. This is done on the basis of the policy in each Department and the cost of implementing that in the following year. The pre-budget Book of Estimates did not contain subhead E3 because, up to the end of 1999, it was not the policy of the Department of Agriculture and Food to build a convention centre in Punchestown. Therefore it was not in the build-up of the Estimate.

In the post-budget Book of Estimates, also known as the Revised Book of Estimates, I understand that the revisions are due to the changes made in the budget which Mr. Malone stated was in December 1999. On this occasion, however, we see a new subhead included in the Revised Book of Estimates in January-February of 2000 on the basis of a decision which was not made until June of the following year. Mr. Malone can correct me if there are precedents, but I have not previously seen a budget line being opened under a new subhead in anticipation of a decision to be taken later in the summer. It is hard enough to obtain money for the policies decided, not to speak of those anticipated.

Mr. Malone

The Revised Book of Estimates obviously takes account of decisions made in the budget but also the culmination of a process that goes on between the Department of Finance and the individual line Departments about expenditure under different headings.

The inclusion of the provision in the Revised Book of Estimates published in 2000 is perfectly consistent with the dates. It is acknowledged, and the correspondence exists to show it, that the Minister for Finance gave approval for the first project on 27 January 2000. Certainly from my point of view and from an official point of view, this is perfectly consistent.

We had no decision or proposal. The Estimates process normally begins around July, August or September of the previous year. There was nothing from Punchestown at that stage. A proposal came in November, we got a decision in January and we included it in the Revised Book of Estimates. There is nothing more or less to it. Those are the facts of the situation.

Deputy Noonan

When the Department included the figure, it was in excess of £5 million. It was a multi-annual proposal by any standards involving a good deal of construction. The first proposal, which the Minister sanctioned on 27 January, was for a figure of €6.9 million. Would it be appropriate to make a preliminary inclusion under a special subhead of a figure in excess of €5 million against a total cost of €6.9 million? It appears the provision was made against a cost of €12.7 million. It also appears that at the time the Department included the figure in the Book of Estimates, it was making provision against the second rather than the first proposal because it would not be reasonable or sensible to include a figure in excess of €5 million for a total cost of €6.7 million when it would take several years to go through in any case.

Mr. Malone

It depends on how quickly this is done. When one includes a provision, one makes a best guess as to the figure. I do not believe anybody is disputing the facts which are that the second proposal had not been received by us at that stage.

Deputy Noonan

Is Mr. Malone saying it had not been received or had not been formally received?

Mr. Malone

We had not received it. Perhaps I misled the Deputy and I apologise if there was some confusion concerning years. I am categorical on this issue and the Deputy will have to take my word that it had not been received. As it happened, the project was probably slower to get off the ground. If the first proposal had proceeded and the management of Punchestown had not changed their minds, the project would have started and finished sooner.

Deputy Noonan

What is the planning history of the project?

Mr. Malone

All our approval was clearly contingent on planning approval being obtained from Kildare County Council. I understand this was given in late 2000, although I will have to check the dates.

Deputy Noonan

I presume Punchestown had gone to tender subject to planning permission.

Mr. Malone

Yes, there were six tenders.

Deputy Noonan

The money had been provided during the previous January.

Mr. Malone

Yes, in the Revised Estimates.

Deputy Noonan

The second area to which the Comptroller and Auditor General referred——

Mr. Carey

While I am aware of the saying one should never volunteer to speak, I wish to point out that, with regard to the figures being bandied around, the difference between pounds and euro may be a source of confusion. The original proposal was for £5.5 million, which is roughly €6.9 million.

With regard to the technicalities of the proposal, changes in the budget are not the only ones reflected in the Revised Book of Estimates. During my previous appearance before the committee, I pointed out that one of the reasons the then Department of Agriculture, Food and the Marine wrote to us regarding the first payment was that it needed the approval of the Department of Finance to open a new subhead which had not appeared in the abridged version of the Estimates.

To summarise the position, the use of pounds and euro could give rise to some confusion and, second, it is unusual but not without precedent for something like this to happen.

Deputy Noonan

The second area to which the Comptroller and Auditor General referred was the issue of whether the building, in general, was being used for its original purpose. What was the original purpose of the proposal?

Mr. Malone

The original purpose was eventing, helping the equestrian industry in the wider sense, and hosting agricultural events, shows and exhibitions, including, for example, farm machinery shows.

Deputy Noonan

Is Mr. Malone referring to European eventing?

Mr. Malone

Yes, the three-day European eventing.

Deputy Noonan

Did that take place outside the convention centre?

Mr. Malone

There are three phases of eventing, namely, dressage, show jumping and long distance riding. In this case, one needs an event centre such as this. There were, for example, roughly 100 competitors, which makes it a huge event. It cost some €2 million to run the event held in Punchestown last September. One needs a large centre for the competitors, checking and everything else that goes with such an event.

Deputy Noonan

The last time we discussed this issue, I misunderstood the position. I understood that part of the purpose of the project was to hold equestrian events inside the centre. I was surprised to learn subsequently that this had never been the intention and equally surprised by Mr. Kavanagh's earlier comment that show jumping could be held in the event centre. On our visit to Punchestown, we were told categorically by its management team that it had never been the intention to have a horse in the building, neither when the proposal was made nor subsequently. We were told specifically that Kill, ten minutes up the motorway from Punchestown, has a fine centre for hosting show jumping or indoor equestrian events which Punchestown would use if such facilities were required. Was it the Department's understanding that horses would not be in the centre?

Mr. Malone

I would not be quite so categorical as to state that horses would never be in the centre. What was clear, and I clarified this earlier, was that the question of show jumping was not really a consideration as far as we were concerned because we already have adequate facilities in the country, including as the Deputy pointed out, one such facility not far from Punchestown. When one gets involved in the eventing arrangement, however, one needs a wider range of facilities. Clearly, for example, one needs a fairly big track, but a range of other facilities are required, for instance, for dressage. I understand the show jumping part of the event was held in an arena beside the event centre. When one has 100 competitors, one also needs a centre.

Deputy Noonan

I am not arguing against the centre but trying to clear up a misunderstanding which I presume was shared by other people. I understood that when the case was made that Ireland would not be able to hold the European eventing championships without having a convention centre, the reason was that the convention centre would be used for some of the competitions. It now transpires that this was not the case as the centre was never intended to be used for competitions and that all the eventing in the European championships took place outside.

Mr. Malone

Without wishing to get into arguments on dimensions and similar issues, one could use the centre for show jumping if one wanted.

Deputy Noonan

While that may be the case, there was no business plan. Mr. Malone has already stated that the Department did not take show jumping into account in its evaluation of the proposal for the centre. I presume it could take place in the facility but this was not the purpose of the centre. Was it evaluated on that basis?

Mr. Malone

No, because we consider that show jumping is adequately catered for.

Deputy Noonan

This is also what the people in Punchestown told us when we were down there, namely, that any such events they wanted to have would take place in Kill. This brings me to the third area raised by the Comptroller and Auditor General.

Chairman

I ask the Deputy to give way to Deputy Batt O'Keeffe.

Deputy Noonan

May I make a final point?

Chairman

We are under time pressure.

Deputy Noonan

The Comptroller and Auditor General placed considerable emphasis on this issue and I have important questions to ask about it. I will yield to Deputy Batt O'Keeffe when I have asked a few more questions, provided I can contribute again later.

Chairman

That is fine.

Deputy Noonan

On my visit to Punchestown I found it difficult to understand that there had never been any intention to have a horse in the building. I accept Mr. Malone's point that, if somebody decided to use the facility for show jumping, this could be done. The European eventing trials which took place at the facility are used as the primary justification for the project. In other words, we are told that Ireland could not have hosted the event without the convention centre. This is a generally accepted point, which we have also accepted. However, many people thought events were taking place inside the centre, which is not the case.

On the next area examined by the Comptroller and Auditor General, if it was never intended to have horses inside the building, why was €2 million spent on stables as part of necessary infrastructure? I cannot reconcile this with the manner in which the Department evaluated the project.

Mr. Malone

One cannot hold eventing without stables. Punchestown had stables but they were old. There are many health and safety issues relating to them given that people must look after the horses. Eventing could not take place without adequate stable facilities. Many questions would have been raised if the facility had been built without stables. Many questions have been raised about not anticipating certain issues but we would be open to criticism for not adequately catering for that requirement.

Deputy Noonan

Is Mr. Malone saying the primary purpose in building the centre was to attract eventing?

Mr. Malone

That was one of the uses. Farm machinery was a problem because there were difficulties at the RDS in terms of traffic. We also have ambitions that a large number of international livestock shows would be held there and large stables would be needed for that. We calculated the track is used for 18 days of racing, therefore, the stables are used for racing for a limited time. They would be used more for events in the centre such as three day eventing.

Deputy Noonan

However, horses do not go into the centre.

Mr. Malone

They do. They might not go into the building but there must be adequate stable facilities.

Mr. Kavanagh

I will clarify that. My understanding is that by definition in three day eventing, showjumping is always held outdoors, as happens, for example, at the Olympic Games, Badminton and so on. However, the event centre was used for horses, not showjumping at Punchestown in September. It was used as a vetting area for both the cross country event which took place on Punchestown lands and, allied to the three day event, there was an endurance event where Arab-bred horses competed in the Wicklow Mountains. Vetting for that and the cross country element of the three day event was vital. That all took place in the event centre. Showjumping is always an outdoor event. Indoor showjumping is for exhibition purposes as opposed to being a major international event. The event centre was used for horses during the European championships as a vetting centre and veterinary area and not for horses to compete.

Deputy Noonan

I am trying to explore two issues to which the Comptroller and Auditor General referred us. Were facilities provided under the heading of a convention centre, the primary purpose of which was to facilitate the racecourse rather than the centre? Was there a crossover in the investment? To what extent was the elaborate entrance gate needed for the convention centre or was it primarily an opportunity to provide a facility the racecourse badly needed? It is a similar scenario with the stables. Everybody is agreed the proposers were pushing an open door and, as a result, did they go beyond what was necessary for a convention centre and add on facilities regarded as necessary for the racecourse?

Mr. Malone

I do not think so. I replied to a similar question to the effect that there is no doubt there are synergies between the two, which confirms the logic of basing the centre at Punchestown as opposed to anywhere else. Many of the add-ons were the result of planning requirements and they were not brought forward by the promoters of the event centre. The stables are fundamental to the running of a three day eventing competition and a race meeting. There may be different requirements for stabling. A race meeting might involve 90 horses while three day eventing might involve significantly more horses and a greater turnover of horses.

There are also synergies in reverse, in that Punchestown management - Dick O'Sullivan and this team whom the committee members met when they visited the site - is bringing its expertise in running events and race meetings to bear on the promotion and running of the event centre. There are undoubtedly synergies but, if the event centre was developed on a green field site anywhere away from Punchestown, there is nothing in the list of costs in the Comptroller and Auditor General's report that would not be included.

Deputy B. O’Keeffe

Will Mr. Malone confirm that while Deputy McCreevy might have met the Kildare Hunt Club, there is no evidence of him contacting the Department of Agriculture and Food, in writing or otherwise, to give priority to this project?

Mr. Malone

That is true.

Deputy B. O’Keeffe

Is there evidence that the Minister of Agriculture and Food asked that the event centre should be prioritised?

Mr. Malone

No.

Deputy B. O’Keeffe

That is important in terms of the public's view. I refer to the minutes of the Kildare Hunt Club, which are important because it is dangerous if they are taken as accurate summations. Members of the club were of the overwhelming view that the money was not to be repaid. That was inaccurate because they were misinformed. It was also understood from the minutes that the majority of members felt the HRI would repay the money following litigation. Is that categorically denied?

Mr. Kavanagh

Yes.

Deputy B. O’Keeffe

The third issue, the grant payment, was raised. It is likely the reference to it was inaccurate.

Mr. Kavanagh

Which is that?

Deputy B. O’Keeffe

Deputy Higgins asked about a minute that suggested the club was aware of a grant that would be made in two tranches. Mr. Malone indicated that was never agreed.

Mr. Malone

That might relate to legal fees.

Deputy J. Higgins

Mr. Malone did not say that.

Deputy B. O’Keeffe

I want to clarify that.

Deputy J. Higgins

It is in a different category, it is a contemporaneous note of what happened.

Deputy B. O’Keeffe

The Deputy had his opportunity.

Deputy J. Higgins

I will not have questions twisted.

Deputy B. O’Keeffe

With regard to the issue of two phased payments, which was raised at a hunt club meeting, will Mr. Malone clarify that did not arise?

Mr. Malone

Will the Deputy clarify the question?

Deputy B. O’Keeffe

Deputy Higgins said that, at a meeting of the Kildare Hunt Club, it was stated it already had the agreement of the Department of Agriculture and Food to receive the payment in two phases. I understood from Mr. Malone's reply to the Deputy that this was not the case and it was not agreed prior to——

Mr. Malone

Normally, the payment is made in two phases. The issue that arose was whether the club had received an indication from us before we had the approval of the Minister for Finance for the second project and I rejected that assertion.

Deputy B. O’Keeffe

I was one of the few who visited Punchestown and looked upon the venture as good value for money. I listened to Mr. Kavanagh's comments on the new agreement. The committee is interested in the protection of the State's interest. The site comprises 466 acres, 250 of which will be managed by the Kildare Hunt Club and Punchestown management. How is that land zoned? A golf club, for example, is located on land zoned recreational but it is possible to develop land within the overall structure. If part of the 460 acres of land was to be zoned under the new agreement, the Kildare Hunt Club would have a massive pie. If 20 acres of the land was zoned it would amount to in excess of €20 million. We are looking at the State having an investment from HRI and other people. Is there anything in the new agreement which states categorically that in the event of some of the land being zoned for development purposes there will be a clawback to the State?

Mr. Kavanagh

The clause states that there will be a first priority on any funds raised to repay the loans forwarded by Horse Racing Ireland. The land on which the 250 acres is based is all zoned agricultural. Most racecourses are zoned agricultural and local councils will allow the building of necessary stands and buildings on the property to carry out race meetings. However, one must bear in mind that much of the land will be valueless in that it is in the centre of the racecourse at Punchestown, which is of no value to anyone. The vast bulk of the land is worth nothing.

Some land within the 250 acres is currently used as car parks and has road frontage. Obviously there would be a value on this if it were rezoned. One of the clauses we have included is that if funds are realised from the sale of lands, the first priority must be to repay the money outstanding to Horse Racing Ireland.

Deputy B. O’Keeffe

Would that clawback pertain to other investments by the State apart from the investment HRI would make?

Mr. Kavanagh

I cannot speak for the events centre money. It would not pertain to the grants given for the development of the racecourse stands. That would be no different from any other racecourse, whether Galway, Limerick or wherever throughout the country. If we give a capital grant to a racecourse to develop its facilities, it is given on a 50:50 matching funding basis on the strict understanding that it only becomes repayable if racing ceases within ten years of the payment of the grant.

Deputy B. O’Keeffe

Is the total land holding zoned agricultural?

Mr. Kavanagh

Yes. The only land that is zoned residential is the 21 acres of development land to which I referred earlier. This was purchased outside of the trust about 15 years ago. They have endeavoured, but failed to achieve planning permission to develop some houses on the land.

Deputy B. O’Keeffe

If 21 acres is zoned residential, one would take it that somewhere along the line one will get planning permission for a significant housing development on the land.

Mr. Kavanagh

That is the hope, even though they have tried and failed once at An Bord Pleanála.

Deputy B. O’Keeffe

In the event of a significant development taking place on the lands, perhaps Mr. Kavanagh will check for a report to see what clawback there might be in respect of other investments by the State in the Punchestown land. Is Mr. Kavanagh saying there will be clawback for HRI?

Mr. Kavanagh

Yes.

Deputy B. O’Keeffe

Will there be a clawback for other State investments?

Mr. Kavanagh

On the event centre?

Deputy B. O’Keeffe

Yes.

Mr. Kavanagh

I do not believe so.

Mr. Purcell

Yes, there is. The letter to the chief executive of 1 August 2000 contains these conditions. Condition No. 15 states that the money will be repayable if the property is sold, leased or its use is altered significantly without the prior written approval of the Department.

Deputy B. O’Keeffe

Does this refer to the centre itself? If the State invests a significant amount of funding in a strategic development, which is badly needed, and if the company sells a large tract of land, it will have total ownership of everything the State puts into it. Is there any protection for the State in terms of a private company having a massive landbank, including the significant funding which will accrue from zoning it development land? Will the State get some benefit from the company for the significant funds it will invest?

Mr. Purcell

This is something which will have to be agreed in the final agreement between Horse Racing Ireland and Punchestown. It has not yet been ratified. Everything has not been done and dusted in this regard. There is an outline agreement but, legally, the €2.5 million loan has not been transferred. Presumably the agreement will not kick in until this happens. I am not privy to the details of the agreement.

Deputy B. O’Keeffe

It would be ironic if the State made the investment, a private club made significant money out of a portion of the land and the State received no clawback. Effectively, the club would own the whole concourse, including Punchestown racing and the event centre, while the State would have invested significant funds. It would be appropriate that there should be some clawback to the State and that any agreement should take this into account.

Mr. Kavanagh

Clause 12 of the package which was put to the Kildare Hunt Club states that the proceeds of the sale of all non-racecourse or event centre lands remaining with the Kildare Hunt Club will, in the first instance, be used to offset the company's debts. This is the basis for the statement I made that the loans would be repaid. I do not believe this will apply to the grants we have given them, which are subject to different repayment terms. I cannot speak for the event centre funding.

Deputy B. O’Keeffe

Would it not be ironic if, for instance, the State invested money in a sewerage system on the 20 acres of land zoned for development and it received nothing back?

Mr. Kavanagh

It would, but the land for development is at the far side of the racecourse from the enclosures. This land was acquired ten or 15 years ago.

Deputy B. O’Keeffe

As it now appears likely that the Kildare Hunt Club will be in a position to pay off its debts within the timeframe, what guarantee has the State in regard to the strategic management and the holding of events by the State on this private property?

Mr. Kavanagh

I would not underestimate the repayments issue. It is a challenging funding issue to repay the money. The best guarantee we can give is our involvement. We will be involved as a 50% owner of the property for the next 15 years at the very least. Our specific objective will be to safeguard any investment of the State in the past.

Deputy Boyle

The visit to Punchestown by members of the committee following the last presentation by the Secretary General was very useful in that it put the project into context. As a member of the delegation, I could see the dual use of many of the ancillary facilities in terms of the stables and the entrance enclosure. It is fair to state that the benefit of the ancillary facilities are of equal, if not greater importance to the racecourse than the use of the event centre itself.

It was also clear from the visit that there were severe questions about the corporate governance of the management company and the Kildare Hunt at the time the decisions were being made. I am concerned as to why this was not noted at the time. There are questions about professionalism and so on. I do not accept the answers being given today that the problems of Punchestown boil down to bad luck and the events of 2001. There continues to be a very detailed corporate structure involving three companies on the racecourse. This involves the renting of services and the event centre to the main racecourse group and rent going to the main race course group from the events centre and the services company. I cannot understand why a Department and State agency have allowed such a complex situation to develop and have not made any serious effort to disentangle it.

May I ask Mr. Malone a question about the time between the first and second proposals? Indications were given that research was undertaken which justified the second proposal being made, that centres were seen in Scotland and Germany and that this research was undertaken by Punchestown, or the Kildare Hunt. It is my impression that this was done informally, that people visited these areas on a personal basis and decided that what they saw was what they would like to see in Punchestown and that this was the basis of the second proposal being made. Between the first and second proposal, why was the Department of Agriculture and Food not engaged in research regarding what was needed, what existed elsewhere and what facilities the Department would like to see in this country?

Mr. Malone

We had the option of going abroad ourselves and looking at centres. Within the Department we had a familiarity with event centres. Some of our people had been abroad for other reasons and had seen places like this. Whether the review by Punchestown was done formally or informally, the fact remains that centres of this kind exist elsewhere. The option of a more elaborate proposition that would cost more money was put to the Department. I am not sure if we would have added much value by visiting centres like this ourselves. Even with the benefit of hindsight, I am not sure if that would have added to what we know.

Deputy Boyle

Is it fair to say that this research was done informally by the promoters?

Mr. Malone

I am unclear as to the difference between formal and informal. If one is at anevent and one sees a facility and how it isdesigned——

Deputy Boyle

It seems to be of a piece that no business plan was submitted, even for the first proposal, never mind the second proposal and that the formulation of ideas and the making of the proposal was done on an informal and ad hoc basis that would not be acceptable in any other decision making procedure.

Mr. Malone

The business plan is a different issue. It relates to the volume of business and the number of events in the future. The design of the centre was the first consideration. That was done with the benefit of architects, engineers and various other experts on design. One can look at facilities abroad but at some point an architect has to sit down and formulate a design that is best suited to what the facility is required for, the use to which it would be put, the site and the location.

Deputy Boyle

Would it be fair to say that the Department of Agriculture and Food became involved because the event centre was seen to have a possible use for agricultural shows and exhibitions as well as the equestrian element? Ordinarily, the capital development of a race course would have to go through Horse Racing Ireland, an organisation with a limited capital budget. Did the possibility of access to Exchequer funding make it more likely that money for this type of capital development would be more easily obtained through the Department of Agriculture and Food?

Mr. Malone

No, I do not think that is a fair way of looking at it. Punchestown, as Mr. Kavanagh has already explained, had got assistance for the capital development of the race course. I accept that there were issues of shared facilities, stables, access and that kind of thing. Punchestown has a facility but those involved have taken on a liability and responsibility. They have the centre and they must make it work and manage it. One could say they got the facility at zero cost but they must run it on a day-to-day basis. The argument that this was a convenient way of getting their hands on State funds does not stand up.

Mr. Kavanagh

We would not grant-aid that type of project, which is ancillary to the racing activity there. We have had instances where a number of race courses have engaged in non-racing activities. Our own race course, Leopardstown, has a golf centre which we would not grant-aid. If the question is, did the application go to the Department of Agriculture and Food instead of going to Horse Racing Ireland, or IHA as it was at the time, it would not fall within our remit to grant-aid that type of development.

Deputy Boyle

I have questions for Mr. Kavanagh but I have one final question for Mr. Malone. Was the change of management and of the officer board of the Kildare Hunt in recent years and the effect of that on the project and on the future management of the project viewed with any concern in the Department?

Mr. Malone

Yes, we had an interest, more than an interest, in the events which unfolded at Punchestown from late 2001 onwards. Clearly, we had an interest in the situation stabilising itself and that there should be clear structures and good management, going forward. Yes, is the short answer to the Deputy's question.

Deputy Boyle

Horse Racing Ireland is both an owner and a regulator of race courses, which is a conflicting situation. Its predecessor organisation, the Irish Horseracing Authority, had already given considerable grant-aid to Punchestown to allow the development of the stand and corporate facilities and the catering and services facilities. How much money was given to Punchestown?

Mr. Kavanagh

The figure quoted earlier by the Comptroller and Auditor General was a grant of IR£6.4 million, or €8.2 million, and a loan of IR£1.3 million, or €1.65 million, which kicked in when the festival in 2001 was lost. That would have been consistent with the type of funding provided for equivalent race courses during their development process in the late 1990s.

Deputy Boyle

There are outstanding loans in the region of €4.1 million.

Chairman

That point was dealt with extensively at the start of the meeting, Deputy.

Deputy Boyle

A sum of €6 million has been given in grant-aid. An additional €15 million has been provided for a new events centre and the outstanding loans are only €4 million. The State has already given a considerable amount of money to this company and race course, yet it is being asked to get involved in a bail-out operation over 15 years. These assets will continue, if the centre is successful, and remain in the ownership of the Kildare Hunt.

Mr. Kavanagh

The package we have offered allows them time to trade their way out of their problem and repay any loans. The issue of whether or not money is invested by ourselves, as grant-aid or as loans, for the development of race course infrastructure is, to some extent, a different debate. Punchestown got the same treatment as all race courses were entitled to, which was a 50% grant towards their development.

I said earlier that Punchestown had set out a very ambitious development plan to move from where it was in 1995 as a small locally-based festival meeting to an international race meeting. That was something I would imagine the Irish Horseracing Authority would have supported and encouraged at that time.

Deputy Boyle

Is the agreement with the Kildare Hunt about the arrangements for the future company still being finalised?

Mr. Kavanagh

It is. It has been approved and was endorsed by the members of the Kildare Hunt at a meeting held about three weeks ago. The holding company has been established, it is running the race course under a management services agreement and directors have been appointed to it - five from the club and five from ourselves. We have said we are not prepared to inject funding into the joint venture company until the modification of the leases to reflect the revised split of the land is addressed and until Revenue clearance is received for the structures going forward.

As Mr. Malone said earlier, there is no difficulty with Punchestown. The company has operated as a partnership for the past year. I have been one of its directors. It has brought about a change in atmosphere in the place in terms of the way the racecourse has been run.

Deputy Boyle

One was appointed as manager by Horse Racing Ireland.

Mr. Kavanagh

Yes.

Deputy Boyle

Through a management services agreement.

Mr. Kavanagh

Yes.

Deputy Boyle

Why does Horse Racing Ireland run Navan golf course?

Mr. Kavanagh

It is a subsidiary of Navan Racecourse, which we own. One of the issues which racecourses have faced is that they have a significant investment of facilities which are used only on a limited number of days during the year. We would encourage racecourses to develop non race-day business, and Navan developed quite a successful golf course, commencing in 1997. It is funded separately and by members of the golf club. A number of racecourses such as Killarney, Leopardstown, Gowran Park, operate golf courses to try to get the businesses going on days other than the days on which they are racing.

Deputy Boyle

That is the direct opposite to what Mr. Kavanagh told me a few minutes ago in regard to not funding ancillary facilities of the type at the events centre.

Mr. Kavanagh

I made the point that Navan golf course is self-financed. It is funded by borrowings it has undertaken and by the membership subscription fees.

Deputy Boyle

Even if that centre's proposal was made to Horse Racing Ireland on the basis that it was self-financing, Mr. Kavanagh would not get involved with such an arrangement.

Mr. Kavanagh

We would certainly encourage racecourses to do it, particularly something like the events centre, where there might be synergies, but we would not provide capital grant aid for the development of the centre. If there was a project that stood on its own two feet commercially, we would expect the racecourse to have funding plans in place for such a proposal.

Deputy Boyle

So there may have been a mechanism where a facility of this type could have been developed without any State money.

Mr. Kavanagh

I do not think so. Given the profits it is generating and the profitability of this centre, I do not believe it would have been. I said earlier that in the three years it has existed it has made an average profit of €20,000 per year, with €60,000 this year being the highest. If there was a commercial case for putting it there, perhaps we would have had more applicants than we had.

Deputy Boyle

Had a commercial case been made for it? That is another argument.

Deputy Noonan

Many of the questions I had in mind have been asked. What is the rent policy on the convention centre? Has Mr. Kavanagh established an economic daily rent or does he vary it from client to client?

Mr. Kavanagh

I do not understand the question regarding the rent of the centre. Is it the rent from the development company to the race course?

Deputy Noonan

No. When somebody seeks the use of the centre, what is the rental policy of the management?

Mr. Kavanagh

I do not know the detail but each event is negotiated on a commercial basis. I understand that the principal used is that any non-agricultural based events should be charged out on a fully commercial basis whereas there may be some case for operating agricultural-type events at a break even rate. I do not get involved in the detailed negotiations but leave that to Dick O'Sullivan.

Deputy Noonan

Have some events been accommodated there at no cost?

Mr. Kavanagh

I do not know the answer to that.

Deputy Noonan

A considerable amount of the time of the racecourse management is taken up with running the events centre as distinct from the racecourse.

Mr. Kavanagh

Yes.

Deputy Noonan

Is that reflected in the €7,000 profit? Has a cost been attributed to the time of the management?

Mr. Kavanagh

I do not think there is a charge. There is a charge for the use of the stables and the entrance building on race days. I am informed there is a management charge of €30,000.

Deputy Noonan

Is that per annum?

Mr. Kavanagh

Yes.

Deputy Noonan

Does that cover the significant amount of time the management is required for the convention centre? Everybody is interested in the convention centre breaking even. Have the figures been strained to show a profit because the management committee that runs it is paid through the racecourse activity?

Mr. Kavanagh

I do not know. The charge is reasonable based on the time spent. Time is allocated to the events centre by Dick O'Sullivan and his accountant. I would not say the charge is unreasonable.

Deputy Noonan

Mr. Kavanagh described the asset base of the company. Most of the assets have no sale value because they are all tied into the trust, with the exception of the 20 acres.

Mr. Kavanagh

Yes.

Deputy Noonan

The 20 acres are a very valuable asset.

Mr. Kavanagh

They would be valuable if planning permission was obtained.

Deputy Noonan

Can I take it from something Mr. Kavanagh said that planning permission was obtained from Kildare County Council but refused by An Bord Pleanála?

Mr. Kavanagh

I understand that to be the case. It lost on appeal to An Bord Pleanála with objections from local residents.

Deputy Noonan

On the face of it, if it got permission, even for a small portion of it, they would have no problem in clearing their debts.

Mr. Kavanagh

No. There is also a debt to the AIB of €1.1 million which would have to be taken into account.

Deputy Noonan

Are there other debts that we do not know of that are outside the remit of our discussions?

Mr. Kavanagh

No. I understand they are the main debts.

Deputy Noonan

Their total debtedness is €5 million.

Mr. Kavanagh

Yes, plus the GT Equinus figures.

Deputy Noonan

To have 20 acres of land zoned residential, even with a refusal on it, is an extremely valuable asset. What Deputy O'Keeffe has said is important. It appears as if over a 16 year period it would be able to realise part of this. Those involved look well covered and as a consequence the State is beginning to look exposed.

Mr. Kavanagh

As I have said, we have made it a condition of the package that any funds raised from land sales are given priority in terms of clearing any of their liabilities.

Deputy Noonan

That is correct. Once cleared then——

Mr. Kavanagh

The grants which they have got from Horse Racing Ireland, or the IHA in its time, only become liabilities if racing ceased. We would not expect any racecourse around the country to repay grants. That would be a consistent policy which is applied across all 25 tracks in the State.

Deputy Noonan

Does Mr. Kavanagh envisage Horse Racing Ireland being involved on a 50:50 basis after 2016 if the debts are redeemed?

Mr. Kavanagh

That would depend on the view of the Kildare Hunt Club. Given its importance to racing, I would certainly think it is a racecourse in which we will take a very keen interest, whether as a 50:50 partnership or to provide some guidance. It is not for me to say but I think Punchestown has benefited from the HRI involvement in the past year. Whether the Kildare Hunt Club wants that to continue is a matter for the club.

Deputy Noonan

We all hope it is very successful. I hope Mr. Kavanagh's involvement in it is successful also. I have a final question for Mr. Malone. He said the European Trial Events was one of the primary reasons sanction was given. Does he expect those events to be held in Punchestown regularly?

Mr. Malone

It comes around every few years.

Mr. Kavanagh

I understand, although I am not an expert in the area, an Olympic Games qualifier of that nature may be held in Punchestown. There is a proposal coming forward from Avril Doyle, MEP, and Equestrian Ireland to stage an Olympic Games qualifier which would be an equivalent event, although not the European Championships, which would be of equivalent importance.

Deputy Noonan

What events have taken place there that could not have been accommodated elsewhere?

Mr. Malone

The equestrian events could not have been accommodated elsewhere. It would have been difficult to find an alternative site for the farm machinery exhibition.

Deputy Noonan

But they are few enough.

Mr. Malone

The European eventing is a major event. It brings a great deal of revenue and many competitors into the country. It depends on how one does one's calculations but certainly it brings millions of euro into the country in tourism revenue.

Deputy Noonan

My final question is to Mr. Kavanagh. On the day of our visit many of the stables looked as if they had never been used. I spoke to someone at the venue who told me that a race meeting had taken place some weeks previously at which the race horse owners accommodated their horses, had their own trucks and never used the stables.

Mr. Kavanagh

That would be most unusual for a race meeting. As I understand it, there are 150 stables. Punchestown would have staged quite a high quality race meeting after the Deputy's visit a few weeks ago at which there may have been only 80 runners. There would be smaller fields in some of the better quality races. Therefore, all the stables may not be needed. There would be a requirement on race courses to clean and disinfect stables to a high degree between race meetings. There are more stables there than are needed for most race meetings.

Deputy Noonan

I thank Mr. Kavanagh for that.

Deputy Rabbitte

I understand Mr. Malone has important business to which to attend.

Chairman

He is under a time constraint.

Deputy Rabbitte

In that event I will defer what I intended to ask him to another day. Mr. Kavanagh might be kind enough to furnish the committee with some background information on the 25,000 people employed in the industry. I refer to his letter in The Irish Times yesterday. That figure has begun to be used, which is in conflict with what is stated on his website. He might let us have information to support it.

Mr. Kavanagh

I can provide the Deputy with a detailed breakdown if he wishes. We stated in our strategic plan that there are 11,000 full-time jobs in the industry, but when full-time jobs in associated industries and part-time jobs linked to the industry are taken into account, 25,000 people earn a living from racing. I can provide the committee with a detailed breakdown of how the figure is made up. On the busiest days, such as during the Galway Races, up to 300 casual staff would be employed by the tote. The firms which provide catering at race meetings would also employ casual staff.

Deputy Rabbitte

However, those people would not earn their living from racing.

Mr. Kavanagh

On the basis that they would work at a race meeting, the money they would earn on a day would be dependent on racing taking place.

Deputy Rabbitte

That day.

Mr. Kavanagh

Yes.

Deputy Rabbitte

What about the other 364 days of the year?

Mr. Kavanagh

In respect of the tote, a number of casual staff would travel to a number of race meetings.

Deputy Rabbitte

Mr. Kavanagh is including those people in the figure of 25,000.

Mr. Kavanagh

We stated clearly that the number of full-time jobs is 11,000. The number of full-time jobs in associated industries——

Deputy Rabbitte

Mr. Kavanagh stated in his letter to that newspaper that ". . . it generates sustainable jobs (c.25,000)" .

Mr. Kavanagh

Yes.

Chairman

Many of those would be part-time.

Mr. Kavanagh

Yes. The same catering staff work for a number of the different catering companies at race meetings. If one goes to Leopardstown there might be only one catering firm but one would see——

Deputy Rabbitte

Has Mr. Kavanagh made any attempt to translate such staff into full-time equivalents? One cannot say that people who work a day on the tote or who serve tables for a day, or even a number of days, are employees of the industry.

Mr. Kavanagh

We said they earn a living from racing. That is the expression that was used.

Deputy Rabbitte

I am quoting from what Mr. Kavanagh wrote in that letter to the newspaper and the figure he gave has begun to be used widely. I put it to him that it is misleading.

Mr. Kavanagh

I do not believe it is. There are 11,000 full-time jobs.

Deputy Rabbitte

That is not what the letter states.

Mr. Kavanagh

No.

Deputy Rabbitte

It is not what some of the propaganda states. It is not what was indicatedin a statement Mr. Kavanagh issued from aboard meeting a few Sundays ago. Is that notright?

Mr. Kavanagh

No, the point is that there are 11,000 full-time jobs. There is an infrastructure of industries based around horseracing and horse breeding, such as those engaged in breeding stock, the feed and tack companies and a number of the veterinary companies, If account is taken of the number of part-time jobs or casual work associated with race meetings, it amounts to 25,000 people engaged in the industry. If the industry disappeared, there would be no need for those workers——

Deputy Rabbitte

Nobody wants the industry to disappear, we all want it to grow and prosper. All I am putting to Mr. Kavanagh is that the innuendo that 25,000 people are employed full-time in the industry cannot be substantiated.

Mr. Kavanagh

I do not believe it has been implied that there are 25,000 people employed full-time in the industry.

Deputy Rabbitte

Mr. Kavanagh stated in his letter to the newspaper in question that the industry generates 25,000 sustainable jobs. I do not know too much about this area, but the reference to 25,000 sustainable jobs implies there are 25,000 people employed in the industry.

Mr. Kavanagh

I can provide the committee with a breakdown of how that figure is made up. There are 11,000 full-time jobs in the industry, which are verifiable. There are 14,000 jobs between full-time jobs in the supply sector to the industry and part-time jobs associated with it. The people in those jobs depend on the industry for their living.

Deputy Rabbitte

I would be glad to get that information from Mr. Kavanagh. He is the author of the letter from which I have quoted. I am not quoting my own figures.

In the matter of the disputed VAT of €750,000, when did Mr. Kavanagh first know there was an outstanding VAT liability?

Mr Kavanagh

In relation to Punchestown?

Deputy Rabbitte

Yes.

Mr. Kavanagh

I am not sure. I said earlier that I was not comfortable talking about the detail of this case. I am not certain there is a VAT liability. That is something we have asked the Kildare Hunt Club to establish with the Revenue Commissioners.

Deputy Rabbitte

I thought Mr. Kavanagh was quoted in the Irish Farmers’ Journal as saying he had known about it for some time.

Mr. Kavanagh

No. I have known, as has Horse Racing Ireland, that there have been difficulties with the leasehold structure in Punchestown and with the taxation situation. We have made it a condition of any money we are putting in that these be addressed, but the level of taxation liability, if any, is a matter for the Revenue Commissioners.

Deputy Rabbitte

Mr. Kavanagh does not know as of today whether there is an outstanding VAT liability.

Mr. Kavanagh

All I know is that we have stated to Punchestown, in correspondence going back to August or September this year, that prior to putting in any funding we would request it to get Revenue clearance for the structures going forward. Beyond that I cannot say what liability, if any, exists.

Deputy Rabbitte

Does Mr. Kavanagh know if there is a liability?

Mr. Kavanagh

I do not.

Mr. Rabbitte

Does he believe there is a liability?

Mr. Kavanagh

I am not expert enough to say that.

Deputy Rabbitte

Has he been told there is a liability?

Mr. Kavanagh

All I can say is that we have asked the owners of Punchestown to clarify going forward the taxation position relating to the structures in place with the Revenue Commissioners.

Deputy Rabbitte

I thank Mr. Kavanagh for that.

Chairman

Can Mr. Malone stay for another few minutes?

Mr. Malone

I have to catch an aeroplane soon.

Chairman

Does Mr. Purcell wish to comment?

Mr. Purcell

Before we conclude——

Deputy J. Higgins

Is the meeting concluding?

Mr. Purcell

I have one or two brief questions for Mr. Kavanagh.

Chairman

If you wish we can continue even though Mr. Malone has to leave.

Mr. Purcell

I will confine myself to Mr. Malone's bailiwick. I wish to deal with a few points that might not have come to light during this discussion, which may help the committee in its deliberations. A good deal of play was made about the necessity for the event centre in the context of the three day eventing competition. As Mr. Malone said, I have no doubt that with advances in health, hygiene and safety requirements the event centre may be an essential ingredient to hosting an international three day eventing competition. I noted from the headed note paper of Punchestown that it held a three day international event in 1999, apparently quite successfully. I say that for what it is worth. There may well be advances in requirements for health and safety and so on.

To return to Deputy Boyle's point about the benefit to the race course of the event centre and the ancillary works, clearly there are synergies, as Mr. Kavanagh said. I recall looking at some of the documents in Punchestown in which the event centre was referred to as phase four of the development plan, which suggests the promoters of this project in Punchestown certainly recognise such synergies, to put it at its mildest.

With regard to what Deputy Noonan said about the use of the premises, I take on board that Mr. Kavanagh said a large event may be held there in June and, hopefully, it will be, as we all want the event centre to be a success. A previous document outlining the schedule of events for 2004 for Punchestown was made available to the committee. We are talking about the event centre being used for the purposes for which the money was given. That is certainly the case in respect of the Irish Farm and Machinery Show on 14 January 2004. Perhaps the Nelton Angling and Country Sport Exhibition to be held on 19 to 22 February would also qualify. I am less certain about the Nelton Cycling Exhibition. The ECOFIN meeting could be held elsewhere. The House and Garden Exhibition likewise. The eventing championships from 4 to 7 June is possible. The Irish Commercial Truck Show and Tractor Pulling Competition from 26 to 27 June comes within what was envisaged initially when the centre was proposed. I do not know about the National Rally Masters Competition on 3 and 4 July while Witness 2004 and the Corry New Homes Building Show could be held elsewhere.

In common with everybody here I hope the event centre is a success. It may well be that since the production of the document, bookings have increased significantly. Its hard to reach a conclusion, on the basis of the schedule of events before us at this stage, that it will form a vital part of the infrastructure for the agri-equestrian area. Perhaps the centre's event calendar will fill up. I hope it does. I also hope that it will continue to be successful in the future. Rather than go over old ground, I thought that my comments could help the committee reach conclusions.

Mr. Malone

In my initial presentation I made the point that the centre must be viewed over a period. As has been said, it is an investment in infrastructure and its value cannot be seen in the first two years. I am satisfied that the investment will be justified over time. It is early days yet.

Chairman

Mr. Purcell made a point about phase 4. It was indicated that there was a development plan, referred to as phase 4. It is extraordinary that no phases were seen when Punchestown clearly indicated that there were phases of development. Was there a plan?

Mr. Malone

No. Today is the first time I heard a reference to phase 4.

Chairman

When I visited the centre a presentation was made covering four different phases and emphasis was placed on the development of phase 4. Mr. Purcell and Deputy Noonan mentioned that the centre was developed to provide a three day eventing centre. I keep horses myself so I know a bit about them and the need for such a centre. A successful eventing competition took place in 1999 prior to the opening of the centre.

Mr. Malone

Yes, Chairman, and you can argue that point, but life moves on and people expect better facilities. A sector that does not invest in facilities does not survive very long. The same argument could be made for racing or another sport. Events held between three and ten years ago had less than adequate facilities or they were not as good as what is available today. The reality is that we must compete. The racing industry, in general, has recognised that it must compete with other sports and other interests and that if it does not invest in facilities it will not secure events.

Chairman

I am pro-enterprise and investment but its justification can be based on a false premise. How much money will be invested in the ECOFIN conference and used for alterations?

Mr. Malone

I cannot answer that question. I would imagine that interpretation facilities are needed. The centre could move its facilities inside. Other Irish convention centres have done it. My organisation is holding its informal agricultural council in Killarney. A certain amount of costs are involved.

Deputy Boyle

Last week Deputy Eamon Ryan tabled a parliamentary question in the Dáil on the subject. The Department of Finance disclosed that the ECOFIN event will cost €0.75 million for the two days and €60,000 will be paid in rent for the Punchestown Centre. We do not know how much of the remaining money will be allocated to it.

Chairman

With regard to the infrastructure requirements that a centre must have, how much equipment will be lost when changing facilities for events? The centre is an open shell building and must be fitted out. There will be a lot of wastage when it is dismantled.

Mr. Malone

A lot of the equipment is rented. It is also mobile and can be used at a variety of locations. We experience the same problems ourselves.

Chairman

The Secretary General at the Department of Agriculture and Food and his delegation are excused. I thank them for their participation and wish them a happy Christmas. We will now ask the Horse Racing Ireland delegation a few questions.

Deputy J. Higgins

I want to ask Mr. Kavanagh some questions. There are 11,000 full-time jobs and an indeterminate number of part-time jobs in the industry. The sector has many low paid workers who do not have many rights and are quite vulnerable. Does Horse Racing Ireland carry a remit for the rights of workers in the industry?

Mr. Kavanagh

The HRI's board consists of 14 members, two of whom represent persons employed in the industry. One person represents persons directly employed in the industry, particularly stable staff. Another person represents the Irish Congress of Trade Unions. The issue of workers' rights is of some concern to the HRI board and it will be discussed at a board meeting tomorrow. We have made representations to the employer and employee groups within the industry for their consideration. For example, we recommended that they join a joint labour committee at the Labour Court and the Labour Relations Commission to establish detailed terms and conditions of employment for the industry in the same way as the hotel sector, the bar trade and some other sectors that have a similar profile. The HRI is concerned about the issue.

Deputy J. Higgins

Has the HRI provided guidelines? Has a proper wage for the industry been established?

Mr. Kavanagh

We try to facilitate the process. For example, trainers and stable staff were, in the past, incorporated under the basic agricultural joint labour committee at the Labour Court. There is a case being argued, with some validity, that the horse racing sector involves more than just ordinary agricultural labourers. In particular, there is skill involved in handling horses and riding them and there should be a premium for that. As I said, we facilitate discussions between employer and employee groups.

Deputy J. Higgins

Is the HRI proactive on behalf of low paid workers in the industry?

Mr. Kavanagh

Yes. In recent times we have employed a personnel or human resources manager and one of his specific responsibilities has been to move the issue forward. Frank Timmins has been working with Dan Kirwan, who is the stable staff representative, and with the Trainers Association. He proposed a range of issues that relate to health and safety at the workplace, adequate protection for workers riding horses and the adequacy of helmets and back protectors. It is an area in which we have become proactive.

Deputy J. Higgins

Do you also carry a remit for safety? There have been some horrific tragedies concerning workers in the industry.

Mr. Kavanagh

Yes, it has been a difficult year in that respect. The remit for safety falls under one of our associated bodies, the Turf Club, which is responsible for the integrity of the sport and ensuring that racing is run safely and within the rules. As the Deputy has correctly pointed out, there have been two tragic accidents on racecourses this year. That area is being looked at.

Deputy J. Higgins

The perception of many ordinary people is that a huge amount of tax has been foregone through the exemption for the stud farm industry. Earlier, I jokingly referred to the Minister for Finance, Deputy McCreevy, and the Minister for Agriculture and Food, Deputy Walsh, as being cast in the lead roles at Santa's kingdom at Punchestown. Is it not true to say, however, that the taxpayer is cast in the role of the unfortunate Rudolf, carrying a heavy burden for the industry, which does not primarily benefit the stablehands? The industry benefits a small elite to an inordinate extent, even if it constitutes a motley crew of tax exiles, tax-free stud farm millionaires and football club owners. A rigorous analysis is required of the benefit to taxpayers from the funds they provide to the industry and whether they should be re-structured. Is the tax exemption for stud farm millionaires not long past its date in terms of propriety?

Mr. Kavanagh

I understand the points the Deputy is making but the stallion tax exemption is a matter over which I have no control. All I can do is point to its benefits. It would be wrong, however, simply to regard horseracing as the plaything of a small number of people. It is a significant industry from which Ireland does very well. Everyone in our industry can be proud of the fact that we are the third largest producer of thoroughbreds in the world. Irish racing has gone through a period of growth in recent times, including attendance, betting, sponsorship, owners, horses and training. It generates important economic activity in rural areas, which helps to sustain health, education and welfare. One study showed that the Galway racing festival alone puts €60 million back into the local economy. That is almost equivalent to the level of funding given to both industries. I would welcome an analysis of the economic impact of the industry and the effect it has on the economy.

Prize money for races is an emotive issue and a competitive one internationally. Race horses can be placed in a number of countries for training purposes. We try to aim our racing at the top end of the market in order to encourage the best horses in the world to be trained here. One in nine horses that are returned in training every year wins a race. The other eight cost the same to keep as the winner and they generate the same level of employment and economic activity. A significant element of prize money comes from the owners and from sponsorship. If one takes the top ten races in this country - the group one races on the flat, which are the high profile races, such as the Derby and the Champion Stakes - 90% of the total €5 million prize fund comes from sponsorship and the owners themselves. That fact has not been placed in the public arena. Horse Racing Ireland contributes €500,000 to the fund. Our policy is to try to distribute prize money around the country to all 25 race courses. The top races are adequately funded through owners' entry fees and sponsorship contributions. Under the rules, 25% of all prize money goes not to the owners but to trainers, riders and stable staff who look after the horses. It forms a significant part of their annual income. It is not a hobby for them, it is their livelihood. Generally, owners recover 30% of their total running costs in racing because one horse in nine wins a race.

I understand the perception to which the Deputy referred, but I prefer to concentrate on what horse racing - I cannot speak for greyhound racing - puts back into the economy through the economic activity it generates and the employment it provides. In addition, it is a sport and an industry in which we can genuinely claim to be the best in the world. No European trainer has ever won the Melbourne Cup, other than Dermot Weld, who has done so twice. That achievement is a source of great pride. I could cite a number of other such instances involving the industry. I would welcome an economic examination of the effectiveness of investment in the industry. I think it would surprise some people.

Chairman

We are under great time pressure because we have to vacate this room by 2.30 p.m.

Deputy Noonan

A few years ago, someone told me that about one third of all tickets for admission to race courses were complimentary. Has that situation improved?

Mr. Kavanagh

It would not be one third. I managed the Curragh racecourse for some time and about 20% of the admissions were what could be termed complimentary. However, the complimentary category includes sponsors. If someone sponsors a race they get the naming rights to it, as well as having access to a number of entry tickets. So, while the person may not be paying at the gate to get in, the racecourse and racing generally is generating revenue from the deal. Owners and trainers are entitled to free admission on the day they have horses running. In the case of trainers, it is their workplace. The figure would be closer to approximately 20%.

Deputy Noonan

One in five?

Mr. Kavanagh

Yes, but most of that would be recovered through sponsorship or an annual badge mechanism.

Deputy Noonan

What is your estimate of the prize money you will be putting up for 2004?

Mr. Kavanagh

Our contribution towards the prize money will be about €26 million.

Deputy Noonan

Does that amount to about half the total prize money?

Mr. Kavanagh

It would be, yes.

Deputy Noonan

According to your accounts, you disposed of something for over €300,000. What was that?

Mr. Kavanagh

One of the subsidiary companies, Leopardstown racecourse, used to have a tradition whereby the head groundsman was required to live close by in the event of emergencies. With the passage of time, however, that was deemed not to be necessary. The racecourse used to have a house in Cabinteely for that purpose. When the previous groundsman moved on and was replaced, the new groundsman did not take up residence in the house, so Leopardstown had it rented out. We took a decision to sell it by public tender.

Deputy Noonan

What is the update on the ground conditions at Limerick racecourse?

Mr. Kavanagh

It has improved a great deal. Our experience with new racecourses, such as Limerick and Cork, is that it takes a number of years for the track to settle. When one moves that amount of land to create a new racecourse, it takes time to settle. Limerick opened about three years ago and it was felt that the track was very fast and possibly did not suit all horses. Some horses were breaking down on it but with time it has improved. A great deal of work has been done on the racecourse. I cannot remember the last time Limerick lost a race meeting due to bad weather. It is looking forward to a big meeting in about three weeks' time. It is getting better but it will take time to perfect.

Deputy Noonan

Do you expect the racecourse will fulfil its full fixture list in 2004?

Mr. Kavanagh

Yes. We have had a good run with the weather everywhere. Limerick has not lost a meeting yet this year and I hope it will not lose any of its Christmas festival meetings.

Chairman

Why is there no all-weather track in the country? Is there any possibility of that happening in light of the fact that there are two or three such tracks in the United Kingdom?

Mr. Kavanagh

The only proposal we have had for the development of an all-weather track is from Dundalk racecourse and that is under consideration. As I said earlier, we have a very expanded horse population and we have a problem providing enough racing opportunities for them. The most demand is for horses that jump hurdles. It is a difficult balancing act. One of the proposed solutions is the development of an all weather track. The HRI board has said that it will not proceed with its development until there is one deemed safe for jumping hurdles. This type of racing is of a low quality. Reference was made to tracks in England. Wolverhampton, in particular, achieves an average attendance of about 1,500 people and that is relatively small when compared to the attendances that we achieve.

Chairman

The age profile of people attending meetings run by the greyhound racing industry is quite old. Does the HRI have any plans to promote the horse racing industry at its smaller courses around the country?

Mr. Kavanagh

Yes, that is part and parcel of our television campaign and we are about to launch another one. It is linked to the improvement in facilities. We have found that the larger race meetings are attracting bigger numbers and a broader profile of people who attend. Previously people had time to go racing mid-week, particularly in rural areas, but that is no longer the case. Those meetings need some help and we will do that through an advertising campaign.

Chairman

I am delighted about the HRI's commitment to health and safety given the recent tragic deaths in the industry. Safety on race tracks is of paramount importance.

Mr. Kavanagh

A scheme was put in place before the tragedies happened.

Chairman

Will the HRI conduct a safety awareness campaign, including notices at race tracks?

Mr. Kavanagh

Yes, the term "health and safety" covers a multitude. My organisation has close contact with local environmental health officers when dealing with race courses and their development.

Chairman

That is good to hear.

Deputy Boyle

I have one question that I should have asked earlier. While it refers to Punchestown it relates more to the general competence of Horse Racing Ireland. I have been led to believe that the agreement it entered into with the Kildare Hunt Club includes one clause about the removal of the kennels for the hounds used for fox hunting and other blood sports that are at present located in the main compound of the racecourse. Is that the case?

Mr. Kavanagh

It is more a legal issue. We have no issue or interest in the kennels. They are built in an area that is part of the land deemed to be a car park for the racecourse. It is part of the land to be extracted from the 466 acres and left with the Kildare Hunt Club.

Deputy Boyle

Was it a conscious decision by HRI on the basis that it does not want anything to do with blood sports or fox hunting?

Mr. Kavanagh

No, it is not that.

Deputy Boyle

I take it that the opposite is the case.

Mr. Kavanagh

The issue has never been debated by the board so it has no view on it.

Chairman

I wish to dispose of Chapter 9.1 and the Vote. The Committee intends to do a follow-up report. Is that agreed? Agreed. Are the HRI's accounts for 2003 agreed to? Agreed.

The committee will not sit next week. On 15 January 2004 we will deal with the Department of Health and Children - value for money report on the waiting list initiative and the Eastern Regional and Health Authority.

I wish everyone a very happy Christmas and a prosperous new year. I thank Mr. Kavanagh and his team for a very worthwhile meeting. I compliment him on the accounts because they were furnished in a very detailed manner. The overall debate was very good.

The witnesses withdrew.

The committee adjourned at 2.25 p.m. until11 a.m. on Thursday, 15 January 2004.