In its first interim report on the exhibition and show centre in Punchestown in March 2004, the committee recommended that the Department would carry out a post-project review of the centre, which the Department has now done in line with the 1994 guidelines issued by the Department of Finance for the appraisal of capital projects. The terms of reference for the review were those recommended in section 4 of the guidelines and were notified to the Committee of Public Accounts in September 2004. A steering group was established within the Department to oversee the approach to the work. As was stated, Mr. John Donnelly, the external chairman of the Department's audit committee chaired the committee. Mr. Donnelly is the former managing partner of Deloitte & Touche. The economics and planning division of the Department prepared the review and an independent consultant was used to ensure the terms of reference forwarded to the committee were followed and that the methodology used in the review was appropriate.
Work on the review faced two particular difficulties. First, it took place only three years after the opening of the centre, which was early for a post-project review of this type. Second, the lack of a comprehensive pre-project analysis meant it was not possible to compare actual costs and benefits against those that had been anticipated. Nevertheless, the review was completed to the satisfaction of the steering committee, the external evaluator and me as Accounting Officer. The key findings of the review are set out in each section of the report and are summarised in bullet point form in the executive summary. The report found that there was a requirement for a facility of international standard to hold major agricultural and equestrian events and exhibitions and that public funding for such centres is normal in other European countries. It also found that the lack of a top class eventing centre and showcase venue left an infrastructural gap which has been filled by Punchestown. It noted that such centres are common throughout Europe and that most are supported by public funding.
The report also found that Punchestown, due to its history, location, exceptionally large site, synergies with the racecourse and expertise in eventing, was the logical location for the type of integrated agricultural and eventing centre envisaged. However, the review found, and the Department accepts, that a more transparent examination should have been undertaken of possible locations in the interests of thoroughness and full accountability.
The cost benefit analysis in the review found, on conservative assumptions, that there should be positive net economic benefits from the project. It also noted that there are significant secondary social and economic benefits from the centre, which are not included in the analysis. The analysis — and the assumptions underlying it — is set out in some detail in an appendix to the report.
The review found that the centre should generate sufficient funds to cover its costs and will not require State subvention for its day-to-day operations. The Department made it clear that such funding would not be forthcoming. However, it found that this issue of financial sustainability should have been examined in greater depth when the project was being considered.
The review observed that the Department had already accepted that a detailed financial and economic evaluation of the proposal should have been undertaken in line with the Department of Finance guidelines. Finally, it noted that, as indicated in the report of the Comptroller and Auditor General, proper tendering procedures were observed in the project and proper controls were in place in respect of the processing of payment claims. The report also outlined some important lessons for the future and I will return to these later but first it might be useful to elaborate in a little more detail on some of the findings to which I have referred.
The review examined the issue of the need for the event centre. It found that the lack of a top class eventing centre and a showcase venue for quality Irish horse and cattle breeding left a gap in the infrastructure needed to support the animal breeding and equestrian sectors. As the report points out, such a centre should be capable of accommodating large numbers of people, it requires an extensive site with ancillary infrastructure and a cross-country course for eventing competitions, it must be accessible to large population concentrations, air and sea travel should be convenient and those operating it require experience of managing large scale events.
Punchestown meets these demanding requirements and was the natural choice for such a centre. Having received the Punchestown proposal in 1999, the Department examined it and considered it to be worthy of support. The Department was conscious that such a facility, if built in time, would greatly add to the prospect of successfully staging the three-day 2003 European Eventing Championships and the Open European Endurance Championship. There is no doubt that there are other centres with excellent facilities which regularly host activities related to agriculture. None were suitable for the development of international standard three-day eventing facilities and did not have adequate land for a cross-country course or expertise in this area. However, the Department fully accepts that a more transparent examination of other possible locations should have been undertaken at the outset.
The financial information provided by the management of Punchestown, in the preparation of the review, gave details of the financial position up to 2007. The centre made small losses in the period 2002 to 2005 and is projected to make small profits in the years 2006 and 2007. These figures appear credible, based on rising sales and the increasing number of events held to date. They are in line with what might have been anticipated, as centres such as this would not be expected to generate substantial profits. At the time the project was approved, no formal analysis of the financial independence of the centre was undertaken. It was made clear, however, that the running of the centre would be a matter for Punchestown and that such costs would not be covered by the Exchequer. This remains our position and we are optimistic, based on the projections provided by management, that the centre will prove to be financially viable.
The review also provides an economic analysis of the project. Capital projects are normally evaluated over a 20-year period. This cost benefit analysis indicates that there are positive net economic benefits. The benefits of the State's investment begin to exceed the costs after 13 years. In the case of the event centre, there is an estimated €7 million in direct economic benefits over the 20-year lifespan of the project. This sum is in current terms. In real terms, the figure would be smaller but it would still be positive. Inevitably, there are many assumptions built into these calculations and they are set out and explained in the report. The assumptions used are conservative and indirect or secondary benefits are not included in the analysis.
In its interim report on the event centre, the PAC is critical of the evaluation process carried out. The Department has accepted these criticisms. At that time, the Department considered it difficult to evaluate the project in terms of outputs and outturns and it did not appear to readily lend itself to be evaluated under the 1994 capital guidelines. In hindsight, it is clear, as the post-project appraisal shows, that this could have been done. In the report of the Comptroller and Auditor General on the Punchestown Centre, it was found that proper tendering procedures were observed in connection with the placing of contracts and that the Department had satisfactory controls, such as on-site inspections and detailed administrative checks, regarding the processing of payment claims. This is a very important finding.
As I mentioned earlier, the report also outlined some lessons for the future. It recommended strict adherence to the Department of Finance guidelines on the appraisal of capital projects and that the principles of transparency be observed, with projects advertised to potential bidders. It also stated that a reappraisal should be undertaken in the event of a request for increased funding. The Department will, of course, comply with this recommendation should any future capital project be considered.
New Department of Finance guidelines have now issued and will be applied by the Department. The Department of Finance will be providing an advisory note to Departments in the near future on how these guidelines apply to capital grant schemes, which account for most of our capital budget. The report recommended that a cadre of trained staff be maintained to undertake appraisals and notes that such a group of staff is in place in our economics and planning division. We are giving attention to this aspect of staff development in our expanded staff training programme.
The report also suggested that risks related to major capital projects should be managed within the Department's risk management system. The Department established the first formal, enterprise-wide risk management system in the Civil Service a few years ago and it is now being emulated in a number of other Departments. This system is applied to all major work areas within the Department and would be applied to any future significant capital project.
The report also recommended the adoption of clear objectives and performance indicators to benchmark future projects. The Department has a particularly strong record in the publication and monitoring of performance indicators for its customer services and policy programmes. We will certainly apply the same approach to any future capital projects of this sort, should they arise.
While I am here to present the report of the post-project review, it might also be appropriate for me to refer briefly to some other developments since the last discussion of this issue at the PAC on two related matters that were of concern to it. The committee concluded that the corporate restructuring arrangement between Horse Racing Ireland (HRI) and the Kildare Hunt Club should be fully implemented as soon as possible to further strengthen the protection of the State's interests. The Department is also anxious to have the corporate restructuring arrangement between HRI and the Kildare Hunt Club fully implemented as soon as possible. However, the resolution of the taxation issues between the Kildare Hunt Club and the Revenue Commissioners is outside the control of this Department. Our understanding is that this matter is nearing completion. We expect the finalisation of the restructuring arrangement will follow from that.
The committee recommended that the revised legal agreement should be completed by the Department and signed as soon as possible, also to protect the State's investment further. The revised legal agreement was signed on 8 April 2004.
As I stated at the outset, a post-project analysis has been completed which is objective in its analysis and process. It was overseen by a steering group chaired by the chairman of the audit committee and was assessed by an external independent consultant. I am happy to present this to the committee and I hope it meets the committee's requirements. The Department has learned important lessons from this experience with regard to the appraisal of capital projects and these will be put into effect. I will be happy to answer any questions the committee may wish to ask.
