2004 Annual Report of the Comptroller and Auditor General and Appropriation Accounts: Vote 34 — Enterprise, Trade and Employment.

Mr. S. Gorman (Secretary General, Department of Enterprise, Trade and Employment), Mr. S. Dorgan (Chief Executive, Industrial Development Agency Ireland), Mr. F. Ryan (Chief Executive Officer, Enterprise Ireland) and Mr. K. Thompstone (Chief Executive, Shannon Development) called and examined.

Witnesses should be aware that they do not enjoy absolute privilege before the committee. Members' and witnesses' attention is drawn to the fact that, as and from 2 August 1998, section 10 of the Committees of the Houses of the Oireachtas (Compellability, Privileges and Immunities of Witnesses) Act 1997 grants 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 may be exercised only with the consent of the committee. Persons invited before the committee are made aware of these rights and any persons identified in the course of proceedings who are not present may need to be made aware of them and be provided with a transcript of the relevant part of the committee's proceedings if the committee considers this appropriate in the interests of justice.

Notwithstanding this provision in the legislation, I remind members of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the House or an official either by name or in such a way as to make him or her identifiable. Members are also reminded of the provisions under Standing Order 156 that the committee shall also 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 ask Mr. Gorman introduce his officials.

Mr. Sean Gorman

I am accompanied by Mr. Brian Whitney, assistant secretary with responsibility for the enterprise agencies, and Mr. Martin Shanagher, assistant secretary with responsibility for corporate affairs, including the finance function.

I ask Mr. Dorgan to introduce his official.

Mr. Sean Dorgan

With me is Mr. MartinBurbridge, secretary and head of corporate services in IDA.

I ask Mr. Ryan to introduce his official.

Mr. Frank Ryan

I am accompanied by Mr. Paddy Hopkins, manager of Enterprise Ireland's public services division.

I ask Mr. Thompstone to introduce himself and his chairman.

Mr. Kevin Thompstone

I am chief executive of Shannon Development. With me is Mr. Liam McElligott, chairman of Shannon Development.

I ask the officials from the Department of Finance to introduce themselves.

Mr. John Thompson

I am from the Department of Finance's public expenditure division. With me is Ms Mairead Emerson, who is also from the Department of Finance.

I ask Mr. Purcell to introduce Vote 34, IDA Ireland 2004 accounts, Enterprise Ireland 2004 accounts and value for money report No. 49.

Mr. John Purcell

I am sorry to have to start by correcting the Chairman but the report is value for money report No. 50. I will start with that report.

The report records the results of an examination of Shannon Development's sale of a site at Ennis Road, Limerick, in 1998 after the site was deemed surplus to the company's requirements. We examined whether the best price for the site was obtained and whether the sale was conducted in a manner that was in accordance with good practice in the public sector. Although the sale of the 3.5 acre site, which realised €254,000, was modest in scale, it raised serious questions in my mind about the operation of the company's property management function. In trying to establish whether procedures had improved since that sale, we also looked at the present position by examining the handling of a proposed sale of premises and land at Gillogue that proved to be contentious.

The Ennis Road site was transferred to Shannon Development from the IDA in 1988 but Shannon Development did not become aware of its holding until nine years later when third parties made inquiries about the site. A complicating factor was that although the land had been transferred, there had been a failure to register the site in Shannon Development's name. The failure to protect the title to the site resulted in encroachment and a building company began dumping spoil on the site.

In March 1998 steps were taken to sell the site to a company that was in the process of buying the adjoining factory premises of three acres. The sale at a price of €254,000 was agreed on the basis of a valuation provided by a local estate agent and without reference to others who had earlier expressed an interest in the site. In my opinion, on grounds of equity and as a means of maximising the price, the disposal should have been made by way of competition. Although it is arguable whether a better price would have been obtained, it is clear that a higher return would have been achieved if title to the site had been properly protected.

If the stop-go nature of the Gillogue transaction is representative of the current way in which prospective property sales are managed, serious issues remain to be addressed. The disposal of the industrial premises and the adjoining approximately 116 acres appears to have given rise to tensions between the board and the executive. Nevertheless, a decision was taken to sell the entire property at Gillogue to a local business consortium for €3.3 million on the basis of a valuation. Fortunately for the taxpayer, the sale fell through because of additional conditions ordered by the board. When the industrial premises that occupy approximately 27 acres of the site were put on the market last June, the highest bid received was substantially in excess of the €3.3 million agreed earlier for the entire property.

The general concern of the board about the property management is perhaps reflected in its decision in April 2005 to commission consultants to prepare a detailed report on the property portfolio and the structures necessary to manage it. The consultants' report is very critical of the property management function. That said, I should point out that Shannon Development's property department regards the report as fundamentally flawed and has produced a detailed response that takes issue with the report's findings. Needless to say, it is difficult to ensure value for money in property management in such an operating environment.

Continuing on that property management theme, I point out in the 2004 accounts for IDA Ireland that the €30.9 million profit on the sale of fixed assets that is given in the operating account is stated net of a €4 million provision for reduction in profits arising from a disposal of a property in an earlier year. The financial settlement details for that were not agreed until late in 2005. As questions relating to IDA Ireland's accountability for any loss to the taxpayer may arise, I am inquiring into the matter in the context of my audit of the 2005 accounts. For the sake of completeness, I should mention I will also be reviewing as part of my 2005 audit any loss arising from the purchase of a premises from the IDA which took advantage of the now closed loophole in the Landlord and Tenant (Ground Rents) Acts. Otherwise I have nothing to add on the 2004 accounts and was able to give the IDA a clear audit report. Similarly, the 2004 accounts of Enterprise Ireland received a clear audit report. As members are aware, Enterprise Ireland has been earmarked for decentralisation to Shannon. Together with the advent of the Shannon Airport Authority, this may have repercussions for Shannon Development's operational mandate.

I gave a clear audit report on the Vote for 2004 but draw the committee's attention to the final paragraph on page 309 of the volume in Note 18 to the appropriation account which refers to the Department's internal audit unit uncovering serious system failures in the procurement of goods and services for buildings occupied by the Department. It involved the supply of furniture and other related services such as painting to the value of about €2.7 million by one firm during 2003 and 2004, mostly without recourse to tendering. Although authorisation limits were circumvented and poor value was obtained in some instances, the Department was satisfied that there was no fraud involved. As the accounting officer states in Note 18, new structures have been put in place to prevent a recurrence.

Mr. Gorman

The committee is aware that a wide range of activities are funded through my Department's Vote. The Department is assisted in delivering its objectives and policies by a number of agencies and offices.

Gross expenditure on the Department's Vote in 2004 amounted to €1.146 billion. The most significant spending areas included investment in labour force development, the figure for which amounted to over €557 million in 2004, and enterprise development through lDA Ireland, Enterprise Ireland, Shannon Development and the city and county enterprise boards. Total expenditure by these agencies in 2004 amounted to €251.5 million, including their operating costs. Expenditure on science and technology programmes in 2004 amounted to €194.8 million in 2004.

2004 was the first year of operation of the new five year capital investment framework. The total amount allocated to my Department's Vote for capital expenditure in 2004 was just over €342 million. A sum of €34.237 million, representing 10% of the 2004 allocation, was carried forward to 2005 as a deferred surrender amount and was spent in 2005. Overall, almost 95% of the total allocation provided for my Department's Vote was utilised in 2004. Allowing for the carryover into 2005 of unused capital funding, the surplus surrendered on my Department's Vote represented just 4.5% of the total allocation.

Investment in the development of the labour force constituted a major part of my Department's expenditure in 2004. The presence of a well educated and highly skilled labour force has been recognised by many commentators as a significant contributory factor to Ireland's recent economic success. Many commentators have also identified the need to continuously up-skill the labour force as a prerequisite to maintaining our economic success.

The year 2004 was a good one for employment growth in Ireland when employment grew by3%. By the end of the year there were almost 1.9 million people in employment. The unemployment rate stood at 4.4%, with the long-term unemployment rate at 1.5%. The latest labour market data from the Central Statistics Office, CSO, show that employment has continued to grow significantly, with a 5% increase on a year-on-year basis to the third quarter of 2005. There are currently close to 2 million in employment. The unemployment rate remains fairly constant at 4.6%, with the long term unemployment rate at 1.4%. Ireland's employment growth and employment rates continue to outstrip the average figures for the EU 15. I understand the CSO's latest quarterly national household survey, published today, which gives the most up-to-date unemployment figures, indicates a current unemployment rate of 1.4%.

FÁS plays a major part in preparing people for employment through apprenticeships, training courses and employment programmes, and provides placement services for employers and prospective employees. Through the training of those already in employment and lifelong learning initiatives, it is promoting ongoing development of the labour force. Total expenditure by FÁS in 2004 from my Department's Vote amounted to €551 million. In addition, it received €300 million from the national training fund.

The enterprise development agencies which are funded from my Department's Vote also play a key role in stimulating economic activity and supporting the creation of jobs. This support is provided through a range of grants, equity investment, advice and other supports. As I mentioned, total expenditure by the agencies in 2004 amounted to €251.5 million, including their operating costs.

In 2004 Enterprise Ireland continued to work with its clients to accelerate the development of world class Irish companies to compete successfully in the global market. Through a range of measures, the agency assisted 65 new start-ups and helped 154 companies to establish a new market presence in overseas locations. Its client companies also achieved impressive growth in export sales of 5.6% from 2003 to breach the €l0 billion threshold.

To cater for the specialised needs of the biotechnology and ICT sectors, IDA Ireland commenced an initiative to establish a number of region based strategic sites to assist Ireland in competing for large-scale biopharma and ICT projects.

The publication of the enterprise strategy group report in 2004 was a significant development for my Department and the enterprise development agencies. The group presented a vision for the development of the economy based on winning greater market share in fast growth sectors through innovative products and services. To capitalise on these opportunities, businesses will require a new orientation, to build expertise in marketing, market diversification and knowledge based skills. They will also need to focus on technological and research and development capability. The enterprise strategy group report contained over 50 recommendations directed at a range of Departments and agencies. The approach to their implementation was examined by a high level group which reported to the Government in January 2005. My Department, together with representatives from business, is monitoring implementation of the recommendations.

Enterprises need to focus on increasing productivity, building added value through research and development and growing exports. The supports provided by my Department's agencies are increasingly being targeted at firms which demonstrate commitment to innovation in products and services, driven by an in-depth knowledge of customers and markets. The regional strategies of the enterprise development agencies will also be reviewed to ensure they remain relevant and take account of changing EU regional policy and the development of the national spatial strategy gateways.

Science Foundation Ireland, Enterprise Ireland and IDA Ireland are continuing to ramp up their work with industry and third level institutions to enhance investment in research and development. Their activities form part of a range of science and technology programmes funded under subhead F of my Department's Vote. Total expenditure under the subhead in 2004 amounted to €194.8 million. The Government's goal is that by 2013 Ireland will be internationally renowned for the excellence of its research and at the forefront in generating and using new knowledge for economic and social progress, within an innovation-driven culture. The ongoing commitment to investing heavily in science and technology will further Ireland's reputation as an ideal location for research and development, particularly for industry which relies on R and D.

To help progress this objective, new structures for the co-ordination and governance of science, technology and innovation were put in place by the Government in 2004. These structures include a dedicated Cabinet sub-committee chaired by the Minister for Enterprise, Trade and Employment, supported by a high level interdepartmental committee. The Cabinet sub-committee mandated the interdepartmental committee to develop a national strategy on science, technology and innovation. The initial work on this strategy commenced in 2004. The strategy is nearing finalisation and will be presented to the Government shortly. It is being prepared on a whole of Government basis with a long-term perspective to 2013.

While public expenditure on research and development has increased significantly in recent years, private funding has also grown, but at a slower pace. In 2004 a 20% tax credit was introduced for incremental expenditure by companies on research and development. This measure will provide an incentive for companies to increase their investment in research and development and help boost employment.

As the number of people employed continues to grow, my Department has an important role to play in protecting workers' rights. The Department's employment rights compliance section comprises three units, employment rights information, the labour inspectorate, and the prosecution and enforcement unit. The costs associated with those units are met from the Department's administration budget. During 2004, staff in the employment rights information unit dealt with more than 148,000 inquiries by telephone, e-mail, letter and from personal callers to the office. The labour inspectorate carried out 5,160 inspections and visits. An additional ten inspectors were appointed in 2005, bringing the total number to 31, compared with the ten we had in 2000.

There is a particular focus in the Department on the enforcement of employment rights for migrant workers. The extra resources allocated to the labour inspectorate, which has now effectively doubled in size, has enabled us to respond better to allegations of exploitation and undertake programmed inspections with a special focus on migrant workers. Overall, the prosecution and enforcement unit referred 54 cases of employment rights breaches to the Office of the Chief State Solicitor for prosecution in 2004. Over the years, 17 cases were successfully concluded, leading to 20 convictions and fines. A further 35 were referred to the Office of the Chief State Solicitor for enforcement through the courts of awards determined by the Labour Court and the Employment Appeals Tribunal.

In the latter half of 2004, several labour inspectors were engaged in a project to review the mandate and resourcing of the inspectorate. A discussion document arising from it was circulated to the social partners in January 2005 and has been debated for further consideration by the employment rights compliance group which is made up of representatives of the social partners, the Department of the Taoiseach, the Department of Finance and my Department. That group's work will inform debate in the current social partnership talks.

I have set out the key activities in the significant spending areas of the Department's Vote in 2004 and I will be happy to answer any questions the committee may have regarding the 2004 accounts.

May we publish Mr. Gorman's statement?

Mr. Gorman


Mr. Dorgan

I speak regarding the IDA Ireland annual accounts for 2004. As members may be aware, the Oireachtas makes funding available to IDA Ireland under three headings. Subhead C.1 deals with the grant for administration and general expenses, approximately €34.2 million. Subhead C.2 sets out the grants to industry of almost €46 million. Subhead C.3, the grant for building operations, was €3.1 million. That funding is augmented through the generation of income by IDA Ireland for administration and general expenses of approximately €3.9 million, for grants to industry of approximately €27 million, and for building operations of approximately €25.4 million. The level of funding achieved for administration and general expenses enabled IDA Ireland to spend almost €36.4 million on remuneration, marketing and overhead costs and to make a contribution of approximately €1.6 million of surplus funds to the Exchequer.

Grants to industry in 2004 were €65.5 million, with a contribution of €7.6 million of surplus funds to the Exchequer. I am satisfied that IDA Ireland had sufficient funding available to discharge all grant payment claims made by clients in the year. It is very difficult to predict precisely what funding will be required for grant payments in any year given that they result from claims submitted by client companies. However, IDA Ireland works closely with the Department of Enterprise, Trade and Employment and the Department of Finance to ensure that the cash flow is managed as efficiently as possible. It is also worth noting that there was an increase in research and development grant approvals in 2004 and again in 2005. It is expected that the trend will continue.

Total funding for the building operations function was €28.5 million. That money was used to provide property solutions throughout the country for IDA and Enterprise Ireland client companies. Among the key elements for global companies making decisions on where to locate investments is the availability of suitable property solutions, and IDA Ireland strives to ensure that world-class facilities are available in our business and technology parks. IDA Ireland's primary role is in the acquisition and development of lands to provide the required infrastructure. When selling land, IDA Ireland achieves market prices, something evidenced by profits on the disposal of assets of almost €30.9 million in the year. Regarding the provision of buildings, IDA Ireland works with private developers on a competitive basis to ensure that attractive solutions are available.

May we publish Mr. Dorgan's statement?

Mr. Dorgan


Mr. Ryan

I thank the Chairman and members of the Committee of Public Accounts for inviting me to present an overview of Enterprise Ireland's annual report for 2004 and to convey to them some of the significant developments that have occurred since, especially the publication of its strategy for 2005-07, Transforming Irish Industry, which was launched in May 2005 by the Minister for Enterprise, Trade and Employment, Deputy Martin.

I would also like to introduce my Enterprise Ireland colleagues present with me: Mr. Paddy Hopkins, whom members have already met, Mr. Colm Hackett, manager of our regions and entrepreneurship division, Mr. Gerry O'Brien, economist in the policy division, Ms Mary Gallagher, secretary to the board, and Mr. Paschal McGuire, in our public relations department.

The Enterprise Ireland annual report and accounts for 2004 were published on 24 June and outlined its activities during the year, together with the overall performance of client companies. It also provides an update of the various ways in which Enterprise Ireland has worked in partnership with them and other stakeholders in addressing companies' changing needs. Enterprise Ireland's mission is to accelerate the development of world-class Irish companies to achieve strong positions in global markets, resulting in increases in national and regional prosperity. In making that commitment, our efforts centre on several key areas, namely, identifying and facilitating high potential start-up companies, supporting the creation of innovative products and services by investing in industry-driven research and innovation, driving company competitiveness through productivity improvements and maximising export opportunities for our client companies.

I will now address the economic context in which clients operated in 2004. Irish companies showed resilience and determination to succeed and expand in the global marketplace, especially in the face of increasingly challenging external economic factors. These included increasing competitive pressures, especially from low-cost economies in central and eastern Europe, as well as the rapidly growing Chinese economy. The strong euro placed added pressure on Irish exports which were further affected by the weaker trading performance of the dollar throughout 2004. Rising oil prices also had a noticeable effect on Irish companies as energy prices continued to rise. This also placed additional pressure on companies in an already highly competitive global economy.

Regarding export performance by market, in 2004 client companies achieved €10.167 billion in export sales, an increase of 5.6% on 2003. Northern Europe was the strongest export market, with €6 billion in export sales and net growth of 7.2%. The UK part of the northern European territory continued to be the strongest export market, worth €4.63 billion. Exports to the Americas increased by 1%, to €1.1 billion, a commendable total given the strength of the euro against the dollar. A good performance was also seen in southern Europe, the Middle East and Africa, with exports reaching almost €1 billion, up 7.7%. Asia showed the largest percentage growth in exports — 19.6% — bringing total exports to the region to €505.5 million. The German, central and eastern European and Balkan markets had a difficult year, with exports falling by 3.7%, to €705.6 million.

I will now address export performance by sector. The largest export sector was food and consumer retail, which totalled €6.78 billion, up4.1%. The dairy and drinks subsector contributed the most, with €3.56 billion in exports, a rise of 2%. The fastest growing sector was software, services and emergent sectors, with an increase of 10.4% to €1.2 billion. Industrial markets grew 3.8% to €1.9 billion, with the construction and timber subsector performing particularly well, accounting for €713 million with growth of 11.1%.

In 2004, client companies also participated in 77 trade fairs and trade missions. The Irish trade mission to China, led by the Taoiseach, Deputy Bertie Ahern, visited Beijing, Shanghai and Hong Kong and was the largest in the history of the State, involving 121 Irish companies and educational institutions primarily involved in the information and communications technology, educational services, environmental and engineering services, medical devices, and food and drink sectors. Contracts entered into between Irish suppliers and Chinese customers totalled approximately €125.8 million. In addition, four Irish companies announced the acquisition or establishment of ventures in China totalling €42 million. The Irish participants held more than 1,800 meetings with potential and existing customers. A significant level of positive feedback, from both client companies and representative bodies, has been received by Enterprise Ireland and I believe this mission will contribute to increased levels of trade over the coming months and years.

Sustainable business growth and economic development are driven by innovation and the consistent delivery of new, sophisticated products and services to customers around the globe. Encouraging such pioneering activities continued to be a central part of Enterprise Ireland's support to client companies throughout 2004.

During 2004 approximately €50 million was invested in companies to support in-company research and development activities. Some €20 million was approved to support 54 projects in Enterprise Ireland client companies through the research and development initiative scheme, formerly known as the research and development capability scheme. In addition, the research, technology and innovation, RTI, scheme approved more than €30 million in funding to 154 research and development projects within companies in Ireland. As for applied research, Enterprise Ireland provided €14.6 million in funding through its commercialisation fund to commercialise the research output from third level colleges.

In 2004 Enterprise Ireland conducted a review of all start-up companies supported since 1989. This showed that, of the 470 companies supported, 76% were still trading, 4% had been taken over and only 20% had been closed. The surviving companies have sales of about €1 billion and employ more than 7,000. The results show a high survival rate for Enterprise Ireland supported start-ups. They support Enterprise Ireland's approach to delivering customised initiatives for start-ups, such as assistance with achieving first reference sales.

During 2004, Enterprise Ireland supported what was then a record 65 new high potential start-up companies. These will create approximately 1,900 new jobs in their first three years across all sectors, with particular buoyancy in information and communications technology, health care and life sciences. They also represent a good regional spread, with 43% based in regions outside Dublin and 26%, equivalent to 17 start-ups, located in the Border, midlands and west, BMW, region.

A key objective in Enterprise Ireland's strategic plan is the development of companies of scale. It has embarked on an initiative to accelerate the growth and development of companies which have the potential to grow to significant scale and established a scaling division to work with an identified group of small to medium-sized enterprises, SMEs, to assist their growth into large international companies.

On the employment and regional development front, client companies created 11,898 jobs in 2004 according to the Forfás employment survey for 2005 which is now being completed and is in the process of being analysed. It will be published in the coming months. Early indications, which are subject to change, are that 67.8% of all job gains were created in companies located outside Dublin and 36% of job gains were companies located in the BMW region community enterprise centres, CECs.

Enterprise Ireland continues to encourage entrepreneurship at grassroots level through its support for the community enterprise centres. The CEC programme aims to enhance the development of an enterprise climate in areas where it may be lacking or under-developed. To date, Enterprise Ireland has approved more than €34 million and paid out more than €22 million for some 137 CEC projects, including 107 new centres and 30 expansions to existing programmes. Of the 137 projects, 20 are at various stages of planning or construction, 112 are located outside Dublin city and eight were completed in the regions in 2004. Seven new CECs were completed that year in Macroom, Carlow, Lismore, Easkey, Ballyshannon, Moville and Emyvale and the centre in Ballina was expanded. The CEC initiative continues to be rolled out with 12 under construction, of which three were completed in 2005.

During 2004 Enterprise Ireland was engaged in a comprehensive review of its strategic direction. The strategy was devised in parallel with the deliberations of the enterprise strategy group. On 24 February 2005 the Minister for Enterprise, Trade and Employment, Deputy Martin, launched the enterprise action plan, following Government approval for its recommendations. The plan outlines how the enterprise strategy group's report will be acted upon.

Enterprise Ireland's strategy was officially launched in May 2005 by the Minister. The plan, entitled Transforming Irish Industry — Enterprise Ireland Strategy 2005-07, is designed to ensure that the opportunities for growth are maximised throughout all sectors and regions and that relevant support is provided for the agency's client companies to meet the increasing challenges faced in the global market.

The strategy repositions the agency better to serve the changing needs of its client companies. Central to the strategy is a sharp focus on growth opportunities, both for individual clients and for targeted new sectors. Delivering on this strategy requires an optimum combination of one-to-one company activity together with sectoral and group initiatives.

Enterprise Ireland's activities are aimed at assisting its client companies to compete and grow by working in partnership to develop their key capabilities in internationalisation, export growth, research, innovation, technology, competitiveness, productivity and management. The key objectives of the agency's interactions with clients are to develop quality, sustainable and scalable start-ups, assist companies in achieving international scale, promote industry-led research and development and grow exports strongly.

As for progress to date in 2005-06, the Forfás employment survey for 2005 is being completed and is in the process of being analysed. It will be published in the coming months. Early indications, which are subject to change, are that 12,212 new jobs were created in client companies, of which 8,680 were first-time job gains. When set against losses of 12,430, the net decline in employment in 2005 appears, on the basis of the preliminary analysis, to be 218, an 83% improvement on the 2004 outturn.

On the export front, comparable figures for 2005 will not be available until April 2006 when the ABR survey is completed. However, the indications are that strong export growth has taken place in 2005 across a number of key industry sectors, including software and financial services, life sciences and food, with construction and engineering sectors maintaining their performance levels.

I thank Mr. Ryan. May the committee publish his opening statement?

Mr. Ryan

Yes, it may.

Mr. Thompstone

I thank the Chairman and members of the Committee of Public Accounts for providing us with the opportunity to make a statement on the Comptroller and Auditor General's value for money report No. 50. In addition to the Shannon Development chairman, Mr. McElligott, I am accompanied by my colleague Mr. Sean Fitzgibbon, company secretary and director of corporate development, and Mr. Michael Conacur, the property administration manager.

For the members of the committee who might not be familiar with Shannon Development, I shall begin by giving a brief outline of the company and its property activities. Shannon Development was established in 1959 to promote Shannon International Airport in the post-jet era. Over time it evolved to become Ireland's only dedicated regional development company. Its brief is to generate economic development in the wider Shannon region. This covers an area of 10,000 sq. km. spanning counties Clare, Limerick, north Tipperary, south Offaly and north Kerry which collectively have a population of more than 407,000.

The mission of Shannon Development is pioneering regional development for the knowledge age and over the past 45 years the company has worked singly and with many different partners from the statutory, community and private sector to develop the region to its full potential. The company's primary focus is to identify the critical needs or obstacles to development in the region and to lead and encourage the identification and delivery of solutions. It plays a leadership role in the region in important regional development issues such as airport access, transport infrastructure and broadband connectivity.

The key priority in 2006 and beyond is delivering on a mandate given to the company by Government during 2005. A significant goal arising from that mandate is to ensure that we develop a strong focus on vibrant economic development in the Shannon region as part of a wider counterpole to the east region. This goal will be achieved in three ways: by realising the potential of the less developed areas of the Shannon region, by ensuring that the more developed areas of the region reach their full potential, and by helping to stimulate international demand for Shannon International Airport.

The company's asset base provides the means to turn strategy into action and is made up of a property portfolio with the following parameters. It consists of 3.7 million sq. ft. of industrial buildings and 1,910 acres of a development land bank. The asset base generates €16 million in rental income per annum. The property portfolio is valued at an historic €200 million. Over 20,000 people are employed in FDI and indigenous industries located in Shannon Development business parks in the region, where a total of 90% of the largest industrial employers in the region, both foreign and indigenous, are located. The Shannon Development property portfolio is a key enabler of economic development in the Shannon region. It is an integral part of Shannon Development's regional economic development strategy and utilised as a development and promotional vehicle in facilitating the company's response to the region's development needs. It is a critical tool in supporting the corporate objective of pioneering regional development, acting as a catalyst for industrial promotion, providing the industrial infrastructure for foreign direct investment and indigenous industries in the region, and equipping the company with the funds required to underpin this policy. Management of the company's property portfolio is also critical in the implementation of projects with partners throughout the region, where the maintenance and development of property assets can facilitate collaborative development.

The key objectives and strategies employed to successfully provide this support for economic development can be summarised as follows: we identify and purchase land banks in key strategic locations throughout the region; manage site development, construction activities and maintenance of services at minimum cost and within budget; manage an annual capital investment programme in economic infrastructure; review investment opportunities in company property and, where possible, create financial packages to leverage private sector investment to deliver the company's development plans; dispose of assets in respect of which there is low expectancy of occupancy or industrial development, and reinvest in new high potential properties that meet modern needs. A more detailed briefing note on our property management activities is included in the appendices submitted to the committee.

The Comptroller and Auditor General has given a detailed account of the sale of the company's property at Ennis Road, Limerick. I do not propose to repeat the details of the transaction which have been fully covered in his report. Shannon Development acknowledges the main points of the report on the conduct of the sale of the property. We note that the Comptroller and Auditor General states that the proceeds of the sale were probably broadly in line with what was obtainable in the circumstances. We have assured him that the company has strengthened its property procedures, and we now give these assurances to the Committee.

In 2004 Shannon Development prepared a detailed property procedures manual, the aim of which is to provide for consistent and transparent processes which minimise risk and facilitate stakeholder satisfaction in the company's property activities. The manual was prepared by company executives, working closely with the company's internal auditors, to ensure it was benchmarked against best practice, public procurement guidelines, board approved procedures and internal audit recommendations. Its preparation predated the formal audit by the Comptroller and Auditor General of the Ennis Road transaction. However, executives were aware of the matter from an earlier FOI request. The matters arising were incorporated into the asset disposal procedures when preparing the manual.

The new approved process followed by Shannon Development in transacting asset disposals is framed by the company's compliance with the requirements of the code of practice for the governance of State bodies. Accordingly, the current approved process for disposal depends on the dynamics underpinning the decision to dispose. These dynamics can be summarised as follows. Disposal to a non-industrial undertaking is by way of offering the opportunity to the open market. Disposal to an industrial undertaking is by way of open market value as determined by an independent valuer. Disposals are by way of leasehold sale, with a suitable restrictive user clause included in lease documents. Compliance is monitored in a proactive manner, in that an internal process monitor signs off on compliance at various key control point stages and also on all property proposals before submission to the company's executive committee for approval. Furthermore, all property transactions requiring board approval are subject to prior independent review for compliance with the company's property procedures.

The former Burlington plant at Gillogue, County Clare, was transferred to Shannon Development in 1998 by IDA Ireland. In 2001 Shannon Development leased part of the facility to a packaging manufacturing company which traded from the facility until it went into liquidation in February 2004. Shannon Development wrote to all the parties which had expressed an interest in the facility, setting out terms under which the property would be made available, one of which was the receipt of a satisfactory business plan. It offered the facility for sale to a consortium for the proposed development of a corrugated packaging business. However, following a review of the entire project and having regard to all the information available, it decided in January 2005 not to proceed with the proposed sale. This decision was made by the company. A number of parties had expressed an interest in the property during the course of the transaction and it was decided to place the building and the land on the open market. In taking the decision not to proceed with the sale, Shannon Development took into account its economic development role to promote industry and employment in the region, the use of its property portfolio as a resource in achieving these objectives, as well as its duty as a public sector agency to preserve and protect State assets.

In May 2005 property agents were engaged to handle the disposal of the Gillogue building. The property was placed on the open market and a comprehensive marketing campaign undertaken in the national media. A significant number of inquiries for the property were received and in October 2005 interested parties were asked to submit best and final offers. The current position is that heads of terms have been issued to the highest bidder and solicitors for the vendor and purchaser are working through the documentation. Subject to final board approval — the document recommending approval will be considered by the board at its February meeting next week — the company expects the property to be sold by the middle of this year. The price secured for the property is commercially sensitive until the transaction has been closed but it is in excess of the guide price set by the property agents.

I emphasise again that the activities of Shannon Development in property management are directly and specifically linked to its overall regional economic development mandate. Management of the company's property portfolio is a critical tool in supporting the corporate objective of pioneering regional development, acting as a catalyst for industrial promotion, providing the necessary industrial infrastructure for foreign direct investment and indigenous industries in the region and equipping the company with the funds required to underpin this policy. Shannon Development is mindful of its duties and responsibilities in the management of public sector assets. Our objective is to ensure our property management activities are carried out to the highest professional standards. Management of the largest industrial property portfolio in the region is a complex task. We take full account of the need to balance the use of the company's property portfolio as a strategic tool in delivering on our regional economic development mandate with our responsibilities as a public sector agency to safeguard public assets. We are also conscious of public procurement requirements. In this context, we have taken and will continue to take difficult and sometimes unpopular decisions to protect the interests of the State.

I thank the Chairman and members of the committee for giving me this opportunity to make a statement. I will be happy to answer any questions they may have on the property sale at Ennis Road in Limerick or any of Shannon Development's activities.

May we publish Mr. Thompstone's statement?

Mr. Thompstone


I welcome the opportunity to hear the four opening statements. Will Shannon Development notify the committee of the final price when the sale is complete?

Mr. Thompstone

Yes. I would like to be able to do so today but, unfortunately, commercial sensitivities do not allow it.

I understand. The Comptroller and Auditor General's report issued towards the end of last year contains an appendix referring to the Gillogue property in County Clare, with which I am sure Shannon Development is familiar. The report states:

An internal audit review was commissioned by the Board. Following legal advice and concerns about a possible legal challenge the [internal review] commission was cancelled and an alternative process instituted. No report has yet issued on foot of this process.

It appears the board wanted an internal audit review. What were the legal concerns and who decided to cancel the review?

Mr. Liam McElligott

The decision to cancel that phase of the review was taken on foot of legal advice from the company's solicitors. It was then proposed to embark on a fresh approach to reporting on the matter. It was the company's intention to complete that process and submit, by way of letter to the Comptroller and Auditor General, the conclusions in regard to the sale.

Therefore, aside from the sale of the property, there is unfinished business in regard to the internal audit.

Mr. McElligott

It is fair to say that.

It would have been helpful if reference had been made to this matter because that is where the lesson can be learned. What body carried out the internal review and who is now responsible for it? Did Shannon Development receive legal advice on the review in the first instance? What caused it to reconsider its position on foot of that advice? Why did it find itself in such a position that it had to cancel what it had commenced?

Mr. McElligott

Given the legal advice, it was not in the best interests of the company to proceed on the route we had embarked upon.

In that case, why did the company commence on that route? Did it do so without receiving legal advice?

Mr. McElligott

Yes, we did. However, as we proceeded along that line, it became evident that the process was flawed and had to be recommenced.

What was the process the company had commenced and abandoned? Who was responsible for this? Was it external consultants?

Mr. McElligott


Did they advise that what Shannon Development was doing was legally flawed?

Mr. McElligott

Once we had commenced the process and arrived at the point where it was intended to conclude it, the legal advice was clear that it was a flawed process.

How much did the company pay for this flawed process?

Mr. McElligott

I am not clear on the figures involved.

Does the chief executive know?

Mr. Thompstone

I think the amount paid to the consultants who had prepared the review was of the order of €40,000 to €45,000. If any of my officials have the details available, I will confirm the figure. If not, I will check to find it.

I raise this issue because it is the one left hanging in the report. How much is the company spending on the new report? I take it it will be a suitably sanitised version. Who was interested in challenging it? Were the company's concerns related to staff and internal issues or external considerations in regard to the challenge? Why did it cancel this €40,000 report?

Mr. Thompstone

A number of parties were involved in the transaction from beginning to end. The legal advice was such that the interests of all of those parties had to be reviewed from a legal perspective.

Has Shannon Development commissioned a different company to undertake the second review?

Mr. Thompstone

The board has initiated the review this time.

Is the second review being carried out by a different organisation?

Mr. Thompstone

It is not being carried out externally.

Some €40,000 was spent on an external review of the company's internal audit procedures. Somebody was not happy with the report because there were problems. Solicitors' letters were sent and the company cannot now publish the report and has abandoned it. It has wasted €40,000 and probably much more in legal fees in withdrawing from the process, yet Mr. Thompstone tells me that it intends to carry out an internal review. That does not inspire confidence. There must have been good grounds for commissioning the review, yet the company seems to have walked away from it. Has it got cold feet on this matter? Why has it walked away from what it felt was a correct decision?

Mr. Thompstone

The company has not abandoned the review. Having taken legal advice that a review should be completed, the board decided to initiate the review. It delegated a board sub-committee to handle the task. As chief executive officer, I was asked by the sub-committee to prepare material as input to that review. That process is in progress.

As chief executive officer, Mr. Thompstone is preparing an input. Who will complete the report?

Mr. McElligott

A sub-committee of the board.

Has the company obtained good legal advice this time?

Mr. McElligott

We have.

Has the company learned lessons from this waste of €40,000 on what was another great job for consultants who drew up a report that will not see the light of day. It is disappointing to hear this. How soon does the company expect the watered down, sanitised internal report to be available?

Mr. McElligott

Within weeks.

Will it be available to the Comptroller and Auditor General?

Mr. McElligott

Yes, it will be addressed to him.

There are many issues involved but that one immediately struck me as being left hanging and not addressed in the opening statement.

With regard to the Department of Enterprise, Trade and Employment, I want to deal with the issue of FÁS and community employment. The Department's report states FÁS programmes account for €551 million, of which €347 million is for employment programmes. Has responsibility for these employment programmes such as community employment schemes and the like which operate in many communities been transferred from the Department of Enterprise, Trade and Employment to the Department of Community, Rural and Gaeltacht Affairs?

Mr. Gorman

There are three employment programmes, namely, the community employment scheme, the job initiative scheme and the social economy programme. FÁS will retain responsibility for the community employment scheme and the job initiative scheme. The programme for which responsibility is being transferred to the Department of Community, Rural and Gaeltacht Affairs with effect from this year is the social economy programme.

Therefore, the community employment scheme will continue to operate.

Mr. Gorman

Yes, under the control, funding and direction of FÁS and through the Vote of the Department of Enterprise, Trade and Employment. The funding for the social economy programme, currently included in the Vote of the Department of Enterprise, Trade and Employment, will transfer to the Vote of the Department of Community, Rural and Gaeltacht Affairs.

Mr. Gorman might provide for the committee a breakdown of the number of FÁS schemes and participants on a county basis. I am sure that information is readily available.

Mr. Gorman

It will be readily available from FÁS.

The committee would like to have it, although I would not expect Mr. Gorman to have it with him today.

The next issue I would like Mr. Gorman to touch on is that of county enterprise boards which seem to have a budget of approximately €28 million, based on the figures provided. How many jobs were created by the boards? What is the average cost per job and how does this compare with the figure in other agencies? I appreciate this information may not be readily available.

Mr. Gorman

I have a significant part of that information.

Mr. Gorman might also explain the linkage between county enterprise boards and Enterprise Ireland. From my knowledge of the situation in my area, I understand there is a rule of thumb that organisations with more than ten employees deal with Enterprise Ireland, while smaller companies work with the county enterprise boards. Is Mr. Gorman satisfied that this is a good arrangement in the linkage between the two bodies?

Mr. Gorman

I will deal with the linkage question first. The two structures have worked almost in parallel while complementing each other. Enterprise Ireland's particular client base focus is on companies with a higher number of employees than those with which the county enterprise boards work. The latter are effectively aimed at micro-enterprises. We have considered the extent to which there are effective synergies between Enterprise Ireland's work and that of the county enterprise boards. To ensure greater synergy and complementarity, we are moving the co-ordination responsibility for the county enterprise boards to Enterprise Ireland.

Is this a new development? It sounds like a fundamental change in the work of the enterprise boards.

Mr. Gorman

This change was recommended in the report of the enterprise strategy group as a positive development in achieving the complementarity to which I referred. We accepted the recommendation which we are in the process of implementing.

Will the county enterprise boards continue to exist?

Mr. Gorman

Yes, they will continue to exist more or less as they have done heretofore. The difference is that there will be greater co-ordination of their activities with the mainstream activities of Enterprise Ireland. We expect the formalities associated with the transfer to be completed by the middle of this year. There are various orders to be made and so on.

Does Mr. Gorman have information on the numbers of jobs created and the average cost per job?

Mr. Gorman

Yes, I have statistics which cover the period from 1993 to the end of 2004. In that period the county enterprise boards provided support for 17,050 projects, with grant assistance of more than €155 million. Some 28,296 net jobs were created in county enterprise board assisted projects in that timeframe. During 2004, the year under review, the number of net jobs created was 1,392. The cost per job in that year, based on the figure for net jobs created, was €5,503.

I appreciate that. This represents good value for money, given that the Enterprise Ireland figure is slightly higher. I will ask Mr. Dorgan about the comparative figure for the IDA presently.

Notwithstanding EU enlargement, the Department issued 34,000 permits in the year under review. It had estimated an income of €9 million from work permits but achieved a figure of €12.8 million. It seems far more work permits were issued than anticipated. Why was the Department's estimate so vastly understated, by some 40%? What was the figure in 2005?

Mr. Gorman

The estimate we provided for income from work permits for 2004 was predicated on the opening of the labour market to citizens of the ten EU accession states. The policy approach we followed and still follow is to try to fill the bulk of our labour requirements from overseas from the totality of the European Union, including the ten accession states. The estimate at the beginning of the year was that the level of work permits would drop significantly. This proved to be the case but not to the extent we had anticipated. Factors included the level of economic activity and the extent to which the level of applications for work permit renewals held up. When we came to consider our approach in the context of EU enlargement, we decided not to inform workers from third countries that, while it was nice having them, they were no longer needed because workers were available in the ten accession states. We took a policy decision in the context of employers reapplying to roll over the permits for the people concerned, mainly on compassionate grounds, and in acknowledgement of the extent of jobs availability.

The figures can be divided into two blocks, the first comprising first-time permits and the second relating to renewals. New permits hit a high of some 29,000 in 2001 but this was down to 10,000 in 2004. The renewal rate in 2004 was 23,000. In 2003 we issued 21,930 first-time permits but only 10,000 the following year. In effect, therefore, the number of first-time permits was halved in one year. The rate of renewals, however, remained high.

Does Mr. Gorman have figures for 2005?

Mr. Gorman

I have the figures to hand. Some 7,345 new permits and 18,959 renewals were issued.

I appreciate the information Mr. Gorman has provided.

I welcome Mr. Dorgan from the IDA. There are some 129,000 people in IDA-supported employment, comprising approximately 6.5% of the workforce. This is less than it was four or five years ago; it seems that, while the workforce is increasing, the IDA numbers are decreasing somewhat. Approximately half of these 129,000 employees are in the Dublin region. Mr. Dorgan will not be surprised that I am concerned about the low numbers in the midlands region. Is it possible for him to supply the committee with county-by-county employment figures and the numbers of supported companies in each county? Information on the regions does not mean much to us in determining data on a county-by-county basis.

What is the average cost per job? I expect it is higher than the corresponding figure for the county enterprise boards because the IDA is concerned with attracting foreign companies. Does Objective One status have any significant effect on a region? I am living in an Objective One region in County Laois but there is no evidence that this status has helped in attracting new companies there.

The IDA estimates some €2.7 billion is paid by its client companies in corporation tax. What will be the impact of the change in the taxation regime for non-Irish workers? Such workers were formerly taxed on a remittance basis but will now be taxed on their total income. I understand this will be a significant disincentive for some executives in deciding to come here. How is the IDA dealing with this issue?

Mr. Dorgan

We no longer consider job numbers the best measure of success. I do not say this merely because our proportion in the total workforce is dropping. It is because we now have a low unemployment rate and our success should be judged not on how many additional jobs are created but rather on the quality of those jobs. Our concern is how well Ireland is moving to the leading edge of activities in innovation and high value activity, and how well we deliver regionally and achieve a good regional balance.

I can supply information to the Deputy on job numbers throughout the country. However, I am concerned about considering jobs purely in county or town terms. It is not towns and counties that compete for investment but rather Ireland first and then the regions within it. In vying for the high value investments we now require we are competing against city regions elsewhere in the world. Positioning a town or county against a city region does not amount to a fair competition.

The average cost per job for jobs sustained in the 1998-2004 period was €14,700. This takes account of jobs falling out. As with counting job numbers, I stress that figures for cost per job are not a good measure. It is not job numbers with which we are concerned. Many grant offerings are dropping but as we move towards investing more in research and development, that figure will be higher on a cost per job basis but the value should also be very much higher.

In 2003 the total value of research and development grants paid was in the order of €19 million. In 2004 the figure came to €40 million and will rise to €80 million for 2005. Hence, a significant progression in support for research and development is discernible over time.

The establishment of and consequent focus on the Objective One region certainly made a difference. In 2000 the IDA managed to direct approximately 25% of all new greenfield jobs created to the Border, midlands and western region. The equivalent figure today is more than 40%, as against a very ambitious target of achieving a rate of 50% in the Border, midlands and western region which we set for ourselves six years ago. While this is a good performance, I frankly admit that it is not yet spread evenly. If one considers this purely on a county basis, it may not be spread evenly because strong urban centres attract the best investment. From the perspective of achieving investment, it is important that strong urban centres are built in the regions.

As for the final question concerning the remittance basis of taxation, I do not regard it as having any direct or discernible impact on corporation tax receipts. Clearly, the change was made because of significant abuse of the remittance basis. However, if it was properly ring-fenced and confined to the circumstances whereby key decision makers' decisions could be influenced in Ireland's favour, it would still be a significant and valuable aid in winning investment, as other countries offer that benefit.

Is the IDA losing that advantage?

Mr. Dorgan


I wish to ask Mr. Ryan a similar question. While he might regard it as having a narrow focus, I understand Enterprise Ireland's cost per job is approximately €8,000. Can he supply the committee with information on a county by county basis? While this may not be relevant to Enterprise Ireland which takes the national view, committee members must deal with their particular geographical areas and such information is highly significant for them. If Mr. Ryan does not have this information to hand, I ask him to submit it to the committee.

Mr. Ryan

Enterprise Ireland will be pleased to supply the committee with that information.

Is Mr. Ryan satisfied with the proposals to approve the linking of Enterprise Ireland with the county enterprise boards?

Mr. Ryan

We are satisfied with the proposals. At its February meeting Enterprise Ireland's board cleared the corporate governance issues in that regard. We anticipate placing a document before the board in April which will clear the functions to be transferred to us. This process is advancing rapidly.

Given the incestuous nature of industrial development agencies in Ireland, my questions will involve much cross-questioning. I will begin with the value for money report in respect of Shannon Development.

I was surprised that the chief executive's presentation set much store by the existence of a manual. As Department of Finance guidelines on the disposal of State assets have been in place since 1994, surely they are sufficient for the company to follow as its benchmark in this respect. When the factory element of the property in question was sold in 1996, the company used or conformed to these guidelines. One of the more obvious questions arising from the value for money report is why, two years later, it chose to dispose of the unbuilt property element without referring, as it should have, to the guidelines on foot of national policy in this regard.

I also have a question about the valuation which Shannon Development sought from a single valuer for the factory and the parcel of land when it became available for sale. It appears that contact with this valuer was made on a completely informal basis without the existence of written documentation between Shannon Development and the valuer who undervalued the factory element of the sale by €500,000, as well as the unbuilt property element some years later. Does Shannon Development still make use of valuers on this basis? Does it use a single valuer? Has it changed its procedures to any degree?

The witnesses should deal with these questions first.

Mr. Thompstone

Before I reply to Deputy Boyle's questions, I wish to return to Deputy Fleming's earlier question about the cost of the consultants as I now have the accurate figure to hand, namely, €35,000, exclusive of VAT. While my earlier reply was in the right order of magnitude, this is the correct figure.

Deputy Boyle is correct in respect of the existence of the property procedures manual. The public procurement guidelines are not a new entity; they have been in place for many years and the company has been operating to them. We put the property procedures manual together because we had found that processes such as the public procurement guidelines, corporate governance guidelines, internal audit recomendations and quality procedures were in separate boxes. To improve our performance standards in this regard, we decided to bring them together, prepare flow charts for everything and create an easily digestible manual, as well as putting everyone through a training programme to ensure everyone involved in the property area, on the executive and the board was fully up to speed on what was required. Hence, the manual was put together to ensure higher standards of compliance and understanding of requirements, rather than because nothing had been in place beforehand.

As for the valuation process, our procedures provide for written instructions to valuers. This is clearly indicated in our procedures and all executives fully understand that this is required.

On the selection of valuers, part of the property procedures manual covers the appointment of consultants. In the first instance, we have a highly defined system for inviting expressions of interest from various consultants, whether they be engineers or valuers. We agree criteria for their selection for a particular job beforehand and then go through a defined system.

Is Mr. Thompstone certain that such valuers do not carry out valuations on behalf of potential bidders for the property being sold by the company?

Mr. Thompstone

Yes, that forms part of the valuation process. We also have a rotation system to ensure we do not rely on one party more than others. A highly defined system has been set out in the manual for so doing.

I have a further question in this regard. Under section 3(4) of the Industrial Development Act, the IDA is obliged to secure the approval of the Minister for Enterprise, Trade and Employment before disposing of property. Shannon Development is not so obliged. Was the transfer of property from the IDA to Shannon Development considered to be a disposal and was ministerial approval given at the time?

Mr. Thompstone

The transfer arose directly from a ministerial decision. It happened because at the time responsibility for the promotion of foreign direct investment in the region was transferred from the IDA to Shannon Development. As part of this, the IDA transferred the property portfolio to Shannon Development.

I sought clarity because Mr. Thompstone's previous reply mentioned the code of practice for the governance of State bodies. This is probably a question for the representatives from the Department of Finance. The code was introduced in 2001 and the Department of Enterprise, Trade and Employment sought a waiver, or an exemption from it for the IDA and Shannon Development. It is unclear whether that exemption was granted. If it was, what was the basis for it? Is it still in place and subject to review?

Mr. Dorgan

I can help to reply to that question. A complete waiver was not sought or granted. A waiver was sought in cases in which an incoming investor proposed to come to Ireland. In such cases the IDA would not be obliged to place the properties which it offered to the investor on the open market. Instead, the property would be offered to the investor at full market value. As part of the promotion process, we have properties and invite potential investors to come and review where they might invest. One must have an arrangement whereby the property in question is made available for sale or rent on the basis of full market value, rather than force potential investors to bid against each other. This is the waiver from the full requirements——

That does not apply to Enterprise Ireland which would be engaged in the same type of transaction.

Mr. Ryan

Business on the property with which we deal is transacted for us by the IDA.

I acknowledge that there are commercial sensitivities involved in the sale of the Gillogue site which has not been finalised. According to reports in the media, the sale was close to being finalised in December 2005. A price was mentioned which was 150% greater than the original figure associated with the sale, if the board had approved it and planning permission had been granted. Are we still talking about this kind of figure? Will the likely selling price be 150% greater than the figure for which Shannon Development was originally prepared to sell the Gillogue?

Mr. Thompstone

We put the industrial buildings and land within their curtilage up for sale on the open market in mid-2005. This was for a smaller area of 27 acres, in respect of which I understand we received approximately 40 inquiries, which is a significant figure. A number of the parties made a bid and we went through a bidding process. On the advice of the property agents, we selected the highest bidder. The guide price set by the agents for the property was €4.7 million. The price we achieved was significantly in excess of this. I acknowledge that there has been considerable coverage of this issue but I cannot discuss the details for obvious reasons.

Shannon Development acquired most of its property portfolio through transfers from the IDA, yet it recently engaged in a sale of land to allow the headquarters of Enterprise Ireland to be located in Shannon. Why does it acquire property through transfers and why is it unable to sell property to another State agency? Is it fair to suggest the price involved might be higher than it would be in a private sale rather than a sale between two State agencies?

Mr. Thompstone

I presume the particular transaction to which the Deputy refers relates to the proposed decentralisation of Enterprise Ireland to Shannon and the identification of a site.

Mr. Thompstone

We have worked with Enterprise Ireland and while a preferred site has been identified, the transaction has not been completed. It would be normal to use a valuation mechanism to determine value, even in a property transaction between public entities. Such a process would also be used in this case.

It has been covered in the media and the figure mentioned is even higher than that for the Gillogue site.

Mr. Thompstone

The Chairman and members of the committee will appreciate that there is considerable speculation in the media about particular transactions. Unfortunately, we can only give the committee the exact details of a transaction once it has been completed. It is not possible to rely on everything one reads in the media about this transaction but we will fully inform the committee of the outcome of the transaction once it has been completed.

Mr. Thompstone has undermined my faith in the media. In his opening comments the Comptroller and Auditor General stated he intended to carry out further investigations into the closure of the loophole in respect of the purchase of the fee simple and outline the effect of this loophole. I have been involved in Dáil debates on the issue and understand the loophole was identified by several Departments. Two pieces of emergency legislation were introduced in 2005. One was an amending Bill introduced by the Department of Community, Rural and Gaeltacht Affairs that addressed the potential for using the loophole in respect of cross-Border bodies. Within a fortnight the Minister for Enterprise, Trade and Employment introduced a second piece of emergency legislation because the loophole had been exploited. A company based in Clonshaugh Industrial Estate which has yet to be publicly identified had managed to use it. Even after the latter Bill was passed, a third instance where the loophole had been used was uncovered in respect of the former Irish Glass Bottles Limited site in Ringsend which required an amendment to marine legislation. This begs the question as to whether Departments communicate with each other.

A judgment delivered in a court case last week upheld the constitutionality of the original Landlord and Tenant (Ground Rents) Bill. Has any consideration been given to the effect of this decision on legislation passed subsequently and whether the amended legislation approved by the Dáil and brought forward by the Minister for Enterprise, Trade and Employment is constitutional on foot of it? Does the Department of Finance believe there are loopholes with regard to other State agencies which let property on a similar basis?

Mr. Gorman

On the issue surrounding IDA property and the difficulty which arose in the context of the landlord and tenant legislation, at the time it arose we were facing an immediate problem in the courts, as was the IDA. Effectively, we were forced to concede the case in respect of the property in Clonshaugh. We were facing a situation where, on the basis of a court hearing on 17 May 2005, a precedent would have been created. The IDA has approximately 700 leases in its portfolio and we were faced with the immediate prospect that the genie would be let out of the bottle. Therefore, we moved immediately to close the loophole to protect the IDA property portfolio. On 19 May 2005 an amendment to the legislation was signed into law by the President. On the day the legislation came into force I wrote to every Secretary General alerting him or her to the problem and suggesting he or she examine whether he or she was facing a similar problem.

I understand the issue is being examined by the Office of the Attorney General in the broader context of the landlord and tenant revision work which is ongoing in the Department of Justice, Equality and Law Reform. From our perspective, we were forced to move as we could not afford to ask many questions and engage in widespread consultation. We were faced with a real-time problem which we had to address. I am not familiar with the details of the court judgment referred to by the Deputy. The judgment will be examined to see if it has any implications for what we have done and might do with the landlord and tenant legislation.

Does Mr. Thompson have anything to add?

Mr. Thompson

In general, we keep an eye on matters of this kind arising in Irish law and, increasingly, European law. We normally circularise Departments to alert them to such developments. We also alert them to European cases in which we intervene on behalf of Ireland. As the central co-ordinating Department, we attempt to ensure nobody is taken by surprise. Deputy Boyle refers to Departments communicating with each other. That is what we are attempting to bring about. As far as possible, we try to ensure everyone is informed of relevant developments and that unpleasant surprises are avoided.

In his presentation Mr. Gorman mentioned the increased budget for research and development, particularly scientific research and development. Does the fact that this funding passes through several channels present a difficulty? Is Mr. Gorman confident there is no cross-use of the funding, that the different agencies involved might do similar work and the funding might not be used to best effect? Is the Secretary General satisfied the three industrial development agencies lead to efficiency?

Mr. Gorman

The research and development funding is dispersed through many avenues. The IDA, Enterprise Ireland, the Department, universities and businesses are involved. We address the research and development deficit as we see it at various levels. We address the issue of having universities work with businesses and we address the issue of a lack of researchers in universities. We are working with the Department of Education and Science to enhance resources in universities and third level colleges. In this context, we are focusing on intellectual property and helping companies to focus on and commercialise it.

There are several strands to this spend area going out through several avenues, some directly spent by the Department, some through agencies and some by other means. We are co-ordinating that exercise in the Department. We are about to bring to Government a strategic implementation plan for moving the research and development agenda forward in the period ending 2013. A part of this plan will involve governance issues regarding how to co-ordinate and get coherence in terms of that spend between the various actors and beneficiaries. In the context of the strategic implementation plan we are specifically drawing up indicators to measure value for money so that we can report back to our Ministers, this committee and the Oireachtas on the outcome rather than on just where the money has been spent. This challenge is being addressed.

Is Mr. Gorman satisfied with the efficiency of having three agencies?

Mr. Gorman

A very deliberate decision was taken in policy terms to have a dedicated agency to focus on the attraction of foreign direct investment, FDI. This situation has prevailed for some years. It is not a new decision. It is a good approach that has served us well. It has allowed the IDA to develop an expertise and commit its resources in a focused and dedicated way to pursuing the FDI agenda.

There is a parallel need for the State to assist in the development of indigenous enterprise, an exercise undertaken by Enterprise Ireland. We are satisfied there are specific issues and challenges in the indigenous sector that merit a dedicated focus from an agency with an expertise and capacity to help.

There have been some changes in respect of Shannon Development and its mandate to address its role in the attraction and promotion of the region for foreign direct investment and assisting indigenous enterprises. The changes in the mandate announced by the Minister in the middle of last year involve the IDA taking responsibility for the promotion of the Shannon zone for FDI purposes and Enterprise Ireland working on the ground with indigenous enterprise clients. We are getting the synergy suggested by the Deputy. Shannon Development will address regional development, using its property asset as a catalyst to do what it and we believe it does best, that is generating and co-ordinating development in the region on a broader basis than the narrow FDI or indigenous company support basis.

The Minister for Enterprise, Trade and Employment notified me in reply to a parliamentary question that in 2004 Enterprise Ireland awarded a substantial grant of €160,000 to an English language school. That school brought several Chinese nurses to Dublin in that year to do advanced certificate in nursing English for a substantial fee of €10,400 for one year with only one month's accommodation but no air fares included. The school promised that, as well as teaching them English, the nurses would be placed in Irish hospitals for the remaining two years of the programme. However, at the end of that time they were offered places as care assistants in the United Kingdom, which resulted in the nurses — some of whom are highly qualified — feeling extremely cheated to say the least.

Is Mr. Ryan aware of this? How does an English language school or this school in particular come under the frame of reference given to the committee for the awarding of grants in Mr. Ryan's introduction? How does this school qualify under the stated criteria? Is anything being done about this?

Mr. Ryan

I am not familiar with the details of the case. I am happy to get the details and respond to the Deputy's question.

That amazes me. Some considerable time ago formal complaints were made to the Department of Education and Science and the advisory group monitoring English language teaching schools. As Enterprise Ireland gave the school such a generous donation, I am amazed that the nurses have not looked to it for an explanation or clarification.

Mr. Ryan

They may well have but I am not personally aware of the case. Any funds forthcoming from us would be completely justified following proper due diligence. I will find the information and supply it to the committee.

Does the Department of Enterprise, Trade and Employment have any information on this matter?

Mr. Gorman

I am unfamiliar with the case in question.

How can an English language school fall under the mission of Enterprise Ireland to accelerate the development of world class Irish companies to achieve strong positions in global markets and so on?

Mr. Ryan

One of our fastest growing areas is that of education services. An increasing number of universities, institutes of technology and some English language schools attract overseas students to Ireland. A recent figure shows that approximately 7% of the total student body is comprised of overseas students.

Therefore, it is imperative that those who are brought here are well treated professionally. Will Mr. Ryan examine the matter and reply to me in due course?

Mr. Ryan


The Minister for Enterprise, Trade and Employment answered a parliamentary question on the amount awarded by the IDA to a company in respect of fee simple interest in industrial lands in Clonshaugh. The answer was that the settlement negotiated with the company was subject to a confidentiality clause between all parties and their agents. What is in the confidentiality clause?

Mr. Dorgan

The commercial arrangement entered into to resolve the position put to us in that case was made confidential to protect the State's interests. A device was created by a lawyer to get access to the fee simple without needing to pay the full market value. We were advised this was perfectly legal. We did this so that that device did not become common currency to be used in other cases and because we were not at a point where we were entering that agreement. We were not certain legislation to close the loophole was forthcoming. The agreement was confidential so that others could not use the loophole. Subsequently, the loophole was closed. Agreements concerning commercial arrangements are often confidential.

Did it involve a substantial amount of public money?

Mr. Dorgan

The company accessing this fee simple made a payment of a substantial amount of money to us. Nevertheless, this was less than the commercial value of the freehold.

Was the difference substantial?

Mr. Dorgan

It was.

Did the confidential agreement state that the name of the company should not be revealed?

Mr. Dorgan

The agreement did not specify what aspects were to be confidential. Rather, the agreement was confidential.

I invite Mr. Dorgan to name the company.

Mr. Dorgan

I have been advised not to name the company in view of the confidential agreement and I would prefer not to be pressed to do so.

I must press Mr. Dorgan on this point. In the case of MediaLab Europe, which had substantial public funding, we made inquiries to the Comptroller and Auditor General and were told that certain arrangements were confidential. We are still pursuing knowledge that should be public for the sake of the taxpayer. If Mr. Dorgan is not at liberty to disclose the amount of money this legal scam involved, he can reveal the name of the company.

Mr. Dorgan

My advice is that I should not do so but the name is not difficult to find. Data Products entered the Irish market in 1981, and passed on its interest in the building to a property company in 2000, which worked with a connected company in 2004, placing the property on the market in 2005. It was the only freehold property placed on the market in 2005.

Is Mr. Dorgan aware of many other instances of similar situations?

Mr. Dorgan

That is the only case within IDA Ireland's remit.

Mr. Gorman and I met on a number of occasions regarding the Gama Ireland scandal. On more than one occasion I acknowledged the diligent approach of the labour inspectors to investigating the outrageous exploitation of migrant workers. Has Mr. Gorman been shocked by the revelation by the Office of the Pensions Ombudsman that up to 130,000 construction workers are being illegally denied pension rights by construction bosses? Does this indicate a frightening lack of implementation of workers' rights in this industry?

Mr. Gorman

It is certainly something about which we would rather not hear. The Department has a role through the Labour Court and we support its role by making labour inspectors available to interview companies, inspect records and make factual information available to the court as it deals with complaints.

The Labour Court's role is to deal with complaints about non-compliance with the construction sector's pension scheme. Where complaints are upheld, the Labour Court has the power to make an order requiring the company to pay arrears to the scheme. The matter is referred to the Circuit Court if the payment is not made. In supporting this, the labour inspectors are available to the court to use powers under the Industrial Relations Act 1969 for the purposes of obtaining names and details of employees and circumstances. This can be passed on to the Labour Court for its deliberation on the problem.

I noticed a complete lack of urgency on the part of the Taoiseach and Tánaiste, for which I do not hold Mr. Gorman responsible. Would he not agree, however, that 130,000 workers being criminally denied pension entitlements is a crisis? The Pensions Ombudsman states that such construction companies could be subject to fines and-or imprisonment.

Three bricklayers are in Mountjoy Prison for seeking certain rights on a building site in Ballybrack. The subcontractors on the site are in flagrant breach of the pension scheme but what will Mr. Gorman bet that the three bricklayers will be rubbing shoulders with the directors of the subcontracting firm before the end of the week? Bland answers from leading politicians are not enough to address this situation in which workers may die in accidents and their families would be left with nothing because the employers were criminally negligent. Thousands of other workers are left without a decent pension. Is this not outrageous and does it not need urgent attack?

Mr. Gorman

The Department has a specific role and can respond through the Labour Court to instances of complaint where workers are not being properly treated regarding the pension scheme. This is provided for in the registered employment agreement.

Deputy Joe Higgins referred to two subcontractors as current instances and if a complaint is made to the Labour Court, it will be followed up. The broader issue of pensions and subcontracting in the constructing industry is beyond the resolution of the narrow focus approach of the Labour Court in enforcing the registered employment agreement. This wider challenge, including subcontracting, compliance and taxation, is being articulated at the national partnership talks.

If one or two construction bosses found themselves on the wrong side of the walls of Mountjoy Prison, it might focus minds.

Mr. Gorman


I wish to ask Mr. Gorman about the numbers of people at work. Does Mr. Gorman have statistics and European comparisons for labour force participation between Ireland and Scandinavian countries? Ireland has a sizeable cohort of young people who leave school with few if any qualifications, specifically young men who attend schools in local authority housing areas. Thereafter, they have sporadic employment. What is the view of Mr. Gorman's Department?

My view is that our labour force participation rates are significantly below countries we aspire to be like, such as Scandinavian countries. One factor is this cohort of young men who do not have much chance in the Celtic Tiger era. Could Mr. Gorman provide information and geographical distribution on this matter?

Mr. Gorman

I do not have information on comparative labour participation rates from member states throughout the European Union but can get it for the committee. I can, however, give it some broad indicators based on an average set of figures. The employment rate target for 2010 is 70% overall for the European Union. Within this, the female employment rate target is 60%. The target for older workers is 50%. Ireland's current rates are 68.8% overall, 59.3% for female participation and 50.7% for older workers. The last figure is not surprising as our traditional retirement age is somewhat higher than in other countries, particularly the older member states of the European Union.

In terms of the 2010 targets, we are doing well. The participation rate of females is higher in economies such as Sweden. I do not have a member state by member state comparison or breakdown but I can get the information for the committee as it is available. I do not happen to have it with me.

On the prospects of young men dropping out of school——

Mr. Gorman

Activation of young people and measures to help them back into the labour market are high on the agenda of FÁS and the Department of Education and Science. FÁS operates and provides a range of programmes which address early school leaving by men and women on a non-discriminatory basis. It uses community training centres and community workshops to provide various programmes and courses specifically aimed at addressing the problem of early school leavers. I can give the committee an itemised list of the various programmes and their budgets for this year. The Department of Education and Science operates a suite of programmes and measures aimed at preventing school drop-out and picking up young people after they drop out.

Is Mr. Gorman concerned that completion rates to leaving certificate are falling rather than rising?

Mr. Gorman

There is concern. Our colleagues in the Department of Education and Science specifically address that matter in the context of their mandate. All of the research and indications show that those who enter the labour market at a significant educational disadvantage are the first casualties. It is a priority and a suite of programmes are in place. I can give the committee the details.

Do social welfare and rent supplement feature in the Department's overview? In the Dublin West constituency rent supplement is approximately €1,200 per month for a family of two adults and two children. For someone to enter employment he or she must earn at least €300 per week to pay the rent because of the loss of benefit. Effectively, someone moving from welfare to work in the Irish system probably requires a salary of between €30,000 and €40,000 to make it worth his or her while to take up a job. Would much employment be available at that level for the individuals we are discussing? Eoin O'Driscoll once described the economy as "quite agile". However, it is not very agile at present. Does this concern the Department?

Mr. Gorman

Certainly, the Department is concerned about disincentives for those re-entering the labour market, whether they are taxation disincentives or the social welfare type of disincentive mentioned by the Deputy. I am not au fait with the specifics of the rent supplement problem. With our colleagues in various Departments such as the Departments of Finance and Social and Family Affairs, we constantly try to find a balance between providing reasonable supports for those in difficulty and suffering social disadvantage, while at the same time ensuring these supports are not an absolute barrier in moving from support to work.

The medical card is another classic example of a potential barrier in leaving welfare and moving back into the workforce. It is a difficult call. People must have somewhere to live. A balance must be struck between extremely difficult and immediate problems requiring social welfare support and the tension generated by the support in terms of the ability of the person concerned to move away from that level of support and take a job. We generally address this issue on an ongoing basis. Specifically, I do not have experience of rent supplement.

Is Mr. Gorman aware that approximately 61,000 persons or families receive rent supplement——

Mr. Gorman

I am aware of the general figures.

——in respect of which the State pays approximately €400 million per year? Is Mr. Gorman also aware that it is probably the biggest barrier to employment for those who might otherwise be gainfully employed? We require more labour and are recruiting abroad. Can we look to people here and give them an opportunity?

Mr. Gorman

On a general point, we do look to people in Ireland. Specifically, I do not have a solution for the issue of rent supplement. It is part of our ongoing dialogue on the various tensions in the welfare and taxation systems that we will examine.

I want to give some information. One of the value for money reports by the Comptroller and Auditor General, Mr. Purcell, is on rent supplement. He expects to sign the final report in approximately six weeks and we will have it as soon as the Department releases it. I am sure that, as always, it will cast light on the issue.

Has Mr. Dorgan set targets for growth in productivity and the labour force in terms of upskilling Irish workers?

Mr. Dorgan

The short answer is that we do not have explicit targets for either upskilling or productivity. However, we are extremely aware that our aim, particularly through inward investment, is to be at the leading edge in a number of areas. This will require extremely high level skills, deep expertise, further investment in fourth level education and, concomitant with this, a stepping up of skill levels in all areas attracting inward investment. From that point of view, what FÁS does through its One-Step-Up initiative supports not only the wide economy but also the particular areas attracting inward investment.

I asked a number of parliamentary questions during the year about Gama. I was advised that it was a particular example of a company which had obtained work permits and then applied for an exemption from PRSI. The company had received approximately 1,200 such PRSI exemptions. On foot of these exemptions, it was allowed to use the remittance base of taxation for their workers in Ireland. Traditionally, employers applied for a PRSI exemption when someone came from Germany to work in Ireland for a year or two and stayed within the German social welfare system. The arrangement for Gama exploited a legal loophole found by some bright spark in a solicitor's or accountant's office. When the Department issues work permits, is there any correlation between the officials of the Department and their colleagues in the Department of Social and Family Affairs on the issue of PRSI exemptions? Such exemptions effectively allowed Gama to fly below the radar of the Irish tax system.

Mr. Gorman

Our experience of Gama and others has influenced the changes to the Finance Bill's provision on remittance basis. We continually improve our liaison arrangements with the Revenue Commissioners and the Departments of Social and Family Affairs and Justice, Equality and Law Reform in terms of how we grant work permits to companies. The general expectation is that when people come here to work, they are employed in the ordinary way, that is, they are paid and taxed here.

The Gama situation, if not unique, was unusual in terms of the numbers involved and the extent to which the company was able to avail of exemptions. We continue to work with the Departments of Social and Family Affairs and Finance to ensure that clarity exists with regard to the identity of employers. One of the complicating factors in the Gama case was that it was difficult to identify the actual employer because it was not an Irish company. In our further discussions with Gama in respect of its continued presence here and the extent to which it will require work permits, we will focus on determining the identity of the employer. Our ambition in the case of any company applying for a work permit is to ensure that it is an Irish company which employs people subject to normal terms and conditions in terms of PRSI and tax and that workers are covered by the full suite of employment rights and protections.

Subsequent to issuing work permits, does the Department check the PRSI status of the relevant workers?

Mr. Gorman

We do not, as a matter of routine, follow up with specific checks on status. Our involvement ends when we establish the bona fides of the applicant and the status of the employer as a properly registered company. Therefore, the subsequent monitoring of tax or welfare compliance falls outside our remit. However, we have a database from which we share with various Departments the details, in real time, of the work permits issued. Other bodies, including the immigration unit and the Garda, have immediate access to that information.

Ireland is taking the route of developing new added value products and services. In terms of the budget for research, what proportion goes to foreign companies and what goes to indigenous interests? How much do indigenous companies invest in research relative to international standards?

In terms of not wasting the valuable financial assets invested in programmes on advanced technology, how successful are the efforts to develop more collaborative research efforts by linking with universities? Can we be sure that the funds allocated to the university sector and other research institutes are dedicated to producing the best results for the country as a whole?

Mr. Gorman

With regard to the distribution of the funding, in 2004, the breakdown of the main schemes supported under the science and technology research and development programme was as follows: a total of €33 million was invested in industry for research and development capability; €37 million was allocated for collaboration between industries and universities; basic research grant schemes came to €15.5 million; and miscellaneous investments, including incubation centres, totalled €1.9 million.

I do not have detailed enough figures before me to provide the precise split between the sums allocated to industry, including indigenous industry, as compared to universities. My agency colleagues may have the relevant figures but, if not, I will revert to the Deputy on the matter.

Ensuring value for money in the area of science is a particular challenge, both because of the amount of money involved and also as a result of the way it is spread across a range of programmes, including those relating to advanced technology. We have monitoring arrangements in place to measure value for money in terms of the level of complementarity among programmes and the good use of money by recipients.

Mr. Dorgan

To add to that, enormous investments have been made in universities and public research efforts. The challenge for IDA Ireland and Enterprise Ireland is to encourage companies to respond to those investments. For IDA Ireland, it is a question of persuading companies based outside Ireland or already here to use the benefits of our investments in research. While we can set targets for spending on indigenous or overseas industries, universities and the public sector, the difference will be made if real companies are made interested in what we are now doing through public spending.

In the figures to which I referred, rather than using the term "spent", I should have said that we had approved €19 million in grants for investment by companies in research. Our approval of €40 million in 2004 and €80 million in 2005 demonstrates that we are using a great deal of public funds to persuade the best international companies to conduct research here. Some of the best names have come to Ireland, including IBM, HP, Bell Labs, GenSyn and Pfizer. Our challenge will be to attract more of the same. We will not do so simply by setting up a programme but will have to prove the benefits of those public investments to individual companies.

Has a competition been set for the universities to apply for funds and, if so, how is it being developed?

Mr. Gorman

The funds are generally made available on a competitive basis and overseen by a panel of experts, a method which has helped to maintain the quality and standard of investments.

Has more collaborative research resulted?

Mr. Gorman

It is specifically targeted at achieving collaboration between business and colleges. Collaboration has significantly increased over the lifetime of these programmes and continues to be a major objective.

Continuing on that theme, will Mr. Gorman address the embryonic units and the efforts to create an entrepreneurial dynamic in Shannon Development? Further to Deputy Fleming's question, what extent of spread is apparent in the region? Given that Shannon Development has €16 million in rental income, it might have money left to refurbish the old industrial site in Roscrea. Now that we have the motorway south of Portlaoise, Mr. Dorgan's people might be able to travel south from the midlands. There is no difficulty as regards the roads.

Mr. Thompstone

Shannon Development has put much effort into linking enterprise with the expertise and knowledge in the third level education sector. The first example of that is the National Technology Park in Limerick, which we developed with the University of Limerick. During that experiment, we found there was a greater propensity for investment in knowledge-based activity among Irish companies when measured by the level of patents generated, investment and numbers of staff in research and development, etc. The question was how to make that relevant throughout the rest of the region. We then identified towns with third level institutions throughout the region and applied the national technology park, NTP, model in those locations. Examples include Kerry Technology Park in Tralee, where we have developed a 53-acre site adjacent to the institute of technology, Tipperary Technology Park in Thurles, of which Deputy Michael Smith was very supportive during its development, construction and delivery, Birr Technology Centre in Offaly, which is linked to Athlone IT, and the latest addition, Information Age Park, Ennis. We have linked those together and branded them the "knowledge network". In each location, we have an incubator, an innovation works and an active programme of linking with the educational institutions, particularly building on the expertise that is being funded through the science and technology programmes the Deputy mentioned. I refer, for example, to the Irish Software and Engineering Research Centre supported by Science Foundation Ireland, SFI, at the University of Limerick.

The funding for that came from the property portfolio, essentially in the more developed parts of the region, carrying out joint ventures with the private sector and releasing capital that can be invested in sectors where the private sector will not go. That is working well, particularly with Irish-owned businesses. We have invested over €40 million in the knowledge network in recent years and there is a significant number of companies, mainly Irish-owned — although a number have been taken over by foreign companies — involved. This is a new dynamic in terms of generating inward investment.

Investment in Roscrea would come from our capital budget rather than our rental income. As Deputy Michael Smith knows, we recently acquired land in Roscrea for the development of a business park and have approved the business expansion scheme, BES, certification for the development of a new building there. As our capital budget for 2006 includes an allocation for investing in infrastructure to open that park, we expect to see development early in 2006.

Mr. Gorman

Perhaps I could return to the question about expenditure on investment in research and development as I have two ballpark figures that might help. Gross expenditure on research and development in Ireland increased from €586 million in 1994 to €1.78 billion in 2004. The higher education element of the expenditure was €121.1 million in 1994 and €491.7 million in 2004. I will elaborate on those figures in a further reply to the committee.

Approximately 30 years ago there were between 18,000 or 19,000 students in four universities and there are now in the region of 135,000 students in what we call the conventional new universities, institutes of technology and colleges. In terms of entrepreneurial skills and the number of people who want to establish businesses, how are the latter developing within the educational sector in terms of outlining the direction that Ireland will take in the future? Are dramatic changes being seen?

Mr. Ryan

Irish entrepreneurship rates are the highest in Europe on a per capita basis. County enterprise centres and incubation centres are important and aid economic development but the question is how many people inside them are contributing to economic activity. The occupancy rate for the community enterprise centres across the State is 86%, which is high and satisfactory. Enterprise Ireland has incubator units under construction in every university and institute of technology. A growing number of entrepreneurs is using those facilities. Last year we supported 75 such high potential, start-up companies and approximately 11% of those came from people in the academic research community who had successfully commercialised their research and converted it into projects.

The commercialisation of research is important. We have heavily supported near-to-market research and development of both processes and products and services. Process is often forgotten but is important because it contributes to productivity. Average productivity growth in Enterprise Ireland companies in 2004 was 7.4%, a respectable figure. Exports increased 5.6% in 2004 from 0.8% in 2003. The research and development funds being spent on process and products and services are having clear outputs in terms of increasing productivity and exports.

Mr. Purcell referred to an inquiry, with which members of Mr. Thompstone's staff took issue, into Shannon Development's property department. As Mr. Thompstone did not refer to that in his opening remarks, could he give us some insight into the report? Was it commissioned by the board and what is the current position?

Mr. Thompstone

The Comptroller and Auditor General was referring to a report by external property consultants looking at the operation of the property department with a view to seeing how best we could implement our new property strategy and ensure that we have the right skills and approach. Tensions have arisen from that exercise. The response from the property department included a statement along the lines to which the Comptroller and Auditor General referred. There is a view that there would be common ground between board members and staff of Shannon Development on many of the issues identified. There is a desire to improve how we go about our business.

When did the consultants report?

Mr. Thompstone

The consultants presented their report to the board in July 2005. The property department issued its response in November or December 2005.

Is it fair to say that the report was scathing in its criticism of the practices and procedures of the property department?

Mr. Thompstone

As written, yes; it makes clear statements to that effect. However, the property department responded to the specific issues raised by the consultants. For example, it referred to the purchase of land in Roscrea for the development of a business park, an issue raised by Deputy Smith. A railway line crossed part of the land and it would have cost a lot of money to build a bridge. Everybody was aware of this at the time of purchase and the issue was highlighted during the approval stage. Arrangements were made to dispose of the land on one side of the railway. The board and executive are focused on what needs to be improved. In that context, an active programme is under way.

Will the report make recommendations?

Mr. Thompstone


Has it been sent to the board?

Mr. Thompstone


Has the board accepted the recommendations?

Mr. McElligott

The thrust of many of the recommendations has been accepted by the board.

Have the specific recommendations been accepted as board policy?

Mr. McElligott

Some ten or 11 have been accepted.

Does the property division have a problem with the recommendations?

Mr. Thompstone

Its misgivings are centred more on the general approach adopted in the report and the way it was written. In its response it stated it agreed with many of the points the consultants had highlighted. For example, as part of the action programme arising from the report, we are in the process of recruiting a property director who will report directly to me as CEO. This was not the practice previously.

Did the manual to which Mr. Thompstone referred predate the recommendations made in the report and, if so, will the recommendations be incorporated into the manual?

Mr. Thompstone

I do not fully understand the question.

In his replies to Deputy Fleming and other Deputies Mr. Thompstone gave an historical account of the difficulties and said they had been overtaken by events, that there was a manual which set out the practice to be followed in all property transactions and the management of property by Shannon Development. Did the manual incorporate the recommendations or predate the report?

Mr. Thompstone

The preparation of the property procedures manual predated the consultant's report of July 2005.

Has the agency taken on board the nine or ten recommendations to which the chairman referred?

Mr. Thompstone

Yes. The key recommendations concerned new skills, for which a recruitment process is under way, and the amount we spent on the maintenance of our property portfolio, which has been decreasing due to significant cost constraints. The consultants suggested we might spend more, which issue is being reviewed. Recommendations concerning our records management and information system were accepted and will lead to a work package that will contribute a second level of consultancy expertise to the company. As a result of the consultants' review, we will also benchmark the service charges regime we introduced on foot of a previous value for money report. The review also stated that the property procedures manual was inappropriate but that is not a matter on which the board and executive agree with the consultants.

Is it correct to say that when the agency finally decided to dispose of the Gillogue site on the open market, it did not do so through the property division, but engaged the services of an outside agency?

Mr. McElligott

Yes, it was in line with a number of previous sales. It is not unusual to employ outside agents to prepare the offering for the market in sales of such a scale.

Does that reflect on the property division?

Mr. McElligott


Why have a property division with considerable expertise if it does not handle the acquisition and disposal of property?

Mr. McElligott

In this sale the decision was taken to prepare an offering with one of the major property vendors in the country. It was vital to ensure national exposure for the specific property in question. It is similar to trying to sell a house oneself or employing an auctioneer to cast the net wider in seeking potential purchasers.

That would be reasonable if Shannon Development had not tried to sell property itself on four occasions, according to Appendix A of the report.

Mr. Thompstone

There were four interested parties, not four attempts to sell. The focus at the time was on securing an industrial undertaking arising from the closure and liquidation of the previous operation at the premises. Following the liquidation, a number of parties expressed an interest in acquiring the equipment and there was a significant foreign direct investment inquiry. The procedure in dealing with those expressions of interest involved treating them as industrial undertakings. This meant we had to rely on the Red Book valuation procedure to determine the value at which the property should be sold.

I will go through some aspects of the Gillogue sale for the witnesses. In July 2004, according to the appendix, Shannon Development wrote to the consortium of business people interested in acquiring the site. A letter from the executive at Shannon Development stated that board approval was being sought for the sale.

Mr. Thompstone

Part of the approval process requires that heads of terms be agreed with a proposed purchaser to ensure there will no be uncertainty.

The letter of July 2004 indicated a decision by the executive of Shannon Development to seek board approval for the sale. Does this mean the board had not given approval?

Mr. Thompstone

No. The executive indicated that they were the agreed terms which were to be put to the board for approval. It is normal to do this to ensure a common understanding of the exact terms to be agreed during sale negotiations.

Did the board agree when it considered the submission from the executive in August 2004?

Mr. Thompstone

No. The property sub-committee reviews board documentation with the help of the internal auditors who confirm compliance with public procurement guidelines. The document went before the board at its meeting in August 2004. While the board was generally supportive of the proposal, it decided to approve the sale of the buildings with less land. This amounted to 47 acres rather than 116 acres contained in the recommendation coming forward from the executive and the property sub-committee of the board.

Is the other 69 acres to be retained by Shannon Development because of potential in the future?

Mr. Thompstone

Yes, that is what led to the decision. A concern was expressed when it came to the board that while we had treated the Gillogue facility and the adjoining land as one asset, some of the adjoining lands could have potentially been used for speculative purposes. For that reason, the 69 acres were withheld from sale and the proposed purchasers were so advised after the meeting.

A special meeting was held on 16 September 2004, and according to the appendix, it was attended by Mr. McElligott, two members on the board and two members of the executive. Was this a board meeting, an informal meeting or a sub-committee meeting? What was the status of the meeting?

Mr. McElligott

It was a meeting of board members to discuss the issue on 16 September 2004.

Does that mean it was a board meeting?

Mr. Thompstone

Technically, it was a meeting of board members. It would not have had the status of a full board meeting.

Two members of the board were present with the chairman.

Mr. McElligott


Were all board members invited?

Mr. Thompstone


Why were two particular members selected to go to the meeting? What was their role in the sale of property?

Mr. McElligott

Dealing with the matter of property transactions, issues evolve as one proceeds. It would not be unusual for the chairman to seek the advice of available board members and members of the executive during the course of property or other issues that arise in the course of the company's activity.

These two members happened to be available.

Mr. McElligott

The Chairman will appreciate that some of our board members live outside the region and are not immediately available.

I understand that. I am trying to establish if these two members were brought to the meeting because they had particular expertise or they were available on the day.

Mr. McElligott

It was a combination of knowledge, expertise and availability.

Were other board members asked to come along?

Mr. McElligott

They were not asked to the meeting of 16 September 2004.

Was Mr. Thompstone present with some of his personnel?

Mr. Thompstone


The appendix states that the chairman was present for the first part of the meeting while two executives attended the second part. Was this two meetings or one meeting?

Mr. Thompstone

My recollection of the meeting is that I was present for the duration. There was a discussion between the chairman, the board members and me, during which the board members expressed a desire to explore a number of the issues with the executive. After a period I asked the two executives concerned to join the meeting. As I had advised them it was likely they would be required, they were available. These members joined at the latter point of the meeting. My recollection is that the chairman left just before the executive members joined.

Was a potential solution proposed in that the sale of the property including the 47 acres would go ahead and the ancillary lands would go on the market via public auction?

Mr. Thompstone

Yes, that was a potential solution discussed at the meeting. The view expressed was to explore if that option would solve the issue at hand. At the time, the proposed purchasers expressed concern about the outcome of the decision not to sell the entire landbank with the building.

On 24 September there was a board meeting but the sale of the property was not on the agenda. It was discussed nonetheless, probably under the heading of "any other business".

Mr. McElligott

It came up as a matter arising going through the minutes of the previous meeting.

Why did it come up again?

Mr. McElligott

The issue was still live in terms of correspondence and interaction between the parties during that September.

What was the decision on the meeting of 24 September 2004?

Mr. Thompstone

The board considered the issues raised and it was updated on the fact that the proposed purchasers, the packaging company, had expressed significant concerns about its ability to deliver the project if it did not have access to the full land bank. It argued that the financing package was secured on the whole land bank, and reducing it would cause a problem. The board decided to proceed with the sale, taking account of the potential impact of the industrial undertaking. It requested that a new red book valuation would be secured on the 69 acres.

Was a valuation done?

Mr. Thompstone

There was a condition that the proposed purchasers would have to accept the outcome of the red book valuation.

Another letter dated 1 October was addressed to the consortium making the new offer. The board met on 29 October, and again there was no agreement. Is it correct that members again expressed concern?

Mr. McElligott

That is correct. If I recall correctly, the offer was made to the prospective purchaser with restrictive covenant on the use of the additional lands.

The consortium then rejected the offer. Is that the sequence?

Mr. McElligott

If I recall correctly, the consortium was in discussion with the company and was not in favour of the restrictive covenant. The issue was deadlined for close of business in December, at which point the consortium accepted the covenants.

Mr. Thompstone

To be factually accurate on the timing, the deadline was in early January.

On 25 February 2005 there was a board meeting where a firm decision was made to sell part of the Gillogue property, the building and its immediate land surround on the open market. Ownership was to be retained of the remaining lands.

Mr. Thompstone

That is correct.

That process is now ongoing.

Mr. Thompstone

To recap, in January of that year there was resistance initially from the proposed purchasers to the idea of the restrictive covenant on the lands. Ultimately, on the evening of the closing date for acceptance of the sale, the proposed purchasers decided to sign the contract documentation. The board met in January and decided, having considered all the information available, that it would not be in the best interest of the company to proceed with the sale. The company decided not to proceed.

Subsequent to that, at the February board meeting, the decision was taken — given the interest that had been expressed and the controversy generated around the sale transaction — to expose the property to the open market. In doing so, the decision taken was to expose to the market the building and as much land as needed to build and operate a business successfully. The Chairman is correct in stating that this process is ongoing and coming to a conclusion.

In the meantime a letter has been received from the liquidator looking for an explanation why the decision was taken not to proceed with the sale. It points out that Shannon Development had needlessly prolonged the liquidator's occupation of the premises, incurring all costs and expenses associated therewith. It states the liquidator would reserve his rights in this regard. Has the liquidator looked for money from Shannon Development to pay him compensation?

Mr. McElligott

On what date was that letter sent? We have received many letters from the liquidator.

The letter, which is referred to in the appendix, is dated 26 January 2005.

Mr. Thompstone

The answer to the Chairman's question is no. The liquidator has not looked for any money from Shannon Development in that regard. I will give details of the company's current dealings with the liquidator. The liquidator has agreed terms for the sale of the equipment in the building. Shannon Development has agreed a method statement for the liquidator's exiting of the building and closing of the sale of the equipment to his preferred purchaser. I understand it will take place within 105 days of a date at the end of November 2005. That time period will expire shortly.

Do officials from Shannon Development visit its properties on a regular basis? Is a procedure in place to allow sites which are not used to be visited once, twice or four times a year? Are such sites visited at all?

Mr. Thompstone

Such visits are facilitated through Shannon Development's property department and its regional offices. As the Chairman is aware, Shannon Development has offices throughout the region. Some other methods are also used. Caretakers are employed to keep an eye on sites in more remote locations, in particular, and to report back on any issues which might arise.

Is there a significant system of oversight of Shannon Development's property portfolio at management level? Are people in management positions involved in any physical supervision of the property portfolio on a regular basis?

Mr. Thompstone

Yes. One of the outcomes of Shannon Development's recent cost management and change management programme is that it no longer employs the same number of people in the clerk of works category as it did previously. Such people would have been involved in supervision and inspection in the past. I accept that Shannon Development needs to address this area.

Mr. McElligott

Shannon Development has employed an extensive management service charge regime to maintain the operational properties in its portfolio.

The Comptroller and Auditor General referred to an aspect of Mr. Dorgan's area of responsibility. He said €4 million of the overall figure of €30.9 million related to a property transaction. Can Mr. Dorgan throw any light on that by filling in some of the details?

Mr. Dorgan

IDA Ireland has disposed of many properties in recent years. It owned 650 buildings at the start of 1998, but that figure has since been reduced to 102 as a consequence of an organised programme of disposing of properties over an extensive period of time. A property was sold to an investment company in 2004 on the basis that a sitting tenant with a long lease was in place. IDA Ireland mistakenly omitted to mention that the tenant had a break clause, which it exercised in early 2005. It is clear the exercise of that break reduced the value to the investing company of the property it had purchased. IDA Ireland was at fault because it had not adverted to the clause when it was disclosing the details of the property and everything attaching to it. The break was mentioned in a side letter which was not associated with the file as it should have been. A mistake was made. IDA Ireland entered into negotiations with the investing company and subsequently reached a settlement with it. IDA Ireland has repurchased the property from the investing company at a cost. It is now in the process of putting the property and another property beside it back on the market. IDA Ireland believes it will achieve full value for the site, although that has yet to come to pass.

Was it originally sold for €4 million?

Mr. Dorgan

No. It was sold for a much larger sum. The provision IDA Ireland made in its accounts against the lesser value to the investing company was €4 million.

What is IDA Ireland's loss to date on foot of the two transactions? I know it hopes to recover that loss.

Mr. Dorgan

It is not possible to state what the loss is to date, because it depends on the outcome of the further sale.

Is it not the case that IDA Ireland bought back the property for more than it had paid for it?

Mr. Dorgan

That is correct. The increased price relates to the loss to the investing company for that period.

Did IDA Ireland have to pay substantially more than the company had paid for it?

Mr. Dorgan

It paid somewhat more for it. I will not give the exact sum, but I can confirm the price increased by between 10% and 20%. The exact figure is not immediately available to me.

Can Mr. Dorgan give the committee that figure by way of correspondence?

Mr. Dorgan


Can Mr. Ryan tell me how many people are employed by Enterprise Ireland?

Mr. Ryan

Some 940 people were employed by Enterprise Ireland in 2004. I think the final figure for 2005 is 931.

How many of the employees will be transferred to Shannon Airport?

Mr. Ryan

It has been designated that 300 posts will be relocated to Shannon Airport.

How many people have volunteered to take up the 300 positions at Shannon Airport?

Mr. Ryan

Nineteen people have volunteered internally. A total of 49 people, including the 19 people in question, have expressed an interest through the central applications facility in being decentralised to Shannon Airport.

Are the rest of the Enterprise Ireland employees reluctant to leave Dublin or to go to Shannon?

Mr. Ryan

The scarcity of volunteers is a reflection of the fact that people will not have to relocate for a few years. People do not like to make decisions that far in advance. There is a human dimension to this matter as well. It is usually the case nowadays that both halves of a couple work. Some of Enterprise Ireland's staff are looking after elderly parents, for example. A number of human issues are taken into account as people make their final decisions

That is understandable. Can Mr. Ryan outline the timetable for Enterprise Ireland's relocation to Shannon? Can he give the committee details of the major deadlines, relating to buildings and offices, etc.?

Mr. Ryan

Following the Government's original decision in December 2003, Enterprise Ireland identified the posts to be transferred, which were advertised on the central applications facility. Enterprise Ireland has developed an implementation plan and worked with Shannon Development on the identification of a site. I wish to express my appreciation to Shannon Development for its co-operation in that regard. Enterprise Ireland has worked with the Office of Public Works to ensure proper value for money in the acquisition of lands. The board of Enterprise Ireland has approved the purchase of a 13-acre site that has been identified and submitted an application to its parent Department, the Department of Enterprise, Trade and Employment, for permission to proceed with the purchase of the site.

Representatives of the OPW, including Mr. Seán Benton, attended a meeting of this committee last week. Mr. Benton indicated that in many locations, the OPW has adopted a policy of putting advance parties of small numbers of people in leased accommodation. Does Enterprise Ireland intend to do that at Shannon, or is it waiting for the permanent move?

Mr. Ryan

We are actively investigating that possibility. The Minister, Deputy Martin, has decided that responsibility for the development of indigenous industry in the Shannon region will revert to Enterprise Ireland. As a result, it is quite likely a number of staff from Shannon Development will transfer to Enterprise Ireland. We look forward to those workers joining us.

Can Mr. Gorman give the equivalent figures for FÁS? Where are the workers in question supposed to be going? How many of them have volunteered to transfer?

Mr. Gorman

The head office, in effect, of FÁS is scheduled to relocate to Birr, County Offaly. It is intended that some 383 staff will go to Birr. Some 11 persons from within FÁS and nine from external agencies have expressed an interest in going to Birr, with 58 persons from within the public sector system generally, giving a total of 78 expressions of interest. The target is 383.

What is the timeframe involved?

Mr. Gorman

The parties concerned are almost at the point of agreeing to the purchase of the site. Construction will certainly take a couple of years. I do not, therefore, have a precise target date for moving.

Will Mr. Dorgan state how many are employed in the IDA? How many staff are located in Ireland, especially in Dublin, and how many are located overseas? Where are they located overseas?

Mr. Dorgan

The IDA has 280 staff, of whom 40 are based overseas. Roughly 25 are to be found in five offices in North America, approximately ten in three offices in Europe and approximately five in the Asia-Pacific region. In Ireland there are 240 staff, of whom 140 are located in Dublin and 100 in offices in the regions, including 45 in our office in Athlone.

Obviously, the agency has to work closely with Mr. Ryan's staff. What structure is in place to formalise the relationship?

Mr. Dorgan

There are structures at various levels. The chief executives of all the agencies involved meet regularly, at the monthly formal Forfás board meetings and otherwise on at least a quarterly basis. There are various other tiers below this level. In many, but not all, areas, both in Ireland and overseas, Enterprise Ireland and the IDA are located together.

Mr. Purcell

We have had a very broad canvas today, involving four Accounting Officers. The site in Gillogue has been haunting more people than most during the years. I believe it was bought by Forfás for £5 million in 1994.

We referred to some of this material before in that an earlier value for money report in 1998 considered the provision and management of industrial property by all of the industrial development agencies. In that report we referred to the need to get a better return from property. At the time the IDA had undertaken a programme of selling excess property. The report found that the agencies involved the IDA, Shannon Development and Údarás na Gaeltachta, were holding onto property for too long, certainly in places where there was no real prospect of industrial development.

Getting back to the Gillogue site, Forfás paid the equivalent of over €6 million for it in 1994 and it was to be sold for €3.3 million ten years later. Intuitively, one feels there is something wrong with this. I do not understand why the market value of the surplus 69 acres involved was in the region of €295,000. It seems extraordinary that it was valued at only a little over €4,000 per acre. Perhaps some property expert can tell me why this is the case. There are certain difficulties with the site but, in the light of current developments, the valuation seems extraordinary. However, it must be said it was carried out in line with the Red Book which is the standard for valuing land set by the Society of Chartered Surveyors. Reference was made to betting. I would like to bet on getting a market value of more than €295,000 for 69 acres. That is just a layman's observation.

Is it agreed to dispose of Vote 34, the IDA Ireland Accounts 2004 and Enterprise Ireland Accounts 2004? Agreed. Is it agreed to note and dispose of value for money report No. 50? Agreed.

Our agenda for Thursday, 23 February is the 2004 annual report of the Comptroller and Auditor General and Appropriation Accounts, Vote 30 — Department of Communications, Marine and Natural Resources, chapter 11.2 — fishery harbour centres, and chapter 11.3 — foreshore leases and licences.

The witnesses withdrew.

The committee adjourned at 2.35 p.m. until11 a.m. on Thursday, 23 February 2006.